This is a beautiful story that I read in a fascinating ‘real economics’ book by Warren Mosler a while ago. I have adapted the theme to illustrate hoarding. It is the story of a family and it goes like this:

The father of a family gives each child a business card each time they do a good deed or do some work around the house. These children occasionally do odd jobs, but there is no great keenness to do so. The business cards effectively have no value and tend to be thrown in a drawer. The father gives an edict that they must give him a number of business cards, weekly, as rent and some business cards for meals. The business cards immediately have value and are greatly sought after. The young are keen to carry out chores to earn business cards.

The effect of the family taxation was to give business cards a high-value and to make the inmates productive. This lesson should not be lost on nations. Here are some initial comments:

• Taxation creates a demand for legal tender.
• The parents can spend moderately more business cards than they are taxing without causing the devaluation of the business cards. Devaluation would occur if they started to give two cards per chore.
• The parents must never spend less than they are taxing.
• The family money has no value to the creator. The business cards only have value to the citizen. This is missing from the definition of money in economics.
• The volume of business cards in circulation needs to match the immediate demand for business cards. This volume is likely to increase towards taxation time. So provision has to be made to spend extra business cards into society at times of high demand.

Let us take the story a bit further. One child works unusually hard and hoards business cards. He saves his cards ‘for a rainy day’. This is generally considered a wise and prudent activity. However, it has created a shortage of available cards. The parents must increase the availability of business cards so that the other children have enough business cards to pay their weekly taxes. The parents need to release new cards to exactly the same volume as the hoarded cards. The hoarding of money creates a problem in a money system. The hoarding of money should be curtailed. The taxation of Hoarded Money is an appropriate way to deal with this situation. In society, this would be a combination of a Wealth Tax, Death Taxes, Inheritance Taxes and a Demurrage Tax on money holdings. The Demurrage Tax could be as high as 1% per month, paid monthly or 3% quarterly. It could be on unused balance or balances above $1000.

The child card-hoarder suddenly decides to spend all his cards in one day. There is immediately more cards being spent than available accommodation and food. When Hoarded Money is suddenly spent into circulation, an inflationary event occurs. What we are witnessing is the imperfect nature of money. Money was invented by humans to enable transactions. But it was never going to be a perfect system. It was a flawed system from the start. It is still a fabulous system that has allowed humans to create civilisation and allowed food to be grown at significant distances from settlements with transactions, between strangers, using a common coinage medium. The money tokens were invented to enable transactions. Hoarding damages the intended purpose of money. Let us put some arithmetic into the situation. Let us say that this is a large family with ten children. On average there are one hundred cards in circulation. The hoarder hoards thirty cards. The ‘card supply’ has to be raised to 130. The hoarder then suddenly and unannounced decides to spend his hoard. The parents need to bring the ‘card supply’ down to 100.

The arithmetic says that the parents need to supply 100 cards plus extra cards equal to card hoardings. The cards need to be removed from circulation at the same rate as the hoarding subside. The study of hoarding of money needs greater attention in economics. The definition of money even includes a statement that money can act as a store of value, which means that it can be hoarded. This suggests a fault in the definition of money. Money was never intended to be hoarded and doing so damages its ability to perform its intended task.

As the business cards have value, it is likely that the children will use the cards for inter-child business and transactions. These transactions should not have a tax. These transactions are entirely consistent with healthy inter-person trade and should not be taxed. In society, we are taxing inter-person transactions excessively. Income tax should be closer to zero than current figures. Sales tax should be reduced for most items except plastic bags and chewing gum. My use of the expression ‘plastic bags and chewing gum’ implies that tax should remain on items that have a waste component or are a public nuisance.

A situation will develop where one child with many cards lends cards to another child. Effectively, one child has gained a partial monopoly over money and is taking advantage of the situation by seeking rent for use of the monopolized money. The loan may be for the purposes of paying tax or used on indulgences. If business cards are in short supply, the lender will have a high-interest rate similar to a ‘payday loan’. To reduce the need for the children to borrow, the parents need to ensure that there is adequate spending of money into society. Unearned income should be taxed at a high rate and the lender should not be given a tax-free environment as is currently the case.

• Monopolies of resources should be avoided. In the family, it is unlikely that a child would monopolise the use of bedrooms. In society this does happen as those with greater access to money purchase land, putting its use out of reach of others. The land monopoliser then charges rent for the use of land that naturally occurs. Land was provided freely for all living creatures, including humans. No human should be excluded from land by those with greater access to money or credit. Monopolization of land should be avoided using the methodology of Henry George. In the family situation, the bedrooms are owned by the family and are effectively rented out by the family to the individual with the proceeds going to upkeep of public family facilities. This is a good example for society. Land should be owned by the state and be rented to the inhabitants on an as-needs basis at an acceptable rent.
• If one child works hard and has more cards than she can spend, she will hoard cards. This is one of the characteristics of money that is problematic. Besides removing significant numbers of cards from circulation, consider what happens if she decides to clear her hoard over a short period of time. Significant problems will occur if Hoarded Money is released rapidly.