💡 Today's Big Idea
Cantillon Effect: it’s absolutely disgusting
Washington was aware of the wealth inequality that is created from fiat monetary expansion. This phenomenon was observed by economist Richard Cantillon and is known as the Cantillon Effect. He proposed that rising prices occur in different sectors of an economy at different times. The first sectors to receive newly created money can spend it before prices have risen, while each subsequent holder of the money must spend it with prices having already risen. This is analogous to the Roman government’s coin clipping. The government first spent their coin clippings before prices rose, while agricultural laborers spent it after prices had risen. Today those who receive the money first are the largest banks. This money goes out in loans to, mostly, companies. Eventually, it is the wage earners who receive it from those companies. The banks trade the new money while prices are still low, and the wage earners trade it after prices have risen.
Another way to think about this is that those who are furthest removed from interaction with financial institutions end up worst off. This group is typically the poorest in a society. Thus, the ultimate impact on society is a wealth transfer to the wealthy. Poor people become poorer, while the wealthy get wealthier, resulting in the crippling or destruction of the middle class.