Cowen can’t see why corporate hoarding is a problem. Like Riedl and Cochrane, he concedes that there might be some problem if corporations literally piled up stacks of green paper; but he argues that it’s completely different if they put the money in a bank, which will lend it out, or use it to buy securities, which can be used to finance someone else’s spending.
But of course there isn’t any difference. If you put money in a bank, the bank might just accumulate excess reserves. If you buy securities from someone else, the seller might put the cash in his mattress, or put it in a bank that just adds it to its reserves, etc., etc.. The point is that buying goods and services is one thing, adding directly to aggregate demand; buying assets isn’t at all the same thing, especially when we’re at the zero lower bound.
Krugman sees corporate hoarding–in which a company is simply
increasing its demand for cash–
as problematic. This, of course, implies that such a decision somehow shouldn’t be left up to the company (or, to individuals, either), but that they should be compelled to “dishoard” their cash in ways that Krugman and other economists approve of.
But there are other problems with Krugman’s analysis, too. Take, for example, an excerpt from Murray Rothbard’s fabulous What Has Government Done to Our Money? :
The critic of monetary freedom is not so easily silenced,
however. There is, in particular, the ancient bugbear of
“hoarding.” The image is conjured up of the selfish old miser who, perhaps irrationally, perhaps from evil motives, hoards up gold unused in his cellar or treasure trove—thereby stopping the flow of circulation and trade, causing depressions and other problems.
Sound familiar? Rothbard continues:
In the first place, what has simply happened is an increased demand for money on the part of the miser. As a result, prices of goods fall, and the purchasing power of the gold-ounce rises. There has been no loss to society, which simply carries on with a lower active supply of more “powerful” gold ounces. Even in the worst possible view of the matter, then, nothing has gone wrong, and monetary freedom creates no difficulties. But there is more to the problem than that. For it is by no means irrational for people to desire more or less money in their cash balances.
Granted, Rothbard here is discussing a market currency in an unmanipulated setting, but his point of view is still well taken. There’s more:
People do not precisely know what will happen to them, or what their future incomes or costs will be. The more uncertain and fearful they are, the more cash balances they will want to hold; the more secure, the less cash they will wish to keep on hand.
If Krugman weren’t so busy ridiculing the idea of “regime uncertainty” as the “confidence fairy,” then he might have incorporated this idea into his analysis. Of course, from there, Rothbard does go on to argue that an inflated currency motivates people to spend their cash balances, which would seem like a point in Krugman’s favor based on his calls for higher rates of inflation. This fails to take into account, however, that “hoarders” might see losses from devaluation as a better deal than potential losses from investment in an uncertain marketplace.
Anyway, Rothbard continues:
Economists err if they believe something is wrong when money is not in constant, active “circulation.” 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.” For that money is being held now in wait for possible future exchange—it supplies to its owner, right now, the usefulness of permitting exchanges at any time—present or future—the owner might desire.
It is misleading, furthermore, to say that money “circulates.” Like all metaphors taken from the physical sciences, it connotes some sort of mechanical process, independent of human will, which moves at a certain speed of flow, or “velocity.” Actually, money does not “circulate”; it is, from time, to time, transferred from one person’s cash balance to another’s. The existence of money, once again, depends upon people’s willingness to hold cash balances.
And, finally, one of the best arguments against Krugman’s point is Rothbard’s adoption of a sort of Hayekian knowledge-problem idea:
At what point does a man’s cash balance become a faintly disreputable “hoard,” or the prudent man a miser? It is impossible to fix any definite criterion: generally, the charge of “hoarding” means that A is keeping more cash than B thinks is appropriate for A.