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This paper presents a novel perspective on industrial practices in modern competitive capitalist economies, questioning, in particular, the link between prices, competition, and the quality of goods and services. It tries to characterize a business practice that consists in reducing prices and maintaining (or increasing) profit margins by reducing the quality of goods and services while still presenting them as the same as before. The paper is primarily concerned with the practice of producing inferior quality goods by reducing the quantity of inputs used in the production process, or mixing inputs with cheaper constituents. The proposed term for this practice, "industrial seigniorage," is based on the historical privilege of feudal lords (from Old French seigneur), who—possessing the right to mint gold coins—made a profit by adding cheaper base metals to the bullion. The present, essentially exploratory investigation attempts to delineate the widespread existence of such practices in various industrial sectors. It strives to explain the fundamental elements of consumer behavior that enable this practice to exist and discusses the effects of industrial seigniorage on several social issues. The attempt of the paper is finally to show that contrary to the ideology of capitalism, competition does not necessary lead to benefits for consumers or to an increase in product quality.

"Geldregal bedeutet das hergebrachte Vorrecht des Staates, in seinem Hoheitsbereich die
offizielle Währung zu bestimmen und die gesetzlichen Zahlungsmittel in dieser Währung
zu schöpfen und in Umlauf zu bringen. Daraus erwächst dem Staat ein Geldschöpfungsgewinn. Dieser wird als Seigniorage bezeichnet. Die Seigniorage besteht in der Differenz zwischen den Produktions- und Bereitstellungskosten der Zahlungsmittel einerseits und ihrer Kaufkraft andererseits, die der Staat realisiert, indem er neu geschöpfte Zahlungsmittel durch öffentliche Ausgaben in Umlauf bringt. Vor der Währungsunion betrugen die Produktionskosten eines 1-Mark-Stücks 16 Pfennige.
Die Seigniorage, hier als Münzgewinn, betrug damit 84 Pfennige oder 84% abzüglich
der Verwaltungs- und sonstigen Transaktionskosten. Die Produktion einer deutschen
Banknote kostete durchschnittlich 15 Pfennige. Auch die Herstellungskosten für
die jetzigen Euro-Banknoten betragen im Durchschnitt 7–8 Cent pro Geldschein. Dabei
handelt es sich zumeist um 10, 20 und 50 Euro-Scheine (Figna 2004). Bei Banknoten ist
die Seigniorage also noch höher als bei Münzen, und bei unbaren Sichtguthaben am
höchsten, da die Herstellungskosten (nicht die Transaktionskosten) in diesem Fall nahe
null liegen – oder richtiger gesagt, sie wären es, würde dieses Geld durch Staatsausgaben in Umlauf gebracht und nicht, wie heute, durch Kredit der Zentralbank an die Banken bzw. der Banken an das Publikum." (Textauszug)

This paper applies a two-country framework that allows for currency substitution in an environment in which policymakers optimally vary interest rates in light of utility-based objectives, one country pegs the value of its currency to the other nation's currency, and government revenue is generated via explicit taxes and seigniorage. The analysis illustrates the roles that currency substitution, currency preferences, and efficiency of tax systems play in contributing to the likelihood of a "run" on one nation's currency. We explore how these factors interact to influence the probability of a currency crisis in the country that fixes its exchange rate.

"In this paper, we consider a government that executes a permanent open market sale. The government is forced to eventually use money creation to pay for the debt's expenses, choosing between changing either the money growth rate (the inflation-tax rate) or the reserve requirement ratio (the inflation-tax base). We first derive conditions under which each of the two second-best alternative policies are feasible in an economy with neoclassical production. Armed with these conditions, we ask the following question: Which monetary policy action is better in a welfare sense? With neoclassical production, monetary policy potentially has long-run effects on the capital stock and the marginal product of capital. The curvature of the production function is crucial. The computational experiments show, somewhat surprisingly, that a permanent increase in government bonds is financed by either lower reserve requirements or faster money growth. Accordingly, steady-state welfare for all generations is higher under the reserve-requirement policy. "--Federal Reserve Bank of Dallas web site

Stochastic seigniorage, government debt and borrowing dynamics are modeled in the context of a transition economy. Rational investors assessing market risks, hedge against them and construct riskless portfolios of seigniorage and debts. Risk-neutral asset valuation made it possible to formulate equilibrium conditions for the debt sustainability. Lending to the government is considered as a perpetual American call option that is optimized with respect to seigniorage without defaulting on the debt outstanding. The model is applied to the August 1998 domestic debt default in Russia to determine short-run effects of seigniorage upon the government debt sustainability.