#10 The Cantillon Effect

Richard Cantillon was an Irish French Economist born in the late 1600s. It is to him we owe our coining of the modern aphorism “The Cantillon Effect” used to explain the disproportionate nature by which expansionary monetary policy affects wealth distribution.

As Ben likes to often point out, the simple nature of expansionary monetary policy is that it MUST be disproportionate. That is to say, if everyone were to receive an equal share of the new currency printed, the sum of all parts remains in equilibrium. When you increase the denominator, you must increase the numerator of chosen groups more than others, else you’ve achieved nothing.

Internet mocks Treasury secretary and his wife for posing ...

The nature of the Cantillon effect is simple. Those with the fewest degrees of separation from the printing press, Ceteris paribus (all else remaining equal) will benefit the most from the purchasing power of their newly created currency. They are given the opportunity to allocate this redistributed capital first, and before the inflationary effects of money printing permeate the greater economic calculations of the acting man.

It’s no wonder there is so much confusion surrounding the economic impacts of 1971, and leftist political ideologues falsely pointing a finger at the Reagan administration’s deregulation of the financial sector as the cause of our woes. Reagan took the reins off of a monetary system that was now fully unhinged in its ability to redistribute capital to its chosen few.

Chances are, if you are reading this, you are not one of the chose few, and if you are, shame on you. For the seniorage incurred by the earliest recipients of newly minted currency, which is not pegged to an underlying process of wealth creation, are no different in form than the feudal kings who were caught blushing when found to be clipping coins for their metal and recirculating them at face value.

The only difference between these foolish feudal Kings and the eurodollar system of today, is that now our academia has led many to believe that more of the poison is the only way to cure the sickness.

Book of the Month:

The Dao of Capital: Austrian Investing in a Distorted World

-“Density (overgrowth) and uniformity (too much of one thing—namely immediate-returning or high-yielding capital, as opposed to the more roundabout variety—growing in the economy and “fertilized” by distortion) are the evidence of malinvestment in the economy, exceeding the amount of available resources. Investment cannot exceed savings any more than seeding in the forest can exceed land, nutrients, water, and sunlight—but under these interventions, the system acts as if that’s what is happening. This is what makes the boom so delusive and ultimately illusory.”

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A fierce Canadian goose aggressively defending his tower.