Hoarding Propensity

Hoarding Propensity

Hoarding, the propensity of the public to hold wealth in the form of cash. Hoarding is not the actual amount of cash holdings of the public. The total quantity of money is fixed by the banking system, and since it must be held (owned) by someone, the total of money holdings must be equal to the total supply. If one individual increases his cash holding, another (or others) must reduce his (theft) cash holdings if there is no change in the total supply of money. As a result of an increased desire to hoard by one individual, the distribution of cash holdings by the public may be changed, but the total cash holdings cannot alter unless there is an increase in the supply of money.

The propensity of the public to hoard has important consequences for the stability and efficiency of the economic system. When the desire to hoard rises assets in the form of securities will be sold for cash. These sales will tend to lower the prices of securities, and therefore raise the general level of interest rates, unless the banking system meets the increased demand for cash by increasing the quantity of money. An increase in the desire to hold cash is thus choked off by paying higher interest rates to potential hoarders; but these higher rates tend to check investment and lead to a decrease in incomes and employment. Thus the notion of hoarding is regarded as at the heart of the present-day theories of .php�>unemployment.

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