Cantillon Effect

The Cantillon effect perhaps best explains the widening wealth gap between the have and have-nots, monopolies and a growing shift from a democracy to a plutocracy of rule by the wealthy and endless wars.  

What is the Cantillon Effect?

Darren Winters explains; the Cantillon effect was a theory put forward by Richard Cantillon (1680s – May 1734), an Irish French economist and author of Essai Sur La Nature Du Commerce En Général (Essay on the Nature of Trade in General), a book considered by William Stanley Jevons to be the “cradle of political economy

The Cantillon effect refers to the idea that changes in the money supply in an economy cause a redistribution of purchasing power among people, disturb the relative prices of goods and services, and lead to the misallocation of scarce resources.

Can the Cantillon effect widen the wealth gap and cause political polarisation?

Cantillon Effect

When central banks conduct a quantitative easing monetary policy, a policy of purchasing assets, the currency created is not distributed equitably throughout the economy. 

The first to receive the newly created currency, bondholders, will benefit the most from money supply expansion. Capital flows then into other financial assets, stocks and real estate. But by the time capital reaches those at the bottom of the human food chain, the Cantillon effect is detrimentally higher prices.

So, the Cantillon effect benefits the wealthy class who prosper through central bank money creation. On the other end of the wealth spectrum, it impoverishes the young, poor middle classes who survive by earning a wage check. Wages never rise fast enough to keep up with spiralling prices.

Moreover, central banks lie about the inflation rate through their adjustments, so wages and interest on bank savings accounts never keep up with inflation, caused by the printing of currency, which dilutes its purchasing power. 

The Cantillon effect can cause the transition of a society from a democracy of rule by the people to a plutocracy ruled by the wealthy

Voter apathy in democracies is at an all-time high because the electorate is starting to realise that their political representatives are not representing the people who elect them but the wealthy political lobbyists. Did the American electorate vote to send 100 billion plus dollars of military aid to war far away from their shores?

The Cantillon effect money printing orgy and endless wars

The 2020 global lockdowns and the trillions of dollars of money printing that ensued made the wealth wealthier. Billionaires are $3.3 trillion richer than in 2020, in January 2024. 

Moreover, the monopoly of the banking sector is ahead as regional banks get gobbled by the big banking monopolies.   

If the system has become a plutocracy, then this Cantillon effect will continue

If a powerful group of people benefit from the system, why would they want to change the status quo? 

The gentle march of millions into poverty, as Darren Winters forecasted, would continue. 

But maybe it’s worse than that, as it feels like we are marching into WW3. 

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