One of the largest sectors of our economy is this thing we call Wall Street or the Stock Market. Most people don’t know a great deal about it, except that that’s where something called “high finance” is and that’s where people go to get rich. What we think happens there is a thing called “investment.”

We are wrong.

Investment is Spending.

From an economic perspective, investment (the kind that drives our economy) is spending money on a needed good or service. If the value of what you get exceeds what you paid for it, that’s a “good investment” or, in layman’s terms, a “good deal” or even a “steal.” (indeed, the difference in value implies a market failure ultimately comparable to fraud.) If the value of what you get is exceeded by what you paid for it, you’ve been “taken for a ride,” or perhaps you’re just “a moron.” It’s a bad investment.

But with the money you paid for the good or service, the person who provides it is able to provide more of it, thus you have invested in his business.

Stocks are Money.

Stocks don’t work like that. Stocks are a kind of loan, used to create (conceptually short-term) capital for business investment. As with virtually any modern loan, the owner of a stock collects a kind of interest called a dividend, and (conceptually at least) stands to recover the whole value of the loan (and in the best case, far more.) Far from investing, he has created a source of virtually free money.

The guy who sold the stock (borrowed the money) hopefully does invest it, buying the goods and services he needs to buy goods and services. If not, the value of the stock will collapse, and its owner will be unable to recover the money he paid for it. Think of the dot com bubble.

But these situations are uncommon enough that the present value of a person’s stocks is included along with his bank balances and other salable assets when computing or estimating his Net Worth. Bill Gates, for example, owns a lot of loans. That’s what makes him rich, thus those loans are money, as much so as the green-tinted picture of George Washington you’ve got in your wallet. (And if you don’t have a dollar bill in your wallet, may His Noodly Appendage preserve you.)

Stockpiling Money is Saving.

Normally when you accumulate wealth, we call it saving. Putting money in a bank, for example, isn’t investing. Economists are only different in that they call an accumulation of money saving in all cases. This is hardly surprising since, for their purposes, buying a stock is really no different than making a deposit at your local credit union. Just as in that case, you collect interest and expect to recover the full value you paid for the stocks. If you don’t, you were “taken for a ride.” Or are just “a moron.”

Top income earners save more.

And here’s where we get to the point where there’s any disagreement between economists or political parties. As it happens, people who make more money on average spend more of it. That’s because having money doesn’t create proportional demand in the economic sense. Human wants may be unlimited, but how many cars do you really need? And thus how many will you really consume? After my fifth car, I’d start to be a lot less interested in them, and it turns out that humans generally agree with me.

Low income earners spend huge portions of their income — sometimes several times their take-home pay — chiefly because the basic expenses of life cannot be dispensed with. You can’t live without food, you need a place to live, etc. etc. etc. Through loans, the young (more than the genuinely poor) are able to get what they need in exchange for the promise that they will pay it back at some later date.

Give a bum a fiver, and he’ll spend it.

Now, think of all the affluent people you know or have heard of. How many have a bank account? A 401K? Mutal funds or CDs? Thousands or millions or billions of dollars in the stock market?

How many of them spend as large a part of their take-home pay on cheddar cheese (for example) as you do?

People with more money save more of it. This much is obvious if you think about it, but apparently the first guy to really think about it was John Maynard Keynes, whose Consumption Function underlies the modern economic understanding of the Great Depression.

Saving is (sometimes) bad.

A certain amount of saving is good. Savings allow people to buy what they need even when they can’t afford it without going into debt, and on a macroeconomic level can help to smooth out the rough spots in the Business Cycle.

But there’s a trade-off. Money that’s saved isn’t being invested immediately, and so the demand backing the market’s supply is reduced. That in turn limits the overall supply in a market and the really bad news is that people are less eager to spend (tend to save rather than investing) when money is tight.

And what all that means is that a temporary fluctuation can send an economy into a virtually uncontrollable tailspin, like the Great Depression.

Welfare is (mostly) good.

And what that means in turn is that giving or returning money to the people who still have it is the least effective way of actively stimulating an economy. Far more effective than any tax cut ever is the simple concept of Unemployment Insurance. When workers are out of work, the government gives them money to keep them going (investing) until they can find work. This, along with other welfare policies, provides an automatic stimulus effect that helps to stop something like the Great Depression from happening again.

So safety nets for citizens are also a safety net for the economy.

Stock trading is fraud.

One does not get rich, in this economy or any other, through hard work. After all, humans are (no matter what you may have been told) largely interchangeable. There are occasional differences in the market value of people’s labor, but those differences are in fact relatively minor and often temporary. The exceptions are people with rare characteristics that give them a uniquely valuable talent. I like to refer to these (such as champion athletes) as “circus freaks.” But even these don’t get into the real top registers of practical wealth by work alone.

The only way, in any economy, to get truly rich is by taking money from the people around you through unequal exchanges of value. There are essentially three ways to create such unequal exchanges: fraud, market distortions, and coercion.

While coercion is a real going concern in the modern world, governments do much to mitigate its use (which is either illegal or should be) by private citizens. Those who do strike it rich through successful use of coercion are generally regarded as (highly successful) criminals. They usually are not billionaires.

Market distortions can make a working man or a businessman rich, and are perhaps the real bread and butter of a businessman’s trade. Nevertheless, they tend to be mercurial, and it’s a rare person who’s reached billionaire status through business acumen alone.

True rich people get rich and stay rich in the stock market, selling their loans to others for more than they’re worth and buying loans from others at less than they’re worth. It should go without saying that nothing of value is created in this process. It merely allows one person who is shrewder or luckier to pick the pocket of his fellows. This is some people’s entire job or career, and yet we do not regard these people as deviants or criminals.

I am at a loss to determine why.