Thursday, December 6, 2012

Quote of the day

"The true irony in all of this discussion is that everybody concedes as a matter of course that the government benefits from having the printing press, i.e. from being the first person in line to get the newly created money. But gee Sheldon Richman and you other Austrians, that doesn’t count as an injection effect mattering! That’s what we call “seignoriage.” So I guess the term for what the monetary authority earns, by creating new money, is actually “fiscal policy”?"

- Bob Murphy

The context of this is that Rowe and Sumner have been doing an admittedly odd move in the Cantillon effects debate where anyone that gets any benefit differentiated from anyone else is really "fiscal policy", not "monetary policy".

That close to assuming your conclusions, if not exactly assuming your own conclusions.

I always had this funny idea that "monetary policy" was either what the central bank did sans its regulatory role, or what the Treasury did when it acted like a central bank (like minting coins). We can of course argue over what's worth labeling "conventional" and "unconventional" monetary policy.


  1. Normally I would call the revenue from a printing press "seignorage". That is, when the government prints money even if everyone knows about that and price rise in anticipation of the event then the government gets extra revenue.

    The "Cantillon Effect" part of it is due the public's imperfect expectations of the future which mean that prices probably won't rise in anticipation as far as they will finally when the new money is spent.

    1. Calling it fiscal policy also sounds weird in a world in which gold miners are the guys spending the new gold. An old grizzly prospector doing fiscal policy?

      I like Current's point. The profits that a miner earns from a newly discovered gold mine are his seignorage. The Cantillon effect is that little extra bit of gravy on top. If he keeps the new discovery quiet then prices won't rise in anticipation and he'll be able to buy more with each ounce.

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    3. Gold makes things more interesting. Suppose we have an economy which uses gold money but where most gold is in jewellery and other non-monetary stocks. In that case the price will mostly be determined by the supply and demand for industrial gold. In that case the gold miner isn't really profiting from "seignorage" very much at all, even if he incidentally sells his gold to make coins. I think though that in all practical gold standards* the demand for monetary gold has set the price of gold and gold miner have earned their profits from seignorage.

      * except perhaps the Gold-Exchange Standard in British India, I'm not sure about that one.

  2. Nope. How much seigniorage is monetary policy. What the government spends that seigniorage on is fiscal policy.

    And it's peanuts, compared to regular fiscal policy. Austrians have a peanut allergy. Or maybe a peanut fetish, or something. But certainly an inordinate preoccupation with what that particular 1% of total taxes gets spent on.


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