Click to copy, then share by pasting into your messages, comments, social media posts and websites.
Click to copy, then add into your webpages so users can view and engage with this video from your site.
Report Content
We also accept reports via email. Please see the Guidelines Enforcement Process for instructions on how to make a request via email.
Thank you for submitting your report
We will investigate and take the appropriate action.
What is the Hume-Cantillon Effect?
What is the Hume-Cantillon Effect?
At this point you may have realized that inflation works against you to make you poorer but did you know inflation works to the advantage of certain groups of people? In fact, the negative effects of inflation are not evenly distributed. Some people are positioned to profit from inflation at the expense of others. For most people, inflation will erode their standard of living.
The Cantillon effect refers to the uneven distribution of the burden of inflation, and surprisingly the benefits for some people. It states that when money is printed out of thin air, as the United States government is prone to do, the initial recipients of this new money, usually the banks and the government, benefit the most because the price levels in the economy has not fully adjusted to the influx of new dollars flooding it. Who is burdened the most by an increased supply of money I like to refer as money printing? It is working class people like you and me who receive the new money last. We face higher prices for goods and services before our incomes have increased accordingly, adjusting to inflation. If you are like most people, your wages and income will probably not fully increase at the rate of inflation even over a longer period of time, and in this way, you suffer two-fold. First, your money has reduced purchasing power as the price level in the economy rises. Second, your earnings never fully catch up to the increased price levels leaving you poorer overall.
For this reason, it is not enough to slow down the rate of inflation. Your wages must catch up to the increased price level. Because a lot of people’s incomes do not catch up, they continue to suffer the effects of inflation long after it has cooled.
I do not think it is much of a stress to say that, for many people, we are poorer and have a low standard of living post covid due to how expensive everything has gotten. Just look at the housing market. According to Redfin, American homebuyers need to earn about $115,000 a year in order to be able to afford the cost of the typical U.S. home. As of 2023, the average salary in the USA, according to Forbes, is $59,428
It is for these reasons, and many others, that I state that inflation hurts the most vulnerable parts of society the most while benefiting the government and banking system the most.
We can combine the Cantillon effect with the work of 18th century Scottish philosopher David Hume who proposed that an increase in the money supply would lead to a proportional increase in price, rather than magically creating economy activity as some people naively believe. In life and economics, a decision for one thing is often a decision against another thing. The benefits the government derives from money printing comes at the cost of its citizens and people who invested in government debt and other low interest-bearing investment instruments.
Together, the Hume-Cantillon effect states that the price level will increase to meet
Category | Business & Finance |
Sensitivity | Normal - Content that is suitable for ages 16 and over |
Playing Next
Related Videos
Beneficiary forms can override your will
6 months, 2 weeks ago
Return to office policies are not working
6 months, 3 weeks ago
Americans are spending like there is no tomorrow
6 months, 3 weeks ago
The Pepsi pivot from health foods back to chips and soda
7 months, 1 week ago
Student Loan Repayment: What is Biden’s SAVE plan?
7 months, 2 weeks ago
Top 10 Hottest Cities according to Realtor.com
7 months, 2 weeks ago
Warning - This video exceeds your sensitivity preference!
To dismiss this warning and continue to watch the video please click on the button below.
Note - Autoplay has been disabled for this video.