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Ask Dave

When Is The Money Lost?

Ever wonder what happens to money when the stock market goes down?

QUESTION: Danny wonders what happens to the money when the stock market goes down. Is it lost?

ANSWER: There’s no actual money that disappears. What happens to the money when your car goes down? If you buy a $25,000 car and it drops to $15,000, there is no money. The car went down. There is no actual money. If you buy General Motors stock at $50 and it drops to $40, that $10 didn’t go anywhere. It’s just lost in market value, which is what someone else will pay you for it.

We don’t operate with a fixed pie in our economy. If money leaves one place, it doesn’t necessarily go to another place. There’s a faulty premise that we have, when talking about spreading the wealth around, that for you to get more, that means I have to get less. Rabbi Daniel Lapin talks about the comparison of cake versus candles. If you slice a cake and give yourself more of it, then there’s less for me. But money isn’t like a cake; it’s like candles.

If I light a candle and then use it to light other candles, the other candles are not diminished. There is just more light. If you believe that money is like cake, then you believe in communism and socialism. If you believe money is candles, you become a capitalist. With capitalism, just because I win doesn’t mean you lose. It could mean I get to win with you. When that happens, you don’t fear competition or the stock market as much.