You raise fair points about the spending of money on physical assets/consumption. Can you elaborate similarly on the potential problems with how saved/invested money is allocated?
On the other hand, when you invest in a stock, you're providing liquidity to whoever held it last. That doesn't directly provide money to a company. But it has an important function: people only buy stocks when they are confident they can later sell it. If there were no buyers for stocks in the secondary market, nobody would participate in IPOs.
As far as which is better for the economy, this is beyond my knowledge. However, any normal person with any financial savvy knows that market returns are much better than deposit returns, so most of the time when such people say "save" they mean "invest in the market."
And, if I understand the arguments, that's confirmed by Piketty's r (return on capital) > g (economic growth rate). My concern is that more money is getting tied up in chasing financial assets than in the real economy (houses, hamburgers, cows, etc.) If you have financial assets, that's good. If you don't, that's bad. Most people don't have financial assets. Sooner or later something's going to correct that trend. It'd be better to find a non-violent solution.
That's not actually true, banks effectively create money when making a loan, and the only constraints on this are the interest rate set by the central bank, which affects both demand for credit and the cost of providing it, and liquidity requirements set by legislation.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...