Practice of hoarding essential commodities like sugar must be condemne

Anti-hoarding have been fairly common in recent times in poor countries like Tanzania at the moment and such laws were equally pervasive in the past.

While these laws are ubiquitous, it is difficult to define “hoarding” in a meaningful and precise way, and it is also hard to justify rules against hoarding (however defined) on efficiency or social welfare grounds.

Yet, scholars regularly refer to anti-hoarding laws as though it were obvious what is meant, and most of these scholars (including some economists) just assume, without any analysis or justification, that these laws make sense.

Anti-hoarding legislation thus fails to deal with three difficult questions—one definitional, one descriptive, and one normative in character. Definitional, precisely which activities do anti-hoarding laws seek to prevent?

Descriptively, which group(s) within a society would favor such laws? And normatively, what is the effect of such laws on social welfare? This analysis seeks to answer these questions by closely analysing one of the first recorded instances of anti-hoarding regulations.

In just about every society, the word “hoarding” has a negative connotation. It suggests self-interested, acquisitive behaviour that has detrimental effects on others in the form of higher prices and/or material deprivation.

Put another way, people find hoarding immoral because of its perceived economic consequences. If it could be shown that some forms of hoarding have these consequences while others do not, people would continue to deplore the former but not the latter.

Viewed in this way, the moral assessment of hoarding collapses into an economic one to the extent that a particular form of hoarding causes net social losses, it is both immoral and inefficient.

If, however, the social consequences of a particular form of hoarding are neutral or a net positive, then this form of hoarding is neither immoral nor inefficient.

Moral assessments of hoarding thus turn on economic ones. On this view, morality could justify a ban on hoarding only if such a ban would make economic sense. Because a moral assessment of hoarding depends on an economic one, we can proceed directly to an economic assessment.

Anti-hoarding policy was “directed against those who hoarded in self-interest at the expense of society” by causing prices to increase—an economic effect that the authors find “reasonable to suppose” but do not themselves demonstrate on the basis of modern economic theory).

The hoarding prohibition might thus be summed up as follows: retail consumers may not purchase sugar (or other essential commodities) for the purpose of reselling it once price has risen.

To avoid a violation in the event one has inadvertently acquired a quantity of an essential commodity in excess of one’s consumption needs, two compliance strategies are suggested: (1) selling late at the early price; or (2) selling early before the price rises. We are further told that the second strategy, selling early, is preferable.

Withholding the relevant commodity from sale by means of charging excessively high prices, it is unlikely that the regulation recounted in the text was intended as a form of direct price control.

This is so not because the text in isolation will not bear such an interpretation, but rather because the Talmud explicitly regulates prices elsewhere at a more general level by allowing buyers to void transactions where the seller has received a price exceeding the competitive price for the same good or service by more than fifteen percent.

Given the Talmud’s general rule banning markups of more than fifteen percent, it would be odd to think of the rule against hoarding as a price ceiling regulating the conduct of sellers.

It makes more sense to understand the ban on hoarding as a narrow prohibition on purchasing conduct in an essential commodity market that would not offend the general rule against Sale profits exceeding fifteen-percent.

The Talmud later makes this point itself: ‘The prohibitions mentioned apply only to one buying from the market, but in the case of him who brings in for storage of his own, this is permitted.

The second component, the ‘position limit’ suggestion, has more promise. While the Talmud never explicitly sets a limit on the quantity of sugar or other essentials that one may buy, there is good reason to think it does so indirectly by prohibiting consumers from profiting on resale.

The primary goal of the text thus appears to be to prohibit consumers from intentionally accumulating, as “Shabbethai the fruit hoarder” did, a store of essential commodities in excess of consumption needs for the purpose of resale.

Secondarily, if one should accumulate an excess inadvertently (as appears to have happened to Samuel and his father), the text advises how one may dispose of the excess without violating the law against hoarding.

The above discussion of the “position limit” interpretation also illuminates component (3): to whom does the prohibition apply? …Only to purchasers at the retail level.

Rational hoarding by individual consumers in a shortage economy could lead to inefficient outcomes. The model’s intuition is fairly straightforward. A ‘shortage’ in a given market exists when the quantity demanded for a given good exceeds the quantity supplied.

Under normal competitive conditions, price will rise until supply and demand equalize and the market “clears.” However when a market is not clearing for some reason; such as when there is a state-mandated price ceiling on the relevant commodity; a queue or some other form of non-price rationing inevitably develops.

In such a market, suppliers of the good simply receive the sub competitive cash price. Buyers of the good, on the other hand, pay the cash price but also incur an ‘effort’ cost waiting in the queue.

To defray some of this effort cost, buyers will elect to purchase larger quantities of the good in each transaction and, in the process, incur a “storage” cost in the time they hold the commodity prior to its consumption.

The actual price that buyers ‘see’ in a shortage economy is thus the cash price plus effort and storage costs. In other words, while the seller sees a sub competitive price, the buyer in effect sees a higher price ‘as if’ the market were clearing.

The regulation against hoarding does not, as we have interpreted it, forbid producers, wholesalers, or retailers from accumulating large quantities of sugar or other essential commodities and storing them for purposes of later resale.

The fourth interpretational issue—why is sugar singled out for special mention? —calls for some speculation; now that we have outlined the acts of hoarding that are forbidden, we are ready to examine the two compliance strategies recounted in the passage, those of Samuel and his father.

What is so bad about hoarding? The easy answer, for many economists anyway, is ‘absolutely nothing.’ People hoard commodities when they believe that price will rise in the future.

As a practical matter, this means that less of the commodity will be available in the initial period when hoarding takes place, but also that more of the commodity will be available in ensuing periods as people consume or sell their stockpiles.

If one has confidence in markets as a general matter, it is difficult to object to hoarding. In fact, though, people do object to (as well as defend) hoarding on both moral and economic grounds.

In the next section we argue that the moral and economic bases for objecting to people of commodities that are essential to their survival. The economic case is based on considerations of allocation efficiency. Hoarding appears to coincide.

The moral case against hoarding is based on notions of distributional equity—that is, hoarding raises prices and thereby deprives poor.

Hoarding rules are costly for a government to craft and enforce, as well as for consumers to learn. Moreover, these rules are inherently imperfect in that they cannot be tailored to fit the individual consumer’s idiosyncratic queuing and storage cost functions.

Poor consumers with a low marginal utility of time, for instance, are likely not to mind longer lines as much as wealthier consumers. Rich consumers with plenty of space for secure storage may not mind storage costs as much as poor people, who likely have less space.

Because a uniform anti-hoarding rule cannot apply differently to individual consumers; such a rule has real economic costs and thus ought to be used sparingly—that is, exclusively in the high benefit case.

Put another way, the consumer with stored inventory on hand has the option to consume now or in any later period during which the good remains consumable.

A longer shelf life gives the consumer a longer time horizon and thus a greater ability to engage in ‘inter temporal substitution’ of consumption activity from an earlier to a later period.

Because they spoil quickly, perishable goods are more costly to store than durable goods, and thus, hoarding in perishable goods markets entails greater social costs than hoarding in durable goods markets.