Welfare economic foundation of hoarding loss by money circulation optimization

Shinji Miura ()

MPRA Paper from University Library of Munich, Germany

Abstract: Saving brings an economic loss. This is one of the basic propositions of the under-consumption theory. This paper aims to give a welfare economic foundation of this proposition through an optimization method considering money circulation in the case where a type of saving is limited to hoarding. If price is fixed, a non-hoarding state is a necessary condition for Pareto efficiency. However, individual agents who prefer future expenditure hoard money, thus individual rational behavior brings about a Pareto inefficient state. This irrationality of rationality occurs because of a qualitative difference of the budget constraint between the whole society and an individual agent. The former’s constraint incorporates a truth that hoarding decreases other’s revenue, whereas the latter’s does not. Selfish individual agents make a decision with an ignorance of this relational truth because their interest is limited to their private range. As a result, agents fall into an irrational situation despite their rational judgment.

Keywords: Money Circulation; Welfare Economics; Under-Consumption; Paradox of Thrift; Intertemporal Choice. (search for similar items in EconPapers)
JEL-codes: C61 D60 E21 (search for similar items in EconPapers)
Date: 2018-08-13
New Economics Papers: this item is included in nep-mac
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