The miser has never recovered from Charles Dickens’
attack on him in A Christmas Carol. Although the miser
had been sternly criticized before Dickens, the depiction
of Ebenezer Scrooge has become definitive and has passed into
the folklore of our time. Indeed, the attitude pervades even in
freshman economics textbooks. There the miser is roundly condemned
and blamed for unemployment, changes in the business
cycle, and economic depressions and recessions. In the
famous—or rather infamous—“paradox of savings,” young students
of economics are taught that, although saving may be sensible
for an individual or a family, it may be folly for the economy
as a whole. The prevalent Keynesian doctrine holds that
the more saving in an economy, the less spending for consumption,
and the less spending, the fewer jobs.
It is time that an end be put to all these misconceptions.
Many and various benefits are derived from saving. Ever since
the first caveman saved seed corn for future planting, the human
race has owed a debt of gratitude to the hoarders, misers, and
savers. It is to those people who refused to use up at once their
entire store of wealth and chose rather to save it for a needy
time, that we owe the capital equipment which enables us to aspire to
a civilized standard of living. It is true, of course, that
such people became richer than their fellows, and perhaps
thereby earned their enmity. Perhaps the whole process of saving
and accumulating was cast into disrepute along with the saver.
But the enmity is not deserved. For the wages earned by the
masses are intimately dependent upon the rate at which the
saver can accumulate money. There are, for example, many reasons
contributing to the fact that the American worker earns
more than, say, his Bolivian counterpart. The American
worker’s education, health, and motivation play important roles.
But a major contribution to the wage differential is the greater
amount of capital stored up by American employers than by
Bolivians. And this is not an exceptional case. The saver has
been instrumental throughout history in lifting the pack above
the level of the savage.
Perhaps it will be objected that there is a difference between
saving (acknowledged to be productive in the process of capital
accumulation), and hoarding (withholding money from consumption
spending), and that the saver channels his money into
capital goods industries where they can do some good; hoarded
money is completely barren. The hoarder, it will be claimed,
reduces the money received by retailers, forcing them to fire
employees and reduce orders from jobbers. Jobbers in turn are
forced to reduce their staff and to cut back on orders from
wholesalers. The whole process, under the influence of hoarders,
will be repeated throughout the entire structure of production.
As employees are fired, they will have less to spend on consumption
goods, thus compounding the process. Hoarding is
thus seen as completely sterile and destructive.
The argument is plausible except for a crucial point which
this Keynesian-inspired argument fails to take into account—
the possibility of changes in prices. Before a retailer begins to lay
off employees and cut back on orders because of unsold goods,
he will usually try lowering his prices. He will hold a sale or use
some other technique which will be equivalent to a decrease in
price. Unless his troubles are due to the unsalability of his wares,
this will suffice to end the vicious circle of unemployment and
depression. How so?
In withholding money from the consumer’s market, and not
making it available for the purchase of capital equipment, the
hoarder causes a decrease in the amount of money in circulation.
The amount of available goods and services remains the same.
Since one of the most important determinants of price in any
economy is the relationship between the amount of money and
the amount of goods and services, the hoarder succeeds in lowering
the level of prices. Consider a simplistic but not wholly
inaccurate model in which all the dollars in the economy are bid
against all its goods and services. Thus the fewer the dollars, the
greater the purchasing power of each. Since hoarding can be
defined as reducing the amount of money in circulation, and,
other things equal, less money means lower prices, it can readily
be seen that hoarding leads to lower prices.
There is no harm in lowering the level of prices. Quite the
contrary, one of the great benefits is that all other people, the
nonmisers, benefit from cheaper goods and services.
Nor will lower prices cause depressions. Indeed, the course
of the prices of some of our most successful machinery has followed
a strong downward curve. When cars, televisions, and
computers were first produced, they were priced far beyond the
reach of the average consumer. But technical efficiency succeeded
in lowering prices until they were within the reach of the
mass of consumers. Needless to say, neither a depression nor
recession was caused by these falling prices. In fact, the only
businessmen who suffer in the face of such a trend are those who
follow the Keynesian analysis and do not lower their prices in
the face of falling demand. But far from causing an ever widening
depression, as the Keynsenians contend, such businessmen
only succeed in driving themselves into bankruptcy. For the rest,
business continues as satisfactorily as before, but with a lower
price level. The cause of depressions, therefore, exists elsewhere.
1
There is likewise no substance in the objection to hoarding
on the ground that it is disruptive, and continually forces the
economy to adjust. Even if true, it would not constitute an
indictment of hoarding, for the free market is preeminently an
institution of adjustment and reconciliation of divergent and
ever-changing tastes. To criticize hoarding on this ground, one
would also have to criticize changing clothing styles as well, for
they continually call on the market for “fine tuning” adjustment.
Hoarding is not even a very disruptive process because for every
miser stuffing money into his mattress, there are numerous
misers’ heirs ferreting it out. This has always been the case, and
it is not likely to change drastically.
Claims that the miser’s hoard of cash is sterile because it
does not draw interest as it would if it were banked is also without
merit. Could the money held by individuals in their wallets
be characterized as sterile since it does not draw interest either?
If people voluntarily forbear to earn interest on their money and
instead hold it in cash balances, the money may appear useless
from our point of view, but it undoubtedly is not useless from
theirs. The miser may want his money not for later spending,
not to bridge the gap between expenditures and payments, but
rather for the pure joy of holding cash balances. How can the
economist, educated in the utility maximization tradition, characterize
joy as sterile? Art lovers who hoard rare paintings and
sculpture are not characterized as engaging in a sterile enterprise.
People who own dogs and cats, solely for the purpose of
enjoyment and not investment, are not described as engaging in
sterile activity. Tastes differ among people, and what is sterile for
one person may be far from sterile for another.
The miser’s hoarding of large cash balances can only be considered
heroic. We benefit from lowered price levels, which
result from it. The money which we have and are willing to
spend becomes more valuable, enabling the purchaser to buy
more with the same amount of money. Far from being harmful
to society, the miser is a benefactor, increasing our buying power
each time he engages in hoarding.
