Return to Investment
If a man does not consume his goods at once, but saves them for the future, whether he wants to enlarge his production or to live on his savings (which he holds in the form of money)—in either case, he is counting on the fact that he will be able to exchange his money for the things he needs, when and as he needs them. This means that he is relying on a continuous process of production—which requires an uninterrupted flow of goods saved to fuel further and further production. This flow is “investment capital,” the stock seed of industry. When a rich man lends money to others, what he lends to them is the goods which he has not consumed.
This is the meaning of the concept “investment.” If you have wondered how one can start producing, when nature requires time paid in advance, this is the beneficent process that enables men to do it: a successful man lends his goods to a promising beginner (or to any reputable producer)—in exchange for the payment of interest. The payment is for the risk he is taking: nature does not guarantee man’s success, neither on a farm nor in a factory. If the venture fails, it means that the goods have been consumed without a productive return, so the investor loses his money; if the venture succeeds, the producer pays the interest out of the new goods, the profits, which the investment enabled him to make.
Observe, and bear in mind above all else, that this process applies only to financing the needs of production, not of consumption—and that its success rests on the investor’s judgment of men’s productive ability, not on his compassion for their feelings, hopes or dreams.