A Question on Austrian Saving

Economics Economics Questions
21

What on earth is being “consumed” when someone puts cash under their mattress? I know you suggested above that the money itself is being consumed, but I simply cannot agree on this point. The utility of money is precisely its exchange value and until such a time as the money is spent, it is not consumed. Money is not consumed by keeping it in one’s wallet any more than ice cream is consumed by keeping it in the freezer.

See my post above for an explanation as to how hoarding results in additional savings being available in the economy (which make themselves available to others through a lowering of the general price level)…

In order to hoard one first has to produce something and then to abstain from any equivallent consumption. This is the very essence of the Austrian definition of savings - deferred consumption. Because the hoarder does not give any money to anyone else in no way detracts from the fact that he has added real savings to the economy - which will find their way into the hands of other market participants in one way or another (in the short term at least - perhaps in the long term they’ll find their way back into the hands of the hoarder… but the same could be said of money invested in stocks or bonds by investors, when those investors close their positions).

The main difference between hoarding and investing is that in the later case the recipients of the savings are easier to see and can be much more clearly identified.

22

Well, I believe there has been some contention within the Austrian school as to whether this is the case or not, I believe you’re siding with Hayek and Wicksell. I think you’re not correctly understanding the subjective element of consumption. Let me ask you this, if I have a car and nowhere to go, am I saving by not driving it around the block countless times? It seems somewhat obvious to me that the answer is no (perhaps you might disagree). All consumption means is that I am using a good to acheive an end I have ranked highly, in the terms of money how can it not be said that I am consuming it due to the fact that my holding it allows me to acheive an end I desire highly, say security. I agree that this sounds a little bit off and I’m not entirely sure that it is correct, but I don’t see any obviously fallacious reasoning.

In the ice cream example, provided you subjectively assess that you will eat the ice cream whenever you are hungry, it cannot be said to be the same good as the ice when you happen to be hungry. So how can it be seen as deferred consumption?

Right, but this doesn’t add additional resources to the economy as savings/ investment does. When an individual saves and consequently invests the money they are taking resources that would have otherwise gone to consumption towards future consumption. On the other hand the drop in prices that occurs when individiual hoard is exactly offset by the increase in cash balances.

But that’s exactly what I’m challenging, the idea that it does count as savings. The interest rate is the price that coordinates savings and investment, in other words, it is the price of future goods relative to present goods. Conversely there exists the ratio between money spent and money in individuals cash balances: the demand for money.

Any other points in your post have been answered above.

23

(I posted this in both threads in case someone isn’t following the other-sorry for “spam”)

I still don’t know what to exactly say as to whether saving is “deposit banking/loan banking” or “loan banking”.

Perhaps an easier way to go about this would be to post some quotes.

Here is a quote from Murray Rothbard’s America’s Great Depression (starting on page 38)

Savings and investment are indissolubly linked. It is impossible
to encourage one and discourage the other. Aside from bank
credit, investments can come from no other source than savings
(and we have seen what happens when investments are financed by
bank credit). Not only consumers save directly, but also consumers
in their capacity as independent businessmen or as owners of corporations.
But can’t savings be “hoarded”? This, however, is an
artificial and misleading way of putting the matter. Consider a
man’s possible allocation of his monetary assets:
He can (1) spend money on consumption; (2) spend on investment;
(3) add to cash balance or subtract from previous cash balance.
This is the sum of his alternatives. The Keynesians assume,
most contrivedly, that he first decides how much to consume or
not, calling this “not-consumption” saving, and then decides how
much to invest and how much to “leak” into hoards. (This, of
course, is neo-Keynesianism rather than pure Keynesian orthodoxy,
which banishes hoarding from the living room, while readmitting
it by the back door.) This is a highly artificial approach and
confirms Sir Dennis Robertson’s charge that the Keynesians are
incapable of “visualizing more than two margins at once.”2 Clearly,
our individual decides at one and the same stroke about allocating
his income in the three different channels. Furthermore, he allocates
between the various categories on the basis of two embracing
utilities: his time preferences decide his allocation between consumption
and investment (between spending on present vs. future
consumption); his utility of money decides how much he will keep in
his cash balance. In order to invest resources in the future, he
must restrict his consumption and save funds. This restricting is his savings, and so saving and investment are always equivalent. The two terms may be used almost interchangeably.

And here are two quotes from Murray Rothbard’s What Has Government Done to Our Money? and The Case for a 100 Percent Gold Dollar (Starting on Page 134-135 and then 162)

In one sense, 100 percent banking is now easier to establish than it was in 1962. In my original essay, I called upon the banks to start issuing debentures of varying maturities, which could be purchased by the public and serve as productive channels for genuine savings which would neither be fraudulent nor inflationary. Instead of depositors each believing that they have a total, say, of $1 billion of deposits, while they are all laying claim to only $100 million of reserves, money would be saved and loaned to a bank for a definite term, the bank then relending these savings at an interest differential, and repaying the loan when it becomes due.

(Page 162)

Another argument holds that the fact that notes and deposits are redeemable on demand is only a kind of accident; that these are merely credit transactions. The depositors or noteholders are simply lending money to the banks, which in turn act as their agents to channel the money to business firms. And why repress productive credit? Mises has shown, however, the crucial difference between a credit transaction and a claim transaction; credit always involves the purchase of a future good by the creditor in exchange for a present good (money). The creditor gives up a present good in exchange for an IOU for a good coming to him in the future. But a claim—and bank notes or deposits are claims to money—does not involve the creditor’s relinquishing any of the present good. On the contrary the noteholder or deposit-holder still retains his money (the present good) because he has a claim to it, a warehouse receipt, which he can redeem at any time he desires.[25] This is the nub of the problem, and this is why fractional-reserve banking creates new money while other credit agencies do not—for warehouse receipts or claims to money function on the market as equivalent to standard money itself.

To those who persist in believing that the bulk of bank deposits are really saved funds voluntarily left with the banks to invest for savers, and are not just kept as monetary cash balances, I would like to lay down this challenge: If what you say is true, why not agree to alter the banking structure to change these deposits to debentures of varying maturities? A shift from uncovered deposits to debentures will of course mean an enormous drop in the supply of money; but if these deposits are simply another form of credit, then the depositors should not object and we 100-percent theorists will be satisfied. The purchase of a debenture will, furthermore, be a genuine saving and investment of existing money, rather than an unsound increase in the money supply.

Now these seem to agree with Giles’ view on saving

Of course perplexingly enough when you look in the Index of the book you find that the word Savings is listed on Page 43. There is no word “savings” on page 43, but instead his talk about Hoarding. Cruel trick or typo? I don’t know.

But then…

In Henry Hazlitt’s Economics in One Lesson (Page 167) he says

The enemies of saving are not through. They begin by drawing a distinction, which is proper enough, between “savings” and “investment.” But then they start to talk as if the two were independent variables and as if it were merely an accident that they should ever equal each other. These writers paint a portentous picture. On the one side are savers automatically, pointlessly, stupidly continuing to save; on the other side are limited “investment opportunities” that cannot absorb this saving. The result, alas, is stagnation. The only solution, they declare, is for the government to expropriate these stupid and harmful savings and to invent its own projects, even if these are only useless ditches or pyramids, to use up the money and provide employment.

There is so much that is false in this picture and “solution” that we can here point only to some of the main fallacies. Savings can exceed investment only by the amounts that are actually hoarded in cash.’[*] Few people nowadays, in a modern industrial community, hoard coins and bills in stockings or under mattresses. To the small extent that this may occur, it has already been reflected in the production plans of business and in the price level. It is not ordinarily even cumulative: dishoarding, as eccentric recluses die and their hoards are discovered and dissipated, probably offsets new hoarding. In fact, the whole amount involved is probably insignificant in its effect on business activity.

* Many of the differences between economists in the diverse views now expressed on this subject are merely the result of differences in definition. Savings and investment may be so defined as to be identical, and therefore necessarily equal. Here I am choosing to define savings in terms of money and investment in terms of goods. This corresponds roughly with the common use of the words, which is, however, not consistent.

Of course the confusion continues… In Robert Murphy’s Human Action Study Guide (page 178) he says

Before lengthening the period of production, a person must first engage in saving, i.e; consuming less than what is possible. An obvious example is the stockpiling of consumer goods for the workers who will be devoted to a project (such as construction of a bridge) that will not yield direct benefits for several years

Now I’M REALLY confused lol.

Perhaps a Mises staff or Austrian Professor could sort this out.

(Sorry for the length)

24

you save the icecream in your fridge, investing it,

over time, it is transformed from an inferior product, icrecream-when-you-are-not-hungry-and-not-in-the-mood-for-icecream,

and eventually

your investment pays off and it becomes icecream-when-you-are-in-the-mood-to-enjoy-icecream, you then consume it.

so in that interval of time when its in your fridge, it is better to describe it as savings, than to use an indefinite and unscientific term, such as ‘hoarding’

25

So your argument hinges on the fact that the term in question is unscientific? Well, fine, let’s use “increasing ones cash balance” as I suggested to Juan. You’re begging the question since you begin your post by saying “you save the ice cream in your fridge”, well that’s what we’re trying to establish. If you say that he is saving the ice cream then yes obviously he is saving it. On the other hand, if he has it in the fridge (or the freezer, as it were) for any time he wishes to eat it when it gives him most pleasure, it is consumption, it is satisfying his desire to have ice cream in the fridge, not his future desire to eat ice cream.

Let me put it another way, if individuals cash balances do constitute savings why don’t they loan them and earn interest? Unless, they want immediate availability of the cash, in which case it isn’t savings.

26

your argument amounts that all investment/savings is consumption.

if he has a gold bar, in the locked safe (fridge) for any time he wants to spend it(eat), when it suits his ends, it is consumption, it is satisfying his desire to have money in the safe, not his future desire to spend money.

but why does he want it in the safe, so he can spend it in the future perhaps?

27

If that’s so I’m more than willing to amend my views, I’m just going to require more than an assertion to believe that this is the case.

If that’s so then it is savings. If he merely wants it in a safe for protection then it is consumption, where’s the issue?

28

we accept the possibility that he may simply like some material part of the universe to be in some particular arrangement, as you say we can call that consumption. you say that he merely wants it in a safe, why then add ‘protection’, ? regardless, this is quite the aside!

i think the issue is that you said that scenario B was not savings, though the agent in B does not specify whether he wants to have money put away for future spending, or whether he just has a fetish for squirelling money into corners for its own sake.

perhaps i assumed too much, thinking that him putting away 10$ into a deposit bank (making a bailment), is because he imagines that in the future, he might rely on the purchasing power of the accumulated funds (savings!) and consume goods later. but if he is doing it out of instinct so its not a rational action at all, or if he is doing it merely for the pleasure of seeing the numbers on his bank balance rise, then you may have stated the correct position.

29

I’m beginning to suspect that our argument is largely semantic. You have started with, as the definition for savings, any surplus production which is put towards the purpose of investment (and thus increased future consumption) whereas I have started, as the definition for savings, any surplus production more generally… In your mind then, the only thing that can constitute savings is stuff that is used to increase future production (i.e. you equate savings with investment) whereas in my mind there are three different things you can do with savings: consume them, invest them or keep them on hand (typically in the form of cash balances).

None the less, I still take issue with the statement that I quote above, that the hoarder does not add any additional resources to the economy. Take the example given by the OP of the McDonalds worker. This worker MUST produce hamburgers and MUST add hamburgers to the economy BEFORE he is in a position to put cash in his wallet or under his mattress or whatever. My assertion is that these hamburgers are the real savings that should be considered - the money (John’s $10) is completely surpurfluous from an economic point of view - the only reason the $10 even exists is to facilitate trade through indirect exchange… ultimately what each of the actors in the economy (using that $10, along with many other dollars) are interested in consuming is real goods that satisfy needs directly.

Yes, money could be said to be serving various needs indirectly, by sitting in someone’s wallet, and thus since consumption is the satisfaction of needs then money could be said to be “consumed” by the act of leaving it in one’s wallet… but that does not in any way negate the real hamburger savings of McDonalds workers. The only thing that McDonalrds workers do not add to the economy, in hoarding, is dollar notes… and thus the only goods that they prevent other actors in the econmy from consuming are dollar notes (they prevent other actors in the economy from using these same dollar notes to add to their cash balances and get their own “woah I feel secure” vibe going on). And so they have not “defered consumption” of dollar notes, but they have “defered consumption” of hamburgers (the real savings concerned)… so there is still very real savings of the real goods concerned (hamburgers in this example, but it could equally be wood, steel, accounting services etc.).

If you would deny this then how exactly are you defining savings? What is the difference between savings and investment in your view? It seems to me that you don’t think there is any place for the concept of savings as distinguishable from investment and that you would dispense with the concept of savings entirely. In your view, the economy can be discussed without any reference to savings whatsoever - all we need discuss is consumption and investment - there can be no other form of activity… is this what you’re saying? If not then, once again, what distinguishes savings from investment in your mind?

I would hold that in addition to consumption and investment there is a third activity, which is the act of accumulating resources and keeping them aside against future uncertainties. We could hoard keggs of beer, wood piles, flour and other physical resources in our back yards but most people opt to keep these “emergency” stockpiles in more liquid forms that allow them to insure against a greater variety of uncertainties. Keynes would refer to this as hoarding - I would group hoarding and investment under the umbrella of savings since, to me, savings is deferred consumption (regardless of what happens to the surplus goods that result from such deferred consumption).

It seems to me that if you would disagree with this then you’ve left no word to describe that thing that I’m talking about (which encompasses both hoarding and investment) - the general phenomenon of simultaneously producing without consuming and, thus, contributing an excess of goods and services to the economy, quite irrespective of whether the money received for the act of production are invested (and thus given directly to another actor in the economy) or whether these are instead stashed under the mattress (resulting in the indirect transfer of these savings to other actors in the economy through a general lowering of the price level). What word do you think we should use for this? It seems like you have “investment” to describe everything you intend to mean by savings and hoarding to describe the other specific form of deferred consumption… so the word “savings” is just sitting there idle, waiting for a good home.

30

Okay, thanks for all of the replies guys. To ease my own confusion (lol), IN SUMMATION: the Austrian view of saving is deferred consumption right?

So, (going back to the original question), if John works at McDonalds and earns 50 dollars, and spends 40 dollars on food, but then refrains from using the 10 dollars and puts 5 in a McDonalds stock and 5 in his deposit warehouse/hoard/cash balance (he is not planning on buying anything now but just putting it there for the occasion he can buy something he likes), both of those are saving correct? Going off of this, does that mean that all of the goods that I have in my house (such as food, change, medicine, etc) that I bought but are not using right now means I am saving those items right?

I understand how the 5 dollars of McDonald’s stock helps the economy. It gives them money and resources to invest and grow their company, and represents actual savings because it is relinquished. I am confused as to how the 5 dollars I put in my deposit warehouse/hoard/cash balance helps the economy in the same way as the 5 dollars put into McDonald’s stock helps it. I have “saved”, but in essence I have not relinquished any resources. The 5 dollars is still there waiting for me. This is why I’m confused between the Rothbard quotes and such where he says money put in a deposit bank really isn’t “savings” (see quotes above, it would help me greatly if someone could explain this).

And if putting the 5 dollars in my deposit warehouse/cash balance/hoard equates to saving, then why does Rothbard and others always say saving and investment are equal? (“This is restricting his savings, so saving and investment are always equivalent”). Going off B) and C) being saving, this statement is impossible. Everyone will always have cash balances, so they will never be equal. Ever.

Am I missing something? I would be extremely gratefully to someone who can answer my questions.

Thanks as usual.

31

I think you’re generally correct here in the semantic differences, however I would still draw a line between investment and savings, in that investment is what saved funds are generally put towards. I hope you can understand that, my point is merely that I don’t think “hoarding” can be considered savings since it is not directed towards the future.

Of course, I didn’t say otherwise, my point was rather that the hoarder qua hoarder does not do so.

32

So now I’m confused. In your first sentence you say that you draw a line between investment and savings in as much as investment is what savings are generally used for… implying that you see some difference between the two concepts of savings and investment and that savings can be used for things other than investing. And yet in your second sentence you deny that hoarding can be savings because it is not directed towards “the future”.

If by “the future” you mean future production then we come full circle to this being an entirely semantic debate (you deny hoarding is savings because you define savings as investment). If you don’t mean future production but instead mean future consumption, then I’d say that this is precisely what the hoarder is keeping his money aside for - and so hoarding is “directed towards the future” to use your words… it is directed towards future consumption (that, at least is the intent of the hoarder). I can only conclude that you mean the former then - you deny hoarding is savings because the resources that hoarders hoard are not directed towards future production… which is to say that you define savings as investment and view these two activities as flip sides of the same coin… i.e. you do not draw a line between the two concepts at all.

Even in this case, however, I still hold that this is false. The intentions of the hoarder may be to keep goods aside for his own future consumption and, in as much as those things he is hoarding are real goods (flour, grain, wood etc.) he does precisely this… he delays consumption without increasing present or future production. However if instead of real goods the hoarder keeps cash, as a side effect of his hoarding he unwittingly lowers the general price level… he continues to contribute real resources to the economy (those things he produces in order to obtain the cash he hoards) and he removes monetary units from the economy. The result will be BOTH that other consumers AND that other producers in the economy will be able to purchase goods and services more cheaply than they would have been able to before, drawing on their existing cash balances. The purchasing power (and thus command over the real savings) of the hoarder is thus transfered to anyone in the economy that has cash on hand. A certain portion of the real resources that the hoarder produced in order to be able to hoard will, therefore, find their way into the hands of producers and be used to increase the future productive output of the economy. We cannot know what portion of the real resources that the hoarder contributes to the economy will be directed towards future production and what portion will be directed towards present consumption, nor can we know in what industry the funds will be invested. However it is very unlikely that 100% of the hoarder’s contribution will go towards either consumption or savings.

So I think even if you want to define savings as being equivallent to inevstment (which appears to be your position), you would still have to admit that hoarding is, at least in part, saving.

33

Indeed, it does appear that the line I happen to have drawn between savings as investment and there you are indeed correct, so I wish to say now that I it is the case that I regard the two as synonomous.

Defining savings as future production seems to me to be implausible, so it is aimed at consumption (since all production is aimed at consumption, so future production would itself to aimed at consumption). You are correct in that we have come in a full circle at this point, however I wish to challenge the notion that the “hoarder” is savings, since, the hoarder is increasing his present demand for cash as opposed to his future demand (which would be the definition of savings, in my opinion). For what reason the hoarder is increasing his demand for cash we cannot know, however the point is that it does not imply deferred consumption since the it is his present demand for cash, as opposed to his future demand for cash that is being satisfied. As I said before, if cash in a deposit account is savings (and also hoarding, in your view) then why does he not put it in a CD and gain interest on the money? Unless of course, he wishes it to be available at any time, in which case it is no longer savings, no? My point is that essentially it depends on the subjective views of the agent in question. There are, as you pointed out a number of decisions. That which is logically prior is the decision to consume now or in the future, or in other words to save or to consume and to what extent. Consequently those funds allocated to present consumption can either be held as money or be exchanged for goods. To use the car analogy again, let us assume that the well being of the car is not being taken into acccount. An individual who does not wish to use the car because he does not have anywhere to go cannot be said to be saving. The utility from using the car is simply less than the utility gained from keeping the car in the garage and not using it. Conversely if he did not use the car because of the well being of the car he would be saving.

Analogously, an individual who hoards does so because the utility gained from buying whatever goods he might is less than the utility gained from keeping, or increasing, his cash balance. However, if he did not do so with these intentions, but rather wishes to keep the money for a later date he would indeed be saving.

If you deny this I believe you would have to dedicate yourself to the position that an individual who buys a chocolate bar but does not eat it until he leaves the store would be saving from between the time he bought the bar to the time he left the shop, which seems implausible.

34

Here I don’t think Rothbard is equating savings with investment… he merely says that investment requires savings (he does not say the opposite however, that savings requires investment).

Later in that same quote, Rothbard is in turn quoting Sir Dennis Robertson, who appears to equate savings with investment. If that’s how he wants to define savings then so be it - but personally I think it would be very useful to distinguish the two activities… with saving being the act of consuming less than you produce (the surplus not necessarily being used for investment but potentially split, as Rothbard says, according to one’s personal preferences among three different possible uses: consumption, investment and cash on hand - i.e provision for near to mid term future uncertainties).

I think perhaps in this example the context of Rothbard’s writing needs to be taken into account… here he is taking issue with increases in the money supply as the source of funds for investment. To that end, he is pointing out that cash balances should not be simultaneously available to both the depositor and to be lent out by banks to investors. Rothbard is emphasizing that people putting money in accounts do not necessarily implicitly want to invest when they do so - for otherwise they’d be equally happy to buy debentures etc. and relinquish immediate claims on the cash (and the ability to withdraw it at any time).

So again, I don’t think in this particular quote that Rothbard is saying savings and investment are equal. His goal is more to argue against the use of an expansion in bank credit to change the proportion of people’s surplus production over consumption that will be directed towards investment as opposed to the other two possible uses of savings (consumption and increased cash balances). The use of bank credit to allow banks to lend savings to investors in proportions that differ from consumer preferences is, of course, what the Austrians believe leads to business cycles…

Again, I think while Hazlitt sees savings as a prerequisite for investment, he does not equate the two. He points out that savings can exceed investment (by the amounts that are hoarded in cash). He also points out that in practice, the portion of people’s funds that is “hoarded” is insignificant… which is perhaps why savings and investment seem to track one another so closely and why various authors will use one term interchangably with the other.

And yet again, I think this is consistent with all the previous authors you’ve quoted. Savings are necessary for investment… but the reverse is not true. You cannot have investment without savings. You can, however, have savings without investment.

35

I don’t think you’ve understood my argument. You have not realized that I am separating money from real goods. I have been careful to point out that the hoarder, in all of my examples, saves real goods. If the only thing you take into consideration is the flow of money then you are correct, the hoarder does not contribute any money to the economy… but if you consider the real productive output of the hoarder they always, indeed they must, contribute real resources to the economy whilst simultaneously consuming none.

Thus the hoarder is saving real resources. He is contributing real savings to the economy - although he contributes no nominal/monetary savings. His suprlus real production is necessarily transfered to other actors in the economy and some of those actors, I think it is fair to assume, will almost certainly be producers. It is also fair to assume that other of those actors will be consumers. So the act of hoarding increases BOTH the present consumption of other actors in the economy AND the present investment (and thus future productive output and, eventually, as you point out future consumption).

I think your car analogy is a bit of a wild goose chase since the car does not constitute “surplus production”… it is neither production nor savings - it is merely an idle reasource. I don’t see it’s relevance to our discussion except in as much as you are trying to point out that money can be just as usefule to people sitting in their wallets as when they spend it… and here I agree, one of the possible uses of savings is cash on hand (the most likely motivation for which is insurance against near to mid term future uncertainties).

None the less, as I say, I think this is a wild goose chase - we do not disagree on this point and it is not relevant to our main discussion which concerns whether or not in holding that cash on hand the hoarder is saving or not. On this point, we need to separate out the money from the real resources. If we regard ONLY the money (which seems to be what you are doing) then the hoarder does not transfer anything to anyone else and he is, (in light of the above paragraph) continuing to “consume” the cash by keeping it in his wallet and thus satisfying his need for insurance against near to mid term uncertainties - in this sense, you’re quite correct - he does not “save” the cash… he monopolizes it and prevents other actors in the economy from using it for the same purpose.

However, if you can think beyond merely the cash component of the equation and take into account what happens to the real resources you will see that although the hoarder may not be said to be “saving” cash (since he is, to your mind, consuming it) he is most definitely saving real reasources. So the hoarder IS saving, at the very least, in as much as concerns the real resources.

36

What he is missing is that demand deposits lent out to invetors too, so properly considered savings. People putting their monies in accounts does mean they are supposed to be invested by the banks.

37

Giles, is it fair to say that for you, when you try to judge whether something or other is or isnt savings, you look to see whether it is available to the owner at any time, if it is so available then that tells you its a hoard, and not savings/investment? the reason i ask is that this is an argument you make in the text i am replying to.

38

So I guess the conversation ends on saving meaning defferred consumption. One last question though. It still would be physically impossible for savings to equal investment in that scenario, or as Rothbard says they may be used “almost interchangeably”.

Now only in a fractional reserve banking society will savings and investment be the closest, just because the majority of deposits are pyramided ontop of and loaned out. I don’t know if Austrians would consider this investment, and if they would someone needs to explain this.

And in a full reserve society this won’t be equal, since people will now keep significant sums of money in their actual “hoards”, i.e deposit banks. On a side note, what do you think the average amount of a persons money (% wise) will be put into a deposit bank in 100% reserves. I know it depends on time preference, but average wise?

And finally, even if no one ever had a deposit bank, savings could never be near equal to investment, since cash will always be in someone’s cash balance. If cash was never in someone’s balance and always rotating, they prices would keep going up correct? “In a certain world, no one would be willing to hold cash, so the demand for money in society would fall indefinately, prices would skyrocket without end, and any monetary system would break down.” Rothbard p44 What has government done with our money.

39

My point was merely that the hoarder qua hoarder does not add any real resources, in his role as a worker he may well do but that is a seperate question from whether his saving/ hoarding/ consuming does so. The fact the he hoards merely means that he does not spend his money. In terms of real goods it means that the price of real goods decreases due to less demand and ceteris paribus the other actors in the economy will consume more. Moreover, this does not lead to any lengthening of the structure of production as savings does.

I fail to see how it is a wild goose chase. It merely changes the good in question from money to another good to show how the subjective assessment of the actor in question is what determines the issue of savings as opposed to hoarding.

He does free up real resources that other actors will use, however their use of the goods, if we assume their value scales stay the same, will be in the same ratio of savings and consumption. The structure of production will not be lengthened, as it is in savings. Moreover, I believe to some extent you are shifting the goal posts, what matters is the subjective assessment of the actor, since surely the definition of saving is not that other goods are available to consumers or producers, but that that is a consequence. Which, as the car analogy was meant to demonstrate can either be savings or hoarding, but the two are not synonomous. As concerns real goods, an actor in question can increase both his demand for cash and his demand for goods at the expense of his savings. Therefore it is plausible that the real resources in the economy stay the same with regards to the actions of the actor, even if he does increase the amount of money he hoards.

40

Yes, or more importantly whether the actor desires it to be.