The Cantillon effect describes how newly created money benefits those who receive it first, at the expense of those further from the source.
Named after the 18th-century economist Richard Cantillon, the key idea is that when new money enters an economy, it doesn’t arrive everywhere at once. Those closest to the source - typically banks and large financial institutions - can spend or invest it before prices adjust through inflation. By the time the money reaches ordinary people via their wages and spending, prices have already risen to reflect the increased supply.
The result is a quiet transfer of purchasing power:
- asset owners and early recipients benefit from rising prices,
- savers and wage earners are left with money that buys less than it did before,
- the effect compounds over time, widening the gap between those closest to and furthest from the monetary spigot.
The Cantillon effect is often cited by Bitcoiners because Bitcoin was designed to work differently. There is no central issuer, no discretionary expansion, and a fixed supply schedule that applies equally and predictably to all participants.