Reviewed by Aug 26, 2020| Updated on
What is hoarding?
Hoarding is a speculator buying large amounts of a product with the intention of benefiting from future price rises. The term hoarding is applied most often to the purchase of commodities, particularly gold. Occasionally, however, the hoarding is used in many economic ways. Political leaders might argue, for example, that speculators stockpile dollars during a currency crisis. Hoarding is sometimes blamed for shortages that are actually caused by price controls, fixed exchange rates, and other government policies.
Criticisms of hoarding
Hoarding is widely criticized for creating real-economy shortages of goods. A process of speculation, self-fulfilling prophecies, and inflation can be generated through hoarding. If several wealthy people start hoarding wheat, then the price will start to rise. Middle-class merchants will notice, and then they could hold back supplies of wheat in anticipation of future price rises.
That is sufficient to raise the prices again. Panicked buying can in some places create real shortages of wheat. In some countries, the poorest might even be at risk of hunger if the cycle continues beyond that point. Hoarding is sometimes blamed for shortcomings caused by price checks, fixed exchange rates, and other government policies.
Hoarding vs investing
Hoarding is often considered detrimental as it prohibits the use of goods in the rest of the economy. Investing will help companies manufacture more materials, as well as other things. Investing in stocks has, in the long run, outperformed hoarding commodities.
On the other hand, there have been years and decades in which commodities have greater returns than stocks.