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Friday, January 1, 2010

What Happens When Someone Hoards Money?

In this thread on, someone was asking about the effect of hoarding money.

There are two separate cases to consider, hoarding fiat money and hoarding gold.

If you hoard fiat money, you accomplish nothing. Your savings will still be stolen via inflation. It makes no difference if you store Federal Reserve Notes under your mattress or in a checking account. They are stolen by inflation either way.

Consider a free market with a gold standard.

If you decide to hoard gold, then prices will fall as there is less money in circulation. If you decide to hoard gold, interest rates will rise as an incentive for other people to not hoard gold.

If someone starts monopolizing gold, then the price of gold will skyrocket and they will have a hard time buying more and more gold. People would stop using gold as money and start using silver or other goods. The gold hoarder accomplishes nothing.

In 1932-1933, people starting hoarding gold as a defense when they realized the government was going to default on the gold-redeemability of the US dollar. These plans were frustrated when Roosevelt declared gold ownership illegal and confiscated the gold. At the time, the mainstream media decried gold-hoarders as immoral. Those people were acting in their economic self-interest. The Federal Reserve cartel printed more Federal Reserve Notes than there was physical gold. Printing more gold-redeemable paper than there was physical gold guaranteed an eventual default. President Roosevelt was a criminal, by stealing from Americans all their gold and demanding they exchange it for fiat paper.

"Gold hoarders are immoral!" was pro-State propaganda in 1932-1933. It was used as justification for Roosevelt's gold seizure in 1933. Hoarding gold is a rational economic decision when you expect the government to default on its paper money.

"Hoarding money is immoral!" is pro-State propaganda used to justify inflation. Inflation is a disincentive for people to hoard money. Hoarding money is immoral. Therefore, it's a good idea for State insiders to steal via inflation.

President Roosevelt ran for President on a campaign promise of "I will not default on the gold standard!" Then, one of the first things he did as President was default.

Suppose that all savers decided to cash out their State paper investments and buy gold instead. There would be hyperinflation of fiat paper money, because nobody would be willing to hold onto it.

If you decide to invest in gold instead of State paper investments, you're protecting yourself from theft via inflation. This leads to higher inflation for the remaining fiat money holders. If enough people started to keep their savings in gold and boycott worthless State paper, then the State monetary system would collapse in hyperinflation.

It is necessary to continuously spread propaganda that State paper investments are sound, and that gold investors are idiots. Otherwise, the fiat monetary system would collapse as people traded in their worthless paper for something of tangible value.

I read an amusing anecdote elsewhere on

When a housewife thinks "I need a new refrigerator. The price might fall, so I'll wait to buy. I'll wait until it's 'on sale'.", then the State fiat monetary system is sound. My parents follow this fallacy. They always wait to buy, expecting prices to fall.

When a housewife thinks "I need a new refrigerator. The price keeps going up, so I'd better buy it now.", then the State fiat monetary system is about to fail.

When a housewife thinks "I don't need a new refrigerator. I'm buying one anyway, because I've got to spend my money before it loses its value.", then the fiat monetary system is in hyperinflationary collapse.

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