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Hoarding in economics refers to the concept of purchasing and storing a large amount of product belonging to a particular market, creating
scarcity In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...
of that product, and ultimately driving the price of that product up. Commonly hoarded products include assets such as money, gold and public securities, as well as vital goods such as fuel and medicine.
Consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...
s are primarily hoarding resources so that they can maintain their current consumption rate in the event of a
shortage In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. It is the opposite of an excess supply (surplus). Definitions In a perfect market (one that matches a ...
( real or perceived). Hoarding resources can prevent or slow products or
commodities In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them. The price of a co ...
from traveling through the economy. Subsequently, this may lead to the product or commodity to becomes scarce, causing the value of the resource to rise. A common intention of economic hoarding is to generate a profit by selling the product once the price has increased. Hence, economic speculators tend to hoard products that are inelastic in price so that when the price of the product does increase, the demand for that product is maintained. Unlike investing, hoarded goods are excluded from an economy’s flow of money and generally occurs in markets operating under a non-competitive structure. The practice of hoarding can have varied effects in the economy and is legal in most cases, however price controls and other regulatory laws are often enforced to prevent negative market implications. Under
Islamic jurisprudence ''Fiqh'' (; ar, فقه ) is Islamic jurisprudence. Muhammad-> Companions-> Followers-> Fiqh. The commands and prohibitions chosen by God were revealed through the agency of the Prophet in both the Quran and the Sunnah (words, deeds, and ...
, intentional acts of economic hoarding are regarded as a highly sinful and unlawful.


Artificial scarcity

The term "hoarding" may include the practice of obtaining and holding resources to create artificial scarcity, thus reducing the supply, thereby increasing the price, so that resource can be sold for
profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...
. Artificial scarcity may also be used to help corner a market, by reducing
competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, ind ...
via the creation of a
barrier to entry In theories of competition in economics, a barrier to entry, or an economic barrier to entry, is a fixed cost that must be incurred by a new entrant, regardless of production or sales activities, into a market that incumbents do not have or hav ...
. This reduction in competition could allow a
monopoly A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a speci ...
or
oligopoly An oligopoly (from Greek ὀλίγος, ''oligos'' "few" and πωλεῖν, ''polein'' "to sell") is a market structure in which a market or industry is dominated by a small number of large sellers or producers. Oligopolies often result fr ...
to form.


Hoarding versus investing

Investing Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
refers to the act of temporarily allocating funds in an entity such as stocks, property, and other financial schemes with the intention of generating a profit as the value of the investment appreciates over time. Unlike investing, which commonly involves providing corporations with money to be spent on manufacturing goods and services, hoarded stockpiles are not active in the economy. Economist Mathias Binswanger classifies economic hoarding as the resources that are withdrawn from and not reinjected into the circular flow of money, being all the money flows that are connected to active events occurring in the economy. Hoarding and investing can be made distinguishable by the notion that investing produces resources of value within the economy, whereas hoarding suspends resources of value from being active in the economy. Economist Seyed Sadr differentiates between the speculative intentions of hoarding and general intentions of investing using the following criteria: ''“If the market share price of a unit of investment in a project is higher than the production and marketing cost of that unit, the share should be offered for sale. If it is held off the market to create artificial scarcity of the shares, the behaviour is speculative in nature.”''


Environments that allow for hoarding

For the act of hoarding to occur, certain conditions must be met to allow speculators to successfully manipulate of the price of goods. The main condition granting the ability for speculators to manipulate prices is that the goods being hoarded belong to a non-competitive market. A non-competitive market occurs when the agents acting in the marketplace of question are limited, have little or weak competition, and are not controlled entirely by market forces, unlike markets which operate under perfect competition. Resultantly, agents acting in these imperfect markets have amplified power and a greater ability to influence the price of a product both directly and indirectly. In the situation where an external force disrupts the supply chain involved in producing a product, there may be shortages causing demand to increase and the market price of the product to increase correspondingly. A non-competitive market condition may provide agents with the opportunity to exploit situations where shortages may be occurring by imposing restrictions on the quantity of product in shortage that enters the market, maintaining high demand and increased prices. Conversely, in
competitive markets In economics, competition is a scenario where different Economic agent, economic firmsThis article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the sa ...
, market prices tend to adjust in response to the authentic abundancy or scarcity of a good. Agents attempting to curtail a product in such competitive market conditions will most likely not succeed at driving up prices, as competing firms will inevitably supply the product to the marketplace to earn profit.


Fear-based hoarding

Hoarding behavior is a common response to fear, whether fear of imminent
societal collapse Societal collapse (also known as civilizational collapse) is the fall of a complex human society characterized by the loss of cultural identity and of socioeconomic complexity, the downfall of government, and the rise of violence. Possible cause ...
or a simple fear of a shortage of some good. Civil unrest or natural disasters may lead people to collect foodstuffs, water, gasoline, generators, and other essentials which they believe, rightly or wrongly, may soon be in short supply. There is often an implication that hoarding occurs because individuals do not believe that the market will operate efficiently in current or expected conditions.


Market implications of hoarding

Hoarding can theoretically provoke the arising of a non-consumption economy, as the products being hoarded by speculators are not available or too expensive for potential consumers to benefit from. If the producer or industry that manufactures a product has a low long-term responsiveness to changes in demand, economic hoarding is likely to cause demand to sharply increase, as producers are unable to produce enough units of said product to recover it from a state of scarcity due to its low elasticity of supply. As demand for the product increases, the products value increases, often resulting in accelerated
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
. Resultantly, economic hoarding is often considered to be detrimental as it can isolate commodities from the economy. Due to the complexity of the economy and the flows of resources occurring within it, critics argue that the effect economic hoarding has on the economy is abstracted and the results of economic hoarding can be highly varied. In some instances, where the profit generated from the act of hoarding is reinjected into the economy, the economy may benefit from economic growth that the act of economic hoarding has provided. Conversely, economic hoarding may compromise the initiative to invest in active agents in the economy, especially when the hoarded asset promises higher returns, resulting in reduced economic growth. Similarly, hoarding money in savings can theoretically both benefit and disadvantage the economy. While there is low risk of currency oversupply and accelerated inflation when hoarding money, financial hoarding may distort the value of assets and commodities and intensify the risk of losing money in investments or business ventures, as less money circulates through active economic instruments such listed companies.


Governing hoarding

Economic Hoarding is not illegal; however, laws are often put in place in attempts to prevent hoarding in certain instances that may compromise an economies stability. A common procedure used to prevent speculators intending to hoard commodities is implementing
price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of good ...
, in which limitations on the price that can be charged for a good or service is enforced. Price controls intend to maintain the affordability of a product even in times of scarcity, limiting the extent to which a products price can increase, hence constraining the potential profit generated from economic hoarding acts. Governments may also create agencies to monitor entities for hoarding behaviours, such as the
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against mark ...
in the U.S., responsible for identifying and tracking potential speculators storing excessive commodities with intentions of manipulating a marketplace. However, it is often difficult for regulators to distinguish when an act of hoarding is provoked by the intention to manipulate prices or by fearfulness of future events. Additionally, in some instances Government intervention may lead to further instability in the market. The price limit set for products in price control roll outs are often lower than the predominant market price, which may result in suppliers being unwilling to sell their products. The subsequent decrease in supply will tend to an increase in demand, which can lead to the formation of underground markets where the product is illegally sold for a higher price.


Prohibition of hoarding in Islamic jurisprudence

The practice of economic hoarding and price gouging is prohibited in Islam, a major world religion whose followers practice the principles laid out in the
Quran The Quran (, ; Standard Arabic: , Quranic Arabic: , , 'the recitation'), also romanized Qur'an or Koran, is the central religious text of Islam, believed by Muslims to be a revelation from God. It is organized in 114 chapters (pl.: , sing.: ...
, Islam’s central religious text. There are multiple Islamic
hadiths Ḥadīth ( or ; ar, حديث, , , , , , , literally "talk" or "discourse") or Athar ( ar, أثر, , literally "remnant"/"effect") refers to what the majority of Muslims believe to be a record of the words, actions, and the silent approval ...
, being the recorded traditions of the prophet Muhmmed, deeming practices of hoarding and profit maximisation as an exploitation of society in times of need. Such verses command followers of Islam to spend their money in a way in which pleases
Allah Allah (; ar, الله, translit=Allāh, ) is the common Arabic word for God. In the English language, the word generally refers to God in Islam. The word is thought to be derived by contraction from '' al- ilāh'', which means "the god", ...
, directing for followers to allow their money and assets to circulate through the economy. For example, in one verse farmers are directed to market their produce for sale and purchase their supplies every day at the market, intending to protect farmers from the temptation to hoard their produce. The practice of hoarding, denoted as ‘Kanz’, which roughly translates to ‘the unproductive hoarding of wealth’ was prohibited in the Quran ensuing an event where businessmen hoarded gold and silver coins, which were the main medium of exchange in Arabia during the rise of Islam. This hoarding instance inhibited the flow of money throughout the economy, depreciating the value of tradable goods and assets at the time. The prohibition of economic hoarding, or ‘Kanz’, rules against speculators withholding assets from the market with intentions of reselling the good at a higher price. Additionally, circulating false information about price and/or demand changes of a good is also prohibited in Islam, as it is considered to be a sinful act of deception. Conversely, expenditure of money toward value-creating activities, such as seen in practices such as investing are praised in Islam.


Classifying Hoarding Practices in Islamic Jurisprudence

Seyed Kazem Sadr, a professor of Islamic finance, highlights the different levels of extremity regarding hoarding practices in his book “Handbook of Ethics of Islamic Economics and Finance”. Sadr defines such levels in phases. In the first phase, the act of hoarding is non-speculative, rather the agent hoarding the good has no intentions to affect the price nor supply of the good being stockpiled and are simply collecting such goods to maintain their livelihood. In the second phase, agents stockpile products that are easily accessible and abundant in the market. Although the good is not being stored for immediate use, if the good is easily accessible such stockpiling activities will not negatively impact the price nor supply of the good and therefore is viewed as saving rather than hoarding in Islamic jurisprudence. In the third phase, the practice of hoarding causes the price of a good to increase, although is still available in the market. With intentions to create shortages and influence prices, the third phase of hoarding is considered unethical under Islamic jurisprudence as consumers may be burdened by having to pay for products at a greater price and possibly having to go to greater efforts to source products they may need. In these cases, the government has the authority to seize and auction off the hoarded goods to consumers. In the fourth and final phase, the practice of hoarding is deemed to be extremely harmful as the goods being hoarded become scarce and inaccessible, causing extensive adverse effects on the stability of the economy. With consumers struggling to obtain the goods required to maintain their livelihoods, society becomes vulnerable to collapse, hence such instances of hoarding are ‘
haram ''Haram'' (; ar, حَرَام, , ) is an Arabic term meaning 'Forbidden'. This may refer to either something sacred to which access is not allowed to the people who are not in a state of purity or who are not initiated into the sacred knowle ...
’, meaning forbidden by Islamic law.


Examples of hoarding


Silver Thursday

There have been many instances of economic hoarding throughout history, with an example being the silver collapse of 1980, coined ‘
Silver Thursday Silver Thursday was an event that occurred in the United States silver commodity markets on Thursday, March 27, 1980, following the attempt by brothers Nelson Bunker Hunt, William Herbert Hunt and Lamar Hunt (also known as the Hunt Brothers) to ...
’. In this case, brothers Herbert and Nelson Hunt speculated that inflation would result in the value of paper currency to diminish, whilst metal assets, such as silver would maintain value and subsequently face an increase in demand. The brothers began to bulk purchase silver, including physical silver and future contracts that would allow them to buy or sell silver at a predetermined price, accumulating an estimated 100 million ounces of precious metals. By 1980, this hoarding event resulted in silver prices spiking to 50 U.S. dollars per ounce from the original 1.50 U.S dollars per ounce the Hunt brothers had paid for 10 years prior. Ensuing this surge in silver prices, the Federal Reserve intervened, suspending all trades in silver and ultimately resulting in the market crashing on March 27, 1980, when silver stock prices plummeted back down to $10.80 U.S dollars per ounce.


Price gouging during the Covid-19 pandemic

Comparable to hoarding practices,
price gouging Price gouging is a pejorative term used to describe the situation when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair. Usually, this event occurs after a demand or ...
refers to merchants selling or reselling goods at an extremely increased price, typically in times where the demand for the product is higher than usual. A notable example of price gouging is the reselling of essential products, including toilet paper, hand sanitiser and COVID-19 RAT tests throughout the
COVID-19 pandemic The COVID-19 pandemic, also known as the coronavirus pandemic, is an ongoing global pandemic of coronavirus disease 2019 (COVID-19) caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The novel virus was first identified ...
. Merchants were reported reselling these high-in-demand products for unreasonably inflated prices, with one example being a restaurant in Australia that would sell a single COVID-19 RAT test for $50 AUD on Uber Eats. In response, many cases of price gouging required government intervention, with the U.S. government creating a COVID-19 Hoarding and Price Gouging Task Force to prevent merchants from stockpiling and profiteering off of essential COVID-19-related products and resources.


General Example

A feature of hoarding is that it leads to an inefficient distribution of scarce resources, making the scarcity even more of a problem. An example occurs in cities where parking is inadequate. In such a case, businesses may post signs indicating that their lot is for their employees and customers only, and all other vehicles will be towed. This prevents businesses from allowing their parking to overflow into neighboring lots when their capacity is exceeded. Thus, when the capacity is reached at one business, there may be no legal place to park, while there would have been, if hoarding had not occurred. If a single business posted those signs, it would, indeed, improve the parking situation at that business, as they could continue to park at adjacent businesses, while the others could not park in their lot. However, when everybody posts such signs, the problem becomes worse for everyone. (This example assumes all of the lots are sometimes inadequate for their businesses; in a case where a business has sufficient parking for itself, but its lot is filled with customers from others, the signs would be beneficial to that business, even if others did the same.)


See also

* Artificial scarcity *
Cornering the market In finance, cornering the market consists of obtaining sufficient control of a particular stock, commodity, or other asset in an attempt to manipulate the market price. One definition of cornering a market is "having the greatest market share i ...
*
Crisis in Venezuela The crisis in Venezuela is an ongoing socioeconomic and political crisis that began in Venezuela during the presidency of Hugo Chávez and has worsened in Nicolás Maduro's presidency. It has been marked by hyperinflation, escalating starvatio ...
*
Currency crisis A currency crisis is a type of financial crisis, and is often associated with a real economic crisis. A currency crisis raises the probability of a banking crisis or a default crisis. During a currency crisis the value of foreign denominated debt ...
*
Gresham's law In economics, Gresham's law is a monetary principle stating that "bad money drives out good". For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable c ...
* Greed vs Fear Index *
Investing Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
*
Land banking Land banking is the practice of aggregating parcels of land for future sale or development. While in many countries ''land banking'' may refer to various private real estate investment schemes, in the United States it refers to the establish ...
*
Panic buying Panic buying (alternatively hyphenated as panic-buying; also known as panic purchasing) occurs when consumers buy unusually large amounts of a product in anticipation of, or after, a disaster or perceived disaster, or in anticipation of a large ...
*
Price gouging Price gouging is a pejorative term used to describe the situation when a seller increases the prices of goods, services, or commodities to a level much higher than is considered reasonable or fair. Usually, this event occurs after a demand or ...
*
Survivalism Survivalism is a social movement of individuals or groups (called survivalists or preppers) who proactively prepare for emergencies, such as natural disasters, as well as other disasters causing disruption to social order (that is, civil dis ...
*
Societal collapse Societal collapse (also known as civilizational collapse) is the fall of a complex human society characterized by the loss of cultural identity and of socioeconomic complexity, the downfall of government, and the rise of violence. Possible cause ...


References

{{reflist Price controls Scarcity