Cantillon Effect

It enters the economy at particular points, altering relative prices and redistributing resources toward the source.

By reducing these complex processes to an aggregate inflation rate and an output gap, new Keynesian models neglect the market processes that are essential to understanding Cantillon effects and business cycles.

The third equation completes the picture by putting central bankers in charge of setting interest rates to stabilize the economy.

But why should the economy have these goals in the first place, that is, stable prices and maximum employment? The economy is not a person with its own goals.

You know, it was a French guy a long time ago.

Yeah, but the Cantillon effect, which I love this.

I've used this in some essays that I've written.

I think it's just a really neat thing.

It's just there's more money to go around, which means that as we trade back and forth for all the things that we want, then the average price has to go up because we have more supply to buy things with.

So That's just what inflation is.

The Cantillon effect is a description of how that actually percolates through the economy, because we don't all get that $5 evenly, right? And the way the monetary system is set up, is there's what's called the Primary Dealers Network, which effectively is big banks.

They get the money first, and then they loan it into further existence by the whole fractional reserve thing, which is a little bit beyond the scope of...

One is called seigniorage.

Who profits from issuing the money? Right? Who profits from issuing dollars? Well, we all know, uh, the Federal Reserve and the US government and the politicians and people close to the money printer, which is what's called the Cantillon Effect.

Who gets the new money first? When it is issued and when it is printed, who has an advantage? Who has a bias? Who sits on the hierarchical level above you? And then the third issue is counterparty risk.

Who do you have to trust? Okay.

It was a startup that was raising money.

So calling back to the earlier slides, Bitcoin removed profits from issuing it, getting new coins first.

So seniorage, Cantillon effect, counterparty risk.

You don't have to trust anyone with Bitcoin.

Yeah.

A- and that's the Cantillon Effect.

A- a- and we talked a little bit about that in the Social Security segment a week or two ago.

You know, if you're, that money becomes worth less and less, 'cause they gotta pay off the debt.