That only works in the long term if the investments pay off, generating enough returns to then create a new generation of entrepreneurs and investors who simulate the economy further. If they don’t, that money kind of vanishes - it pays for salaries partially but those aren’t generally enough to stimulate meaningful amounts of angel investors. It also buys capex equipment that depreciates in value (and presents a fixed value amount of sales for the manufacturers of said equipment, not reliably repeating sales over a long time period ).
> That only works in the long term
Eh... No?
The money flows on pretty quickly, unless they keep it as cash under their mattress.
Are you confusing it with any possible effects or work performed?
> generating enough returns
Ah I see the confusion.
No, they don't have to wait for "returns". We are talking about THAT money, the exact investor money they got. Which they will spend again. Even if they just keep it at the bank, it will be available to that bank to do something with.
The fate of that business does not matter, all that matters is that the investor money they took is going to continue to flow, outwards from them to whomever the company pays with that money. And so does everybody else.
The flow only stops when the money is lying around somewhere, and since that's the bank then at least the bank can do something with it. The flows truly stop when the whole economy is going down, when everybody cuts back on spending, and investments dry up too, so that the money is truly just lying around and nobody wants it.
You're reasoning would seem to imply that because the initial investment cash always ends up circulating, no value is ever destroyed. But that's obviously not how things work because value can be destroyed. Specifically, the way it works is that for example $1B is used to buy a part of the company A. $1B is then put to use and starts circulating (but also not entirely - it does indeed just largely sit in a bank account because it's hard to spend $1B that quickly).
Let's say this investment then raises the market cap of the company that was invested in by $5-10B. Loans are then taken out against that $5-10B of increased market cap. If the growth never materializes, then the investment ends up underwater and there's secondary effects that make the loan worth less than what was given; this is what the credit worthiness is supposed to measure, but with hyperinflated values and lots of money as collateral these loans are given great rates. Basically what ends up happening is extra virtual currency starts circulating mirroring the increased market cap due to that initial $1B investment. But if the return on investment doesn't materialize, this $5-10B of currency just vanishes into thin air and dwarfs the original $1B investment. Additionally, there's leveraged secondary and tertiary bets that get taken out that further magnify this circulating currency and magnifies the loss if things don't work out.
This is precisely what happened in the dot com and banking crises bubbles. These things have secondary parasitic effects that are ballooned through leveraged investments into affecting the broader worldwide economy and crossing industries and whatnot.
> You're reasoning would seem to imply
Let's stop right there.
First, this already shows You are responding to something in your mind, not mine. What I wrote is plain to see. Second, the rest of that sentence confirms that fear. You are not arguing with me and what I wrote, but with some ghost in your own head.
> seem to imply that because the initial investment cash always ends up circulating, no value is ever destroyed
I did not say that * at all*. And whatever you yourself interpret into plain statements is... yourself speaking.