the cantil-lying effect
how printing money entrenches wealth and power at the expense of everyone else
i have spoken in the past about the cantillon effect. it’s one of those wonderful explanatory ideas that is at once obscure in that very few people know what it is but outlandishly obvious and essentially undeniable once you hear it.
and when you’re going to print money to fund the sort of massive structural deficits currently prevailing in the US, it becomes a very big deal.
the cantillon effect is the path to popular penury. it’s also a massive wealth enhancer for the state and the cronies close to it.
this is going to be a pivotal topic in the coming years. it’s one you really, really want to understand.
ultimately, it’s very, very simple:
those who print new money benefit most from it.
those who get this new money from them fastest benefit nearly as much.
those who get it last are the ones most harmed.
the reason is obvious: when you spend newly created money, you get to buy at the prices from yesterday. you are the new demand and the new spending. you are what starts to cause inflation. but you don’t face it like others will. you’re the one driving up the prices for the next guy. he pays for your profligacy.
and this not only causes all manner up upward pointing wealth redistribution based on proximity to the money spigot, it destroys the fundamental aspects of price and markets that make them free and useful allocators of scarce resources.
i spoke about this last year (from link above)
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.
and this has lots of other nasty knock on effects because, of course, if whoever gets the money before you do is a smart guy and sees what’s coming, he’s now going to spend that money as fast as he can before someone else does. this is why, in the short run, it can look like stimulus.
everyone sees the impending wave of demand driven price rise coming and wants to get in front of it. this becomes a race to turn cash into inflation advantaged assets as rapidly as possible.
it permeates equity markets, debt markets, real estate, art, every asset class you can think of right down to gasoline and bread.
taken far enough, you get stories like “workers demanding to be paid 3 times a day and running out on lunch breaks to buy any physical goods they can lay hands upon to try to protect the value of their earnings.”
you get the double whammy of more money supply AND higher velocity of money. inflation goes hyper.
this is weimar, zimbabwe, venezeula, argentina.
and so perhaps it is fitting that newly elected argentine president milei, who has such strong austrian economic grounding, should rise as a sort of populist standard bearer to make this clear.
despite his frequent “hot” outbursts and seeming over-simplification and emotive expression, milei is actually quite a smart and thoughtful guy. he understands this stuff. and he’s explaining it in a way that non-economists can understand.
perhaps this is the argentine “great communicator” for our age. whatever the case, he’s precisely correct here and does a wonderful job of laying this out for a general audience.
now ask yourself the real question: why is it seemingly impossible for the US to produce a presidential candidate with any remotely plausible chance of victory that even seems to understand this idea much less possesses the ability (or perhaps the willingness) to communicate it?
why instead are we being deluged with absolute apologist idiocy like this?
the atlantic’s claims about “high prices” are exactly economically wrong. when the expectation is for a rise in price, the cost of keeping cash increases. so no one does. you spend first and push ahead in the cantillon line. it’s the rational response to holding a debasing asset that would get 20bp in a savings account (as banks have not raised their rates) and get demolished by price inflation. buy now. get the asset.
the atlanticos seem to be either deeply illiterate on incentives or just carrying dirty water for the inflationistas.
and they are far from alone.
why must we tolerate leaders whose grasp of these ideas is so unsound or startlingly dishonest as to amount to actual factual fabrication?
this is past “embarrassing.” this is well into predatory.
(and yes, this is real. i assumed it had to be parody, but it’s not.)
so sure, i know that president joe is quite a few fries short of a happy meal these days, but there’s no way he writes these tweets either. i’m sure there is a white house office for this and that they discuss and test the messaging they want to push. this is not an accident, it’s a choice. and at a certain point, credulity on “could you really be this economically ignorant?” snaps and one can only conclude that this is deliberate mendacity deployed for political gain and crony coddling.
the evolution of justification is always the same:
minimize/claim this was the plan
claim this is a good thing
blame it on you once it was obviously bad
there is just no stopping this golem once it starts digging.
once more the lockstep media-politico talking point complex are literally inverting the causality and ethics and telling we the people and the companies trying to survive the cantillon calamity of the completely out of control monetary policy of the last 25 years that this is all their fault. but it’s not. this was directly caused by massive surges in money supply having the effect such surges generally have (once the world returned to a more normal production footing and chinese overcapacity was not there to keep inflation out of goods pricing.)
this sort of profligacy creates perverse incentives for everyone.
it breaks everything.
but it also makes those close to the money printer incredibly rich and this is why politicians and their corporate cronies (especially the big money center banks) love this. for them, it’s christmas every day. for the rank and file worker, it’s desiccated holiday trees for $275 and presents they can’t afford.
this is a truly epic scam and one which, once taken past a point, is near impossible to derail or even slow.
massive deficits beget massive debts which beget massive money printing to extend and service them. the government is locked into this. the media that carries water for it is captured. the banks are dependent upon it. so is pharma because without the entitlements that drive the deficits, no one has money for pills. so are the investment firms that need to keep the concatenated bubbles in assets markets going. the interests are powerful, vested, and widely aligned.
this is not “happening.”
this is being done to us.
and until we break the ability to do so by, for example, ending central banks as milei proposes, an idea that’s not nearly as radical as it sounds and that makes more and more sense the more one looks at it or even extends it to ideas like “it’s time to take provision and control of currencies away from governments who clearly cannot be trusted with them” we’re going to make no progress here.
if you think the person in the oval office or the party running congress makes a whit of difference here, i fear you’re fooling yourself.
this has become structural.
a system this powerful, profitable, entrenched, and beholden cannot be fixed. it’s not malfunctioning. it’s working just as was intended.
it just does not work for you.
the insiders close to it benefit and have every incentive to hide the nature of this arrangement.
but this will not stop them from blaming you for it.
time to wake up and smell what’s being shoveled.