Why aren’t the ships wallowing in idleness off of the California coast making for Florida, which has assured them a speedy unloading? (Or being carried in by migrants, as the Bablyon Bee joked?) Lots of mundane contractual and cost reasons, for sure, but also one engrossing one, “engrossing.” That term, along with forestalling, hoarding, and regrating, are old timey words for various ways of withholding goods from retail sale.
Engrossing and such were once crimes associated with the alleged evils of speculation, but really they find root in expectations about future price. Unsurprisingly, lawmakers found “engrossing” most engrossing during periods of high inflation. Vide, for example, this bill to prevent forestalling, regrating, and engrossing from 1779, when the phrase “not worth a Continental” was coming into its own as prices denominated in paper currency soared.
The economic logic of engrossing is pretty straight forward. If everyone expects some good X, competitively priced at $1 today, to be competitively priced at $2 tomorrow, buyers will want to buy up the total supply, either to save themselves a buck tomorrow, or to resell X themselves tomorrow. Sellers, by contrast, will want to withhold X from market today in order to get $2 for it tomorrow.
The size of the effect on the supply and demand for X will of course vary. Buyers will be less ravenous if the $2 price is expected next year rather than tomorrow, or if the expected new price tomorrow is only $1.01, or if X is expensive to store, degrades over time, and so forth.
But you get the picture! Shortages occur in an inflationary environment in part because sellers calculate it is better to sell tomorrow than today, especially when interest rates are low. Say each unit of X cost $.50 to produce and its production was financed at a fixed rate for $.03 per year. So long as the expected price increase over that year is greater than $.03 (plus storage, wastage, etc.), the seller will be better off engrossing X than selling it today.
One of the many advantages of stable money is that the future price and today’s price diverge only due to supply or demand shocks, which by definition are unexpected, not due to inflation expectations. Even with low financing, storing, and wastage costs, it’s better to sell today than tomorrow when money is stable, so sellers find the cheapest ways to stock warehouses and shelves and engross themselves not with engrossing. They even trick people into buying today goods that will not be consumed for months. Yeah, Christmas, I’m looking at you.
In later stages of inflationary periods, after nominal interest rates rise, incentives to engross decline but so too can incentives to produce new units. Shelves remain bare because businesses are not sure if they can turn a profit when relative prices and the availability of inputs lurch around in ways that are difficult to predict, or plan for.
Take, for example, the predicted shortage of physical books this Christmas season. Will demand for books be as high as expected with lockdowns fading and food and fuel price increases pinching budgets? Won’t any price increase or unavailability of physical books simply induce people to jump to Kindle and other digital options? Who knows? That uncertainty is the problem.
Uncertainty increases as inflation does. If a business forecasts 2 percent inflation and gets 1 or 3 percent, it will probably be okay. But it will be ruined if it forecasts 200 percent and gets 100 or 300 percent instead. In those circumstances, a lot of businesses will hold back and some will even mothball and await better times. Either way, that means less production and hence more empty shelves, until the shelves themselves are shelved, or sold for scrap or firewood.
Hyperinflation, as I have said, is horrific, but even run-of-the-mill high inflation, as colleague Peter Earle notes, hardly spells happiness. If prices continue to grow rapidly in the coming months and years, just keep in mind it is because of the way our financial, fiscal, and monetary institutions interact, not because of engrossers or other types of speculators.
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