Jeff Peterson II teaches lessons in a dismal science here by refuting fallacies of unnamed “progressives”. Does he refute economic fallacies or recite them? Is the answer in the eye of the beholder?

Perhaps a common understanding of economics has a dismal reputation because it assumes people constrained by forces that free people may productively escape. These assumptions underlie a theory of money that a reader may reject without violating libertarian principles. I defend another theory of money in a free economy here, and I seek a friendly conversation with my libertarian friends on distinctions between monetary theories.

Of course, when I discuss “Jeff’s assumptions” here, I can only discuss what I understand to be his assumptions. He may correct me here if I misconstrue these assumptions, and I hope he will.

Jeff refutes fallacious ills of “hoarding money” as follows.

And any money that is held for a period of time in a “hoard” either lowers prices for everyone else (if they really do keep it in a safe at home or whatever) or is loaned out by a lending institution to increase capital accumulation which leads to a more productive economy and thus higher wages.


  1. Money in a safe at home lowers prices by reducing the money supply. Money deposited in a bank and not subsequently “lent out” has the same effect.
  2. A bank lends money deposited in the bank.

These assumptions are fallacious or incomplete.

  1. Free people may create as much money as they need to account for indirect exchange of their property. Money in a safe at home or deposited in a bank does not circulate, but removing money from circulation need not reduce the circulating money supply in a free economy.
  2. A free bank creates money by accounting for credit extended by property holders, not by lending money deposited in the bank. Depositing money in a bank reduces the circulating money supply only if property holders will not extend further credit.

Hoarding money can have unproductive effects if people are not free to create as much money as they need to account for indirect exchange of their property. A libertarian may object to an assertion like “gold is the only real money”, because the assertion arbitrarily constrains the supply of money.

Historically, the free silver movement in the United States was this sort of dispute, complicated by illiberal attempts to impose a monopoly legal tender while fixing the rate of exchange between silver and gold. The United States then favored creditors by retroactively converting promises to pay silver into promises to pay gold by refusing to coin silver dollars at the dollar/silver rate established when creditors made the agreements

When individuals “hoard” their money, they leave it in a bank. The bank, in turn, reinvests that money which goes towards private investment.

Money deposited in a bank is not part of the circulating money supply. A bank pays interest on a deposit precisely to discourage the depositor from circulating the money, because money in circulation can be redeemed for the standard of value.

Depositing money in a bank does not enable the extension of credit to reorganize resources. Money is a result of extending credit to reorganize resources.

Second, what exactly is “hoarding”? How much money (for example) do I need to save before it stops being called just “saving”? Then, why do people “hoard”? I save money because I plan to spend it later. There is no other reason to save it. With real resources — land, say — I might buy it up because I plan to use it later (live on it when I retire, perhaps) or for speculative purposes — perhaps I think it will fetch a higher price in the future than now.

Buying land is not hoarding money, so Jeff’s subject changes here.

In a free banking system, money is a claim on capital securing credit. Buying land with cash is equivalent to exchanging title to the capital securing credit for title to other capital. “Saving money” is only ceasing to circulate entitlement to the capital securing credit. The saver rents shares of a house rather than selling the shares (exchanging the shares for other real goods).

Buying land only to withhold it from a productive use could be counterproductive if a state constrains credit and the resulting money supply. Money does not precede the purchase of land for a productive use. Money is a consequence of extending credit for this purchase. Holding land speculatively for a future use may not be counterproductive over time, but a state constraining money and credit can empower moneyed interests to hold resources counterproductively.

The increased amount of production lowers prices and allows for greater consumption.

If increased production reflects increased productivity (fewer valuable resources consumed per unit of valuable produce) a resulting price decrease is not deflation in the conventional sense of “deflation”, and libertarians of all sorts applaud this decrease.

If lower prices reflect a constrained money supply, the price decrease is deflation, and this deflation benefits a creditor by requiring an entrepreneur to exchange more produce for the use of borrowed capital than the value of money indicates at the time that the lender agrees to extend credit. This deflation makes the entrepreneur’s estimation of future profits needlessly difficult.