Rick Kelo examines Hoarding in Economics

The famous Austrian economist Murray Rothbard once wrote that:

 Money is only useful for exchange value, true, but it is not only useful at the actual moment of exchange. This truth has been often overlooked. Money is just as useful when lying "idle" in somebody's cash balance, even in a miser's "hoard." 

 Unspent money is sometimes called idle cash balances, or "hoarding."  Rick Kelo follows closely in Rothbard's tradition of Austrian economics, but decided to explain the economics of hoarding in a mainstream & much more Keynesian context.

Rick Kelo notes that hoarding is taken from the Theory of Liquidity Preference, which originated in Chapter 13 of Keynes' "General Theory."  Keynesians allege that when people "hoard" money it causes the interest rate to go down.

In his article, "On Economic Progress: Hoarding!" Rick Kelo describes it this way:

"If the market thinks the current interest rate is “low,” then it is bearish on bonds… meaning a “low” interest rate today is bad for bonds in the future (the term "bonds" is used broadly by Keynes to mean all less liquid assets so stocks and other time deposits in the money market).  This is important because when you think about buying an investment your future expectations determine whether you buy that bond or keep your funds in cash.  So when people are “bearish” on bonds they hold onto cash and there’s more money available in the money supply"

~ Rick Kelo

Sometimes the demand for money is drawn like this:

If the Federal Reserve prints more money, or the money supply increases by $200MM in this graph, then we see that the interest rate declines.