WEBVTT NOTE 15. The Miser 1 00:00:00.000 --> 00:00:04.920 Chapter 15 The Miser 2 00:00:04.920 --> 00:00:11.440 The Miser has never recovered from Charles Dickens' attack on him in A Christmas Carol. 3 00:00:11.440 --> 00:00:16.920 Although the Miser had been sternly criticized before Dickens, the depiction of Ebenezer's 4 00:00:16.920 --> 00:00:22.840 Scrooge has become definitive and has passed into the folklore of our time. 5 00:00:22.840 --> 00:00:28.640 Indeed, the attitude pervades even in freshman economics textbooks. 6 00:00:28.640 --> 00:00:34.300 Where the miser is roundly condemned and blamed for unemployment, changes in the business 7 00:00:34.300 --> 00:00:38.540 cycle and economic depressions and recessions. 8 00:00:38.540 --> 00:00:45.040 In the famous or rather infamous paradox of savings, young students of economics are taught 9 00:00:45.040 --> 00:00:51.280 that although saving may be sensible for an individual or a family, it may be folly for 10 00:00:51.280 --> 00:00:53.800 the economy as a whole. 11 00:00:53.800 --> 00:00:59.520 The prevalent Keynesian doctrine holds that the more saving in an economy, the less spending 12 00:00:59.520 --> 00:01:04.720 for consumption, and the less spending, the fewer jobs. 13 00:01:04.720 --> 00:01:09.880 It is time that an end be put to all these misconceptions. 14 00:01:09.880 --> 00:01:14.080 Many and various benefits are derived from saving. 15 00:01:14.080 --> 00:01:20.140 Ever since the first caveman saved seed corn for future planting, the human race has owed 16 00:01:20.140 --> 00:01:25.060 a debt of gratitude to the hoarders, misers and savers. 17 00:01:25.060 --> 00:01:31.140 It is to those people who refused to use up at once their entire store of wealth, and 18 00:01:31.140 --> 00:01:37.700 chose rather to save it for a needy time, that we owe the capital equipment which enables 19 00:01:37.700 --> 00:01:41.900 us to aspire to a civilized standard of living. 20 00:01:41.900 --> 00:01:47.620 It is true, of course, that such people became richer than their fellows, and perhaps thereby 21 00:01:47.620 --> 00:01:50.500 Why earned their enmity? 22 00:01:50.500 --> 00:01:57.420 Perhaps the whole process of saving and accumulating was cast into disrepute along with the saver. 23 00:01:57.420 --> 00:02:04.020 But the enmity is not deserved, for the wages earned by the masses are intimately dependent 24 00:02:04.020 --> 00:02:08.620 upon the rate at which the saver can accumulate money. 25 00:02:08.620 --> 00:02:13.980 There are, for example, many reasons contributing to the fact that the American worker earns 26 00:02:13.980 --> 00:02:21.060 is more than, say, his Bolivian counterpart. The American worker's education, health and 27 00:02:21.060 --> 00:02:27.820 motivation play important roles. But a major contribution to the wage differential is the 28 00:02:27.820 --> 00:02:35.060 greater amount of capital stored up by American employers than by Bolivians. And this is not 29 00:02:35.060 --> 00:02:41.900 an exceptional case. The saver has been instrumental throughout history in lifting the pack above 30 00:02:41.900 --> 00:02:44.620 of the level of the savage. 31 00:02:44.620 --> 00:02:49.660 Perhaps it will be objected that there is a difference between saving, acknowledged 32 00:02:49.660 --> 00:02:55.860 to be productive in the process of capital accumulation, and hoarding, withholding money 33 00:02:55.860 --> 00:03:02.740 from consumption spending, and that the saver channels his money into capital goods industries 34 00:03:02.740 --> 00:03:05.460 where they can do some good. 35 00:03:05.460 --> 00:03:08.160 Hoarded money is completely barren. 36 00:03:08.160 --> 00:03:13.880 The hoarder, it will be claimed, reduces the money received by retailers, forcing them 37 00:03:13.880 --> 00:03:20.880 to fire employees and reduce orders from jobbers. Jobbers, in turn, are forced to reduce their 38 00:03:20.880 --> 00:03:27.600 staff and to cut back on orders from wholesalers. The whole process, under the influence of 39 00:03:27.600 --> 00:03:33.760 hoarders, will be repeated throughout the entire structure of production. As employees 40 00:03:33.760 --> 00:03:52.520 The argument is plausible except for a crucial point which this Keynesian-inspired argument 41 00:03:52.520 --> 00:03:59.320 fails to take into account, the possibility of changes in prices. 42 00:03:59.320 --> 00:04:06.440 Before a retailer begins to lay off employees and cut back on orders because of unsold goods, 43 00:04:06.440 --> 00:04:10.040 he will usually try lowering his prices. 44 00:04:10.040 --> 00:04:15.840 He will hold a sale or use some other technique which will be an equivalent to a decrease 45 00:04:15.840 --> 00:04:17.720 in price. 46 00:04:17.720 --> 00:04:23.900 Unless his troubles are due to the unsalability of his wares, this will suffice to end the 47 00:04:23.900 --> 00:04:27.880 vicious circle of unemployment and depression. 48 00:04:27.880 --> 00:04:29.740 How So? 49 00:04:29.740 --> 00:04:35.440 In withholding money from the consumer's market and not making it available for the purchase 50 00:04:35.440 --> 00:04:42.560 of capital equipment, the hoarder causes a decrease in the amount of money in circulation. 51 00:04:42.560 --> 00:04:47.480 The amount of available goods and services remains the same. 52 00:04:47.480 --> 00:04:53.040 Since one of the most important determinants of price in any economy is the relationship 53 00:04:53.040 --> 00:04:58.620 Between the amount of money and the amount of goods and services, the hoarder succeeds 54 00:04:58.620 --> 00:05:02.140 in lowering the level of prices. 55 00:05:02.140 --> 00:05:08.160 Consider a simplistic but not wholly inaccurate model in which all the dollars in the economy 56 00:05:08.160 --> 00:05:11.680 are bid against all its goods and services. 57 00:05:11.680 --> 00:05:17.560 Thus, the fewer the dollars, the greater the purchasing power of each. 58 00:05:17.560 --> 00:05:23.340 Since hoarding can be defined as reducing the amount of money in circulation, and other 59 00:05:23.340 --> 00:05:30.000 things equal, less money means lower prices, it can readily be seen that hoarding leads 60 00:05:30.000 --> 00:05:32.420 to lower prices. 61 00:05:32.420 --> 00:05:37.560 There is no harm in lowering the level of prices, quite the contrary. 62 00:05:37.560 --> 00:05:43.300 One of the great benefits is that all other people, the non-Misers, benefit from cheaper 63 00:05:43.300 --> 00:05:45.920 goods and services. 64 00:05:45.920 --> 00:05:52.200 Or will lower prices cause depressions? Indeed, the course of the prices of some of our most 65 00:05:52.200 --> 00:05:59.120 successful machinery has followed a strong downward curve. When cars, televisions and 66 00:05:59.120 --> 00:06:06.000 computers were first produced, they were priced far beyond the reach of the average consumer. 67 00:06:06.000 --> 00:06:11.960 But technical efficiency succeeded in lowering prices until they were within the reach of 68 00:06:11.960 --> 00:06:14.520 of the Mass of Consumers. 69 00:06:14.520 --> 00:06:21.300 Needless to say, neither a depression nor recession was caused by these falling prices. 70 00:06:21.300 --> 00:06:26.720 In fact, the only businessmen who suffer in the face of such a trend are those who follow 71 00:06:26.720 --> 00:06:33.600 the Keynesian analysis and do not lower their prices in the face of falling demand. 72 00:06:33.600 --> 00:06:39.880 But far from causing an ever-widening depression as the Keynesians contend, such businessmen 73 00:06:39.880 --> 00:06:44.660 can only succeed in driving themselves into bankruptcy. 74 00:06:44.660 --> 00:06:52.000 For the rest, business continues as satisfactorily as before, but with a lower price level. 75 00:06:52.000 --> 00:06:57.160 The cause of depressions, therefore, exists elsewhere. 76 00:06:57.160 --> 00:07:02.920 There is likewise no substance in the objection to hoarding on the ground that it is disruptive 77 00:07:02.920 --> 00:07:07.300 and continually forces the economy to adjust. 78 00:07:07.300 --> 00:07:13.740 Even if true, it would not constitute an indictment of hoarding, for the free market is preeminently 79 00:07:13.740 --> 00:07:21.400 an institution of adjustment and reconciliation of divergent and ever-changing tastes. 80 00:07:21.400 --> 00:07:26.780 To criticize hoarding on this ground, one would also have to criticize changing clothing 81 00:07:26.780 --> 00:07:34.540 styles as well, for they continually call on the market for fine-tuning adjustment. 82 00:07:34.540 --> 00:07:40.420 Banking is not even a very disruptive process, because for every Miser stuffing money into 83 00:07:40.420 --> 00:07:45.660 his mattress, there are numerous Miser's heirs ferreting it out. 84 00:07:45.660 --> 00:07:51.860 This has always been the case, and it is not likely to change drastically. 85 00:07:51.860 --> 00:07:57.100 Claims that the Miser's hoard of cash is sterile because it does not draw interest, 86 00:07:57.100 --> 00:08:01.580 as it would if it were banked, is also without merit. 87 00:08:01.580 --> 00:08:06.780 Should the money held by individuals in their wallets be characterized as sterile since 88 00:08:06.780 --> 00:08:09.300 it does not draw interest either? 89 00:08:09.300 --> 00:08:15.620 If people voluntarily forbear to earn interest on their money and instead hold it in cash 90 00:08:15.620 --> 00:08:22.700 balances, the money may appear useless from our point of view, but it undoubtedly is not 91 00:08:22.700 --> 00:08:25.180 useless from theirs. 92 00:08:25.180 --> 00:08:31.500 The miser may want his money not for later spending, not to bridge the gap between expenditures 93 00:08:31.500 --> 00:08:46.500 How can the economist, educated in the utility maximization tradition, characterize joy as sterile? 94 00:08:46.500 --> 00:08:54.500 Art lovers, who hoard rare paintings and sculpture, are not characterized as engaging in a sterile enterprise. 95 00:08:54.500 --> 00:09:04.740 People who own dogs and cats solely for the purpose of enjoyment and not investment are not described as engaging in sterile activity. 96 00:09:04.740 --> 00:09:12.100 Tastes differ among people, and what is sterile for one person may be far from sterile for another. 97 00:09:12.100 --> 00:09:18.500 The Miser's hoarding of large cash balances can only be considered heroic. 98 00:09:18.500 --> 00:09:22.780 We benefit from lowered price levels, which result from it. 99 00:09:22.780 --> 00:09:27.780 The money which we have and are willing to spend becomes more valuable, 100 00:09:27.780 --> 00:09:31.980 enabling the purchaser to buy more with the same amount of money. 101 00:09:31.980 --> 00:09:35.380 Far from being harmful to society, 102 00:09:35.380 --> 00:09:39.620 the miser is a benefactor, increasing our buying power 103 00:09:39.620 --> 00:09:42.620 each time he engages in hoarding.