This was inspired by The Consumption You Call Saving.
It's funny. I like almost everything else I've read by Max (nprofile…8p0e) . This one article just drives me crazy.
I have a hard time even knowing what to respond to: why hoarding is productive, how hoarding earns a return, why hoarding doesn't imply an infinite interest rate, the difference between consumption and saving, the difference between consumption and opportunity costs....
Here I'm just going to focus on the big picture: that HODLing (and hoarding in general) demonstrates low time preference.
Definitions
Consuming is enjoying the satisfaction provided by a good.
Saving is restricting consumption, relative to potential consumption.
There are two forms of saving: hoarding and investment.
Hoarding is deferring consumption of a good, while retaining possession. In a monetary economy, it usually means holding a cash balance.
I do not intend the term hoarding to have any negative connotations. Feel free to mentally substitute some other neutral term if you prefer.
HODLing is hoarding bitcoin.
Investment is surrendering a present good in exchange for a greater quantity or value of future goods. Lending is the simplest form of investing.
Time preference
Time preference is the preference for present goods over future goods. It is fundamentally based on the need of all living things to consume (or die).
It is often said that saving (or investing) demonstrates time preference. I think it is more accurate to say that saving demonstrates overcoming time preference. It is consumption that actually demonstrates time preference.
Investment allows us to compare time preferences inter-subjectively via interest rates. It makes time preference measurable (to an extent).
But the relationship between time preference and hoarding (the other form of non-consumption) is precisely the same. It's just less visible because it only involves subjective valuations.
Time preference and hoarding
When discussing investment and time preference, Austrian economists point out that the future good need not be a greater quantity of the present good; it only needs to have a greater value. We need to keep that in mind when we analyze hoarding.
At first glance, hoarding appears to be a violation of time preference. Hoarding postpones consumption until some indefinite time in the future, while also forgoing any interest that could be had by investing. If everyone must have a positive time preference, why would anyone hoard? Do hoarders have no time preference or even negative time preference?
The answer can only be that the hoarder expects money to have a greater value in the future than it does in the present. There could be many reasons for this expectation: the diminishing marginal value of present consumption vs future consumption, expectation of greater purchasing power in the future (especially relevant to HODLing), general uncertainty about the future, etc.
How much more does the expected future value have to be, in order to justify hoarding? Enough to overcome the hoarder's time preference! Precisely the same as with an investment.
If Crusoe decides to postpone consuming a portion of his stock of berries, this must mean that this portion will have a greater intensity of satisfaction if consumed later than now—enough greater, in fact, to overcome his time preference for the present.
Rothbard, Man, Economy, and State.
And therefore, the lower the hoarder's time preference, the more he will hoard (relative to consumption, and ceteris paribus).
[Aside: it's interesting that I have to cite Rothbard, because later in MES (Chapter 11) he asserts that hoarding is irrelevant to time preference. Mises, on the other hand, said both hoarding and investment were related to time preference, but did not provide any further explanation (that I can find).]
Postscript: Why doesn't the hoarder invest and earn an even greater return?
Investment returns consist of two components: pure interest, which is based on time preference; and entrepreneurial profit or loss, which is based on uncertainty.
Choosing to hoard rather than invest suggests that the available investments do not offer returns that the hoarder deems sufficient to overcome his time preference and adequately compensate for the uncertainty he is bearing.
Rather than demonstrating a high rate of time preference (as Max claims), hoarding is far more likely to indicate a low tolerance for risk. For HODLers, the potential for loss of capital is probably the most important risk.