From: N
Sent: Wednesday, May 24, 2017 12:34 AM
To: Walter Block
Subject: Investing and Capital Allocation
Being a discerning investor when it comes to IPOs obviously helps the economy by enabling businesses which meet the needs and wants of consumers to gain the capital resources they need in appropriate quantities reflected by the price they get in the market for their stock. However, after a stock or bond is issued there is money to be made as an investor buy either buying underpriced assets or shorting overpriced ones. How does this activity benefit the greater economy or is it just one investor fighting for profits with another, using up resources in the process?

Dear N: Prices are to the economy as are street signs to the urban geography. Imagine that both were removed from the entire world one evening, when everyone was asleep. Millions of people would die, a few from the lack of street signs, most from the lack of prices. The latter (well, the former too) would have to be rediscovered, and, during this process, chaos would ensue. How does buying, selling, shorting, lending, borrowing, all market transactions, help us all? It moves prices, interest rates, closer to where they “should” be, based upon human desires, resource reality, information, etc. In the book “Bonfire of the Vanities” a broker was unable to tell his child the benefits of his job. They are mentioned above. Prices, accurate prices, are the difference between life and death. They enable us to rationally plan; they give us vital information. Brokers do their bit to ensure their accuracy.

The Best of Walter E. Block