What is the Hume-Cantillon Effect?

At this point you may have realized that inflation works against you to make you poorer but did you know inflation works to the advantage of certain groups of people? In fact, the negative effects of inflation are not evenly distributed. Some people are positioned to profit from inflation at the expense of others. For most people, inflation will erode their standard of living.
The Cantillon effect refers to the uneven distribution of the burden of inflation, and surprisingly the benefits for some people. It states that when money is printed out of thin air, as the United States government is prone to do, the initial recipients of this new money, usually the banks and the government, benefit the most because the price levels in the economy has not fully adjusted to the influx of new dollars flooding it. Who is burdened the most by an increased supply of money I like to refer as money printing? It is working class people like you and me who receive the new money last. We face higher prices for goods and services before our incomes have increased accordingly, adjusting to inflation. If you are like most people, your wages and income will probably not fully increase at the rate of inflation even over a longer period of time, and in this way, you suffer two-fold. First, your money has reduced purchasing power as the price level in the economy rises. Second, your earnings never fully catch up to the increased price levels leaving you poorer overall.
For this reason, it is not enough to slow down the rate of inflation. Your wages must catch up to the increased price level. Because a lot of people’s incomes do not catch up, they continue to suffer the effects of inflation long after it has cooled.
I do not think it is much of a stress to say that, for many people, we are poorer and have a low standard of living post covid due to how expensive everything has gotten. Just look at the housing market. According to Redfin, American homebuyers need to earn about $115,000 a year in order to be able to afford the cost of the typical U.S. home. As of 2023, the average salary in the USA, according to Forbes, is $59,428
It is for these reasons, and many others, that I state that inflation hurts the most vulnerable parts of society the most while benefiting the government and banking system the most.
We can combine the Cantillon effect with the work of 18th century Scottish philosopher David Hume who proposed that an increase in the money supply would lead to a proportional increase in price, rather than magically creating economy activity as some people naively believe. In life and economics, a decision for one thing is often a decision against another thing. The benefits the government derives from money printing comes at the cost of its citizens and people who invested in government debt and other low interest-bearing investment instruments.
Together, the Hume-Cantillon effect states that the price level will increase to meet the increased supply of money the government is printing, and then the benefits of this money printing will flow to the government at the expense of individual citizens and working-class people.
Inflation is a serious issue that makes us all poorer. While it may take some economic pain to bring inflation down, it is well worth it to preserve our purchasing power and our standard of living as individuals and as a society. No one likes to lose their job or hear about layoffs. However, the out-of-control inflation that the world is just now coming to terms with has led to many people being unable to heat their homes, put food on their table, and cloth their children.