Cantillon Effect

The Cantillon Effect occurs when new money enters the economy, typically through central banks or government spending. Those who receive this money first—such as banks or influential institutions—can spend or invest it before prices rise. As the new money circulates, it increases demand for goods and services, raising prices, but later recipients see less benefit. This process can increase inequality because early recipients gain more value, while others face higher costs. Essentially, the Cantillon Effect describes how the timing and source of new money create uneven impacts across the economy.