I think the first thing is to ensure that you understand how trade can produce net value increases for all involved parties: http://en.wikipedia.org/wiki/Comparative_advantage. It's not a big jump to see how at least some financial instruments can be wealth-building.

I have to disagree. Money does not create value, work does, and therefore investing money can not create any value on its own. You can of course invest money that is in turn used to enable the creation of value by work, for example by buying machines that are required for the work, but once the investment has been payed back any additional returns on this investment are just taking away a share of the value created by the work which rightfully belongs to the workers doing the work. Money can catalyze the creation of value but it does not create value on its own.

This reminds me of arguments that money must be on the gold standard to have value. Any theory that doesn't explain observed reality is not a theory, and it is definitely observed reality that the concept of value has no strict ties to work.

So if it is not (only) the amount of work that makes up the value of goods or services, what (else) is it? And I am neither interested in the supply and demand situation which may cause the price to deviate from the value, nor in the use value.

The labor theory of value is a mistake with roots in both Adam Smith and Karl Marx. The Austrian school of economics explained and demonstrated how it is utterly wrong, and they have presented a much better theory. Look up (and read) Carl Menger.

George Reisman has developed a brilliant, modern presentation that dismantles the problems with the labor theory of value, and the related exploitation theories. [1]

[1] https://mises.org/library/classical-economics-vs-exploitatio...

I read the essay but only once so far, so I may have missed some things. It doesn't seem to point out any flaw in the theory but rather try to present an alternative. But this alternative I find utterly unconvincing because it is full of errors and holes. I would really like to provide critique to all those points but that would become a piece longer than the essay. If you like I will elaborate on specific points.

> Money does not create value

Picking winners and loser successfully is as valuable as appraising houses. Without people investing, growth will only follow established wealth (you have to save up to start a business or buy a house). We would be moving from a crowd-sourced pricing model to an "expert" (assuming people with disposable wealth are experts) pricing model.

I am not arguing against investing and its usefulness to catalyze the creation of value, I am arguing that investments don't magically create value but only the work they support or enable.

But if I go a step further I would also argue that investments as we know them are not sustainable. There is a risk that an investment fails and therefore interests are chosen such that they yield a profit at least in the long run and this also doubles as incentive to invest in the first place.

I now argue that this setup will run away. Having money to invest now allows to gain more money and then even more money by reinvesting again and again. But because investing is a non-productive activity not creating value the returns must be paid by taking an ever increasing share of the value produced by the workers.

The problem is that the value produced by work at best increases linearly with time (assuming a constant workforce) while the returns from investments increases exponentially. And no matter how close to zero the gains of an investment are, sooner or later it will blow up.

> I am arguing that investments don't magically create value but only the work they support or enable.

Well, that's true in a sense, but discovering new information is valuable. I'm just saying that figuring out which work to support or enable is itself valuable.

I agree, though, that the U.S. undervalues making actual stuff with long term benefits. Ask kids what they want to be when they grow up. How many list jobs in manufacturing, inventing, research, mining, engineering, energy, etc.? Mostly they pick fine careers, but mainly service-heavy careers with low multipliers: teachers, fire fighters, police officers, athletes, entertainers, doctors, etc.

Financial markets are a way to sell and buy information, the arrangement of a productive forces in the economy. Profit is the result of selling information - arranging productive forces - that increased output. Loss results from decrease.

The difference between a human and a ~80kg pile of basic elements is their arrangement. So unless the two are equivalent to you, you can't claim the arrangement has no value.

So no, nobody is losing. On the contrary, individual profit is only a fraction of the added value to the economy, because the counterparty is doing the exact same thing. Every voluntary trade is done in expectation of profit by both sides. When on average that expectation is more right than wrong, economy grows.

That's not true... lol.

Counterexample?

lets say I have $50k saved. I can buy a bar of gold and bury it in my backyard - producing exactly nothing for anybody.

Or I can buy solar panels for the elementary school down the street and have them pay me 90% of their prior electric bill. The elementary school has a lower electric bill every month and I have a steady income stream and no one does any work.

The definition of watt, if I recall correctly, is "work".

Someone - probably the taxpayer - is working and giving a share of what he earns to the school's budget which in turn forwards a share to you.

And by the way, when you buy your bar of gold you pay some guys to dig some gold out of the earth and melt it into a nice bar. However I am not sure how the value and the price of a bar of gold compare.

Bank lends farmer money to buy a tractor, farmer doubles productivity.