The Cantillon Effect is an old theory discovered by 18th-century banker Richard Cantillon. Because of his special experience in handling lots of gold transactions and being close to the kingship.
What is the Cantillon Effect?
There are 3 ideas:
1) the country with twice the money does not make citizens twice as rich but oppositely
2) whoever closed to the king will benefit from the cheap money
3) poor will eventually get the money but they will suffer the most
1) twice the money does not make you twice rich
The more money is given from the government, the cost of goods and services will double. You will need to spend more money to receive what you previously needed.
2) whoever closed to the king benefit first
The money will be distributed first to riches. Banks, financial institutions, hedge funds, and riches will receive the money first after the government printed money.
3) poor will suffer the most
The money will take longer to reach to poor after goods and services are already expensive and everything is costly.
The modern-day closed financial markets
The 3) rule does not apply to the modern-day simply because the rich will not spend money anymore but rather invest their money into assets.
Assets store value and become more expensive when the rich can hold for a longer time rather than sell for profits.
Therefore, the poor will never receive money in the end.
Rich becomes richer because they have access to all kinds of assets
The best assets to hold are lands and business. Rich can have both. Lands are not houses but vary between lands in the city or farmlands or any other types of land such as islands. Businesses are not stocks that potentially can be issued in an infinite quantity or the price of the unit can go infinite to raise money on business but the constant cash flow to owners.
The poor cannot afford both.
The economic cycle is a money cycle
In the 18th century:
King finds more gold -> nobles get gold -> goods and services price inflated -> nobles spend gold -> poor gets gold -> King finds more gold
In the modern-day:
The central bank prints more money -> riches get money -> goods and services price inflated -> riches invested their money -> all assets inflated -> The central bank prints more money
Cryptocurrency breaks the curse of the money cycle
Cryptocurrency can be acting as lands to preserve value or businesses to provide cash flows. Riches do not need cryptocurrency because they are risky and speculated. Poor may need cryptocurrency because they may lose in either way.
The central bank prints more money -> riches get money -> goods and services price inflated -> poor buy cryptocurrency -> riches invested their money -> all assets inflated included cryptocurrency -> The central bank prints more money
Poor now can also benefit from an inflated economy.
Cryptocurrency breaks the money cycle curse and helps everyone join the inflated economy.
What do you think?
Photo by André Noboa on Unsplash
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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose cryptocurrencies are mentioned in this article. This information is only for educational