Cantillon effect
In economics, the Cantillon effect describes the effect that an increase in the (giral) money supply ( net lending ) is not automatically distributed evenly across all areas of an economy, but in stages, whereby some areas (in particular the banking sector, other state-related companies, the business sector and politically favored groups) benefit first, while the rest of the economy follows later or does not benefit from money creation at all. Losers in the process of creating money are those with whom the money does not end up, but who nevertheless have to pay the prices that have risen due to the inflation caused by the creation of credit .
The effect was named after Richard Cantillon , who describes it as follows in his “Essay on the Nature of Commerce in General”, first published in 1755, although today the increase in money usually no longer comes from mines, but from the central banks and thus initially in favor of the Financial sector:
“If the increase in cash proceeds from gold or silver mines located in a state, the owners of these mines, the entrepreneurs, the smelters, the refiners and generally all those who work there will in any case their expenses according to their profits increase. They will consume more meat and more wine or beer in their households than they used to, they will get used to wearing better clothes and nicer lingerie, better furnished houses, and other more exquisite comforts in life. They will therefore give employment to some artisans who previously did not have so much work and who will now increase their expenses for the same reason; All these increases in expenditure on meat, wine, wool, etc. necessarily reduce the proportion of the other inhabitants of the state who initially do not share in the riches of the mines in question. The haggling in the market or the demand for meat, wine, wool, etc., which is stronger than usual, will in any case drive up their prices. These high prices will cause the tenants to use more land to produce these things in another year; these same tenants will benefit from this increase in prices and, like the others, will increase the expenses of their families. Those who will suffer from this inflation and increased consumption will therefore first be the landowners during the term of their leases, then their servants and all workers or employees with fixed salaries who receive their families from it. All of these will have to cut their spending in accordance with the new consumption, and this will force a large number of them to leave the state to seek their fortune elsewhere. The owners will lay off many of them and it will happen that the rest of them will ask for a wage increase in order to be able to live as they were used to. This is roughly the way in which a considerable increase in the money from mines increases consumption and, while decreasing the population, results in greater spending by those who remain behind. "
The cantillon effect received special attention from the founders of the Austrian School of Economics such as Ludwig von Mises and Friedrich August von Hayek , who called for a limit on the amount of money.
Effect on income distribution
Critics see the monetary policy of the US central bank since the financial crisis in 2008 as a typical example of a Cantillon effect, from which the banks in particular benefited, while the money only reached the real economy much later and certain sectors did not even reach it. The influence of politically favored groups on money creation, e.g. B. in developing countries without a strong central bank is described with the help of the effect: “The president orders the central bank to send an armored truck full of cash to his house. The president's wife goes into town and pays for her shopping spree with cash from the truck. "
Excessive lending, which today is not only done by the central bank, but also through the private creation of deposit money, helps ensure that only borrowers benefit from the money creation. However, low-income groups are unable to obtain credit without collateral. Hence, generous lending increases income inequality. Thomas Mayer assumes that this cause of the increasing inequality in the distribution of financial assets is more relevant than the factors named by Thomas Piketty .
Individual evidence
- ^ Kurt Schuler: Cantillon effects in Africa at www.alt-m.org , December 15, 2012.
- ↑ Thomas Mayer: The true cause of inequality. In: faz.net, September 27, 2014.