Who Gets the New Money?

M2, asset inflation, and the hidden inequality of liquidity — the institutional architecture by which newly-created money enters the U.S. economy, the actors who receive it first, and the asset-price and wealth-concentration effects that flow from that distributional sequence.

In May 1974, the U.S. M2 money stock — the standard measure of money in circulation that includes currency, checking deposits, savings deposits, and small-denomination time deposits — was approximately $874.6 billion, according to the Federal Reserve Board’s H.6 Money Stock Measures release. By March 2026, the same measure stood at approximately $22.7 trillion. The expansion was approximately twenty-six-fold across fifty-two years, with most of the acceleration concentrated in the post-2008 and post-2020 periods. The Federal Reserve’s balance sheet — the public side of the same monetary architecture — expanded from approximately $900 billion in late 2008 to approximately $9 trillion at its 2022 peak.

The expansion was, in any straightforward statistical sense, dramatic. It was reported in the financial press intermittently, usually in the context of debates about inflation, monetary policy, or central bank credibility. It was not, in mainstream U.S. coverage, the subject of sustained investigation into a different question: who received the new money, when did they receive it, and what did they do with it?

The Cantillon effect, named for the eighteenth-century Irish-French economist Richard Cantillon whose 1755 Essai sur la nature du commerce en général first systematically documented the phenomenon, is the observation that newly-created money does not simultaneously raise all prices proportionally. It raises the prices of whatever the first recipients buy first, then ripples through the economy with diminishing and uneven effect. The first recipients of new money have a structural advantage over later recipients: they spend the new money at the previous price level, while later recipients spend at the higher price level the new money has produced. The advantage compounds across cycles of monetary creation. Across the post-1971 fiat-dollar era, with its 1980s deregulation, its post-2008 quantitative easing, and its post-2020 pandemic balance sheet expansion, the structural advantage of the first recipients of new money has been one of the most consequential and least-discussed distributional phenomena in U.S. political economy.

This article is about the mechanics by which new money enters the U.S. economy, the actors who receive it first, the asset prices and consumer prices it raises along the way, and the institutional architecture that has produced and sustained the contemporary distributional pattern.

Begin with the question almost no one in mainstream U.S. coverage asks: what is the money supply actually?

The dominant U.S. answer treats the money supply as a homogeneous aggregate. The Federal Reserve publishes M1 (currency, checkable deposits, traveler’s checks) and M2 (M1 plus savings deposits, small-denomination time deposits, and retail money market mutual funds). Federal Reserve communications about monetary policy reference these aggregates as quantities the Fed influences through its policy tools. Mainstream financial press coverage treats the monetary aggregates as if they were national totals that affect the national price level uniformly.

A different framing is operationally relevant. The money supply is not a homogeneous aggregate. It is a distributional phenomenon. Different actors receive new money through different channels at different times, with different effects on different prices in different markets. The Federal Reserve does not deposit newly-created money uniformly into household checking accounts. It conducts open market operations with its primary dealers — approximately twenty-four large financial firms designated as eligible counterparties for the Fed’s open market operations. The primary dealers are the first recipients of newly-created reserves. Newly-created reserves move through the wholesale funding markets — the repo market, the federal funds market, the money market mutual fund sector — before reaching the broader commercial banking system. Newly-created reserves enter the broader economy primarily through commercial bank lending decisions, which are themselves shaped by regulatory frameworks, capital requirements, and institutional risk-management practices. Newly-created reserves enter the household sector last and partially.

Each step in the distribution process is an institutional choice. The primary dealer system, established in 1960 and reformed periodically since, is an institutional architecture. The wholesale funding markets — repo, federal funds, money market mutual funds — are institutional architectures. The commercial banking system’s lending practices are institutionally shaped by capital requirements (Basel III), regulatory frameworks, and post-2008 stress-testing requirements. The household sector’s access to credit and to new money is institutionally determined by lending standards, by the structure of consumer financial markets, and by the post-1980 regulatory and antitrust choices documented in earlier articles in this collection.

The cumulative effect is that monetary expansion produces specific distributional outcomes determined by the institutional architecture of U.S. monetary distribution — outcomes that the homogeneous-aggregate framing of the dominant discourse cannot describe.

Liquidity hoarding is the process by which financial-sector institutions use central-bank-provided liquidity to convert newly-created money into reserves held within the financial system rather than transmitting that liquidity to the broader economy through ordinary lending channels. The mechanism does not require malice or coordination; it requires only that the institutional architecture of the financial system makes reserve-holding more profitable than lending under particular policy conditions. The post-2008 U.S. monetary architecture provided exactly such conditions through the Federal Reserve’s 2008 introduction of interest on excess reserves — the IOER policy — which paid commercial banks for holding reserves at the Fed. Excess reserves at the Fed grew from approximately $2 billion in early 2008 to approximately $2.8 trillion by 2014, declined modestly through 2019, and reached approximately $4 trillion at the 2021–2022 peak. The hoarded liquidity did not, during these periods, reach the household sector through ordinary lending channels at the rates that would have been characteristic of the pre-2008 commercial banking architecture.

The mechanism rarely operates alone. Its dominant pairing is liquidity hoarding plus claim inflation (Family 1) plus asset conversion (Family 3) plus rentier layering (Family 1), with narrative laundering (Family 7) protecting the arrangement against contestation. This is a Family 1 + Family 2 + Family 3 + Family 7 signature, distinct from the signatures developed in earlier articles in this collection, and it operates specifically through the U.S. monetary distribution architecture.

Claim inflation operates as the volume mechanism. As the companion piece on the U.S. claim economy in this collection documents, the post-1971 era has produced a sustained expansion of dollar-denominated financial claims relative to U.S. and global productive capacity. The M2 expansion documented above is one operational signature of this phenomenon. The expansion has not been uniform across the economy; it has flowed disproportionately to the holders of financial claims through the Cantillon mechanism.

Asset conversion is the mechanism by which the liquidity that did flow through the system was directed into financial-asset markets rather than into productive-capacity expansion. The post-2008 period saw substantial real-asset and financial-asset appreciation driven by the combination of low interest rates, available liquidity in the financial system, and the institutional architecture of asset markets. The S&P 500 rose approximately fivefold to eightfold between March 2009 and 2024 (depending on the specific endpoint chosen). U.S. residential real estate values rose approximately twofold over the same period, as documented by the S&P CoreLogic Case-Shiller National Home Price Index. U.S. corporate bond markets expanded substantially. Each of these asset-market expansions absorbed liquidity that the Federal Reserve’s expansion had created, with the holders of the assets being the primary beneficiaries.

Rentier layering is the mechanism by which intermediaries — investment banks, broker-dealers, asset managers, prime brokers, hedge funds — capture fees from each layer of the asset-market architecture through which the post-2008 liquidity flowed. The financial-services industry’s share of U.S. corporate profits, which had averaged approximately fifteen percent in the post-WWII period through the 1970s, rose to approximately twenty-five to thirty percent in the post-2000 period, with the share holding at elevated levels since the post-2008 monetary expansion. The rentier layering operates as the structural transmission mechanism between the Fed’s liquidity creation and the asset-market beneficiaries.

Narrative laundering is the discursive defense. The Federal Reserve’s communications about monetary policy treat the M2 expansion, the Fed balance sheet expansion, and the IOER policy as technical instruments deployed to achieve dual-mandate objectives — price stability and maximum employment. The communications do not, except occasionally and in specialty venues, treat the distributional consequences of monetary policy as a primary subject of public discussion. The phrase monetary accommodation directs attention to the technical-policy dimension of monetary expansion. The phrase the wealth effect — used in academic-economics literature to describe the mechanism by which asset-price increases produce consumption increases by asset-holders — is technically descriptive but rarely surfaced in mainstream discourse as an explicit acknowledgment of the regressive distributional consequences of asset-price-driven monetary transmission.

The structural pillars that produce the contemporary U.S. monetary distribution architecture are five.

The first is the Federal Reserve System itself. The Federal Reserve’s twelve regional Reserve Banks and Board of Governors operate within the framework established by the 1913 Federal Reserve Act, modified by the 1935 Banking Act (which centralized monetary authority in the Board of Governors), the 1978 Humphrey-Hawkins Act (which formalized the dual mandate), and the 2008–2010 institutional adjustments (which established the IOER tool, the discount window standing facility, and the post-Dodd-Frank stress-testing architecture). The Federal Reserve’s institutional design — its independent governance, its dual mandate, its policy toolkit centered on the federal funds rate and the size and composition of its balance sheet — shapes the channels through which monetary creation flows into the economy.

The second is the primary dealer system. The Federal Reserve Bank of New York’s primary dealer list, established in 1960 and currently comprising approximately twenty-four large financial firms (including Goldman Sachs, JPMorgan Chase, Citigroup, Morgan Stanley, Bank of America, Wells Fargo, Deutsche Bank, BNP Paribas, and similar large institutional firms), are the designated counterparties for the Fed’s open market operations. When the Fed buys Treasury securities or mortgage-backed securities to expand the monetary base, it purchases them from the primary dealers. The dealers are the first recipients of the newly-created reserves. The primary dealer system is the structural architecture through which the Fed’s monetary creation enters the financial system.

The third is the wholesale funding market structure. The repo market (with approximately $4 trillion in daily transaction volume), the federal funds market, the money market mutual fund sector (with approximately $6 trillion in assets), the commercial paper market, and the broader institutional shadow banking system together constitute the wholesale funding architecture through which liquidity moves from the primary dealers to the broader financial system. The architecture is institutionally complex, regulated unevenly across its components, and substantially reshaped by post-2008 financial regulation. Its specific design determines the speed, cost, and direction of liquidity transmission from the Fed to the broader economy.

The fourth is the commercial banking system. U.S. commercial banks, totaling approximately forty-five hundred institutions of which approximately thirty hold most of the system’s assets, are the institutional channel through which the broader economy accesses the post-1971 fiat money supply. Commercial bank lending decisions, capital requirements (Basel III), regulatory frameworks, and post-2008 stress-testing requirements determine the rate at which the financial system’s liquidity reaches household and small-business borrowers. The post-2008 commercial banking architecture has been substantially shaped by the combination of high capital requirements, IOER incentives to hold reserves at the Fed, and concentrated competitive structure (with the four largest U.S. banks holding approximately forty percent of system assets) that the companion piece on the post-Bork antitrust regime documents.

The fifth is the fiscal-monetary architecture. The Treasury Department’s debt issuance, the Federal Reserve’s role as fiscal agent, the operational mechanics by which deficit spending becomes monetary creation through the combined operations of Treasury auctions and Fed open market operations, and the post-Bretton Woods institutional choices that decoupled the dollar from gold (1971) and constructed the contemporary fiat-monetary architecture together constitute the fiscal-monetary system through which government spending and Federal Reserve operations interact. The architecture’s specific design — the relative independence of the Fed from the Treasury, the operational coordination between the two, the formal separation of monetary and fiscal authority — shapes the channels through which fiscal expansion (deficit spending) becomes monetary expansion (M2 growth).

These five pillars are mutually reinforcing. The Federal Reserve’s institutional structure produces the monetary creation. The primary dealer system designates the first recipients. The wholesale funding markets transmit liquidity through the financial system. The commercial banking system determines the rate at which liquidity reaches the broader economy. The fiscal-monetary architecture coordinates with the federal government’s spending decisions. The cumulative effect is a monetary distribution architecture in which newly-created money flows through specific channels to specific actors before reaching the household sector.

The beneficiaries of the contemporary U.S. monetary distribution architecture are the actors positioned earliest in the distribution sequence. The primary dealers and their parent institutions — large investment banks and broker-dealers — receive the newly-created reserves first. They earn fees from transacting with the Fed, generate trading revenues from the resulting price movements, and hold the assets that subsequently appreciate as the new money diffuses through the financial system.

The asset-holding decile of U.S. households receives the new money second, through the asset-price appreciation that the financial-system liquidity drives. The Federal Reserve’s Distributional Financial Accounts data document that the wealthiest ten percent of U.S. households hold approximately ninety percent of U.S. equities, with the top one percent holding approximately half. The post-2008 asset-price expansion produced wealth gains that flowed disproportionately to this decile.

The financial-services industry — banks, asset managers, hedge funds, private equity firms, broker-dealers, insurance companies — receives ongoing rents through fee structures applied to the expanded asset pool. The industry’s share of U.S. corporate profits, which had averaged approximately fifteen percent in the post-WWII period through the 1970s, rose to approximately twenty-five to thirty percent in the post-2000 period, with the share holding at elevated levels since the post-2008 monetary expansion. The corporate sector receives the new money through asset-price appreciation that supports executive compensation tied to equity prices, through cheaper financing for capital expenditure and acquisitions, and through the share repurchase architecture the companion piece on the U.S. claim economy documents.

The burden falls on the actors positioned latest in the distribution sequence. It falls on workers whose wage gains have not, across the post-2008 monetary expansion period, kept pace with the asset-price appreciation that the same monetary expansion produced. The U.S. labor share of national income declined by approximately five percentage points across the post-2000 period; the corresponding rise in the capital share has flowed disproportionately to the asset-holding decile.

It falls on savers without significant equity exposure — older households without retirement accounts, lower-income households without investment portfolios, households whose financial wealth is held in cash or near-cash instruments — whose nominal balances have been eroded by the consumer-price inflation that has accompanied the asset-price inflation. The 2021–2022 inflationary episode documented in the companion pieces on inflation in this collection produced approximately twenty percent cumulative consumer-price inflation across that period; cash-equivalent savings of households outside the asset-holding decile lost approximately twenty percent of purchasing power. The same period produced asset-price gains that flowed to the asset-holding decile. The asymmetry between asset-holders and cash-savers across this period was the operational signature of the Cantillon mechanism in contemporary U.S. monetary architecture.

It falls on the productive economy whose investment in real productive capacity has been displaced by the financial-asset-appreciation pathway through which the monetary expansion has primarily flowed. As the companion piece on the U.S. claim economy documents, the post-2008 era has produced a sustained expansion of financial claims relative to productive capacity. The opportunity cost — productive investment foregone in favor of asset-price-driven returns — is one of the structural costs of the contemporary U.S. monetary architecture.

The phrases doing the most work in defending the contemporary U.S. monetary distribution architecture are monetary accommodation, the wealth effect, macroprudential policy, quantitative easing, and liquidity provision. Each phrase frames the institutional architecture in terms that direct attention away from the distributional consequences.

Monetary accommodation directs attention to the policy-tool dimension of monetary expansion — the Fed accommodating economic conditions through deployment of its policy tools — without surfacing the question of who receives the accommodating liquidity. The wealth effect, used in academic-economics literature to describe the mechanism by which asset-price increases produce consumption increases by asset-holders, is technically accurate but rarely surfaced in mainstream discourse as an explicit acknowledgment that the Fed’s monetary policy operates through the asset-holders rather than uniformly across the household sector. Macroprudential policy directs attention to financial-stability considerations as separable from distributional considerations, with the implicit framing being that monetary policy and distributional policy are separate domains. Quantitative easing directs attention to the technical-policy operation of large-scale asset purchases without surfacing the question of who sells the purchased assets and at what price. Liquidity provision directs attention to the financial-stability function of Fed operations during stress periods without surfacing the asymmetric beneficiary structure of the resulting liquidity flows.

Each of these phrases is, in specific applications, technically defensible. None is, on the operational record of contemporary U.S. monetary policy, a sufficient description of the distributional reality. The aggregate effect of the framework — multiple available technical-policy phrases, all directing attention away from the distributional consequences — is a public discourse in which the regressive distributional impact of monetary policy is consistently obscured. This is narrative laundering in operation. When the distributional consequences enter the discourse — when, for example, an academic paper or specialty publication documents the post-2008 wealth concentration and links it to monetary policy — the framework deploys a specific set of dismissals, characterizing the analysis as ideologically motivated, as conflating monetary policy with fiscal policy, as ignoring the counterfactual in which the Fed had not acted. The dismissals function as legitimacy shielding: the conversion of a specific analytical claim into a generalized rhetorical category that can be excluded from serious consideration without engaging the substance.

The counter-mechanisms the dominant frame rules out are well-established categories of public economic action. Direct fiscal transfers to households would route monetary expansion through the household sector first rather than through the financial system first, with the distributional sequence reversed. Public investment banks and public banking infrastructure would provide alternative channels for monetary creation and credit allocation that operate outside the primary dealer / commercial banking architecture. Wealth taxation would recover a portion of the post-2008 wealth concentration that the monetary architecture has produced. Mandatory disclosure of monetary distribution would impose transparency requirements on the channels through which monetary creation flows, equivalent to the disclosure requirements for other dimensions of public-economic policy. Antitrust enforcement and structural separation would address the concentrated financial-sector structure that has produced the contemporary primary-dealer and commercial-banking architecture. None of these counters is hypothetical. Each is operational somewhere in the world, and several have operated in the United States.

The first precedent is American and historical. The 1913 Federal Reserve Act’s original design included regional Federal Reserve Banks intended to serve regional commercial and industrial credit needs, with the primary dealer architecture not yet developed. The 1933 Banking Act’s separation of commercial and investment banking constrained the asset-market channel through which monetary expansion could flow. The 1951 Treasury-Federal Reserve Accord established the institutional separation of monetary and fiscal authority that has shaped the subsequent distributional architecture. The Reconstruction Finance Corporation (1932–1957) operated as a public investment bank that capitalized banks, railroads, and wartime production at scale. Each of these institutional choices was made by named actors at identifiable moments and could be modified by subsequent institutional choices.

The second precedent is American and recent. The 2020 CARES Act’s direct stimulus payments to U.S. households (approximately $1,200 per adult plus $500 per child in the first round, with additional rounds in subsequent legislation) routed monetary expansion through the household sector first. The 2020–2021 expanded unemployment insurance, the temporary expanded Child Tax Credit (operational from July through December 2021 before its expiration), and the SNAP benefit increases each represented partial counter-movements toward routing monetary expansion through non-financial-sector channels with documentably progressive distributional effects. The Paycheck Protection Program, despite its administration through commercial banks (which captured some of the program’s value as fees), routed substantial fiscal-monetary flow through small businesses rather than through asset markets.

The third precedent is foreign and recent. The European Central Bank’s targeted longer-term refinancing operations — TLTROs — in operation since 2014, route ECB liquidity to commercial banks conditional on the banks’ lending to the non-financial private sector. The conditional architecture is institutionally distinct from the U.S. quantitative easing approach, which routes Fed liquidity to primary dealers without conditional lending requirements. The TLTRO framework has been contested in its specific implementation but operates as an operational alternative model for routing central bank liquidity through non-financial-sector channels.

The fourth precedent is foreign and continuous. Various central banks — the People’s Bank of China, the Bank of Japan, the South African Reserve Bank, the Bank of Brazil — operate under institutional architectures that include direct fiscal-monetary coordination, public credit allocation mechanisms, and regulatory tools for managing asset-price inflation that the U.S. Fed’s institutional architecture does not include. The specific design choices vary substantially across these institutions and have been contested in their political-economy implications. The category of operational alternatives to the U.S. monetary distribution architecture is, across these international examples, well-established.

The reframing is this: monetary policy is not, in the contemporary U.S. economy, a technical instrument deployed neutrally across the household sector. It is a distributional mechanism that operates through specific institutional channels, reaches specific actors first, and produces specific asset-price and wealth-concentration effects before its consumer-price effects reach the broader population. The Cantillon effect — the eighteenth-century observation that newly-created money raises the prices of whatever the first recipients buy first, then ripples through the economy with diminishing and uneven effect — is the operational signature of contemporary U.S. monetary policy, and it has been the operational signature throughout the post-1971 fiat-dollar era.

The post-2008 quantitative easing period produced approximately eight trillion dollars in expanded Fed balance sheet, an approximate doubling of the M2 money supply, fivefold to eightfold appreciation in U.S. equities (depending on the specific endpoint), an approximate doubling of U.S. residential real estate prices, and modestly growing real median U.S. wages. The Cantillon mechanism is the structural explanation for this pattern. The monetary expansion was real. Its first recipients were the financial sector. The asset prices appreciated through the financial sector’s deployment of the new liquidity. The wealth gains accrued to the asset-holding decile. The wage gains, which would have followed at scale if the monetary expansion had been uniformly distributed, did not arrive in proportional measure. The 2021–2022 consumer-price inflation episode was the eventual catch-up of consumer prices to the asset-price level the prior monetary expansion had produced.

The architecture that produces this pattern is institutional. The 1913 Federal Reserve Act, the 1933 Banking Act, the 1951 Treasury-Federal Reserve Accord, the post-Bretton Woods 1971 fiat-dollar transition, the 1978 Humphrey-Hawkins Act, the 2008 IOER policy, and the post-2008 quantitative easing architecture each represent institutional choices made by named actors at identifiable moments. The institutional choices that produced the contemporary U.S. monetary distribution architecture are reversible. The countries and historical periods in which different institutional architectures have operated demonstrate that the contemporary U.S. pattern is one of several available.

Who gets the new money is not, in the United States, an accidental consequence of monetary policy. It is the direct consequence of the institutional architecture that has been constructed across the post-1971 period to channel monetary expansion through specific actors before it reaches the broader economy. The hidden inequality of liquidity — the structural advantage that the first recipients of new money have over the last recipients — is one of the most consequential and least-discussed distributional phenomena in contemporary U.S. political economy. Naming the mechanism, identifying the institutional architecture that produces it, and surfacing the public-economy alternatives that would route monetary expansion through different channels are the analytic preconditions for the political conversation the U.S. discourse has not yet learned to have.

Infinite Economics covers the political economy of U.S. monetary policy, the institutional architecture of monetary distribution, and the public-economy alternatives that would route monetary expansion through different channels than the contemporary primary-dealer / commercial-banking architecture. This piece is part of our ongoing investigation of money, asset inflation, and the distributional consequences of central-bank operations.