What does “hoarding” mean? Is it simply another word for saving? Or do we just use it when we disapprove of someone else’s savings behavior? Keynes seemed to believe that there was a distinction between “hoarding” and “not-spending,” and that the distinction was the basis for interest, one implementation of the capital return. The nature of the capital return is the primary topic of the Ruminathans. This Ruminathan picks up where the last one left off, and won’t be easy to follow without it.
Keynes focused purely on monetary hoarding and attributed inefficient economic fluctuations – booms and busts – to it. Carmine Gorga believes Keynes did not have time to explore the full implications of his insight. He believes that to “hoard” is to exercise property rights over any asset without putting that asset to “productive” use. I have not been able to discern a satisfying explanation of “productivity” in Gorga’s writing. But in comparing two scenarios I reached a preliminary conclusion about what hoarding might mean. The two scenarios are:
- A consumer hoards cash under her mattress and thereby forces a honey producer to create an unanticipated and unwanted asset (inventory);
- 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.
In both cases, a consumer’s not-spending leads to the creation of a productive asset. But in the first case, the consumer forces a producer’s hand while keeping her own options open. In the second scenario she relinquishes the option value of cash to the producer in a mutually voluntary transaction. The distinction lies in the distribution of power, not in the productivity of the assets involved.
But what if it isn’t money that is kept under the mattress? There are two other scenarios that I’ve been trying to interpret:
- A consumer buys honey that she chooses not to consume but to store in her basement;
- A consumer buys a meadow but chooses not to exploit it for honey production.
In these two cases, is there a meaningful productive/non-productive distinction à la Gorga? Or do they differ from the first and second in terms of how they describe the power relations between people? Or both?
In Scenario 3, by building a stockpile of honey, it’s as though the consumer entered the honey business herself. The consumer now holds honey inventory, which she can choose to use or sell in the future. Either way, it is still a productive asset. Meanwhile, the producer now holds cash. He is not inconvenienced; whether the consumer eats or stores the honey makes no difference to the producer in that time period. The distribution of risks may have changed, but in a voluntary and anticipated way on both sides. Only if the consumer chooses to consume the honey and save cash in a later time period is the producer potentially forced into an involuntary action, but that is simply Scenario 1 again.
The fourth scenario, and the issue of land ownership in general, I find the most puzzling. Let’s say a particular consumer, Alice, has cash (presumably acquired by selling labor to a producer). She can use that cash to buy honey, either to consume immediately (Scenario 0, so to speak) or store (Scenario 3). She can put it under a mattress and thereby force a producer’s hand (Scenario 1), or lend it to the producer (Scenario 2) giving him option value. But if she uses some of her cash to buy a meadow, where does the cash go? It must go to some other person, Brian, who already had a meadow to begin with. Then Brian has cash and faces the same set of options. As long as Brian also was not using the meadow for anything, the only thing that changed is what sequence of markings (A-L-I-C-E instead of B-R-I-A-N) appears on a piece of paper, the title of land ownership. In that case, Scenario 4 is “empty” and just leads back to the other scenarios.
But here is where Gorga’s distinction between productive and unproductive assets may come into play. If the meadow had previously been used for honey production, but Alice chooses to stop production, then there will be less honey in future time periods. That would seem to be an important change to the system. So let’s consider two sub-scenarios: 4a, where the meadow was not under production to begin with, and 4b, where the meadow is taken out of production. Scenario 4a is the one that just leads back to the other three scenarios.
What about Scenario 4b, shutting down production? Is it similar to putting money under the mattress (Scenario 2), which we saw involved one person forcing another to hold an unanticipated and undesired asset (inventory)?
On the assumption that demand for honey stays the same, someone now has to get less than they got before. The mechanism for deciding who that is will, in orthodox free market economics, be rising honey prices. Rising prices make the person who gets the least marginal utility from honey stop buying it. And again according to orthodox economics, rising prices should induce someone to bring some presently unused meadow into production, at least eventually. Maybe Alice herself. From there follow interesting implications around behavior and speculation: rising land prices, etc.
I don’t want to quibble with all that. It may well be that “market forces” bring the system back into some kind of equilibrium, whatever that might mean. I still want to know whether converting cash into an asset that is taken out of production is like or unlike putting it under the mattress. Insofar as it changes other peoples’ behavior and reduces their options for action, and insofar as those changes were unanticipated and undesired, then indeed shutting down a previously productive asset is like putting money under the mattress. In addition, when we think about what “taking out of production” means, it’s apparent that a particular type of producer, a worker, who had previously been able to exchange labor for cash, sits in the same boat as the producer described in Scenario 1. Only that a worker cannot store labor as inventory for later sale: labor is immediately “perishable.” So in this sense, too, taking an asset like land out of production forces another’s hand.
Building unplanned inventory, changing consumption, and imposing idleness: The running theme in Scenarios 1 and 4b seems to be that an established pattern of socio-economic interaction gets disrupted unilaterally by one participant, counter to other participants’ expectations and reducing their options for action.
Put another way: There are implicit or explicit social contracts – money will stay in motion, property rights are granted and enforced for assets that are put to use – on which we individually and collectively build expectations. But it’s possible for people to unilaterally break those contracts while benefiting from them, to others’ disadvantage. This is, of course, the classic problem of cooperation. Whether “hoarding” is the best word for it, the root of the problem seems to lie in the rupture of the contract. The optionality that makes money so peculiar, and the distinction between productivity and non-productivity, are interesting topics with important implications. But those concepts are defined by the social contracts. To me the most interesting and important question is how those social contracts – whatever their specific terms – are set up and maintained. And as Keynes intuited, the capital return plays an essential role in getting people to stick to the agreements.
The Ruminathans 