A thread about how monetary expansion exacerbates income and wealth inequality.

When the Fed increases the money supply or when credit is expanded by banks, the new money enters the economy through a particular point. One group of people gets to be the first to spend the new money. The new money does not increase everybody's incomes propotionally.

What this means is that these people get to increase their demands for goods and services (including durable and financial assets) before everybody else. The prices of these goods will begin to rise relative to other prices and this would not have happened without the expansion.

After the money is spent the first time, there is a new group of people holding the money—the people who sold to the first spenders. The second group can now do the same, though some of them now face slightly higher prices for some of the goods due to first step increased demand.

The third step works the same, and the fourth, fifth, and so on and so forth. Each time, more prices rise, and some prices rise higher.

Think about the first spender, who bought stock, and now the price of that stock has increased due to the later spenders buying the same stock.

The last people to receive the new money are at the end of the line. They have not had an increase in their incomes, but they had to pay all of the higher prices from everybody else's spending spree.

The people nearer (not necessarily geographically) to the source of the new money are able to acquire resources that produce incomes for them indefinitely.

New money shifts real resources away from some and toward others in a way that permanently affects income and wealth.

None of this is controversial. It is well-known that new money pumps up stock market prices.

It is no stretch to say the beneficiaries of monetary expansion are those who are in the stock market.

But this is more than just stocks. Houses, land, etc. can get the boost, too.

If you are interested in reading more, here is Jörg Guido Hülsmann's paper on this same topic: http://granem.univ-angers.fr/_resources/Cahiers/2013/DT_GRANEM_02_39.pdf?download=true

My friend @LouisROUANET also has a Mises Wire piece: https://mises.org/library/how-central-banking-increased-inequality

"Cantillon effects" describes the unevenness associated with money creation. Interestingly, Austrian business cycle theory is just a special application of this idea. An unsustainable boom is set in motion by credit expansion due to malinvestment and overconsumption.

So don't let the left blame free market capitalism for income and wealth inequality. And don't let them use "trickle down" as a discrediting label for anything. There is nothing more "trickle down" than money printing by the govt from on high.