They do, they just spend it on buying things like factories, companies and real estate. This is usually called investing and will also get money back into the system since the things you buy when investing were built by workers as well.
Mortgages have a low interest rate in comparison to regular credit, so money that is not put on the mort and into the business economy is an exponential gain.
If the final goal were to reduce prices, you just need to pass a law that all housing is worth 1$ for an unprecedented successful policy.
It is always interesting to me how in Real Estate, people are intelectually sensitive to price increases: as if price increments were a sign of things going awry. More often than not its the opposite: job creation in a city raises rents which is a net good (i.e. SF and Seattle). Or people moving out of their parents home earlier.
It is senseless to look at the price of one thing and focus on that as a measure of well-being. After all, a man in the 20's would look at our salaries and say we are all filthy rich.
One of those things is not like the others. Inflating the value of real estate is one of the ways "people with lots of money" use to 1. tax wealth creation, and 2. devalue the wealth of "people without lots of money".
However there are risks with too much wealth tied up in too small a demographic group. It reduces the diversity among those investing, thus reducing the diversity of investments. This could distort economic development and leave productive opportunities unexplored. It could also lead to political capture by this monied elite.
In the limit that means they end up controlling all the things.
You would somehow need "little people" wealth growth (in aggregate) to outstrip "rich people" wealth growth for this not to happen, but it can't because the little people have to spend non-negligible fractions (or all of) their income to stay afloat. Basically, the rich win by not actually spending (proportionally) much money.
Thinking of it in exponentials, assuming you invest everything you don't consume, normal people have a drag on their exponential coefficient which is their cost of living. They also tend to invest less efficiently in aggregate due to not having wealth managers and specialised tax consultants and so on.
In an investment race, highest exponent wins. There is a confounding factor of population growth though.
What the economy needs is for massive wealth accrual to be met with equally massive backpressure. Allowing for much higher taxes at the very high end of income/investment returns acts as a kind of non-Newtonian fluid in the flow of wealth, keeping it all from going away from those who haven't even had the opportunity to get some yet.
What a catholic idea, that people should commiserate and suffer for the better of others.
Thankfully human kind is resourceful and since time immemorial will always weasel out of situations they dont agree with.
To the very least it would reduce wages and increase stock granting, which making them more obscure it has other negative effects.
Where difference investment options shine is, as you mention, being able to skirt taxes, or have access to information, or state regulation.
In the tech sector, the requirement of being an accredited investor to be able to invest in startups has the following effects: increases investment returns for investors. Reduce amount of founders and their payoff and lowers wages because they cant trade their stock freely, showing captivity.
On taxes: it is dreamed that better tax policy might nake the rich pay what they owe. But that mindset is what got us here. Id say lower the taxes on the common, and that might not solve it, but would vastly reduce the exponentiality.
On information: in this I part with milton and say that all income of any kind should be public. Society will take a hit on privacy, but this information is too valuable to hide. Knowing that everyone woyld not need to speculate on how the rich make money, and given freedom might even compete with them in the same assets.
Game is rigged, unfortunately, by the people that think they are fixing it.
Incidentally, secondhand markets work the same way. When you have no possibility for a secondhand market you get a race to the bottom in value. Need evidence? See software markets, compare physical video game sales vs. mobile app store video game sales. The alternative we got? Consumable nothing. People convinced to spend money on literally nothing. Paying for the privilege to flip bits on a flash drive. Easily one of the worst markets to ever exist.
So yeah, stock sales are good for the initial investment needs.
That is wrong. The value would be the NPV of all future income from those stocks. Being able to sell them easily increases the value a bit because of the increased flexibility, but the major source of the value of an investment is the stream of future income.
As an example, Warren Buffet has no intention of ever selling his stake in Coca-Cola, yet he is getting more than his original investment in dividends each year. Are you going to argue that his investment would be worthless if he weren't able to share his shares (which wouldn't change anything for him, because he never intends to sell them)?