Upon reading http://mises.org/Community/forums/t/6827.aspx, the main thread about fractional reserve banking and inflation, I stumbled upon a question relating to 100 reserves and saving, or saving in general. Saving is described as being the same thing as investment since you are freeing up resources to give to someone else in the economy. Increases in cash balances are different because you are holding the money in anticipation or something, waiting to get enough money to invest, and/or are just uncertain like all human beings.(I am right on saving and cash balances being two different things, and "saving", in the Austrian sense exactly or "equaling" investment right?Meaning in 100% reserves, loan banking is "saving", while deposit banking "increases in cash balances?") -see below.
In 100% banking, can "hoarding" and/or "Increases/decreases in cash balances" manifest itself in deposit banking? They seem to be three terms that mean the same thing. Me keeping a big bag of gold under my bed is the same thing as me putting it in a deposit warehouse correct? I guess another way to say it is deposit banking is "hoarding" or "increases cash balances?" But that doesn't equal "saving/investing" right, because I am not freeing up resources correct?
Thank you to anyone who clearly explains this to me as I am confused and see many people saying different things.
Bump
I guess another way to ask this (and somewhat of another question is) are savings? "Differed consumption?" I see this alot where I look, but then also see Austrian economists say that it isn't.
For example,
http://www.safehaven.com/article-7785.htm
genuine savings take place when resources are directed from current consumption (present goods) and invested in capital goods (future goods). It can be easily deduced that this process is one of capital accumulation that will eventually bring about a greater flow of consumer goods. This brings us to another fallacy: one that defines savings as deferred consumption. This is truly sloppy thinking. It amounts to saying that because men are human being it must follow that all human beings are men. The error here is the inexcusable one -- at least for economists -- of confusing the demand to hold money (an increase in cash balances) with the demand for savings. (This guy is an Austrian economist)
So are savings differed consumption, or are they his definition?
Thanks
It seems it is just terminology. By his definition in the first sentence deferred consumption is not saving, it can be hoarding.
Your article is contrary to the paper written by Rothbard that you can find performing a search on Rothbard hoarding. Personally I agree with Rothbard. The decision to defer consumption means that the person is saving their cash for later consumption or for use in riskier investments. Besides any investment begins as deferred consumption in cash.
This may help: Saved cash is deferred consumption where the return on "Risk Free" savings in bank accounts, CDs, government bonds, etc is too small to bother with and the returns on riskier investments do not pay a high enough premium to make the risk worth taking. In other words, the keeping of cash is the individual following their personal risk preferences. The keeping of cash is the individual making a rational investment decision.
Another view is that if an individual turned their large cap equity assets into cash in Feb 2006 and "Hoarded it" then they would have kept all of their money vs a 50% loss in large cap equities.
Hmmm....and I thought that I had it right :(. Is this the link you were talking about? http://mises.org/money/2s9.asp Here I don't even find the word saving...
Now I'M really confused lol...heres a quote from Rothbard in What has government done with our money?
Another argument holds that the fact that notes and deposits are reddemable on demand is only a kind of accident; that these are merely credit transactions. The depositors or noteholders are simply lending money to the banks, which in turn acts as their agents to channel the moey to business firms. And why repress productive credit? Mises has show, however, the crucial difference between a credit transaction and a claim transaction; credit always involves the purchase of a future good by the creditor in exchange for a present good (money). The creditor gives up a present good in exchange for an IOU for a good coming to him in the future. But a claim-and bank notes or deposists are claims to money-does not involve the creditor's relinquishing any of the present good. On the contratry the noteholder of deposit-holder still retains his money (the present good) because he has a claim to it, a warehouse receipt which he can redeem at any time he desires. This is the nub of the problem, and this is why fractional-reserve banking creates new money while other credit agencies do not-for warehouse receipts or claims to money funciton on the market as equivilant to standard money itself. To those who persist in believing that the bulk of bank deposits are really saved funds left voluntarily....p162.
Doesn't this support what I'm saying (not trying to debate or something, but I'm just confused)
any help appreciated.
Thanks.
Saving is described as being the same thing as investment
Me keeping a big bag of gold under my bed is the same thing as me putting it in a deposit warehouse correct?
But that doesn't equal "saving/investing" right, because I am not freeing up resources correct?
February 17 - 1600 - Giordano Bruno is burnt alive by the catholic church. Aquinas : "much more reason is there for heretics, as soon as they are convicted of heresy, to be not only excommunicated but even put to death."
Okay thanks...so saving is just relinquishment of consumption, and can mean "hoarding" or "investing". Thanks.
But why do Austrians say that investment and savings are always equal? Isn't this a near impossibllity because tehre will always be a hoard or some idle cash in the economy?
The way I understand it is saving=investment
If there is more saving then investment, then you have hoarding. But if there is more investing then saving, you have the Business Cycle. Could you help explain the quote I listed in my previous post for me, since Rothbard seems to give the opinon that the fact that deposits aren't savings leads to fractional reserve banking and the Business Cycle Theory.
Just seem a little perplexed on how hoarding helps the pool of saving which businessman get their investments from. People could save but only in hoarding in 100% reserve scenario, leading to no new "pool of savings" for businessman to get their money from. Thanks.
It's misleading to talk about "putting gold under the bed" since that can be consumption, hoarding or true savings. It depends on the subjective opinions of the individual in question. I don't consider hoardings to be saving, but many people would disagree with me on this, essentially the individual is merely increasing their demand for cash in the present. Whereas savings implies an increase in demand for cash in the future, and a consequent and necessary decrease in cash holdings in the present. Should I wish to put my money in a demand deposit the money is available to me at all times and therefore I maintain the ability to spend it as I wish.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
JohnBrown:so saving is just relinquishment of consumption, and can mean "hoarding" or "investing"
But why do Austrians say that investment and savings are always equal ?
If there is more saving then investment, then you have hoarding.
But if there is more investing then saving, you have the Business Cycle.
GilesStratton:It's misleading to talk about "putting gold under the bed" since that can be consumption, hoarding or true savings.
It depends on the subjective opinions of the individual in question.
essentially the individual is merely increasing their demand for cash in the present. Whereas savings implies an increase in demand for cash in the future, and a consequent and necessary decrease in cash holdings in the present.
Juan:What is 'hoarding' supposed to mean anyway ? It's not a technical term.
Increasing ones cash balance.
Juan:Is that so ? Not spending your gold sounds like saving to me. It's certainly not consumption, and it's not "hoarding"
It's not saving anymore than not using your car because you have nowhere to go is saving, it is consumption, your fulfilling your demand for present goods, not future goods.
Juan: Idk. I have a bag of potatoes. I can either eat them or save them. There's nothing terribly subjective about that...
Not subjective? You can't be serious.
Juan: That sounds rather obscure/more complicated than it really is.
No, it really isn't. If you believe it is would you mind elaborating why it is unnecessarily obscure and/ or fallacious.
GilesStratton: Juan: What is 'hoarding' supposed to mean anyway ? It's not a technical term. Increasing ones cash balance.
Juan: What is 'hoarding' supposed to mean anyway ? It's not a technical term.
It's not saving anymore than not using your car because you have nowhere to go is saving,
it is consumption, your fulfilling your demand for present goods, not future goods.
GilesStratton: Juan: I have a bag of potatoes. I can either eat them or save them. There's nothing terribly subjective about that... Not subjective? You can't be serious.
Juan: I have a bag of potatoes. I can either eat them or save them. There's nothing terribly subjective about that...
Juan:Really ? Do you mind providing a source stating that hoarding means that ? (it doesn't)
Yes:
An indefinite, and thus unscientific, term for cash holdings in excess of the quantity considered normal and adequate for the holder's needs.
Source
In any case, it's a non issue since the definition you are challenging is one I was merely using for purposes of making my posts shorter, but as you wish, I will refrain from using hoarding and use "increasing ones cash balance" instead.
Juan:Nonsense. If I decide to not spend my cash now then I'm deferring consumption, i.e. saving.
No, you're not. Now address the car analogy, please.
Juan: And not using my car is indeed saving it. If the car is not used, it won't wear out and will last longer
Yes, and yet I was postulating that the agent in question does not subjectively refrain from using his car in that sense. So your point is not relevant.
Juan:So, not spending cash and saving it, is 'consumption'. I guess black is white too.
You're begging the question, you've yet to prove why it is saving when I increase my demand for money, now that is, not in the future. The latter case would be savings.
Juan: My not eating the potatoes is objectively known as 'saving' them. On the other hand eating them is objectively consumption.
I suggest you read Menger's Principles of Economics. This is basic Austrian Economics, and you're wrong.