Why the route of new money matters
New money does not arrive in every wallet at once. It enters through particular channels—such as loans, public spending, or purchases of financial assets—and the first recipients decide where to use it. That spending reaches businesses and workers in those sectors before it spreads further through wages, supplier payments, and other purchases.
This sequence is the core of the Cantillon effect: the economic impact of new money depends partly on who receives it first and what they buy. Early recipients may acquire goods or assets before sellers have fully adjusted their prices. Later recipients encounter a changed market, where some prices may already have risen.
Uneven changes, not one synchronized price jump
Prices do not all respond together. If new spending first boosts demand for housing, for example, housing costs may adjust before the prices of unrelated goods. Sellers may also use the income they receive to buy from others, carrying the spending onward. The process can take time, and its path depends on where the money enters and how it circulates.
That makes the effect more than a question of how much money exists. It is also about the order in which people gain access to it. Those closest to the point of entry can choose what to buy under earlier conditions; people paid later may face prices shaped by the spending that came before them. The same new dollar can therefore have different purchasing power at different points in its journey.
