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Source link: http://archive.mises.org/10802/the-virtue-of-hoarding/

The Virtue of Hoarding

October 9, 2009 by

Most people would admit to hoarding money only with a tinge of guilt, because to be a hoarder carries with it the suggestion of being a miser — a Scrooge. And yet, hoarding is a sound strategy. FULL ARTICLE by George Smith

{ 32 comments }

I Hate Leftists October 9, 2009 at 7:22 am

“and given the “solutions” pushed on us for the current crisis, those incentives could easily explode into full-time obsessions.”

Yeah, but people are starting to hoard GOLD because they no longer trust the US dollar.

Our government is rapidly turning the dollar into toilet paper and hoarding cash will do hoarders no good as they see the value of their savings drop due to hyper-inflation.

Gold has certainly great times ahead. Way to go Obama for destroying America. And way to go to the human pieces of garbage who voted for Obama, I hope you are satisfied with yourself now and be patient your destruction of America is about to come true.

Dennis October 9, 2009 at 7:54 am

Yes, Obama’s economics is erroneous and moronic. However, our illustrious president has just been awarded the Nobel Peace Prize. All his economic mistakes and delusions pale in comparison to his stature as the world’s greatest peacemaker.

I Hate Leftists October 9, 2009 at 8:34 am

Dennis,

They also gave Paul Krugman the Nobel Prize on economics, LOL !

As far as I’m concerned, Nobel Prizes are worth NOTHING !

Obama making PEACE ? With all his tyrannical mandates against his own people and with all his fiat money hyperinflation and deficit spending ?

If ever, Obama is creating the conditions to make this economic crisis worse and when that worsens the risk of war will escalate.

You cannot have peace when your economic stupidity is crippling the world markets.

Plus the fact that they urgently awarded him the peace prize shows that Nobel Prizes are bloated, Couldn’t they wait until he finished his first term and then evaluate all his actions ?

I’m absolutely not impressed by Obama’s receiving the Nobel Peace Prize.

The Nobel Prizes institution has now become a closed club of close friends rewarding themselves for thinking alike.

There is absolutely nothing objective and worthwhile in Nobel Prizes anymore.

When will an average person receive the Nobel Prize ? Why is it always stars and popular persons with 2 bit intellects who receive Nobel Prizes nowadays ?

And to say that Obama will receive $1,000,000 just because some stupid people at the Nobel committee think he is cute.

I Hate Leftists October 9, 2009 at 8:39 am

Dennis,

Emmy awards, Grammy awards, Academy awards carry more honesty than Nobel Prizes.

I’m beginning to think that the Nobel Committee is infested with corruption and partisan politics.

Nobel Prizes were once worth something, now I think they are worthless.

It’s now a clique of close friends thinking alike and rewarding each other for furthering their common socialist agenda.

Abhilash Nambiar October 9, 2009 at 8:54 am

As I read this article I can see the graph on the side, with gold prices going up. It looks as if gold prices are going up because he wrote this article.

Which means in the future someone like Krugman could float the idea in the near future that gold prices went up because speculation by gold bugs where jacking up the price. That money spent on gold was not available to re-vitalize the economy. Which is why the depression prolonged. So it is time once again to ban Americans from holding gold. With a little help from Michael Moore, the idea will gain wide adherence. And no one would listen to the person who says gold prices are not going up, the dollar prices are going down, because too many where printed. And even if they do, they would probably think the remedy is to print less not to stop printing.

Mike October 9, 2009 at 9:19 am

Yeah, with the current momentum I can’t imagine that they won’t ban “hoarding” of gold again in an effort to “fix” the continuing decline. It’s inevitable. Plan accordingly.

Dennis October 9, 2009 at 9:42 am

I Hate Leftists,

I hope you realize that I was being sarcastic!

Mr. Muhlmann,

Assuming your comment regarding the nomination deadline is correct, how much more biased could the Nobel representatives have been?

Tim Kern October 9, 2009 at 9:47 am

“In this world of uncertainty…” ?

Please let me know when we faced a world of certainty. I’d like to contrast strategies and plot the results. Thanks.

WY_Not October 9, 2009 at 11:13 am

It isn’t just gold that should be “hoarded”. Lead, brass, copper (and the means to use them) are also worth keeping stocked in one’s home. Food and water are other items worth “hoarding”.

“Hoarding” all of the above items is not just a way to get through SHTF situations. It is also a means to highs and lows of everyday life. Example, you get laid off. If you have a well stocked pantry, you can draw on that rather than cash reserves while seeking the next job. When you land the new job, you bring the pantry back up to appropriate levels.

Stores and factories can exist on JIT suppliers. People shouldn’t.

Michael A. Clem October 9, 2009 at 12:32 pm

Please let me know when we faced a world of certainty.
Sounds like nitpicking to me, Tim. Uncertainty is relative. There’s less uncertainty with commodity money than with fiat money, for example, even if you never have no uncertainty.

greg October 9, 2009 at 12:36 pm

Lets see, gold hit an all time high yesterday and is still not even close to the inflation adjusted high set back in the late 70′s. Not that great of an investment!

If you are investing in commodities, buy and hoard is not a very smart move. But hey, stupid as it is, you are free to do so and trust me, your actions will have little effect on the market today.

Gold is went up yesterday because of the volume of buy trades in the GLD. And as much as this ETF effects the price of gold on the upside, it will have equal effect on the downside. This ETF really does drive the price of gold because traders use this fund which allows them easy access to the gold market without the high transaction fees associated with buying pure gold!

Again, you can do whatever you want, but hoarding is not a sound investment.

I Hate Leftists October 9, 2009 at 1:17 pm

Horst Muhlmann,

“The deadline for nomination was 10 days after he was inaugurated.”

So, what did Obama do during his first 10 days to deserve the Nobel Peace Prize ? Talk about corruption and partisanry. Ignobel prizes are now worth more than Nobel Prizes.

I’m so ashamed and infuriated by the corruption in the Nobel Prize committee that if I was hiring brains, I would immediately discard and refuse to hire all those who earned a nobel prize and I would send them a letter explaining why their application was rejected.

They might as well include a Nobel Prize in Cracker Jack boxes because that’s what they’re worth nowdays.

I Hate Leftists October 9, 2009 at 1:20 pm

Dennis,

“I hope you realize that I was being sarcastic!”

I do, but I hope you realize that I am outraged by the Nobel Prize system and by Obama’s Nobel peace prize.

Paul Krugman for economics, Obama for peace.

This is an OUTRAGE !

Mike October 9, 2009 at 1:22 pm

greg,

Gold is not supposed to be an investment that grows. I mean it’s got its ups and downs and you can speculate with it, sure, but it’s not gonna make you a millionaire. Gold is better viewed as a way to protect your assets against Fed thievery.

I Hate Leftists October 9, 2009 at 1:24 pm

greg,

One invests money in hope of making more money and all investments carries risk.

One hoards money in the hope of preserving capital, hoarding = savings and savings should not carry risks.

greg, either you’re completely stupid or you’re completely dishonest because I explained that to you months ago and you still pretend to ignore the difference between saving vs investing.

People should have the right to SAVE their money without risk if that’s what they want. Of course they won’t make money but they won’t lose it either.

When you expect a return on an investment, there is always the element of risk and not everybody is disposed to accept those risks.

Hoarding is a SOUND saving method.

Not everybody wants to invest their money, but because of hyperinflation and dollar debasing in America, everybody is forced to invest their money because if they just hoard it they will lose it.

This is OUTRAGEOUS and this is why Gold is going up.

S Andrews October 9, 2009 at 1:42 pm

Lets see, gold hit an all time high yesterday and is still not even close to the inflation adjusted high set back in the late 70′s. Not that great of an investment!

Greg, how is that trade of going short gold @ high 900s and going long in the high 800s looking?

greg October 9, 2009 at 2:16 pm

I hate leftest,

Who is really stupid? Did you understand that point I made that if you hoarded gold from the late 70′s, you lost money to the to the tune of more than $1,400 an ounce (adjusted for inflation)! That is not a way to preserve assets! And the reason I ignored you in the past is because you make no sense.

But if buying gold makes you feel good, go for it. But don’t go off telling people it is a way to protect their assets because history does not prove it.

And Mike,

Hoarding gold is not a guantee that you will not loose asset value. What gives it value is buyers and sellers and while the inflation rate does influence the price, it does not move in lock step. Maybe you should try TIPs.

Mike October 9, 2009 at 2:25 pm
greg October 9, 2009 at 3:40 pm

Mike,
No need to cherry pick! Look at the performance of GLD vs SPY (s and p 500 etf) over the last 6 months. You would be about 15% ahead with the SPY. Hell, go back to 1900 and you will find the stock market has outperformed gold!

S Andrews,

Going long gold at $800 and shorting at $1000 was a good trade, but the risk reward ratio was too high. Back then, I wrote that I switched to aluminum and that trade has worked really well as I suggested Alcoa as a good way to play (I sold my position off earnings for a fair 80% gain). Thanks for remembering. But I make my money trading and I don’t get emotionally tied like all you gold bugs.

History is just not your side for using gold to preserve wealth! A true capitalist uses capital to make money, they just don’t sit on it!

Ribald October 9, 2009 at 4:08 pm

Hoarders lower prices by not spending, which means people can buy more at lower prices…but this effect is not entirely offset by the increase in demand as a result of price deflation. Net demand for goods must fall in response to people deciding not to purchase goods, and no one contests that fact. It is the *change* in behavior that produces the complaint. If consumers had always saved as much as they do today, the recession would have a softer impact, and I think many economists would agree. A more level complaint is simply that they encourage spending as if such saving had occurred and without offering advice regarding what it is a good idea to spend money on.

Is it responsible to compare the effects of hoarding to the effects of inflating the money supply? Not if the point is to compare the effects of hoarding vs. not hoarding. Just sayin’

There is some benefit in having a reserve of money to guard against risk, but there’s no compelling reason why that cash/gold/silver shouldn’t be deposited in a (classical) bank so that it can be put to use as investment capital while retaining risk protection value.

You might even want to spend that capital on your own personal investments, too, since prices have fallen so much. If the returns are too small, try convincing everyone you can to hoard their money. The dip in prices that results might just be the difference between a good deal and a great bargain.

Basically, whether or not it’s a good idea to spend money right now depends on your circumstances, but it is never a good idea to waste it or to let someone else make your decisions for you. It’s not sophisticated advice, but it’s better than “hoard your money!” or “spend spend spend!”.

I Hate Leftists October 9, 2009 at 4:50 pm

Greg,

If you bought gold regularly every year in the same incremental amounts from 1970 to today, you made a fortune.

You’re the economic illiterate, not me.

Keep you illegal tender. I am even paying some of my purchases and servicing in gold and they accept it as a payment.

Gold is money.

SweetLiberty October 9, 2009 at 5:20 pm

If we hoard money by sticking it under our mattress, we reduce the amount of money available for either consumption or investment or both.

In the case of consumption, businesses at the margin will adjust by cutting costs or going belly up. Unemployment will rise until labor prices adjust, but meanwhile prices will come down to entice those with money to spend. The dollar’s purchasing power will gradually increase because there will be fewer dollars in circulation.

In the case of investment, interest rates will rise as businesses compete for fewer investment dollars. Only those businesses that can remain profitable at the higher interest rate will expand, so many startups and businesses that depended on credit at the lower rate will not exist. Again, unemployment will rise there will be fewer businesses than before. The purchasing power of the dollar will again increase as their will be fewer in circulation. Also, as interest rates rise, the cost of holding money rather than investing it will become less attractive.

So it seems to me that hoarding IS bad, at least initially and especially in the case of consumption, because it causes unemployment to rise in the short term. However, in the long run everything adjusts over time to a state of equilibrium to reflect the current “rate of hording”. Am I missing anything here?

Gil October 10, 2009 at 12:30 am

Haha, Mike – your graph proved greg’s point – since 1970 gold is a highly volatile and dangerous way to invest money. I Hate – all you’re saying is “an ounce of gold = an ounce of gold = an ounce of gold”. Had someone been regularly buying gold since 1970 they probably very little money at all. Even if the economy used only gold coins and weight for currency prices will still fluctuate due input from gold mining to shifts in the shifting amount of goods and services in society.

I Hate Leftists October 10, 2009 at 7:21 am

I Hate – all you’re saying is “an ounce of gold = an ounce of gold = an ounce of gold”.

You got my point. I’d rather be in gold than in the dollar.

Gold was $35 in 1970, today it’s at $1050. But I guess that in your mind it’s a bad investment.

I want gold so that I won’t be controlled by the government.

I Hate Leftists October 10, 2009 at 7:23 am

Hoarding is not bad because those business that need to borrow at a higher interest rate need to borrow less money, so the result is the same.

Hoarding puts power in the hands of the working class.

Gil October 10, 2009 at 7:42 am

I Hate, that’s specious reasoning – buying a certain investment at the right time and selling at the right time. As the graph Mike linked to shows gold peaked at 1980 at some $2200 in today’s money so the end isn’t exactly nigh. Who’s to say gold hasn’t been controlled by the government? Who said gold should be trading at $20 per ounce or $35 per ounce for so long? Then again what if someone who buys gold at $1000 today finds gold trading at $700 or so in ten years time? Will they say gold is a great investment?

Gerry Flaychy October 10, 2009 at 11:34 am
” In the Keynesian universe, hoarding is a great evil because it means people are stifling demand for the economy’s products and services.”_George F. Smith

For me, this implies that, in the Keynesian viewpoint, the consumers are at the service of the producers.

In the austrian viewpoint, if I understand it well, it is the producers that are at the service of the consumers.

Why must I buy two loaves of bread when I need only one ?

George October 11, 2009 at 3:20 am

Based on data retrieved from http://www.ndir.com and pasted into an excel sheet, I compared two scenarios:

A) A person who bought a unit of gold every year from 1970 to 2008.
B) A person who bought a unit of the MSCI EAFE index every year from 1970 to 2008.

Based on the data I entered, a person buying one unit at the beginning of 1970 and holding on to it until the end of 2008 would have seen a nominal return of 28x in the case of gold, but 41x in the case of the MSCI EAFE. So, this is the scenario where a guy buys in 1970 and never buys since then.

However, a person buying one unit at the beginning of 1970 and then one unit each year up to 2008 would have seen a nominal increase of 139% with gold, as opposed to 89% with the MSCI EAFE. So, for someone who was buying a unit each year, gold indeed performed better than the MSCI, as of the end of 2008. However, since the end of 2008 the MSCI has gone up about 30% while gold has gone up only about 15%. This would bring the numbers much closer (nominal increase of 175% vs 146%), but gold is still ahead.

If you look at the numbers since 2000 (again, purchase of a unit each year) to current values, it looks even better for gold. Gold’s had a nominal return of 93% versus the MSCI return of 15%!

These numbers can be calculated by just taking the index values of a year (beginning of 1970 = 100) and assume the investor buys one unit each year. So, if they bought an ounce of gold in 1970 they also bought one ounce in 2008. If they bought 10 units in 1970 they also bought 10 units in 2008, at whatever the nominal price at that date was.

Vanmind October 12, 2009 at 9:30 pm

The best reason to buy gold is because that’s the very thing the world’s vilest criminals don’t want you to do.

website June 21, 2010 at 2:33 am

Then again what if someone who buys gold at $1000 today finds gold trading at $700 or so in ten years time? Will they say gold is a great investment?

website June 21, 2010 at 2:34 am

Who said gold should be trading at $20 per ounce or $35 per ounce for so long? Then again what if someone who buys gold at $1000 today finds gold trading at $700 or so in ten years time? Will they say gold is a great investment?

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