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cantilloning the playing field in your favor
why preferential access to money and regulatory fiat makes finance an arm of the state
there was a time when the role of economists was predominantly to play against the government and to describe and codify the manifold malfeasances of the state as it deranges and deviates commerce in self-serving fashion to the detriment of we the people.
bastiat spoke of “legal plunder” and its instantiation into law and of the erection of faux moral codes by which to glorify it.
alas, this has become the primary purpose of the economic realm and has hijacked that which was once a flourishing field pushing freedom into a neo-keynesian MMT debacle of intervention, influence, and intrusion backed by bought and paid for credentials of convenience.
owing the nature of the incentives faced, “mainstream” economics has evolved not to become accurate or apposite but rather to bray bespoke justification for the governmental encroachment that the “leaders” have always sought. nearly the entire field has been bent around this gold-giver gravity in the manner of medieval bards at the court of the king who won no battles but pays handsomely for songs that he did.
entire ecosystems have evolved around this to thrive and suckle at the cronyistic teats of the endless largess of he who prints the money. it has deranged the purpose of finance altogether.
markets are one of the greatest forms of magic known to humans and the essence of that magic is price. price is the one ring to rule them all. it determines production, consumption, investment, trade offs, and time preference. it’s the entirety of the ball game.
when prices are accurate, people can make good choices that play out in accordance with the real trade offs they face. economies find pareto optimal allocations of resources and this benefits everyone. but when prices do not accurately reflect trade offs, discernment is broken and every single thing downstream from them is warped. this is always to the collective woe, but many times to the selective weal. it focuses power and prosperity in the hands of those closest to the distortions who are able to take first advantage and in a system where such deviation originates from the state it always and inevitably accrues to those most connected to the tentacles of leviathan.
this is how you land in plutocracy.
markets fail as level playing fields and asset allocation engines and instead become tools of policy to the enrichment of a fancy few whose fealty is assured through dependence. and this, alas, is where so much of wall st and the banking system has landed. they have for so long relied upon a “canted” playing field that they now struggle to stand upon a level one.
and this is why we must speak of the cantillon effect which, like so many pre-revolutionary french economic ideas, holds powerful currency today owing to the surprising similarity in situation as once more aristocratic ascendency reaches apogee.
richard cantillon is a lesser known (but highly insightful) 18th century french-irish economist, philosopher, and banker. “Essai sur la Nature du Commerce en Général” ought be required reading for any who would partake of the dismal science.
his key insight is a simple one:
when new money is created, those closest to the wellspring drink first. they get preferential access to capital (lower price of money) and as they then flood the system are the only ones buying with non (or at least least) inflated currency. they cause the first wave, the prices of those assets they trade rise first and fastest, and the change in price level is then passed on downstream.
preferential access to lower cost of capital is one of the only durable advantages in finance and for this reason it is ubiquitously corrupting for if you must compete with one who possesses such access, you desperately need it too.
those who have it get rich. those next in line get a little. those at the end of the line get nothing save a reduction in buying power and the tax on their savings which is the fundamental property of inflation.
taken in large doses, this creates run away price levels and enriches an aristocracy at expense of all others.
once upon a time in spain, this was access to all the “new” gold being plundered from the americas.
today, it’s access to the fed funds window, repo facilities (reverse and otherwise), asset purchase programs, and the 247 other ways that the few money-center institutions get goody room gold grabs from which all others are proscribed.
this sort of state preferencing and subsidy is not the remedy for unequal wealth distribution but rather its progenitor.
the economic theories that have been bought into existence to claim this is not so are nothing but pretext for such predatory praxis.
the selfsame people pushing “equity” are the ones most firmly placed upon patrician perches and the hypocrisy of it is truly dizzying. these masters of this universe are all about increasing their mastery because giving you agency is bad for business.
but don’t take my word for it, take larry fink’s (CEO of blackrock the world’s largest asset manager with over $10tn AUM making it larger than many countries):
this is, of course, complete reality inversion.
markets detest totalitarian systems and thrive in freedom but would-be market monopolists do not. they are the ones who crave and prosper under the certainty of fascist and totalitarian systems.
it is no accident that larry is an endless and avid proponent of ESG investing and a key champion of gensler’s SEC ideas of requiring ESG scores and vast new regimens of environmental impact reporting to reshape investing.
these are totalitarians ideas.
he’s happy to provide the “even the big funds support this” figleaf to the power grabs which fashion finance into a twisted tool of totalitarian state policy in exchange for the dirty gold it will flow his way because the cantillon effect does not apply just to money: it goes treble for regulation.
i doubt they even care what the regulation or the systemic effects are.
all they care about it that it dramatically shifts the prices of what is bought and sold and that they get to know what the change will be before everyone else and that it comes with a good song and dance with which the marketing department can make hay.
because that is the profit maximizing choice in regimes of legal plunder.
consider: those closest to the initiation of new regulation always benefit most and those who propose and write the regulation benefit most of all. they can go buy assets that appear to be of little economic value or competitive worth and then at a stroke change the whole playing field by taxing or banning competition and subsidizing and mandating their own enterprises.
and they do it ALL the time.
it has become the primary business model of many such firms.
why engage in risk capital when you can bet on sure things?
and the politicians are 1000% complicit. how do you think they all get so rich trading the market? how did they all know to sell right before the fed started to tighten or buy right before EV and green power mandates? it’s not even illegal: they have a specific carve out from insider trading rules. it is 100% within the law to buy stock in companies you are about to regulate. this is literally a casino where you can get your cards and then change the name of the game from “21” to “16” and declare yourself a winner.
and everyone involved is making out like a bandit on risk free profits extracted by force from the freedom and wealth of the people.
they have cantilloned the money and the markets in their favor and are always drinking first from the flow of funds and favoritism. larry wins, nancy wins, and all of them are finks.
given the way the money flows in circles and the manner in which the same players spin through the public and private revolving door, it’s not even a useful question to ask who is in thrall to whom. it’s just one vast monolith and its purpose is to steal from you to elevate the few at the expense of the many while selling it to you as “equity and global care.”
this is a deeply ugly system and trying to ascribe its failures to the very mechanisms like price and market agency that it has prevented from operating constitutes a devastating falsehood that if believed will just sink us deeper into the quicksand in which many are already drowning.
this is not a failure of freedom, it’s a patrician plunderfest perpetrated upon, not for we the people. every one of these intuitions has gone plutocratic. it is small wonder that so many the writings of les philosophes franciais seem so poignant and piquant today.
they were looking at a system with many of the same dominant features, though at least then those in the french aristocracy admitted to being an aristocracy. today, the aristo-cronies make believe that they are capitalists so that the systemic damage they inflict gets blamed on the other team.
meanwhile, the jersey colors of regulator and regulated blur into one uniform gray in the wash.
“those are big fund managers and bankers, they must be arch capitalists!” goes the all too predictable refrain, but these people are nothing of the sort.
they are anti-capitalist, anti-market dependencies and agents of the state seeking and clinging to sinecure and conferred advantage as limpet-like as any french rentier buying monopoly and title from l'ancien régime with the noxious twist of now also owning major shares in the regime itself lock, stock, and super-PAC.
they buy the folks who run the regulators and induce the new crop to “play ball” by promising lucrative future employment.
and so the more harm and distortion they inflict the more they seek to cast the blame on what would in fact be the remedy for these mischiefs.
it is this perception that must be overcome for this regime to be overthrown.