After reading “Economics in one Lesson” which i really enjoyed, I have a questionson the portion about savings.
It starts off with the case of two brothers one a lavish spender and one whom spends his money more wisely, which is imo a great opening story which I agree with; that the thifty brother who is saving and investing his money actually helps the economy more than the consuming brother. But then I get to a problem when he starts to talk about money hoarding.
He says, “Mere Hoarding of hand-to-hand money, if it takes place irrationaly, causelessly, and on a large scale, is in most econonomc situations harmful.”
He goes on to say that hoarding is a consequence of recessions not a factor of them, we are still on the same page here but where I have problems is when he says. “It is true refusal to buy may intensify and prolong a depression.” Which he states is only done when government intervenes in buisness and therefore creating uncertainy. But my question is, if hoarding is bad in large numbers is he suggesting that a free market would create no recessions? And furthermore how does one find an equillbrium between savings and consuming.
When I asked keynesians they said savings is bad, but they could not clearly answer what Joe the plumber should do to save for a rainy say i.e. a loss of his job. They said it hurst aggregate demand thus worsening the economy which I felt didnt answer the question so I can hope someone can better answer it.
I think that savings is not meant in a jar under your bed…
I would need the help of others to define accessible vehicles of saving that allow for instant access…
When you take money and put it under your mattress, you are hoarding, removing it from the market in total, when you are saving it, it still has market access…
often /hoarding/saving is the only way to buy big ticket items.
im ‘saving up for a new car’', oh my god he is hoarding he should by shoes today and a jacket tomorrow and so on, because we need his money spent now, and not later !!! (irony)
hoarding is not ‘bad’, if the person doing it is doing it uncoerced, even if it does not help anyone else, praxeology tells us the person thinks it helps them which is good enough for me.
First of all, if the purpose of the market economy is to satisfy the individual consumer, and if hoarding money satisfies an individual, then I don’t see how one can say that it is harmful. It is completely to misunderstand the function of the economy.
Second, hoarding does not take anything from anybody. It simply takes one’s earned money out of circulation, which increases the purchasing power of the money unit. The criticism that the money can be put to a more “productive” use is in my opinion, a violation of the Subjective Theory of Value. “Productive” is what ever the individual consumer values according to his own subjective value scale. Who is to say what is more or less productive.
Third, take it to the extreme situation of an individual who earns income, stacks all of his earned income under his mattress, and has no intention to ever spend it. Is he harmful to the economy? It seems to me that quite the contrary, you have on your hand a productive worker at 0 (or minimum) cost to society. He produces, but never consumes any of it, leaving it to others as a FREE gift.
Kynesians, of course, cannot comprehend this stuff since they scream in horror just by you mentioning “deflation”.
Perhaps Hazlitt talks about how hoarding can affect the recovery phase of a recession, by adding more distortion (since the hoarding is induced by the recession) that will prolong the time it takes the production structure to fully recover.