The Cantillon Effect: Why Those Who Receive Money First Always Win

The Monetary Secret Discovered by an 18th-Century Economist

In the 1730s, Irish-born economist Richard Cantillon observed a remarkable phenomenon in France. The French government had injected newly minted gold and silver coins into the economy, but the process by which this currency spread through society was anything but equal. The royal court and the merchants close to it received the new money first and purchased land and goods before prices rose. Meanwhile, farmers and ordinary workers didn’t receive wage increases until months later — by which time all prices had already risen.

Based on this observation, Cantillon formulated an important principle: New money does not seep into an economy equally. Those who receive the money first gain purchasing power, while those who receive it later lose purchasing power. This is the “Cantillon Effect.” Three hundred years later, this concept remains the essential framework for explaining the biggest structural problem in the modern monetary system.

How the Mechanism Works in the Modern Monetary System

How does the Cantillon Effect operate today? It begins the moment a central bank announces it will “increase the money supply” to stimulate the economy. For example, newly created money from the Bank of Korea or the U.S. Federal Reserve is not distributed directly to citizens. Instead, it follows a path like this:

Stage 1 — Financial institutions: The new money is first lent to commercial banks, or injected through the central bank purchasing bonds from financial institutions. At this point, banks secure funds at the cheapest cost.

Stage 2 — Large corporations and the wealthy: Banks lend these funds to highly creditworthy large corporations and wealthy individuals. These borrowers take out massive loans at low interest rates to purchase assets like real estate, stocks, and bonds. Since prices haven’t risen significantly yet, they can acquire assets at relatively low prices.

Stage 3 — Asset price inflation: As massive amounts of capital flow into asset markets, stock prices and real estate prices begin to surge. The wealth of those who already own assets grows.

Stage 4 — Ordinary consumers: Finally, employment increases and wages rise, and ordinary workers see their income grow. But by this point, housing prices, stock prices, and the cost of daily necessities have already risen. Nominal income has increased, but real purchasing power is the same or even diminished.

Throughout this entire process, the gap between those who own assets and those who don’t widens further. This is the hidden wealth transfer mechanism of the modern monetary system.

The Stark Evidence Shown by Post-2008 Quantitative Easing

The Cantillon Effect is not a theory — it is a reality proven by actual data. After the 2008 financial crisis, the U.S. Federal Reserve injected approximately $3.5 trillion in new money into the financial system through three rounds of quantitative easing from 2008 to 2014 (including post-2020 COVID-era QE, the total exceeds $8 trillion). The European Central Bank (ECB) and the Bank of Japan also implemented QE on a similar scale. Mainstream economics holds that without quantitative easing, the 2008 financial crisis could have led to a depression on the scale of the Great Depression. However, asking where the costs of that rescue went is the core of the Cantillon Effect.

The results were clear. From 2009 to 2021, the S&P 500 rose approximately 430% from its early-2009 baseline. Real estate prices in New York and San Francisco more than doubled. Meanwhile, during the same period, the median real wage of American workers barely moved. According to Oxfam’s 2020 report, the wealth owned by the top 1% globally was more than double the wealth held by the bottom 50%. This gap had widened considerably compared to pre-2008 levels.

Korea was no exception. After the COVID-19 pandemic in 2020, as the Bank of Korea lowered its benchmark interest rate to historic lows and supplied liquidity, 서울 아파트 prices rose approximately 30–50% between 2020 and 2022 (with variation depending on the district and statistical methodology). Those who already owned real estate enjoyed rising asset values, while the younger generation and those without homes despaired, coining the neologism ‘영끌’ (yeongkkeul — “scraping together everything, even your soul, for a loan”). This is a vivid case of how the Cantillon Effect operates in modern society.

Who Receives Money First

The key to the Cantillon Effect is “proximity.” The closer you are to the central bank and the money-creation system, the higher your probability of receiving newly printed money first. Wall Street investment banks, hedge funds, and large corporations winning government contracts sit at the front of the system. They gain immediate access to new liquidity through low-interest loans and bond sales.

Meanwhile, ordinary citizens, the self-employed, and small businesses are at the very end of the system. By the time they feel the effects of wage increases or rising business revenue, the benefits of the money supply increase have already been exhausted, and only the cost of rising prices remains. It is a structurally unfair game.

The Fundamental Alternative Bitcoin Offers

Bitcoin blocks the Cantillon Effect at the design level. How is this possible?

First, transparency of the issuance schedule. Bitcoin’s total issuance is fixed at 21 million, and new Bitcoin enter the world as mining rewards roughly once every 10 minutes. Who receives these rewards? Anyone in the world who contributes their computing power to the Bitcoin network. Not a specific bank, not a specific corporation, not a specific government agency. Anyone can participate in mining and receive rewards proportional to their contributed work.

Second, the issuance schedule is fully public. Bitcoin’s total supply, halving schedule, and issuance rate are specified in the source code and can be verified by anyone. Since it’s possible to know in advance when and how much will be issued, it’s impossible to front-run issuance information for profit. Central bank QE always involves insider information regarding the timing, scale, and beneficiary institutions, but in Bitcoin there are no insiders.

Third, the total supply is fixed. The prerequisite for the Cantillon Effect is the injection of new money. Bitcoin can never exceed 21 million, and new issuance decreases with each halving. Since new money is not created without limit, the root cause of the Cantillon Effect itself is eliminated. In Bitcoin, miners do receive newly issued BTC first, so a form of first-mover advantage exists. However, this is compensation for physical energy investment, and is fundamentally different from the fiat currency Cantillon Effect where money is received first through political connections.

The Cantillon Effect and Wealth Inequality

The Cantillon Effect is not merely an economic theory. It is the essential key to understanding the wealth inequality that is deepening around the world today. The Cantillon Effect is not the sole cause of wealth inequality. Technological change, globalization, education gaps, tax policy, and various other factors are at play. However, the invisible mechanism of money creation structurally deepening inequality is a core factor that receives too little attention.

Where did the tens of trillions of dollars in liquidity that developed-world central banks poured out after 2008 go? It flowed into stock markets, real estate, and bonds, driving up asset prices. Those who held assets became wealthier not because they were particularly more productive or worked harder, but simply because they were closer to the monetary system’s pipeline.

Consider Korea’s situation from 2020 to 2022. When the Bank of Korea lowered its benchmark rate to a historic low (0.5%) and supplied massive liquidity, the average price of 서울 아파트 rose approximately 30–50% between 2020 and 2022 (with variation depending on the district and statistical methodology). Those who already owned real estate sat and enjoyed asset gains of hundreds of millions of won, while those without homes — especially young people — saw the dream of homeownership move further away. This is the Korean version of the Cantillon Effect.

The phenomenon Richard Cantillon observed 300 years ago is a structural problem that will inevitably repeat as long as the fiat currency system exists. As long as the power to issue new money exists, those close to that power will play a more advantageous game.

Bitcoin rejects this structure from the design stage. A currency with no central issuance authority, a public issuance schedule, and a fixed total supply. Whether this currency — one Cantillon could never have imagined — will become the historical answer to his insight is something future history will reveal.