The modern financial system encourages savers to plough their money into real assets to produce wealth. It is this wealth that all the social services (health care, education, etc.) rely on for resources. There simply would not be this wealth without the revolution in social technology over the last two hundred years. We need to mobilise the savings of millions of people. We do that by permitting limited liability, by developing well-regulated primary and secondary markets, by having strong property rights defendable in the courts, and by having financial institutions that assist firms or investors to find one another, to form contracts, to provide specialist knowledge and to monitor the progress of companies. In this way the financial system is the vital lubricant of the economy. Investors, even though they act in their own self-interest – they want to become rich – in doing so bring about the creation of vast quantities of real assets, leading to greater social well-being.
This is not an original thought. Even before the formal creation of the Stock Exchange, Adam Smith in 1776 pointed out the value to society of individuals acting for profit.
The businessman by directing … industry in such a manner as its produce may be of the greatest value, intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
(The Wealth of Nations, 1776)
So, be proud to be a capitalist. Your saving results in wealth creation. Hold the banner high: I invest to make myself rich, but I also allocate resources to firms that I think can use them best to produce goods and services people need and/or want. In a world without equity and bond investors looking purely for profit the railways would not have been built, the drugs industry would be a lot smaller and Silicon Valley would still be producing fruit.
Adapted from the book: The Financial Times Guide to Investing
Prof. Glen Arnold
I'm a full-time investor running my portfolio from peaceful Leicestershire countryside. I also happen to be UK´s best selling investment book author and a Financial Times Best selling author.
Originally, I wrote all my ideas out in full on this website. Now that ADVFN publish them they are entitled to display the full version for six months – you can see them here. Thus can I only post the first few paragraphs here for anything younger than six months.
I write 2 to 3 newsletters per week - investing is about making the right decisions, not many decisions.