The Truth about Wealth Hoarding from a Closet Rich Person

Wealth HoardingAre the rich really “hoarding” their money, or is that just a lie propagated by those who would love to see the rich in jail?

It depends on what you’re definition of “wealth hoarding” is. Investing the money in startups and businesses is not hoarding; it’s what some call good stewardship.

While perusing through my Quora feed a while back I came across a particular question about what it’s like to be discreetly wealthy. It wasn’t the question that looked interesting, but what one particular “closet rich person” said on the subject of wealth hoarding.

After describing his particular situation, the author then went on to argue against the common claim that wealthy people “hoard” their wealth. He gave some very interesting thoughts on the subject and in general gave a good defense of the benefits of Capitalism.

Below is the section of his answer where he argues against the perceived hoarding of wealth by the rich.

Just wanted to reply to Andrea Teale’s comment specifically, and to the general notion that wealthy people are hoarding money.  Unfortunately this is a common misunderstanding of our banking system and of capitalism… It is also this belligerence that leads many wealthy to want to be anonymous.  I’m not going to bore you with a thorough explanation of why this is wrong, but there are three things you need to keep in mind right off the bat:

1)  Often much of this wealth is illiquidThis means that a wealthy individual’s assets are tied up in the companies that he/she have created.  One cannot simply turn these into cash and hand it out… especially when we’re talking about smaller businesses that are not public.  I suppose you could just give your business to the government/a charity, but this would represent a destruction of societal value.  Jobs would be lost and the services you enjoy would not be produced.

2)  Most significantly this view represents a massive misunderstanding of capitalism.   Very few wealthy people (or non-wealthy for that matter) just park their money under their mattresses.  It is virtually always invested.  What does this mean?

One of the closest equivalents to ‘hoarding cash’, in terms of risk, is investment in bonds.  However, this investment results in things like the local public school system being able to afford to build a new building, cities being able to repair or renew their infrastructure, and the federal government being able to fund things like health-care program expansion.

Or on the riskier side, wealthy individuals frequently invest in startups.  These investments are central to capitalism functioning well and provide people from all levels of society the ability to move up the socio-economic spectrum.  They are also responsible for innovation, and helping you receive better health-care, better access to people around the world (i.e. Quora).

Sometimes the wealthy keep their money in cash in banks.  However, yet again, the reality here is that ‘hoarding’ is not occurring.  Banks lend the money you have deposited out to others.  This means that you can get a mortgage to buy a house, or have a credit card or pay for college.  It also means that businesses can borrow money to expand operations and potentially create new jobs.

You could argue all of this capital should be seized by the government, but history has shown pretty resoundingly that governments are very poor at allocating capital.  There may be less inequality (government officials not-withstanding), but everyone will be worse off.  History is clear here.

Also: See the copious amounts of research on money multipliers and the velocity of money to get a more complete picture.

3) The only educated argument you could start with is that sometimes this system leaves some behind.  For example, it would be hard to argue that people in Somalia (to use your example) can elevate themselves out of poverty through sheer hard work.

It’s still probably possible, but I think a rational person would have a tough time saying that a hardworking and smart Somali 20 year old is on the same footing as an ivy league educated, wealthy, and equally hard working and smart 20 year old in the US. We wouldn’t even have to go as far as Somalia to see this.

Neighborhoods around this country provide similarly dire circumstances.  The problem is that for all the money that has flowed to these areas (and it has been a lot), little has really changed.

Are there exogenous solutions that can be imposed? Possibly.  Will these solutions require money? Probably.  But the problem is there are no obvious solutions yet.

The beauty of capitalism is that money follows good ideas… you just need the ideas. 

Capitalism has been the single biggest success for humanitarianism. It of course isn’t perfect… But it has been an unambiguously incredible force for good. [emphasis added]

The Rich Invest

Sadly the author of this piece remained anonymous for obvious reasons, but his argument is still important to the plight of Capitalism and the economy in general.

In many circumstances, the claim that the wealth hoard their money has led to many agendas that forcibly take their hard earned money, whether it be through excessive income taxes or penalties.

You might not like rich people, but you cannot deny their importance to the Capitalistic system.

The author mentions that in his answer by referring to how the wealthy invest in start-ups and supply money to be used for the benefit of the community. In a Capitalist society the rich are one of the key components to a healthy working society and country. Which is why America, and other Capitalistic nations have been so successful over the past decades.

If you’re interested in reading the author’s entire answer there’s a link to the original answer below for you to read (you’ll need a Quora profile to view it).

Read Quote of Anonymous’ answer to Wealthy People and Families: Wealthy People and Families: What is it like to be discreetly wealthy? on Quora

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About John-Pierre Maeli

Keeping it simple and crystal clear, because anything else is useless. I'm here to not only inform you, but to also connect with you. That's what The Political Informer is all about. Feel free to follow me on either Twitter or Google+ Let's talk!

  • Kevin

    The problem with the argument made in this article is that it mis-characterizes what hoarding is. Hoarding is not simply holding one’s assets in cash. Hoarding is any economic activity which neither increases demand (using cash for consumption) nor increases supply (using cash for “economic” investment). The important concept to understand here is the difference between investment in “economic” terms versus investment in “financial” terms. “Economic” investment is any investment which increases the capital stock. “Financial” investment is any investment. Consider the following example of an apple farmer. If an apple farmer wants to have more apples to sell he can accomplish this in two ways. He can take the surplus dividends from his existing operation and use them to plant more apple trees or he can purchase another already existing orchard. The first activity increases aggregate supply (“economic” investment), the second activity does not increase aggregate supply (a “financial” investment or “economic” savings). Both activities may result in an investment return but only one grows the economy, the first. In addition the second activity is likely to be the more favorable choice for the wealthy apple farmer because the return of that orchard which is purchased is a known return based on its historical performance and since there is no increase in supply there is no risk of contributing to over supply which would depress prices and lower profit margins. Herein lies the dilemma of a growing class of super wealthy individuals. If the “super-rich” use their dividends to simply acquire more of the existing assets in society (e.g. land, publicly-traded stock, bonds) there is no increase in supply and thus no economic growth. When you buy a share of GE, GE doesn’t go and build another light bulb factory, the ownership of that asset has simply transferred from one person to another. Furthermore this activity increases wealth and income inequality which consequently depresses demand throughout the rest of society. When a person becomes wealthy enough to satisfy the most lavish amounts of consumption several times over their economic incentives shift away from using their dividends to increase total productivity towards using their dividends to gain a greater share of all assets and thus a larger share of the economic pie. For it is in gaining a greater share of total assets that the “super-rich” gain more economic and political power over the rest of society. This is what is meant by “hoarding”. It is not simply sticking one’s cash under the mattress but includes the purchase of financial investments which represents a piece of an existing asset instead of an investment which creates new capital.

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