I understand that, hoarding causes deflation.
Not exactly. An increase in
hoarding, ceteris paribus, will lead to price deflation. But there's absolute no reason why a
constant amount of hoarding (as, say, percentage of income) should lead to price deflation, since the amount of money in circulation stays the same.
I don't get it. If someone hoards a fixed percentage of his income, the amount of money in circulation is getting smaller and smaller.
deflation devalues real capital
I must confess, that i'm slightly puzzled. What does that exactly mean. Decreased physical output of real capital? Hardly.
No. I mean the price of the capital is being reduced and also its nominal yields (assuming the percentual capital yield remains constant).
(And what is the *un-real* capital, for that matter).
Money-capital. The money yield (interest) doesn't procude anything real.
A decreased return on investment? Well, I don't know. The monetary return can be lower but the costs of operating and replacing the capital will also be lower. (As for past costs those are always sunken costs.)
Yes, in my example, the baker will buy his supplies cheaper and could also maintain his standart of living with a lower wage, but the interest he's paying for the loan stays the same. Also, if for years he only pays the interest and then sells his capital to pay the principal of the loan, his nominally devalued bakery won't pay the principal of the loan.
and that doesn't encourage investments.
Let me put it that way. There is a current consumption fund and there is a investment fund which is equal to total production - current consumption fund. Anything which increases the investment fund encourages investments.
So if I hoard 200,000 bricks in my house that's going to investment?
You can save without investing. Your production - consumption = investment formula is wrong.
I would say prodction - consumption =
potential investment.
And if you think that price deflation encourages savings and think that investments are good thing you should hail price deflation. Because it increases the investment fund. And that's, what investment's are made from.
1) Not all what is saved is invested.
2) Deflation makes money-capital more desirable in relation to real capital, but money-capital doesn't produce anything if it isn't invested/lent.
The thing you fail to see is that money is a common. You're holding it now, but it belongs to the whole society because it is an abstract good, an agreement. The money you hold could be worth nothing overnight if society decides so.
So the way people saves should be the way that the society benefits more, and that's not hoarding.
No, I no do not see money as a common. As a tool which allows us to coordinate our activites and extend cooperation between people, yes, as something belonging to some kind of mythical Geia, no. The mythical Geia, is, well, mythical, and for exactly that reason she cannot own anything.
Sorry, I don't know the myth. But what I mean is that how money is used affects everyone and not only its current holder. And money is "created" by the whole society. No one can "create" money if others are not willing to accept it. The total money belongs in some sense to the whole society and it can decide what rules apply to it.
I can accept the "society benifits more" as a shortcut for most people want (will benefit from) more goods, and I agree that the way to having more goods is to have more (successful) investments.
Agreed.
But there's absolutely no harm in some people just "hoarding". And I've already explained why.
The main problem I see with hoarding is not the deflation it causes. The posibility of hoarding for free, that free insurance (a service that the rest of society provides) is what causes interest. Inflation doesn't helps because:
1) Eventually the loss will be factored in loans in form of inflation premium, because the lender can just acquire real capital to avoid that loss.
2) It distorts our previous formula: it creates the illusion that we've saved more than we actually had.