Does Investing Work If Everyone Does It?

I am a fan of the podcast Planet Money. As the title would suggest, the podcast discusses issues related to money and economics. And sometimes they take listener questions and turn the answers into entire episodes. And at the end of the episodes, they ask for listeners to send in their questions.

A few years ago I sent them an email with a question I had. They did not reply. A little while later I replied to that email just to basically try to get them to see it and respond. They did not ever reply.

But I thought my question was pretty good, so I am posting it here for anyone to read.

My Question About Investing

It is common good advice that to plan for your future and work towards a happy retirement you should save some portion of your income and invest that money. When you invest your money, the plan is that the money works for you, so that even when you are not working, you are still making money.

If the rate of return of your chosen investments is sufficient, and you are able to invest enough, you may even be able to retire early, because the returns from your investments will be greater than the cost of your daily living expenses. In that case, you could "live off the interest".

The interest you receive from your investment is a portion of the profits of some enterprise that you invested in or purchased a share of stock in. You, as the investor, provided capital to the enterprise, and in return you receive a portion of the benefit of the labor of those who work in the enterprise. You no longer provide labor to any enterprise, because you are living off the interest.

So my question is: If everyone saved and invested, and then eventually got to a point where they could "live off the interest", how would that affect the economy?

If everyone lived off of investments, nobody would be working to produce the profits. Would it simply drive up the cost of investments, and the number of finite shares that a person would need to buy in order to achieve the investment income needed to live off of?

Would so much investment money lower the rate of return, making it harder for every investor to reach that point?

If, because of investment income, nobody was willing to work in enterprises, then there would be no growth or profit to share with shareholders, and so nobody would get a return. In response to the lack of labor, and in a desire to be successful and turn a profit, would executive leadership of enterprises raise wages and salaries so high that people would feel foolish for not working, and would, in response, take those jobs?

If that were the case, all the business revenue that may have been profit to divide amongst shareholders would be absorbed by laborers, leading to no profit/investment income. Is it possible for everyone to get the results of the responsible investing which is taught to us as good advice?

If something touted as being good is not possible if everyone does it, but only if a large portion of people do not, is it truly a good thing? Does success in investing depend on many people not participating in it?

Further Thoughts

At the time that I wrote this question, I was genuinely curious. It was not meant as a leading question. It was not meant to presuppose any particular answer. I just wanted to know what the Planet Money folks thought about it.

Since the time I wrote the question, I have done lots of additional reading about investing and Capitalist economies and theories of labor.

I now understand that investing money so that it can grow is not some benign and natural thing. It is a form of structural theft and value extraction. People with money to invest take value from the workers of an enterprise.

There was no value, then workers created value through their labor, and investors stole some (often most) of that value and kept it for themselves.

If you doubt that is what is happening, then imagine investing your money in something that has no workers producing value. Where would returns on that investment come from? If you just set a pile of cash in a storage locker, it would obviously not grow. So the money doesn't grow by itself. What is actually producing growth? Workers through their labor.

The only exception I can think of is speculative trading. If you buy something that exists, hoping that at some point in the future someone will be willing to buy it from you for more than you paid for it, that would be a return not directly produced by workers.

Most of those speculative assets would be things that were at one time produced by workers, but the growth isn't coming from the production of additional units, but from time and scarcity. And something like land, which no worker produced, is often a speculative asset that earns investors returns.

Many problems in our economy and society are caused by speculative trading driving the cost of things up so high that people struggle to afford them. So even though it might not be theft from workers, it isn't a great and virtuous thing to do. And it is not something done by the investor which caused the growth or returns, it is a sheer accident of time and circumstance.

Earning money by creating value through labor is honest and dignified. Making money by buying random stuff and hoping it goes up in value so you can sell it later is far less respectable and dignified.

While the incentive is there for individual people to invest towards their retirement - and you should probably not skip out on investing because of the stuff I've written above, it doesn't mean it is a good thing generally. A thing can be good for an individual and bad for a society. I believe this is true of investing. And we should have a larger-scale societal conversation about the alternatives.

What do you think about all of this? Had you ever thought about how investing really works before? Had you ever thought about the ways it may be harmful? Do you believe I am wrong or missing something here? Please let me know your thoughts in the comments!

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Wayne W Walls