How does investing in the stock market create wealth?
I don’t mean for an individual or even for a public company. I mean quite generally. It seems to me that capitalist theory argues that the creation of a stock exchange is one of the best ways to create wealth in a nation.
How does this work?
For example, if an individual invests $1000 in a company (assume a single company for simplicity) and then liquidates for $2000 in 5 years, the market has given her $1000. The company, overall, has additional capital for use but doesn’t really care that she sold her stocks since other investors have bought the stocks she sold. Therefore, from the company’s point of view, the stock market is a source of capital.
In the end, the initial investor gains wealth from the market, but isn’t this at the expense of the investors who bought her shares? The company gains capital from the IPO, and afterwards perhaps rewards investors with dividends, but does it actually generate wealth?
How does this benefit the economy as a whole?