Why is investing not seen as the same way as it is gambling?
In: Economics
Gambling is about the distribution of some fixed pool of money. Everybody pays in a certain amount, something unpredictable happens, then everyone collects a certain amount based on the outcome of the unpredictable event. The only value created by that activity is the excitement of maybe winning a lot of money. Nothing is added to the pool. If you won money, it came directly from someone else. Economists call this a “zero sum game” because the winnings and losings must sum to zero.
Investment is about mutually beneficial exchanges of money across time. It typically involves someone who needs a lot of money NOW (often to start a business) and someone else who is saving money to use it for later. The first person pays the second person a fee (interest) in return for borrowing their money. This allows people who aren’t independently wealthy to start businesses, own homes, go to college, etc. and generally contributes positively to the economy. Like in a lot of economic activity (but unlike gambling), both parties are better off for having made the exchange. The game is not zero sum.
Investment CAN involve a lot of risk. It’s never possible to know for sure whether the person you lend money to will actually succeed and/or pay you back. There are ways to behave in investment markets that ARE essentially gambling, and they tend to get hit with the label of “speculation.” On the other hand, there are many investments (government bonds, CDs, etc.) that are pretty close to risk free. (A US treasury bond might not pay out… if the entire federal government collapses, but in that situation you probably have bigger problems anyway).
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