Hoarding

A hoard is defined as "a store of money or valued objects, typically one that is secret or carefully guarded." The verb hoarding means to "save up as for future use." In common usage, anyone who stores more of a good than their neighbors do is often viewed as a "hoarder."

The usefulness of hoarding
Hoarding, like any other human activity, can become obsessive. But in its common form, hoarding is nothing more than preparing for the future by laying aside a store of items people may need. This is an especially valuable practice during economic instability, when necessary supplies can become scarce or suddenly double in price.

There is also another perspective on hoarding: it is an investment. As an example, a low-income family may not be able to afford precious metals, but they can afford to invest in dry or canned consumables. By consistently buying more than they immediately need of bargain items, the family can build a solid pantry to sustain them through unemployment, inflation or scarcity.

Hoarding money
It is impossible to use money without holding a certain amount of it. Everyone is a holder of money to some degree.

The reason why the pejorative term "hoarding" is sometimes used in lieu of the more neutral "holding" is that, in the mind of the commentator, the amounts of money held by this or that person are excessive. The crucial question is of course: by which standard?

Hoarding, or excessive holding of money is supposed to be a great danger paper money will prevent. But how can it cause damage to the economy? Any amount of money can serve for exchange. In the worst case, if a large part of the population became hoarders, they might cause a given currency to be replaced by another. (Note, that there are perfectly reasonable AND moral reasons to hold large amounts of money. Also, hoarding is subjectively defined and the only way to find out whether someone is hoarding is to analyze each case on its own. Acting against hoarding in general can complicate the lives of many.)

What if the government attempts to raise the supply of money to stop the hoarding? More money will push to create higher prices, which may motivate the 'hoarders' to hoard even more.

Holding money
According to some authors, not only hoarding, but holding money in general is unproductive and detrimental to the economy. Some make a softer claim: that an (unanticipated) increase in the demand for money "pushes the economy below its potential".

Holding money is useful. Because it can be employed for the instant satisfaction of the widest range of possible needs, it provides its owner with the best possible protection against uncertainty. In the real world, there is always uncertainty. To the extent a man's perception of uncertainty increases, so will his holdings of money. This is investment into the removal of perceived uncertainty: the person will be better prepared to face an uncertain future.

Even if all or most people would attempt to increase their cash holding, the physical production structure would be unaffected. With people striving to increase the size of their cash holdings, the money prices of goods will be bid down, and the purchasing power per unit money will rise. This results in a higher purchasing power of money and lower prices of goods.

Holding more money can have the very beneficial effect of increasing the degree of financial liquidity in the economic system. The higher is the degree of such financial liquidity, the less is the danger of insolvencies and bankruptcies and the greater is the security against any need for further increases in cash holdings. Therefore, increases in the demand for money for holding are self-limiting.

Links

 * The Virtue of Hoarding by George F. Smith, October 2009
 * The Problem of "Hoarding" by Murray N. Rothbard, from What Has Government Done to Our Money?