When new money is created, somebody gets it first, and it’s almost never the person on a monthly salary. That’s why asset owners get richer in years when “the economy” feels flat, and why your central bank calls the whole thing “price stability” with a straight face.
The idea is 300 years old and comes from a banker who got rich from exactly this mechanism. He knew what he was talking about. Here’s how it works, and the legal moves that get you closer to the front of the queue.
Who was Richard Cantillon?#
Richard Cantillon was an Irish-French banker who lived in the early 18th century. He made a fortune in Paris during John Law’s Mississippi Bubble – an early experiment in state-backed paper money that ended in a spectacular crash. Governments have been running the sequel ever since.
His Essay on the Nature of Trade in General, published after his death, is one of the first serious works of economics. One observation in it now carries his name.
The Cantillon effect in one paragraph#
When new money is created, it doesn’t land in everyone’s account at once. It enters at specific points and spreads outward. The first recipients spend it while prices are still at the old level. As the money travels, it bids up prices. By the time it reaches the last recipients, prices have already risen, and they’re worse off.
So money isn’t “neutral” in the short run. It doesn’t just raise the price level. It shifts relative prices and moves purchasing power from later to earlier recipients – a redistribution nobody voted for.
A nerdy example#
Imagine a small island economy with a fixed amount of money. One day the island bank prints 10% more and lends it to the local property developer.
- The developer buys bricks and hires builders at today’s prices.
- Brick sellers and builders now have more money and spend it at the market.
- Market traders raise prices as demand rises.
- The fisherman, whose income hasn’t changed, pays those higher prices at the end of the chain.
Nobody cheated. The fisherman is last in line, and nobody sends him a letter explaining why his fish now buys less bread.
Where it shows up today#
In Cantillon’s day, the entry point was gold from mines or a king’s spending. Today the king has a press office, and new money mostly comes through two channels:
- Credit. Commercial banks create money when they lend. Borrowers with collateral and good credit get it first and cheapest.
- Central bank asset purchases. Quantitative easing buys bonds from financial institutions. That pushes up bond prices and tends to lift shares and real estate too.
The result: people who already own assets see them rise first, while wages and savings accounts adjust later, if at all. Your savings account’s interest rate is the last to hear the news. Economists still argue about how large this effect is compared with other drivers such as low interest rates, technology or globalization. Nobody serious argues about the direction.
Bitcoin fans point to its capped supply as the fix. It does remove the “who prints the money” question. Early adopters still captured most of the gains. Being early pays in every system.
Where taxes come in#
Tax planning doesn’t create the Cantillon effect. It decides how much of your money is left to compound after the state has taken its cut.
Wealthier people tend to earn more of their income from assets, which are often taxed later, at lower rates, or only when sold. Many salaried people are taxed at source on every euro, every month. Add professional advice and flexible residency, and the gap grows – legally. The politicians who complain about it wrote the rules.
Most of these tools aren’t reserved for billionaires. They’re rarely explained, because nobody earns a commission from telling you.
What a normal entrepreneur can legally do#
1. Let your company compound#
Profits left inside a company are often taxed less than profits paid out to you. In Estonia, retained profits are taxed at 0%.
Example: €100k profit in an Estonian company, reinvested: €0 corporate tax. Paid out: €22k. You decide when the tax is due.
The catch: the company must be run from where it’s registered. An Estonian company managed from your German living room is taxed in Germany – see place of management and German CFC rules. Swap Germany for Austria, France or Sweden and the logic holds: every EU country has had CFC rules since the Anti-Tax Avoidance Directive, only the thresholds differ. The living room is always the problem.
2. Pick your residency on purpose#
Your personal tax residency usually matters more than your company’s location.
- UAE: no personal income tax on salary, dividends or capital gains; corporate tax 0% up to AED 375,000 profit, 9% above.
- Cyprus: non-doms pay no Special Defence Contribution on dividends and interest for 17 years (extendable for a fee); corporate tax is 15% since 2026.
- Malta: non-doms are taxed on foreign income only when it’s brought to Malta.
A move only works if you live there for real and leave your old country properly. “Properly” depends on which country you’re leaving, and some send a farewell bill for the gains on your shares:
| Leaving | Exit tax on your shares? |
|---|---|
| Germany | From a 1% stake; paid in seven annual instalments, even inside the EU |
| Austria | Any portfolio, 27.5% on unrealized gains; deferred for EU/EEA moves |
| Netherlands | From a 5% stake; the assessment never expires if you left after 15 September 2015 |
| France | Above €800,000 in holdings; wiped out if you keep the shares two years after an EU move |
| Spain | Only above €4 million, or a stake over 25% worth over €1 million |
| Belgium | 10% on gains since 31 December 2025; deferred for EU/EEA moves |
| Sweden | No exit tax, but Swedish shares stay taxable in Sweden for 10 years |
| Italy, Switzerland, UK | None on private portfolios (UK: come back within five years and gains can be taxed) |
The richer your portfolio, the more the choice of departure country matters, which is a sentence no finance minister will ever put on a poster. See best residency countries for how to choose, moving abroad: what happens to your taxes for the exit side, and the Nerdy Index ranking for a quick comparison.
3. Use the boring allowances at home#
Pension schemes, depreciation, business expenses, loss carry-forwards. Dull, fully legal and ignored by most small business owners, who then complain about their tax bill.
4. Think in assets, not just cash#
Cash in a current account loses purchasing power every year the central bank misses its own target. Productive assets – your business, property, diversified investments – tend to move with the price level over time. That’s general economics, not a recommendation for any specific investment; your risk tolerance is your call.
5. Stay squeaky clean#
Banks share account data automatically between more than 100 jurisdictions under CRS. Hidden accounts aren’t a strategy. They’re a liability with a prison option. Real substance, proper filings and your home country’s exit rules (see the table above) are what make a structure hold up.
This article is general information, not tax or legal advice.
Curious what the legal options look like for you? Start with Optimize tax, or bring your numbers to a strategy session.
