Does the Bank of England Worry About the Cantillon Effect?

The empirical data is in. And it turns out that as I have been suggesting for a very long time — yes, shock horror — helicopter dropping cash onto the financial sector does disproportionately favour the rich.

The Guardian:

The richest 10% of households in Britain have seen the value of their assets increase by up to £322,000 as a result of the Bank of England‘s attempts to use electronic money creation to lift the economy out of its deepest post-war slump.

Threadneedle Street said that wealthy families had been the biggest beneficiaries of its £375bn quantitative-easing (QE) programme, under which it has been buying government gilts for cash since early 2009.

The Bank of England calculated that the value of shares and bonds had risen by 26% – or £600bn – as a result of the policy, equivalent to £10,000 for each household in the UK. It added, however, that 40% of the gains went to the richest 5% of households.

Although the Bank said it could not come up with precise figures for the gains from QE, estimates can be produced using wealth distribution data from the Office for National Statistics. These show the average boost to the holdings of financial assets and pensions of the richest 10% of households would have been either £128,000 per household or £322,000 depending on the methodology used.

Here are a few questions for Britain’s monetary overlords at the BoE:

  1. Are you concerned about the long-term social and economic implications of a monetary policy that enriches the rich over and above everyone else?
  2. Are you familiar with the concept of the Cantillon Effect whereby the creation and allocation of new money transfers purchasing power to whoever it is allocated to? Did you consider this effect prior to embarking on a program of quantitative easing to the financial sector?
  3. Given the financial sector’s awful track record in terms of blowing up the economy, fabricating LIBOR data for its own enrichment, and neglecting cash-starved small businesses, is the financial sector an appropriate allocator of new money?
  4. Now that the empirical record shows the policy of helicopter-dropping cash directly to the financial sector disproportionately favours the rich, have you considered changing course and adopting a different monetary policy that doesn’t favour any particular group?

Sadly, I expect to see the announcement of more quantitative easing to the financial sector long before I expect to see answers to any of these questions.

16 thoughts on “Does the Bank of England Worry About the Cantillon Effect?

  1. You might find these researchers on sunspot cycles and grain prices interesting:

    Louis Thompson (drought cycle) – From Trade Winds
    Vol. 3 No. 16, April, 1988

    Henrik Svensmark – drought cycles and how sunspots create drought

  2. Whether you are talking about central bankers or a bunch of kindergarten children out on the playground, each group is going to act in their own interests. This tendency seems to be firmly governed by human nature.

    Although I don’t believe that bankers are necessarily plotting the downfall of the middle classes, their policies will ALWAYS favor themselves, and therefore, adversely affect those who actually produce wealth.

    All historical versions of society have their elite, and the rest. Since the elite believe that they are somehow better than everybody else, their rules reflect this perceived reality. Banking is just a particularly virulent form of appropriation because its mechanisms are generally opaque and its actions steeped in confusion and mystery.

    Even still, until the majority feel as if the idea of obtaining something for nothing is unacceptable, banking will continue to be the preferred method of separating people from their labor-value earned. To their credit, banking is much more effective than is actual war.

    It’s not really that people have a problem with bankers/banking, it’s just that they have trouble not being one. Being that this seems to be the case, we being humans got a ways to go.

  3. In a funny way the disagreement about subjectivity is well highlighted by Steven the economist, the man who presupposes his ostensibly mathematical models can somehow manage to reflect the reality of 6+ billion infinitely complex individual characters trading daily…the disliker of cemented objectivity appealing to a scientific modeller to confirm his personal bias against subjectivity by way of alleged empirical thinking….the irony is quite obvious….It seems many of the economists whose expressions I have encountered think they can somehow model a human beings behaviour, and by implication the phenomena we call trade…into some grand result to magically advance as light years ahead of where we are now…perhaps a simple bit of humility would be more likely to achieve this….for as the below communication mentions:

    Scientists carried out their analysis of nature to the point where they shot themselves in the foot. Science carried out an analysis of nature that actually went to such a far reaching depth…it discovered that nature herself is not really real, except as an object of description – a focal point for us to communicate about, for the world of humans, including even the discipline of science…cannot exist independent from the act of our description…..

    • Interesting presentation.

      He could save a great deal of breath and special effects by simply stating that, “reality in not accessible through the intellect.”

    • The Statists and their Scientific Keynesian/Monetarist hybrid economists would argue that having enough data collection points in the future, with bigger Super computers, we WILL be able to predict human behaviour. Their controlling personal psychological nature will be comforted knowing they are in control. Despite irrational behaviour of a few individuals they will generally be able to control the “Pulse” of the general population. The Cantillion effect will “trickle” down and “stimulate” the CONSUMPTION of the masses.

      Why is there a battle between the Free Market, and a Controlled Market? I propose this thought. Take two children from two different lines of family:

      One family has a controlling Paternalistic Matriarch/Patriarch. This Obsessive Compulsive Disorder seeks “control” which manifests in the upbringing of children who exhibit these traits. These Children would grow up with a view of the world that must be tamed, managed, controlled. They would have a predilection for Keynesian and Monetarists philosophies and an expanded State that provides “Comfort” to their desire for control.

      The other family has a free nature, where children are given opportunity to explore their surroundings without overbearing parents. Their parents having a similar family background and upbringing. To apply control and regulation on these people would incite suffocating fear and resentment. Their love for freedom would encourage their opposition to the attempts by the family to capture the Political process. This family would welcome Austrian economic theories and they would also resist monopolies that develop though government regulation.

      In response to the video above, all I can say as a Deist, is that humans are mere children in their understanding of science. We will look back in 500-1000 years (If we don’t follow the path of evolution proposed by the movie “Idiocracy”) and laugh at the naivety of our scientific understanding. Perhaps the Statists will unlock the “formula”. I doubt it, but I am a Kozak, a free man. I do not agree with government control, and interference in the economy. I take the view that our civilisation would be a different reality if it took a free path, as opposed to a controlled path. The unseen due to interference could have been seen.

    • ‘Words’ are ‘Symbols’, they need to be interpreted, and it is the ‘interpretation’ from which we derive ‘meaning’ – meaning, from within ‘Word-based-Language’ only a “Symbolic World” may emerge; yet, when you stub your toe, the door jam was no “Symbol”!@

      The “CONCEPTUAL world” is YES, made out of Language or Char[coal]ACTors.

      Let us Remember : “Concepts” or ‘Thought-Creations’ : ARE death to the ‘Spirit of Emotion’, since our Emotions are without words, as Freud so correctly stated, “Lovers need no Words (or Symbols to Communicate)”, and since lovers know what they mean to each other, the language of love is precise, yet without symbols to convey “meaning”.

      So an economy built from Love, would arise non-linguistically or non-Symbolically, and could function ‘engineered to precision’!

      Terence McKenna’s proposition : First Language and then Secondarily : A Physical or Mental or Minded-World : is Muddled Thinking : First Idea or Proposition without words, and then MANifestation through culturally shared ‘Symbols or a Language” through eventual or not ‘Actualization’.

      The Free Greed Path has already been tried and Failed, that’s Why Child labor laws are in place, and Environmental Regulation, and Workplace Safety, and, and, and…yet the path of ‘Volunteerism’ has not been tried, and in that sense yes ‘The Free Path’ has yet to be born; yet to be a Volunteer you must be FREE Mentally, and most minds are imprisoned or held back in Guilt & Fear and Shame & Blame.

  4. The unseen is seen; in fact it advertises itself for the world to stare at – in confused astonishment. As Cambridge Uni Professor The Hon. David Walter Runciman has suggested in his latest book as well as previous writings he has penned, “the State [is] nothing more than a fiction”. I recommend:

    Political Hypocrisy: The Mask of Power from Hobbes to Orwell and Beyond (Princeton: Princeton University Press, 2008).

  5. Pingback: The Shape of 40 Years of Inflation « azizonomics

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