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It seems to me that many people work to become wealthy, but not because they want to consume all that wealth. Many people give it away, other's don't, but still they do not spend it. You hear about some rich 40-year old's throwing money away, but you seldom hear of a rich 80-year-old throwing anything away! What is the economic theory for "scrooge"? Are there simple preferences that make this the right strategy? (I head somebody say that JP Morgan used to say it was a way of keeping score. Is there a theory of this?)

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    $\begingroup$ The content of your post suggests that only "wealth" should remain in its title - "demand for money" is a totally different matter since it refers to demand for liquidity. $\endgroup$ – Alecos Papadopoulos May 12 '16 at 19:22
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You could consider unspent money to be a call option. The set of future investment opportunities is unknown, so if you're optimistic about future opportunities it could be a valuable call option.

So saving money can be a profit/preference-maximizing behavior.

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  • $\begingroup$ That explains why firms hold on to cash rather than distributing. It does;t explain why people hold on to more money than they could ever spend. They don;t spend it, they just die with it, it seems to me. $\endgroup$ – Fix.B. May 14 '16 at 2:12
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There is a couple of macro theories that incorporate money into the utility function. These theories basically say that demand for money comes only from the fact that people like to hold real balances literally just because. I don't know what level of math you are comfortable with, but here is a set of slides for that: http://www.albany.edu/~bd892/Walsh2.pdf

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  • $\begingroup$ Thanks. This answer definitely goes part of the way. It would be great to know if someone has thought about the why. $\endgroup$ – Fix.B. May 19 '16 at 15:04
  • $\begingroup$ Read the Chapter 2 of Walsh and they cite Sidrausky (1967). That'd help with the why. $\endgroup$ – MathUser May 19 '16 at 23:08
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An additional answer would be bequests (Kessler & Masson, 1989; Becker & Tomes, 1994) or actually deriving "utility" from holding wealth, due to some status effect.

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