Investment

Investment is one of the key activities that takes place in any economy. From investment comes the capacity to innovate and improve, to generate growth, employment opportunities, revenues, the tax base, and so on.

The traditional framework has investment being funded by savings — but the relation between the two is more problematic than that. Firstly, as Schumpeter noted (and which he made into the cornerstone of this theory of development), it is credit creation, not savings, that initially funds investment. But beyond that, the route that savings takes before it makes its way into investment can be a circuitous one, for it goes into the financial market before it finds its way back to the ordinary market. Here, our “two markets” theory of economics, laid out in the accompanying course, proves its mettle. It gives insights into the functionality of the financial market and how it mediates the relationship between savings and investment. Furthermore, it gives grounds for a twofold understanding of investment, as also elucidated in the accompanying course. One, investment that funds productive activity; the other, investment that yields a return to the investor. The two are not necessarily the same.

The following articles provide background to these matters. There are also plans for a course in investment, to be provided at a future date.

Schumpeter on Money and the Financial Market

[From Joseph Schumpeter, Treatise on Money, chapter XII, "The Theory of the Money Process and of the Functions of the Money Market."1] Now we have again to work through the processes sketched in the simplest outline in Chapter V, this time in the forms of the money and credit spheres. All problems of a monetary-theoretical...

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Regimes of Currency

Money is one of those things we take for granted. Not money in the abstract, but money in the concrete: dollars and cents (over in Europe where I live, it’s euros and euro-cents). Money seems to be just there; and in thinking this way, we fall into the trap Ortega y Gasset spoke of, when...

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Coming to Terms with Debt

If American conservatism can come to terms with the meaning of debt, it will represent a nearly unprecedented intellectual triumph.[1] Given the extent of economic misunderstanding among vast swathes of the populace – both professional and lay – this introduction to investment has first dealt with basic economic principles.  This is because such a lack...

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The Roots of the Credit Crisis (in Dutch)

I wrote this in October 2008 as a letter to the editor of the Dutch magazine CV Koers. It is a summary of the roots of the credit crisis, which the magazine blamed on deregulation and greed. This superficial explanation needed correcting. I attributed the crisis to government policy, specifically to the role played by...

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