My friend, Eric Zencey, has just posted this outstanding article at George Mason University’s History News Network:
Seigniorage
Chances are that unless you’re a total financial policy wonk, you’ve never heard the term “seigniorage.” But you should, because doing the right thing with it could help solve two large and interrelated problems: instability in our financial system and unsustainable destruction of ecosystems.
As a concept, seigniorage is as old as money. It’s the difference between the face value of money and its cost of production—the profit that comes from creating money. When money was coined in valuable metals, seigniorage wasn’t very significant; a shekel had to contain something like a shekel’s worth of silver, or it wouldn’t be accepted as a token of exchange. The advent of paper money and the more recent development of fiat money—money backed not by metal but by the faith and credit of a government—led to a dramatic increase in seigniorage. If it costs one cent to print a hundred dollar bill, the seigniorage on that bill is ninety nine dollars and ninety-nine cents.
By long tradition, and by general consensus among anyone who ever thought much about it, seigniorage belongs to the sovereign power that issues money. In our system, that’s us: we, the people. But in the largest subsidy program ever instituted by any government anywhere, most of our seigniorage is given away free to the institutions that create most of our money supply: private banks.
Eric Zencey is a novelist, essayist, and Visiting Associate Professor of Historical and Political Studies for Empire State College in Europe and New York. His writing in environmental history and political theory has been supported by grants from the Rockefeller, Guggenheim, and Bogliasco Foundations. This essay is from the forthcoming The Other Road to Serfdom: Essays in Sustainable Democracy (University Press of New England, Fall 2011).