I understand that the seigniorage of an asset is the difference between the cost of production and the value of money, but what does this look like for a physical good like gold, wheat, or cocoa beans?

Let's say it costs $10 to farm 100 cocoa beans, and I can sell each bean for $1.

$100 - $10 = $90

Is my seigniorage $90?

The $90 feels like it's coming from the intrinsic value of the cocoa bean rather than its value as money. For example, maybe out of the $90 profit, the seigniorage is really only $5 and the $85 is coming from the intrinsic value of the bean.

2 Answers 2


What you're describing is simply "gross profit".

Seigniorage is special. As with many things, we can consult Harry Potter. And the Methods of Rationality.

Heaps of gold Galleons. Stacks of silver Sickles. Piles of bronze Knuts. Harry stood there, and stared with his mouth open at the family vault. He had so many questions he didn’t know where to start.
From just outside the door of the vault, McGonagall watched him, seeming to lean casually against the wall, but her eyes intent. Well, that made sense. Being plopped in front of a giant heap of gold coins was a test of character so pure it was archetypal.
“Are these coins the pure metal?” Harry said finally.
“What?” hissed the goblin Griphook, who was waiting near the door. “Are you questioning the integrity of Gringotts, Mister Potter-Evans- Verres?”
“No,” said Harry absently, “not at all, sorry if that came out wrong, sir. I just have no idea at all how your financial system works. I’m asking if Galleons in general are made of pure gold.”
“Of course,” said Griphook.
“And can anyone coin them, or are they issued by a monopoly that thereby collects seigniorage?”
“What?” said McGonagall blankly.
Griphook grinned, showing very sharp teeth. “Only a fool would trust any but goblin coin!”
“In other words,” Harry said, “the coins aren’t supposed to be worth any more than the metal making them up?”
Griphook stared at Harry. McGonagall looked bemused.
“I mean, suppose I came in here with a ton of silver. Could I get a ton of Sickles made from it?”
“For a fee... ... ... A twentieth part of the metal would well pay for the coining."

So. This is saying that the difference between a Sickle and a same-weight nugget of silver is that Gringotts has inspected the silver and affirmed that it is truly entirely silver. And then, they have coined it with Gringotts' imprint so it can be easily identified.

And (so Griphook claims) Gringotts has a functional monopoly since only it is trusted.

And Griphook is saying that Gringotts will take any random silver you walk in with, validate it as a true silver, coin it into valid Sickles, and give it back to you - as a service, for 5% of the metal.

And that is the seigniorage. It is the cost of (or in this case, the fee of) converting raw metal into coins people will trust.

Now, for coffee beans, your seigniorage is going to be 0 since no party is turning the bean from a physical good with value to a special currency. ** The value of the bean as a physical good IS its value as money. ** Similarly, in the Harry Potter example, if there were no Gringotts, the silver could be used purely as a currency, without any seigniorage.

Now, if Gringotts took the beans, made them into a bar of special chocolate, and sold them back for double to be used as payment at their bank, the seigniorage would be that doubling.

So to answer the original question, the $90 made is simply profit, which is derived from the intrinsic value of the coffee beans.

If one central party then defined the bean as a currency to pay for thing, and the price of the beans went up by X, the seigniorage would be that X in price increase that came from the bean being turned into an officially observed currency.

  • This was really helpful! But ok, so what happens if the local currency IS coffee beans, it sounds like then you're saying the seigniorage is 0, since no one is profiting from turning the coffee beans to a currency, and so the value of the coffee bean IS the value of the currency, with 0 seigniorage. Commented Oct 5, 2022 at 22:17
  • 1
    @Patrick Yeah, because there's nothing to do, in order to turn the raw material into money. Though buying a Mac Pro would be awkward... Commented Oct 5, 2022 at 22:49

If it costs $10 to print a $100 bill, then the government has profit of $90 dollars. That delta is the seigniorage. The term specifically refers to the difference between the face value of the currency and the production costs and is used in governmental accounting. This is generally how money is created. Read more here. It is not used to describe the intrinsic value of the currency (for example gold coins with $50 face value may be worth much more if sold as bullions than if used at face value as currency).

The term specifically refers to the value arbitrage of currency (cost of production vs. face value), i.e.: bills and coins. It is not generally being used to describe a profit in general (like in your example of cocoa beans).

  • The Aztecs used cocoa beans as a currency back in the day. So we should be able to figure out the seigniorage of this currency. You can have a currency that is a physical good - it doesn't necessarily have to be "exclusively" a money object. Commented Oct 4, 2022 at 12:23
  • @PatrickCollins currency by definition is "a money object", that's what currency is. If you know what was the face value of the cocoa beans - you can figure out the seigniorage. But given that anyone can grow them, I doubt there's any. Don't confuse barter exchange with money.
    – littleadv
    Commented Oct 4, 2022 at 14:26
  • Maybe this is a bigger question then. Currency and money can be any object. Let's use something easier, for example silver. Silver has value outside of that of being a currency, like being a conductor for electronics. If silver is your money, how can you find it's seigniorage and separate that from the value of the currency? Commented Oct 4, 2022 at 15:29
  • Is my seigniorage of silver in the same example of the question still $90? Or is there a difference between its value as a currency from its value as a commodity? Commented Oct 4, 2022 at 15:30
  • @PatrickCollins you don't have any seigniorage because you're not a seignior. You're not minting coins, the government does. As I said in the answer - seigniorage = face value - production const. Production cost would include the intrinsic value (at the time of production).
    – littleadv
    Commented Oct 4, 2022 at 16:09

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