I am sure that at some point or another, you have heard someone assert - probably very angrily - that “billionaires hoard wealth” and keep the rest of us poor. Or maybe you yourself have made this claim. In this article, I want to analyze the facts of the situation and see to what extent someone can actually hoard money.
What I want to do here is track every dollar that a billionaire (or anyone really) gets and see if there is anything we can do to “hoard” it. All we will do is follow the money in a value-free analysis - nothing more, nothing less. Our first option is to keep money in cash. These dollars just stay with us and do nothing else, so we can conclude that this money is actually hoarded. It does nothing else in the economy; it just sits there.
Another option we have is to put our money in the bank. The bank will then turn around and loan some fraction of this money out so that it can (1) make money for itself to pay its employees and (2) pay us interest. Banks are required to keep some fraction of deposits in cash, and these deposits just sit there as above when we keep cash. The loaned money will go to people who will, usually, immediately spend it on a car, or a house, or college tuition. We will discuss the case of consumption next. For now, we can draw two conclusions about money being put into banks: (1) some of it just sits in cash with the bank, and (2) most of it is put back into circulation via loans and spending. As spending sustains jobs where the money is spent (car dealerships, colleges) and loan repayments sustain jobs at the bank, we can safely conclude that keeping money in the bank is much better economically than keeping money in cash. In fact, the saver even gets paid to do so (or, they used to before the Fed nuked interest rates and blew up the real economy, but that is a story for another day). Moreover, loans from peoples’ savings are necessary for new businesses to start (through a bank or otherwise). Economic innovation, therefore, is directly dependent on saving and (capital) investment.
Finally, we come to consumption. I will of course have to spend some of my money, and there are any number of things I could buy with it: consumer goods (food, cars, clothes), commodities (precious metals, currencies, real estate), or financial products (stocks, bonds). Aside from the case of bonds, which are a loan and thus follow the rules we set out in the last paragraph, we can treat all of these items together. Let’s take an example. Proponents of the “hoarding” idea say that billionaires hoard their wealth by buying property, thus taking money out of circulation and parking it in an asset. Imagine that I buy a house from you, either by paying in cash or by getting a mortgage. I, of course, get the house, but you get the money. What do you do with that money? You either spend it, or you put it in a bank, or you keep it in cash. If you spend it or put it in a bank, some of the money will go to someone else, who will have the same options, and so on. The only way the money stops circulating is if it lands in cash held at a bank or by a person (or if it gets lost or destroyed as cash). The same process happens when I buy food, or a car, or a stock1. We can hardly say the money used to buy a house is hoarded, then, as it goes back into circulation in the economy in the form of the seller’s savings/consumption.
So what can we conclude? (1) Money hoarding largely does not exist, and the circulation of money only stops when it is held in cash by a person or a bank. (2) Consumption sustains jobs by allowing businesses to pay their employees. (3) Savings fund innovation and consumption and create jobs. The upshot of this whole article is that when Jeff Bezos buys a house, that money is not gone forever.
There is one minor point to mention here. Say I buy a stock for $50. My $50 goes out into the world via the seller. If my stock goes to $100, I have not created $50. What has happened is that the amount someone would pay for my stock has increased. There is no new money. Thus, stock price fluctuations are a net neutral to our discussion: there is still the same amount of cash as before (it is just that my individual stock is more valuable now).