What is Money and Why the Rich Don’t Hoard it

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I have heard more than once that the reason we should not lower taxes on the rich (who they define as ‘rich’, I have no idea) because the rich will just hoard the money.  I’ve even heard it from people who I generally consider to be pretty smart.  Of course, whenever I press them for more information I hear things like, “it’s a proven fact, rich people will hoard money and poor people will spend it”.  I then ask how it was proven and the response undoubtedly is, “It just is”.  Eventually the conversation nose dives and I’m called racist because I think everyone should pay less taxes.  It might sound crazy, but it is true, I’ve been called racist for saying everyone should pay less tax.  I wonder if there is an email that goes out with daily talking points? If there is, I’m sure the first line always says, “Question nothing you read here. Accept everything as fact.  Repeat all lines as often as possible.  If this fails, call your opponent a racist, sexist, bigot, etc.”  Anyway, the purpose of this post is to try to get you to think a little bit differently about what money is and understand why it makes no sense at all for the rich to hoard money.

I am going to try to keep this short and just brush the surface of the concept of money.  There have been literally thousands of books have been written about money.  A search of “The History of Money” on amazon.com gave me 15,307 results.

Money has affected our whole lives.  Most people, at some point in their lives, dream of what it would be like to have a million dollars.  What is a million dollars? What is a dollar?  Would it surprise you if I told you that you do not go to work for money?  Did you know when you swipe your credit card you are not actually borrowing money?  A dollar is essentially useless on its own.  If you took a suitcase full of a million dollars to an uninhabited remote island, you would be dirt poor.  I guess the dollars could be used as a note pad, or wallpaper for a hut you might build on the island, but really, a dollar isn’t very valuable as a physical piece of paper/cotton, or whatever dollar bills are made out of.  The reason a dollar has any value at all is because we are confident that we can exchange that dollar for some good or service.  If we lost that confidence, we would no longer collect a pay check in dollar bills.

Right now, I’m talking about a fiat currency, but it applies to gold as well. I have no idea what gold is used for other than jewelry, but I know if I was digging in my back yard and for a chunk of gold and a chunk of granite, I’d take the gold and leave the granite.  Why? Because I am very confident I can exchange the gold for stuff.  While there probably is a market for a small piece of granite, I have no idea where I could exchange granite for anything of value.  It would probably not be worth my time to exchange it anyway.

So, if we do not work for dollars, what do we work for?  The answer is simple, we work for stuff! Stuff can be anything.  Food, clothes, shelter, transportation, leisure, hobbies, etc are all examples of the stuff we work for.  Dollars simply represent the value we created at our jobs, and give us purchasing power.

There was a time way back in history that people bartered for good without money.  If I grew potatoes and you grew cabbage, I would have to trade my potatoes if I wanted your cabbage (assuming you wanted potatoes).  I would have paid my employees in potatoes, so they could trade for what they wanted or needed.  This became tough when I needed meat, but the person with the pig wanted cabbage.  I’d have to trade you for your cabbage then go to the pig guy with the cabbage to get his meat.  This was extremely inefficient and gave rise to commodity based currency.

You see this played out by children on Halloween every year.  I remember when I was young, and I see it in kids today.  When my friends and I were done trick-or-treating we would dump our bags full of candy onto the living room floor and begin trading.  Single Reese’s Cups were a hot commodity and usually ended up being our currency, even if we didn’t consciously know what we were doing.  I would trade 3 Reese’s Cups for a regular sized snickers.  When I was down to my last Reese’s Cup, I’d have to trade my 4 fun sized Milky Ways for 2 Reese’s Cups so that I could trade my Reese’s Cups for the Snickers bar.  Essentially, a Reese’s Cup was the base currency, we’ll call it a dollar.  Fun Size Milky Ways became a half-dollar and a snickers bar was $3…Reese’s Cups represented our purchasing power.

I understand that example isn’t exactly apples to apples, but you could say that the kids who worked harder, i.e. went to more houses, created more wealth and therefore had more purchasing power.  The point is that instead of your employer paying you in food, clothes, shelter, transportation, etc, it is a lot more efficient to pay in dollars and have you choose what you want to work for instead of your employer choosing for you.

So back to the original point of the so-called “rich” hoarding their money.  To me, hoarding means something like storing cash in your closet, under your mattress, or burying it in your backyard.  It makes no sense. Money is useless unless it is spent on stuff. The homeless guy you pass on the subway could quite possibly have a million dollars in that bag he is carrying around.  However, he would be hoarding the money and therefore he has nothing at all.

If by hoarding money they mean keeping it in the bank, then they clearly have no idea at all what a bank does.  A bank does not put your money in a vault, water it, then pay you interest from the additional money that grows.  Banks invest that money in other business and individuals so that they can create more wealth.  The business or individual that borrowed the money, actually borrows the stuff they bought with that money, whether it is a store or a house or a car.  They pay the money back, plus interest, overtime by creating goods or services equal in value, plus interest, of the stuff they originally borrowed.

If they truly did hoard money, they would be getting poorer every day due to inflation and our government printing more dollars. Have you ever heard your father tell you he used to get a candy bar for a nickel?  Printing dollars increases the supply of dollars and therefore lowers the wealth required (quantity demanded) for a dollar and therefore taxes you value out of the dollar you own…but that is a topic for a different post.

I hope I made my point and I welcome any comments or criticisms, but remember, the rich hoarding money is a myth!

God Bless Freedom, Liberty, and Personal Property,

Slappy Jones II

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Steve
Guest
Currency is also a means of leveling the playing field for different industries. For instance, if a fisherman wanted to do business with a shoe salesman, the fisherman would be at a disadvantage. Since dead fish will rot fairly quickly, the shoe salesman could afford to wait out the fisherman. Therefore, the fisherman would be forced into an unfair exchange simply to avoid losing the fruits of his labor to spoilage. Having currency removes this obstacle. It allows the fisherman to exchange his fish for money which he can use at a later time when the fish are long gone.… Read more »
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[…] even show up to work to turn in a resignation letter?  But why is that a bad thing? As I explained here money represents created wealth and has no value unless it is spent.  The people who inherit a […]

Montana Mom
Guest
I believe that dollars are a limited resource, as there are only so many of them. They flow through the economy like water through the water cycle. It rains a little on us little folks in the headwaters, and runs through our fingers as it gathers in streams and rivers and eventually the ocean, the some 26 trillion or so that are now hoarded (sorry, “saved responsibly” as one commenter put it, or invested by a bank as you say, or whatever their savings are doing when they supposedly save 37% of their income). Upstream, we build little dams and… Read more »
Rollo McFloogle
Guest
Dollars really aren’t a limited resource. Theoretically, you can print as many of them as you want, which is what the federal government is doing, which is ruining the purchasing power of the middle and lower classes. “but as long as we all agree to base our economy on using dollars, then we have to have some raining and flowing or we’re going to dry up and blow away” We didn’t agree to use dollars to judge our economy. That was chosen for us by the government. It’s illegal to use any other currency. But anyway, the dollar is only… Read more »
Katherine
Guest

They invest it surely?I keep mine under the bed.Only,I have no bed…

slappyjones2
Guest

No bed, but a computer with internet access. If you can afford the computer and the monthly cost of intenet, maybe you should save a few bucks for a bed to hoard your money! Thanks again, you’re 2 for 2 today!

Katherine
Guest

I sleep on a rug with my cat Jake

slappyjones2
Guest

Well you’re lucky the cat can’t get under the rug you sleep on. You could hoard all kinds of money there! My cat, Xena, constantly hides under my bed.

Catsgrace
Guest

I must look under the rug..I found £2 on the floor..almost enough to buy a coffee!Those cats,they are so cunning.Why,I am sure they have their own credit cards nowadays with a paw print!!

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[…] driver of the economy.  Furthermore, what is with this “ordinary” people qualification?  Do the rich simply hoard surpluses of money?  If it is true that more money being freely circulated to businesses is a good thing, then why not […]

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