one way to clarify things is just by comparison with an easier case. suppose a person is paid, and exchanges the funds for bank deposits, issued from thin air. the bank in turn holds reserves issued by the Fed. 1/

it’s pretty clear in that case that in constitutes investment in the sense of deferred consumption, but not in the sense of provoking real risk investment in the economy. 2/

you can tell very indirect stories, the bank has a bigger balance sheet, perhaps at some margin becomes more likely to extend risk credit as it clears regulatory thresholds with greater padding. but it’s a pretty attenuated mechanism! 3/

now a person takes the same cash income and buys a share of index fund. it’s deferred consumption for sure! but what effect does it have on real economic activity beyond that? 4/

there are some! but again, the mechanisms are really attenuated. share prices are bid up a smidgen, which indirectly loosens financing constraints on publicly traded firms. 5/

but creditworthy publicly traded firms are generally not “capital rationed” to begin with. they can raise funds as needed for positive NPV projects they identify. so, i’d suggest, this is a pretty weak mechanism, nowhere near the binding constraints on genuinely fruitful economic development. 6/

the case is much closer to the bank-deposit-backed-by-reserves case than an investor who, says purchases stock (same form!) in a private new enterprise, which immediately devotes the proceeds to purchase capital goods for a risky, hopefully valuable, new venture. 7/

sure, the purchase of secondary public equity is somewhere intermediate between the cases. but much closer to the former than the latter, even though under the flows we’ve set up, much much much better remunerated than the former. /fin