“Hoarding” has been on my mind ever since reading this passage in J. M. Keynes’s General Theory:
The habit of overlooking the relation of the rate of interest to hoarding may be a part of the explanation why interest has been usually regarded as the reward of not-spending, whereas in fact it is the reward of not-hoarding.
This ties directly to the central preoccupation of the Ruminathans: Why is it possible to earn money simply by having more than you need in the first place? Keynes’s answer seems to be that the capital return, in its basic implementation as interest on debt, rewards not-hoarding.
But what does Keynes mean by “not-hoarding?” He must have been thinking of something like the following: There are three ways you can allocate your income. The first would be consumption. It is implied in Keynes’s phrase “the reward for not-spending.” “Not-spending” must mean the portion of your income you haven’t spent on consumption, or what economists typically refer to as “savings.” However, by saying that it is not savings that earns the reward of interest, but something else (“not-hoarding”), he must be implying that savings breaks down further into a “hoarding” and a “not-hoarding” component, only the latter of which earns a reward.
The distinction between hoarding and not-hoarding within savings is a starting point in the work of Carmine Gorga, who proposes an alternative to orthodox economics called “Concordian economics.” Gorga denies the “savings = investment” conclusion of standard economic theory. Gorga believes that if you define the two terms properly, the equivalence does not hold. He leans heavily on Keynes, but believes he didn’t survive long enough to fully explore the distinction Keynes himself had made and work its implications into a larger theory.
In Gorga’s view, failing to distinguish between investment and hoarding is a major source of confusion in economic thought, and changes in aggregate behavior – whether people invest or hoard more – is a major source of economic disruption. If I understand Gorga correctly, Keynes got too focused on monetary hoarding, working with the assumption that money is a qualitatively different commodity, and concluding that booms and busts are driven by aggregate hoarding behavior interacting with money’s peculiar properties. By contrast, Gorga identifies the cause of booms and busts at a deeper level, emerging from the phenomenon of hoarding itself, irrespective of whether economic activity is mediated by money.
So what defines the distinction between hoarding and investing according to Gorga? Gorga defines investment as spending on “productive assets” and hoarding as spending on “non-productive assets.” That just pushes the need for a definition to a different level: What does “productive” mean? I haven’t finished Gorga’s book yet, but so far, I haven’t understood how he makes the distinction. It appears, though, that whether an asset is productive or not lies not in the nature of the asset but in how it is being used. Anything might be a productive or a non-productive asset.
I’m trying to wrap my head around this in terms of two examples for now: money and honey, the latter being a consumer good with a long shelf-life. For Gorga, money under the mattress is hoarding, money in a savings account is not. Why? Money under the mattress is not being used by anyone, whereas money at the bank is being lent to others to either consume or to create productive assets (with the bank as an intermediary). If I understand orthodox economics correctly, though, then hoarding of cash leads either to the creation of an asset or to no aggregate hoarding of cash at all. If people, in aggregate, put a portion of their income under the mattress, then some of the goods and services their activities produced (which generated their incomes in the first place) would go unsold, thus becoming inventory. (If hoarding did not cause the accumulation of inventory, or produced inventory that quickly spoiled, then some producer would experience a loss and so dis-savings to the same extent as the cash hoarded, leading to no hoarding in aggregate).
Producers’ inventory, say a honey-producer’s honey, is an asset. Is it a productive asset, though, in Gorga’s sense? Given that producers aren’t in the business of storing inventory but of selling it, the intention is certainly to realize a future benefit as quickly as possible, and so inventory should be considered a productive asset. It looks like cash-under-the-mattress has just as much “financed” the creation of a productive asset as if the hoarder had lent the money to the producer.
So far, we have two scenarios:
- A consumer hoards cash and thereby forces a honey producer to create an unanticipated and unwanted asset, but a productive asset nonetheless
- A consumer lends cash to a producer to create an asset of the producer’s choosing; it may be an inventory of honey or it may be some kind of capital good that improves honey production.
I cannot distinguish these two scenarios in terms of the productivity of the asset. But they clearly differ in terms of power. In the first scenario, the consumer retains the optionality of cash: She can choose to spend it on whatever she wants, whenever she wants. On the flipside, the producer has been frustrated in his endeavors; his hand has been forced. In the second scenario, the consumer transfers optionality to the producer, but voluntarily, and receives interest in consideration for doing so. Nobody’s hand is forced. In other words, there is a categorical difference between these two scenarios, and the difference seems to have, above all, a moral dimension. In scenario 1, one person unilaterally decides to hold onto the power of optionality, at the expense of another’s freedom of choice: This is what I would tentatively like to call hoarding. In scenario 2, one person voluntarily cedes optionality to someone else in return for something (interest). Equally tentatively, I would like to call this investing.
It is this moral distinction between hoarding and investing that I will be exploring more deeply. There are two additional scenarios that I’m stilling chewing on:
- A consumer buys honey that she chooses not to consume but to store in her basement
- A consumer owns a meadow that could house a productive apiary but chooses not to build one
Whether these activities constitute hoarding or investment in my terms, or whether stored honey and unused land constitute productive or non-productive assets in Gorga’s terms, I will explore in a later Ruminathan.
Incidentally, I had forgotten entirely how I came across Gorga, but recently read the passage in Gorga’s book that a Google search had first turned up: a passage in which he off-handedly mentions the “Pet Rock.” I had been searching for “pet rock” and “economics” because the Pet Rock phenomenon is a fascinating episode. But that will have to wait for an even later Ruminathan.
The Ruminathans 