The Cantillon Effect: Who Gets Rich From Money Printing

What Is The Cantillon Effect?

Named after 18th-century economist Richard Cantillon, who observed:

“The man who receives the money first will profit more than those who receive it later.”

When new money is created, it doesn’t appear in everyone’s bank account simultaneously. It enters through specific channels:

1. Fed creates money → Buys Treasury bonds from banks
2. Banks get new reserves → Can lend at low rates
3. Large borrowers (corporations, wealthy) → Get cheap loans
4. Asset prices rise → Stocks, real estate, bonds go up
5. Inflation spreads → Eventually reaches consumer goods
6. Wages rise last → Workers’ salaries finally catch up (maybe)

By the time the money reaches regular people, the prices of everything valuable have already risen.

The Timeline of Inflation

Time	Who Gets Money	What They Buy	Effect
Month 1	Fed, Primary Dealer Banks	Treasury bonds, MBS	Interest rates fall
Months 2-6	Large corporations, asset managers	Stocks, corporate bonds	Stock market rallies
Months 6-12	Real estate investors, wealthy	Real estate, businesses	Home prices surge
Year 1-2	Middle class (debt-funded)	Houses, cars (at inflated prices)	Asset bubbles form
Year 2-3	Workers, employees	Consumer goods (groceries, gas)	CPI rises, wages lag
Year 3+	Poor, fixed income	Basic necessities (now expensive)	Purchasing power destroyed

Notice: The rich buy assets in months 1-6 at old prices. Workers see their cost of living rise in years 2-3 after wages have stagnated.

Real World Examples

COVID Money Printing (2020-2022)

March 2020: Fed announces unlimited QE, interest rates to 0%

Timeline	What Happened	Winners	Losers
Month 1	Stock market rebounds from crash	Banks, asset managers	Workers (losing jobs)
Months 2-6	Stock market hits all-time highs	Wealthy (own stocks)	Unemployed (on benefits)
Year 1	Housing prices up 20%	Homeowners, investors	Renters, first-time buyers
Year 2	Inflation hits 8%, wages up 5%	Asset owners (portfolios up 40%)	Workers (real wages down 3%)

Result: Wealth inequality exploded. Billionaire wealth increased $2 trillion while median worker lost purchasing power.

2008 Financial Crisis

September 2008: Fed launches QE1, then QE2, QE3 (2008-2014)

Who	What They Got	Outcome
Big Banks	$4.5 trillion in Fed loans at 0.01%	Survived, record profits by 2010
Wall Street	Bailouts, cheap credit	Stock market tripled (2009-2014)
Corporations	Borrowed at 2-3%, bought own stock	Share prices soared
Homeowners	Foreclosures, unemployment	Lost homes, wages stagnant
Savers	0% interest on savings	Lost $1 trillion in interest income

Result: Largest wealth transfer from middle class to wealthy in modern history.

Why This Happens

1. Money Creation Starts at the Top

The Fed doesn’t send checks to every citizen. It:

• Buys bonds from banks (gives banks reserves)
• Lowers interest rates (cheap loans for big borrowers)
• Creates money through the banking system

2. Rich Have First Access

• Can borrow millions at low rates
• Can invest immediately in assets
• Have connections to banks, deal flow

3. Asset Prices Rise First

• Stocks, real estate, bonds surge immediately
• Consumer goods inflation comes later
• By the time CPI shows inflation, assets are already expensive

4. Wages Adjust Last

• Workers don’t have bargaining power initially
• Takes 2-3 years for labor market to tighten
• Raises come after cost of living has risen

The Wealth Gap Machine

This is WHY wealth inequality increases during money printing:

Period	What Fed Does	Effect on Wealthy	Effect on Workers
Normal	Stable money supply	Wealth grows with economy	Wages grow with economy
Crisis	Print money, lower rates	Buy assets at low prices	Unemployment, stagnant wages
Years 1-3	Money spreads	Assets appreciate 50%+	Inflation eats purchasing power
Years 4+	Inflation normalizes	Wealth locked in, assets higher	Playing catch-up on wages

Each money printing cycle increases wealth inequality.

Data:

• Top 1% own 90% of stocks (benefit immediately from QE)
• Bottom 50% own 0.5% of stocks (miss the run-up)
• Wages lag inflation by 2-3 years consistently

Historical Examples

1. John Law’s Mississippi Bubble (1719-1720)

• Who got rich first: John Law and his inner circle (printed French currency)
• Who got destroyed: French peasants and small merchants (hyperinflation)
• Result: Wealth transfer to insiders, currency collapsed

2. Weimar Germany (1921-1923)

• Who got rich first: Industrialists who borrowed marks to buy factories
• Who got destroyed: Middle class savers (life savings wiped out)
• Result: Asset owners multiplied wealth, savers destroyed

3. Modern Fed (2008-2022)

• Who got rich first: Banks, hedge funds, billionaires (bought assets in crash)
• Who got destroyed: Workers, savers, retirees (inflation ate purchasing power)
• Result: Billionaire wealth doubled, median household no better off

How to Position Yourself

❌ Don’t Be Last

Losers in Cantillon Effect:

• Hold cash savings (eroded by inflation)
• Work for wages only (lag behind asset appreciation)
• Save in bonds (negative real returns)
• Wait for “prices to come down” (they won’t)

✅ Get Closer to First

Winners in Cantillon Effect:

• Own assets (stocks, real estate, businesses)
• Borrow at low rates (use system like rich do)
• Invest immediately when Fed prints (front-run inflation)
• Own businesses that can raise prices

Specific Actions

Action	Why It Works	How To Start
Buy stocks/index funds	First to rise when Fed prints	Open brokerage, buy VTI/VOO
Get fixed-rate mortgage	Borrow at low rate, pay back with inflated dollars	Refinance when rates low
Start a business	Raise prices with inflation	Side hustle, scale up
Learn high-income skills	Get raises faster, closer to money	Tech, sales, finance
Buy Bitcoin/scarce assets	Hedge against money printing	DCA strategy

The Uncomfortable Truth

The system is designed this way.

It’s not a conspiracy—it’s openly how monetary policy works:

1. Fed creates money through banking system
2. Banks lend to creditworthy borrowers (large corporations, wealthy)
3. Asset prices rise before consumer prices
4. By the time inflation reaches workers, assets are expensive

You can complain about it, or you can adapt.

The Choice

Path A: Complain	Path B: Adapt
Hold cash, watch it lose value	Buy assets before inflation
Work for wages, wait for raise	Borrow cheap, buy income-producing assets
Save in bonds, earn 2% while inflation is 8%	Invest in stocks, real estate, businesses
Angry about system	Wealthy because you understood system

The rules won’t change. Will you?

Next Steps

• Understand MV=PQ equation →
• See what to buy during inflation →
• Learn how Fed creates money →
• Track M2 money supply →
• Study debt and leverage strategies →

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Remember: Those who understand the Cantillon Effect position themselves to benefit from it. Those who don’t complain about “the system” while getting poorer.