This was inspired by The Consumption You Call Saving.
It's funny. I like almost everything else I've read by nprofile1qy88wumn8ghj7mn0wvhxcmmv9uq3wamnwvaz7tmjv4kxz7fwv9a85ctdduhxuet59uqzpdlddzcx9hntfgfw28749pwpu8sw6rj39rx6jw43rdq4pd276vhu7r8p0e (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.
I still think that this critique falls short. So here is a response that hopefully helps clarify some misconceptions. I'm curious about the next round of feedback, so let me know what you think!
quoting
naddr1qq…m207This is a response to @npub1wghjj9s7p677smyla2d28t95em3a79hfchycgsz6rvptr30l206qnxt4f6 (npub1wgh…t4f6) articls naddr1qq…33nn
Thank you for the thorough response! You engaged with the argument seriously, provided definitions, and cited Rothbard directly. This is the type of engagement I love to see on Nostr!
You say you have a hard time knowing what to respond to. I think you actually identified the crux in your postscript, and I want to start there because it clarifies where we disagree.
You write that hoarding "is far more likely to indicate a low tolerance for risk" than high time preference. But risk tolerance and time preference are different things. If the hoarder's choice reflects risk tolerance, then you've conceded that hoarding doesn't demonstrate time preference at all. It demonstrates something else. The original article's claim was that hoarders consume the price of uncertainty avoidance. Your postscript agrees.
On the Identity Between Time Preference and Interest
You frame hoarding and investment as two ways of "overcoming" time preference. I think this obscures a critical asymmetry.
When someone lends at 5%, they reveal their willingness to part with capital for one year in exchange for 5% more capital. The rate they accept tells us something about their time preference: at 5%, they'll trade present for future. Investment expresses time preference through the rate accepted.
When someone hoards, they refuse all offered rates. They will not part with capital at any price currently offered. What does this reveal about time preference? By the logic that connects interest rates to time preference, refusing all rates means demanding present possession so strongly that no future premium compensates. This looks like high time preference, not low.
You could argue the hoarder simply hasn't been offered a sufficient rate. Fair enough. But the HODLer mythology doesn't say "I'm waiting for better lending opportunities." It says lending itself is inferior to holding. The refusal is categorical.
The Reductio
My original blog posed a test case: if more hoarding demonstrates lower time preference, then 100% hoarding demonstrates the lowest. But if everyone hoards everything, no one lends at any price. Interest rates go to infinity; capital becomes unavailable. And infinite interest rates reflect infinite time preference by the standard Austrian framework.
You didn't address this, and I think it's the strongest argument in the original piece. If "low time preference = more hoarding" leads to "lowest time preference = highest interest rates," something has gone wrong with the definitions.
On Expected Appreciation
You argue the hoarder expects money to have greater value in the future, and this expectation justifies hoarding the same way expected returns justify investment. I don't think this works.
Bitcoin is a good. When you lend it, you part with the good now and receive it back later plus interest. Interest compensates you for time without the good. When you hoard it, you keep the good now and bet on what it will trade for later. These are different activities. The lender knows what they'll receive: principal plus rate. The hoarder is speculating on an uncertain outcome. Expected appreciation is entrepreneurial profit or loss, not compensation for parting with capital.
Voskuil puts it this way: speculation is consumption of the cost of playing the game, supported by liquidity. The cost is, at minimum, the opportunity cost of not lending. The hoarder who expects gains is consuming the entertainment of speculation now, plus forgoing interest now. These are present expenditures.
You might respond that the hoarder's expected return exceeds available interest rates, so hoarding is rational. I agree hoarding can be rational. The question is whether it demonstrates low time preference. An expectation of profit from price movement tells us about risk assessment and market predictions. It doesn't tell us about willingness to trade present goods for future goods at a known rate.
On Rothbard and Crusoe
You cite Rothbard on Crusoe deferring berry consumption. But Crusoe's berries are consumables he plans to eat. His choice is between eating now and eating later, a straightforward time preference in consumption.
Money hoarding differs. The hoarder doesn't plan to "consume" the money later the way Crusoe eats berries. Money exists for exchange. The hoarder holds it indefinitely, using its liquidity services continuously in the present while forgoing interest perpetually.
You note that Rothbard elsewhere says hoarding is "irrelevant to time preference" (MES Chapter 11). This seems to support the original article: hoarding neither expresses nor demonstrates time preference because it refuses the exchange that would reveal it.
Where I Think We Actually Disagree
You seem to treat time preference as any choice involving present versus future. By this reading, hoarding defers consumption, so it demonstrates low time preference.
My article uses a narrower definition: time preference is revealed through the exchange of present goods for future goods at an interest rate. By this reading, hoarding doesn't demonstrate time preference because it refuses the exchange entirely.
I think the narrower definition is correct because it preserves the identity between time preference and interest rates that makes the concept useful. If we broaden "time preference" to include any choice with a temporal dimension, we lose the connection to interest and capital markets that gives the term analytical power.
The HODLer who refuses to lend at any rate isn't demonstrating patience. They're demonstrating that present possession matters more to them than any offered future return. Whether you call that high time preference or something else, it doesn't look like the civilizational virtue the Bitcoin community claims.