Basic Economics: A Citizen's Guide to the Economy

By Thomas Sowell | Go to book overview
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Chapter 12
Investment and Speculation

A tourist in New York's Greenwich Village decided to have his portrait sketched by a sidewalk artist. He received a very fine sketch, for which he was charged $100.

"That's expensive," he said to the artist, "but I'll pay it, because it is a great sketch. But, really, it took you only five minutes."

"Twenty years and five minutes," the artist said.

Artistic talent is only one of many things which are accumulated over time for use later on. If the earlier sacrifices and risks are ignored, the reward for what was done within the present time period may often seen exorbitant. Oil wells can repay their costs many times over -- but they must also cover the costs of all the dry holes that were drilled in the ground while searching in vain for petroleum deposits before finally striking a gusher.

Add to this the cost of keeping people alive while waiting for their artistic talent to develop, their oil exploration to finally pay off, or their academic credits to finally add up to enough to earn their degree, and there may be a considerable investment to be repaid. The repaying of the investment is not a matter of morality, but of economics. If the return on the investment is not enough to make it worthwhile, fewer people will make that particular investment in the future, and consumers will therefore be denied the use of the goods and services that would otherwise have been produced. No one is under any obligation to make all investments pay off, but how many need to pay off, and to what extent,

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