From the archive · July 7, 2026
Who gets the new money first
Why does printing money help some people and hurt others?
01 · Word
Cantillon effect
noun
The advantage of being closest to new money: you spend it at yesterday's prices, while everyone further down the line meets the higher prices it leaves behind
Examples
When the central bank buys bonds, the Cantillon effect begins at the dealer's desk, not at the grocer's till.
He argued the stimulus had a Cantillon effect: asset owners were made whole years before wage earners were.
Origin
An eponym for Richard Cantillon, an Irish-born banker in Paris. His Essai sur la Nature du Commerce en Général, written around 1730 and published in 1755, long after his death, traced how new money moves through an economy hand by hand. Later economists attached his name to the mechanism.
02 · Idea
Money is not neutral on the way in
Textbook shorthand says doubling the money doubles prices. Cantillon's correction: the doubling happens through a sequence of hands, and the sequence is a transfer machine. First receivers buy at old prices; last receivers meet new prices with old incomes.
Cantillon wrote from practice, not theory: he was a banker who made a fortune in John Law's Mississippi bubble and watched a kingdom learn what new money does. His Essai traces the price effects of new money through miners, merchants, landlords, and wage earners in order. That analysis made later economists call him the first true theorist of the subject.
New money is not dropped from a helicopter. It enters somewhere, and where it enters decides who wins.
Inflation is an average; the Cantillon effect is the distribution hiding inside the average.
Limits and context
The effect is easier to name than to measure: modern money enters through credit and asset markets in ways Cantillon never saw, long-run price effects may still wash out, and the term is often deployed polemically far beyond what evidence supports. It is a lens on distribution, not a complete theory of inflation.
The Essai itself nearly vanished, lost for over a century until W. S. Jevons rediscovered it in 1881 and pronounced it the cradle of political economy.
03 · Moment
The Mississippi Bubble
Paris, 1719–1720; John Law's System at its height and collapse
In 1719–1720, the Scottish financier John Law ran France's money. His bank issued paper currency; his Mississippi Company, holding a monopoly on French colonial trade, absorbed the new money as its share price multiplied. Fortunes appeared on the Rue Quincampoix (the word “millionaire” is associated with the episode). Then, in 1720, confidence broke and the System collapsed.
- Paris
- Rue Quincampoix
- The peak
- 1720
- The witness
- Cantillon
The caveat
Details of Cantillon's personal dealings are murky, and his biography is partly reconstruction. He died in 1734, apparently in a house fire, with lawsuits from the bubble years still trailing him. The System's public arc, boom and collapse, is thoroughly documented.
Richard Cantillon was in the middle of it as a banker. He made his fortune in part by lending to speculators and betting against the boom's currency, and left with both the money and the lesson. The Essai he wrote afterward reads as the autopsy: new money had entered at specific points, enriched those closest to the source, and moved prices in exactly the uneven way his theory describes.
The affair is remembered as the Mississippi Bubble; contemporaries called Law's arrangement simply “the System.”