The Cantillon Effect Explained Simply: Who Benefits from New Money

Short answer: The Cantillon effect describes how new money doesn't reach everyone at the same time. Those who get it first, such as banks, the state and borrowers with collateral, still buy at the old prices. By the time it reaches wage earners, pensioners and savers, prices have already risen. New money thus shifts purchasing power from the back of the line to the front.

Your salary rises a little every year, and yet owning your own home keeps moving further away. Those who already had property or shares have grown richer over the same period without working more. That's no coincidence, and not purely a question of hard work. A banker described the mechanism behind it almost 300 years ago: the Cantillon effect. This article explains it without jargon, shows it with figures from Germany, Austria and Switzerland, and sets out what bitcoin changes about it.

What is the Cantillon effect?

The Cantillon effect is named after Richard Cantillon, a banker of Irish descent who worked in Paris in the early 18th century. He saw John Law's monetary experiments in France at close quarters and made a fortune from the speculative bubble around the Mississippi Company in 1719 and 1720. Around 1730 he wrote his "Essai sur la nature du commerce en général" (Essay on the Nature of Trade in General), which was only published in 1755, more than 20 years after his death.

In it he describes an observation that still holds today: more money doesn't raise prices everywhere at the same time and by the same amount. His examples were gold and silver from new mines. First, the mine owners and their workers spend the new money. The prices of the things they buy rise first. Only gradually does the money reach the rest of the country, and those at the end of the chain pay higher prices without having earned any more.

The simple formula "more money, higher prices" therefore leaves out the most important thing: the order. New money is never neutral. It redistributes purchasing power, from those who get it late to those who get it early. Ludwig von Mises and Friedrich August von Hayek later built on this idea; what the two taught about money is shown in The Austrian School and bitcoin.

How the Cantillon effect works: an example in four steps

Imagine a small village with a total of €1’000’000 in circulation. The municipality has €100’000 of new money made and gives it to a construction company for a new road.

The same applies to francs: CHF 10’000 of savings would also be worth only CHF 9’091 in old purchasing power after 10% price increases.

Where new money arrives first today

Nobody mines money anymore. New money is created at the central bank and, above all, when commercial banks issue loans. How that works exactly is explained in the article The fiat money system explained simply. For the Cantillon effect, what matters is who stands where in the chain:

Two examples from the euro area show how far forward the banks stand:

• Loans with a bonus: from June 2020 to June 2022, the ECB lent banks money through its long-term loans (TLTRO III) at rates as low as −1%. So banks were paid for borrowing money. In the same period, a saver usually got 0% on an instant-access account.
• Bond purchases: from 2015, the ECB and the euro area's national central banks bought government bonds on a large scale, and in the pandemic through a separate programme of €1’850 billion. They paid with newly created central bank money. The Eurosystem's balance sheet grew from €1.15 trillion at the start of 2007 to €8.84 trillion in June 2022, almost eightfold. At the beginning of November 2026 it was still €5.91 trillion.

The new money flowed first into the markets for bonds, shares and property. Their prices rose, interest rates fell, and those who already had assets could borrow even more cheaply. How central banks' rate decisions move the bitcoin price is shown in Interest rates, central banks and bitcoin.

The Cantillon effect in figures: Germany, Austria, Switzerland

Measuring the Cantillon effect directly is hard, because prices rise for many reasons. But it becomes visible when you compare how much different prices and incomes grew over the same period. The table shows the years 2010 to 2025, each as an annual average:

Sources: ECB and SNB (money supply M3), Eurostat (harmonised index of consumer prices, HICP), OECD (average annual wages, nominal), BIS (residential property prices), Yahoo Finance (month-end closing prices). The DAX includes reinvested dividends; ATX and SMI don't.

The pattern is the same in all three countries: asset prices have risen more than wages. Whoever owned property or shares in 2010 is ahead. Whoever had only their wages has fallen behind as soon as they want to buy something you own rather than consume.

The gap is clearest in Switzerland. Consumer prices barely rose, and the franc is considered stable. Yet home prices grew almost five times as much as wages. So inflation at the supermarket is only part of the picture. The Cantillon effect shows above all in the things that are bought with credit.

Who wins and who loses

The chain and the figures give a clear picture. It's not about individual people being to blame, but about where someone stands in the flow of money.

That governments are among the winners is no side effect. When prices and tax revenues rise but debts are fixed in euros or francs, the debt burden gets smaller. How high government debt has become and why that speaks for bitcoin is shown in the article Government debt and why bitcoin benefits.

The Cantillon effect and bitcoin

Bitcoin was built in 2009 as money without a privileged position. There is no central bank lending new coins to banks, and no government paying its expenses with it. The rules apply equally to everyone:

1. Fixed supply: there will never be more than 21 million bitcoin. On Nov 13, 2026, about 20.11 million existed. How bitcoin works in principle is explained in the beginner's guide What is bitcoin?
2. Known schedule: how many new coins are created and when has been in the code since 2009. Nobody can create more at short notice in a crisis.
3. Open access: new bitcoin go to the miners, meaning whoever uses computing power and electricity to build blocks. Anyone may take part. The new coins cost them money for equipment and energy; nobody gets them as a gift.
4. Little dilution: 3.125 BTC are created per block, about 164’000 bitcoin a year. That's about 0.8% of the supply, and about 0.4% after the 2028 halving. The M3 money supply recently grew 3.5% a year in the euro area and 3.9% in Switzerland.

How the bitcoin supply grows more slowly with each halving is shown in the chart:

Bitcoin is still unevenly distributed. Whoever bought in 2011 got far more bitcoin per euro than someone buying today, and its creator Satoshi Nakamoto is estimated to have mined about 1.1 million bitcoin. But that is not a Cantillon effect in the real sense. The early buyers carried a great risk when bitcoin was worth little, and nobody can top them up with new coins today. In the fiat money system, by contrast, new money is created again and again, and again and again it lands first in the same places.

How to get away from the end of the chain

You can't decide where the central bank steers new money. But you can decide how much of your wealth sits at the end of the chain, that is, in euros or francs in an account.

1. Keep only what you need in your account. Your emergency fund and money for the next one to two years belong in euros or francs, even if they lose purchasing power.
2. Own scarce assets. What you won't need for a long time, put into things whose quantity can't grow at will: broadly diversified shares, a home you live in, or a bitcoin allocation.
3. Buy regularly. A savings plan moves part of your salary closer to the source every month, without you having to bet on the right moment.
4. Plan for swings. With bitcoin that means: only as much as lets you sit out a 70% drop without having to sell.

Where bitcoin stands today relative to its long-term trend:

Bitcoin trades at 0.66 times the trend, in the Accumulation zone (0.62–0.79×) and 6.6% above the floor. The model describes the past and is not a guarantee. How it is calculated is in the methodology, and the live values are on the Power Law page.

How a monthly bitcoin savings plan with your amount would have turned out so far, you can calculate here:

Why savings in euros and francs lose value year after year in the first place is explained in the pillar article Inflation and loss of purchasing power. Whether the bitcoin price follows the money supply is examined in The M2 money supply and the bitcoin price. The academy covers the basics of money and bitcoin at a relaxed pace under Basics.