--- title: "Cantillon Effect: What It Is, Examples & How Bitcoin Fits" description: "The Cantillon Effect: new money helps whoever gets it first. See how assets beat wages from 2020 to 2022, who Richard Cantillon was and where Bitcoin fits." url: https://www.swanbitcoin.com/economics/cantillon-effect/ --- # Cantillon Effect: What It Is, Examples & How Bitcoin Fits The Cantillon Effect: new money helps whoever gets it first. See how assets beat wages from 2020 to 2022, who Richard Cantillon was and where Bitcoin fits. --- **Mickey Koss, Drew and Matt Ruby** · June 1, 2024 · Updated November 12, 2026 The Cantillon Effect is the idea that new money does not raise all prices at once: whoever receives it first can spend it before prices adjust, and whoever receives it last pays the higher prices. It is named after Richard Cantillon, an 18th-century Irish-French banker and economist who first described it. In practice, the first recipients today are governments, banks and owners of financial assets, and the last are people living on wages and savings. **The Cantillon Effect in short:** - New money is created by a central bank or through government borrowing. - It reaches some groups first, such as banks, government contractors and asset markets. - Those groups spend or invest it before prices rise across the economy. - By the time the money reaches wages, prices have already moved, so later recipients lose purchasing power. ## What is the Cantillon Effect? The Cantillon Effect describes how an increase in the money supply changes relative prices and redistributes wealth, depending on where the new money enters the economy. Inflation is not an even tide. It spreads from the point of injection outward, and the people closest to that point gain at the expense of those furthest away. ### Who was Richard Cantillon? Richard Cantillon (born in Ireland between 1680 and 1690, died 1734) was a banker and economist. His only surviving work, *Essai sur la Nature du Commerce en Général*, was written around 1730 and published in 1755. [Wikipedia](https://en.wikipedia.org/wiki/Richard_Cantillon) summarizes his argument: inflation occurs gradually, new money has a local effect on prices, and "the original recipients of new money enjoy higher standards of living at the expense of later recipients." [![Excerpt from Wikipedia's Richard Cantillon article describing non-neutral money and the Cantillon Effect, beside a diagram of Cantillon's circular flow model linking property owners, farmers, entrepreneurs, labor and artisans](https://www.datocms-assets.com/56652/1707868192-wiki.png?auto=format)](https://en.wikipedia.org/wiki/Richard_Cantillon#cite_note-65) Wikipedia ## How the Cantillon Effect works, step by step ### Step 1: New money is created New money enters the economy mainly through two channels: government deficit spending financed by borrowing, and [quantitative easing](https://fee.org/articles/the-cantillon-effect-because-of-inflation-we-re-financing-the-financiers/) (QE), where a central bank creates reserves to buy bonds. QE pushes interest rates down and increases the money supply, which can lead to [monetary debasement](https://www.swanbitcoin.com/economics/bitcoin-a-digital-benchmark-for-tracking-fiat-debasement/). ### Step 2: The government borrows and spends When the [government spends](https://www.swanbitcoin.com/politics/the-government-is-spending/) more than it collects in taxes, it borrows the difference. As of November 9, 2026, total US public debt outstanding was about $40.56 trillion, according to the [US Treasury](https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/). ### Step 3: The central bank buys bonds To lower interest rates or respond to a crisis, the Federal Reserve creates money and buys bonds. Higher bond prices mean lower yields, so borrowing gets cheaper. The Mises Institute calls the result [financialization](https://mises.org/mises-wire/misesian-insight-cantillon-effects-and-financialization): new money flows first into financial markets. ### Step 4: First recipients buy assets Banks, large investors and businesses with access to cheap credit receive the new money first. They use it to buy assets such as stocks, bonds and real estate, before prices adjust. Large [institutions on Wall Street](https://www.swanbitcoin.com/industry/are-institutions-feeling-the-fomo/) sit closest to the source. ### Step 5: Prices rise for everyone else As the money circulates, prices for everyday goods rise too, from [energy](https://www.swanbitcoin.com/economics/accounting-for-bitcoin-in-a-world-of-rising-oil-prices/) to groceries. By then, asset prices have already moved. People who own few assets face [higher prices](https://www.swanbitcoin.com/economics/rampant-inflation-is-on-the-way-and-heres-what-it-means-for-bitcoin/) without having gained from the rise in asset values. Lyn Alden explains how this widens [wealth inequality](https://www.lynalden.com/qe-and-inequality/). [Video](https://www.youtube.com/watch?v=C1AWl-40KXY) ## The Cantillon Effect in numbers: 2020 to 2022 The 2020 pandemic response is the clearest recent example. Between early 2020 and spring 2022, the Federal Reserve held its policy rate near zero (the effective federal funds rate was between 0.05% and 0.10% from April 2020 to December 2021) and more than doubled its balance sheet. Here is how different prices responded over roughly the same period, calculated from Federal Reserve Economic Data (FRED): - **Fed balance sheet:** $4.24 trillion (March 4, 2020) to $8.97 trillion (April 13, 2022), **2.1 times larger** - **M2 money supply:** $15.49 trillion (February 2020) to $21.77 trillion (March 2022), **up 40.5%** - **US home prices** (S&P Case-Shiller national index): **up 38.3%** (February 2020 to March 2022) - **S&P 500:** 3,386 (February 19, 2020) to 4,530 (March 31, 2022), **up 33.8%** - **Average hourly earnings** (production and nonsupervisory workers): $24.03 to $27.10, **up 12.8%** - **Consumer prices** (CPI): **up 11.0%** (February 2020 to March 2022) Asset prices rose about three times as fast as wages and consumer prices. Owners of homes and stocks, who sit close to where new money enters, gained far more than people who earn and save in dollars. That gap is the Cantillon Effect. Swan covered the Bitcoin side of this period in [tracking Bitcoin's rally after the 2020 cash injection](https://www.swanbitcoin.com/investing/tracking-bitcoin-rally-after-the-cash-injection-of-2020/). **Where things stand in November 2026:** - The Fed's balance sheet was $6.75 trillion on November 4, 2026, below its 2022 peak but well above the $4.24 trillion of March 2020. - M2 was $23.41 trillion in September 2026, 51% above February 2020. - Consumer prices were 30.2% higher in October 2026 than in February 2020, and 3.7% higher in September 2026 than a year earlier. - The Fed's target range for the federal funds rate had an upper bound of 4.00% on November 11, 2026. A dollar saved in February 2020 buys about 77 cents' worth of goods today. ![Pyramid of glasses with a dollar sign above the top glass, showing how new money fills the first glasses before it reaches the ones below](https://www.datocms-assets.com/56652/1701706846-cantillion-4.jpg?auto=format) ## Is the Cantillon Effect the same as inflation? No. Inflation is the general rise in prices. The Cantillon Effect is about the order in which prices rise and who benefits from that order. Two economies with the same inflation rate can have very different Cantillon Effects, depending on whether new money enters through asset markets, banks, government contracts or direct payments to households. ## The Cantillon Effect and Bitcoin Bitcoin has no Cantillon Effect at the source, because no one can create new Bitcoin at will. Its supply is fixed at 21 million, and new coins are issued on a published schedule to miners who do work for them. There is no central bank, no first recipient with special access and no lender of last resort. That is why many Bitcoiners describe it as a way to [opt out](https://www.swanbitcoin.com/culture/yours-truly-bitcoin/) of a system where the closest players benefit most. Savings held in an asset with a fixed supply can't be diluted by new issuance, which is why some investors see Bitcoin as a place for savings to [keep pace with monetary inflation](https://www.swanbitcoin.com/analysis/cash-flow-into-bitcoin-next/), and why it appeals to [younger savers](https://www.swanbitcoin.com/culture/why-bitcoin-is-what-millennials-are-looking-for/) priced out of homes and stocks. A related principle, [Gresham's Law](https://www.swanbitcoin.com/economics/greshams-law/), explains why people spend weaker money and save stronger money. Some Bitcoiners also describe a "reverse Cantillon Effect": people who adopt Bitcoin early, before wider demand arrives, are positioned the way first recipients of new money are in the fiat system, except that they buy in voluntarily rather than through privileged access. ### Bitcoin ETFs, IRAs and new money Since US spot Bitcoin ETFs began trading in January 2024, Wall Street money can reach Bitcoin through the same brokerage channels that new money flows through. If you want to hold Bitcoin itself rather than a fund, compare [Bitcoin ETF fees](https://www.swanbitcoin.com/education/bitcoin-etf-fees/) with owning Bitcoin directly, or hold it for retirement in a [Swan Bitcoin IRA](https://www.swanbitcoin.com/bitcoin-ira/). Our guide explains [why Bitcoin suits an IRA](https://www.swanbitcoin.com/investing/why-bitcoin-is-the-ultimate-asset-for-your-ira/). [Video](https://www.youtube.com/watch?v=HGeqbS62LcQ) ## Frequently Asked Questions ### What is the Cantillon Effect in simple terms? New money benefits whoever receives it first. They spend it before prices rise, and the people who receive it last pay the higher prices. ### Who benefits from the Cantillon Effect? Those closest to where new money enters: governments, banks, large financial institutions and owners of financial assets. People who rely on wages and cash savings benefit least. ### What is an example of the Cantillon Effect? Between February 2020 and March 2022, US home prices rose 38.3% and the S&P 500 rose 33.8%, while wages rose 12.8% and consumer prices 11.0% (FRED data). Asset owners gained most from the new money. ### What is the reverse Cantillon Effect? A term Bitcoiners use for early adopters of a fixed-supply money gaining as demand for it grows, without anyone printing new units. It is the opposite of gaining from privileged access to newly created money. ### Does Bitcoin solve the Cantillon Effect? Bitcoin can't change how dollars are created, but it has no issuer that can create new units, so holders are not diluted by new issuance. You can learn more about how Bitcoin reaches agreement without a central authority in our guide to the [Byzantine Generals Problem](https://www.swanbitcoin.com/education/byzantine-generals-problem/). ## Sources - Wikipedia, [Richard Cantillon](https://en.wikipedia.org/wiki/Richard_Cantillon) - US Treasury, [Debt to the Penny](https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/) (November 9, 2026) - FRED, [Federal Reserve total assets (WALCL)](https://fred.stlouisfed.org/series/WALCL), [M2 (M2SL)](https://fred.stlouisfed.org/series/M2SL), [CPI (CPIAUCSL)](https://fred.stlouisfed.org/series/CPIAUCSL), [effective federal funds rate (FEDFUNDS)](https://fred.stlouisfed.org/series/FEDFUNDS), [federal funds target upper limit (DFEDTARU)](https://fred.stlouisfed.org/series/DFEDTARU), [S&P 500 (SP500)](https://fred.stlouisfed.org/series/SP500), [Case-Shiller US home price index (CSUSHPINSA)](https://fred.stlouisfed.org/series/CSUSHPINSA), [average hourly earnings (AHETPI)](https://fred.stlouisfed.org/series/AHETPI), all retrieved November 11, 2026 - FEE, [The Cantillon Effect: because of inflation, we're financing the financiers](https://fee.org/articles/the-cantillon-effect-because-of-inflation-we-re-financing-the-financiers/) - Mises Institute, [Misesian insight: Cantillon effects and financialization](https://mises.org/mises-wire/misesian-insight-cantillon-effects-and-financialization) - Lyn Alden, [QE and inequality](https://www.lynalden.com/qe-and-inequality/) *For more information, please visit* [*swan.com*](http://swan.com/)*.* ## Mickey Koss Mickey Koss became a freelance writer in the Bitcoin space in an attempt to build a proof of work portfolio for when he left the Army. He graduated from West Point with a degree in Economics before serving in the Army for nearly a decade. He became orange pilled in graduate school and is now a regular contributor to Forbes, Bitcoin Magazine, and Bitcoin News. He’s been on popular podcasts such as BTC Sessions’ Why Are We Bullish, and is a regular on Café Bitcoin. ## Drew Drew, a class of 2013 Bitcoiner, is a Research Analyst for Swan Bitcoin. He has worked in institutional VC/PE, FinTech, and DLT consulting for over six years. He also brings over twelve years of experience working with national nonprofits and start-ups in education and software development in several leadership roles. ## Matt Ruby Matt Ruby is a seasoned content writer helping educate million worldwide about Bitcoin for Swan. Matt work with tech companies to create words, videos, and other content that makes them seem human. He specializes in taking boring/drab tech topics and making them interesting, educational, funny, and accessible to regular people.