"You watch your tail, cowboy."
--Nick Conklin (Black Rain)
These pages have used the term 'first user advantage' to describe the benefits that go to those who are the first to get their hands on newly printed cash. While the advantage seems obvious in the case of 'counterfeiters' who print dollar proxies and use them to buy things, it is equally applicable to governments that print cash by fiat.
It turns out the first user advantage is part of what is known as the Cantillon Effect. Richard Cantillon was an Irish-French economist who opposed the inflationary policies of John Law. By understanding the flaws of Law's ponzi-like schemes, Cantillon profited handsomely by taking the other side of trade in the Mississippi and South Sea Bubbles.
Around 1730, Cantillon wrote The Essay on Nature of Commerce in which he conducted pathbreaking analysis of monetary and political economy. Cantillon's Essay remained relatively obscure until resurrected by William Stanley Jevons, the famous English economist of marginal utility fame, more than a century later.
Cantillon was the first to coin and advance the term 'entrepreneur.' Cantillon saw entrepreneurs as non-fixed income earners who pay known costs of production but earn uncertain incomes due to the speculative nature of selling products to buyers with unknown demand.
Cantillon's Essay made several central points concerning inflation. He demonstrated that increasing money supply can have short term positive effects on the economy, but over time the positives would turn to negatives as prices rise and imports increase.
He also showed that inflation does not affect all prices equally or at the same time. Instead, prices are be affected sequentially depending on the spending behaviors of money holders along the channels of money flows.
Those positioned upstream in the channel spend newly minted cash first and get the most bang for their buck. That is first user advantage--part of the Cantillon Effect.