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.