Economic fallacy there is, but it's in standard economic theory. Standard economics claims that only sensible things to do are investment and consumption, and considers savings to be a waste. But the savings are not waste for individual economic entities; savings are a way of gaining power in economics.

Let me give a couple examples, consider two companies, company A which saves (has large quantities of liquid capital), the other B which doesn't (and invests everything into machinery, better production, etc.).

First example: A stealthy startup appears with a completely new ("disruptive") technology. Company B cannot buy it, so the company A is at advantage.

Second example: Workers decide to strike for higher wages. Company A can survive the long strike by taking hit on it's monetary reserves, perhaps pay strikebreakers, etc. Company B cannot do anything and have to give in to the strikers demands.

In other words, savings are a way to break out of the market system, and so people do it and race who does it better, because they want power (which comes from ability to react). Economy as a whole suffers; but why should the winning actor care?

For instance, you could spend your money constantly hiring more employees to do more work and to grow.

Or you could save your money, until you have enough to build a new modern factory that produces the product much more efficiently. That efficiency lets you pay your fewer employees more, but overall lets the business grow more reliably.

In your example, Company A is better for the economy because it will last a lot longer than Company B.

Companies failing does more economic damage than a company saving its profits for several years.

There is, it's a confusion between money and capacity. That money is an option, the possibility of getting people to do things for you. Unused money is paper.

> Would the economy be better off if lots of companies stopped hoarding cash and hired lots of new employees?

The economy is an abstraction. It can't be better off. But if the companies that have the money had productive ways to spend it they would be doing so. The fact that there aren't that many productive ways to use the money is why the interest rate is so low. The interest rate is the cost of renting money.

If we need more people consuming more and more stuff (that mostly gets put in landfill within a couple of years) then we're completely screwed. We need to start restructuring our way of life to accommodate the need to conserve resources, for one, and the need to support a basic standard of living for all people (across the world) for another.

Instead of encouraging increased consumption we need to be levying massive taxes against disposable items, requiring all goods to be largely recyclable, requiring the ability to repair before production can be licensed.

Yeah, that's the inherent contradiction of capitalism. But unless someone comes along with a different system we're probably stuck with that for a while.

They're all production with minimal consumption agree; they hardly summarise current human activity though. They don't require [many] raw materials beyond energy and humans but nevertheless they do tend to still use some non-renewable resources.

Another way to look at that is that it incentivises short-term investment in anything that brings returns above inflation, instead of allowing for capital to be saved up for more important projects.

Rules can define themselves, rules used to regulate the flow of information become information.

Standard economics defends that idea; but it is only true in a fairy-tale world where you have a magic money printing machine - like the world we are currently living in.

In the real world you actually have to have savings first and foremost in order to produce the products that others will buy.

Hoarding is a good thing since it frees the person to work on what they like, which is likely to benefit others. Also, money hoarded is usually invested in some instrument that might be benefiting other businesses.

> In a two person economy, your expenditure is my income and my expenditure is your income.

This is wrong. Imagine two people in an island. We elect that fish is money since it's the thing we all want and have a use for and can easily trade with each other. Now I fish 5 fish and put that in my savings account (a bucket of salt). As I spend this money, it does not become your income.

You might be confusing the way governments characterize the economy with how a real world economy actually works in practice.

> Also moderate inflation is a good thing. It disincentivises hoarding of cash.

And moderate tax-evasion is a good think because it disincentivizes hoarding of cash by the government. This is wrong as well. Not to say morally wrong, as it's trying to steer people's financial decisions in a definite uniform direction (ie. spending).

That sort of thinking is what had the US government almost shut down yesterday and have to inflate the money supply with $1.1 trillion more. It used to take us decades as a country to spend that much, but now it's only expected to last until September 2015.

But we still have people saying moderate inflation is a good thing.