Cantillon Effect

Richard Cantillon a Irish-French economist in the 1600’s and the Cantillon effect is one of his creations based on a manuscript by him.

The Canitllon effect basically states that, new money entering the economic system is more beneficial for the first hand receivers than the ones following where the money trickles down to. The path of money in the system matters.

A simple way to put it. When there is money added to the system, during inflationary periods. The people who receives it first will still get to be in an environment of lower prices. The large amount of money in the system wouldn’t have affected the prices yet. But after a while, the prices move to a new equilibrium owing to the fact of additional money in the system. And people further down in the system don’t get the same price as the ones before them.

Inflationary measures of injecting money at the bottom of the system by direct stimulus checks (400 bn$) were less costly for the US Fed, than increasing asset purchase prices (4.5 tn$)

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