There are many fallacies that exist in the world of economics.  One of the worst fallacies is the Keynesian myth that spending drives the economy.  Spending does not make someone or a nation rich.  Almost everyone likes to spend.  The problem is having the money to spend in the first place.  In the case of an entire nation, the issue is production.  You can only buy something that is first produced.  If spending was all that mattered, then everyone on earth would be rich.  Don’t you think that people in poor countries around the world would like to buy things as much as Americans do?

To go along with this myth, there is another economic issue in which we need clarity.  Even some libertarians don’t understand this point.  Hoarding money does not hurt the economy any more than spending helps the economy.  Many people think that if people aren’t spending, then they should at least be investing or loaning their money out.

Let’s walk through this carefully.  Let’s say there is a billionaire who decides to take a billion dollars and put it under his mattress.  If this is too extreme of an example, let’s say he puts his money in an offshore bank and for the sake of argument, let’s even say that the bank keeps all of the money in reserve and doesn’t lend it out.  Is this billionaire hurting the economy?  Not only is the answer no, but I would argue that he is helping the economy.

Let’s say you build a shed from scratch.  You cut down a tree in your yard, you saw up the wood, and you hammer it together to make a finished product.  You then sell your shed to your neighbor for $100.  At that point, you take your $100 and you put it under your mattress, you bury it in your yard, or you burn it.  The point is, you don’t spend the money or loan it out or invest it.  You just did the economy a favor.  You just built a shed for free.  It wasn’t free to your neighbor who spent his $100, but it was free to society.  You just deflated the money supply by $100.  Now everyone else that owns U.S. dollars has just benefited by your action.  Their money is now worth more than before because you took $100 out of circulation.  Of course, one hundred dollars is negligible, but the point stands.  Everyone benefited at your expense.  You labored and made a shed and you did it for society for free.  There is one more shed in existence now that didn’t exist before and you still haven’t consumed anything for your labor.

The same thing happens with the billionaire.  Assuming he made his money honestly by selling his labor or goods and services, then the billionaire is doing society a favor by hoarding his money.  It is less money to bid up prices.  It makes things just a little bit cheaper for everyone else.

We so often hear that you should help the economy by going out and spending some money.  It is really the exact opposite.  If you want to help the economy, take your money and hoard it.