The Unseen Tax

Everything costs more because governments print money.

This fundamental truth explains why your dollar buys less each year, why houses are unaffordable, and why Bitcoin is necessary. Since 2020, the U.S. money supply has expanded by 39%, leading to the highest inflation in 40 years and a permanent erosion of purchasing power. Inflation outpaced wage growth for 25 consecutive months from 2021 to 2023, making Americans poorer with each paycheck.

The widespread erosion of purchasing power is a direct and predictable consequence of a centrally managed fiat currency system. This system, by its very design, devalues currency through the continuous expansion of the money supply.

Today, we’ll explain why everything costs more in four moves. First, we dissect CPI to show why it understates everyday costs. Second, we map the Cantillon Effect and its importance to your bottom line. Third, we read history’s endgame: monetized deficits → lost credibility → hyperinflation and currency resets. Finally, we examine a sound money alternative: Bitcoin.

What They Measure vs What You Pay — Deconstructing the Consumer Price Index (CPI)

The primary tool used by governments and central banks to measure inflation, the Consumer Price Index (CPI), is presented as an objective and scientific measure of the cost of living. It is the number that dictates cost-of-living adjustments (COLAs) for Social Security recipients, influences wage negotiations, and guides the monetary policy of the Federal Reserve.

Yet, for millions, this official number bears little resemblance to their lived experience. This disconnect results from specific, deliberate methodological choices that have transformed the CPI from a simple measure of price changes into a complex and often misleading statistical construct that systematically understates the true cost of maintaining a constant standard of living.

How the CPI (Supposedly) Works

The Consumer Price Index is a straightforward concept in principle. It is designed to measure the average change over time in the prices paid by urban consumers for a representative "basket of goods and services." This basket is a statistical abstraction meant to represent the typical spending patterns of an average household, determined through extensive surveys of consumer expenditures.

The calculation process, managed by the Bureau of Labor Statistics (BLS), involves several steps. Each month, data collectors gather tens of thousands of price quotes for a vast assortment of items—from groceries and gasoline to haircuts and rental costs—from thousands of retail and service establishments across the country. These items are categorized into major groups such as Food, Shelter, Transportation, and Medical Care.

The price changes for these items are then weighted according to their relative importance in the average household's budget. For example, housing costs, which constitute a large portion of a family's spending, are given a much heavier weight in the index than apparel.

These weighted price changes are then aggregated to compute the overall index value.

While the U.S. CPI is the most cited benchmark, similar methodological biases afflict inflation measures globally. The European Union, for example, uses the Harmonised Index of Consumer Prices (HICP) to permit clean cross-country comparison, but it also employs substitution adjustments, hedonic tweaks, and controversially excludes the owner-occupied housing costs that are a major expense for families. Many emerging-market and developed economies follow comparable frameworks under IMF/OECD guidelines.

How the CPI ACTUALLY Works

While the CPI's basic framework appears sound, a closer examination of its methodology reveals a series of adjustments and assumptions that cause the final number to diverge significantly from the real-world cost pressures faced by households. Key flaws include:

• Substitution Bias: The most insidious change came when the BLS shifted from measuring a Cost of Goods Index (COGI) to a Cost of Living Index (COLI). Instead of tracking the cost of the same basket of goods over time, the CPI now assumes you'll downgrade when prices rise. So when prices for goods like beef rise, CPI assumes you will buy cheaper alternatives like chicken. By factoring in this "substitution," the index doesn't fully capture the price increase of the original item. This masks the real cost of maintaining a consistent lifestyle, as settling for a cheaper option represents a degradation of your standard of living.
• Hedonic Adjustments: The CPI adjusts prices for "quality improvements." For example, a new car costs significantly more than it did 30 years ago, but the CPI reports its price as nearly flat. This is because statisticians subtract the value of new features like GPS and better fuel efficiency from the sticker price. This practice ignores that consumers are forced to buy these "upgrades" to participate in the modern economy, effectively hiding the true rising cost of essential goods.
• Asset Price Blind Spot: The most significant distortion is that the CPI completely ignores the prices of assets like stocks, bonds, and real estate. The index measures the cost of day-to-day consumption, not the cost of building wealth. By excluding the soaring prices of homes and retirement assets, the CPI fails to capture the largest financial hurdles most people face: the cost of thriving, not just surviving. The CPI uses a flawed "Owner's Equivalent Rent" (OER) metric instead of actual home prices, which further holds down the reported inflation rate.

The gap between the official CPI and lived experience has led to alternative inflation indexes like ShadowStats and Truflation. These measures use older government methodologies or real-time data and often show inflation rates that are two to three times higher than the official CPI. Their existence confirms that the CPI is not a hard fact but a set of statistical choices that often paint a rosier picture than reality.

The Cantillon Effect — How New Money Enriches the Few, First

If the official measure of inflation is a distorted mirror, the next question is what fundamental force is driving the price increases it attempts to measure. The answer lies not in the quantity of new money created, but in the process by which that money enters the economy.

The Original Sin of Money Printing

In his seminal work, Essai sur la Nature du Commerce en Général, Franco-Irish economist Richard Cantillon noted that when a state increases the supply of money, the new money does not spread through the economy evenly and instantaneously. Instead, it has localized, sequential effects. This phenomenon is now known as the Cantillon Effect.

Cantillon's core insight was that the first recipients of newly created money gain a significant advantage.

These individuals and entities receive the new money before general prices have had a chance to adjust upward. They can spend this new money into the economy at current, pre-inflation prices, bidding up the cost of the goods, services, and assets they desire.

As this new money is spent, it begins to ripple through the economy. The merchants who sold goods to the first recipients now have higher incomes and increase their own spending. This process continues, with the new money being passed from hand to hand.

However, at each step of the process, prices are bid higher. By the time the new money finally trickles down to those at the farthest end of the chain (i.e., wage earners, pensioners, and those on fixed incomes), the general level of prices has already risen significantly. Their baseline incomes may eventually rise, but their purchasing power has been diminished in the interim. They face higher prices before they receive any of the new money. The result is a covert transfer of wealth from the last recipients to the first.

Modern Cantillionaires

While Cantillon observed this effect in an era of gold mines and royal treasuries, his insight is more relevant today than ever. The modern system of central banking and fiat currency has created the most efficient and powerful engine for generating Cantillon effects in human history.

Case Study 1: Quantitative Easing Post-2008

Following the 2008 Global Financial Crisis, central banks—led by the Federal Reserve—turned to quantitative easing (QE). QE is large-scale asset purchases: the central bank creates new electronic reserves and uses them to buy longer-maturity securities (mainly U.S. Treasuries and agency mortgage-backed securities) from the market.

This process is a textbook example of the Cantillon Effect. The newly created money was injected directly into the highest echelons of the financial system. The primary dealer banks that sold assets to the Fed were the "first recipients." This new liquidity did not primarily flow into new loans for small businesses or households; instead, it remained within the financial system, used by banks and other financial institutions to purchase other assets like stocks and corporate bonds.

This massive injection of new money chasing a relatively fixed number of financial assets led to one of the longest and most significant bull markets in history. Asset prices—stocks, bonds, real estate, fine art—soared to record highs.

Predictably, the beneficiaries were those who owned these assets. Since the wealthiest 10% of the population own the vast majority of financial assets, they captured nearly all of the initial gains from QE.

Meanwhile, the general population saw little direct benefit. Their wages remained largely stagnant, while the cost of assets required for wealth creation (like housing) moved further out of reach. The subsequent consumer price inflation, which eventually began to accelerate, acted as a tax on the wages and savings of the non-asset-owning classes, effectively subsidizing the enrichment of the asset-owning class.

Japan’s experience with quantitative easing is often held up as the cautionary parallel to U.S. money printing: the Bank of Japan first adopted QE in 2001 amidst deflationary pressures, later shifting to “quantitative and qualitative easing (QQE)” in 2013, combining massive purchases of JGBs, ETFs, and other assets to hit a 2 % inflation target. But despite decades of ultra-loose policy, inflation remained muted, growth sluggish, and public debt soared (now exceeding 230 % of GDP). Japan’s case warns that relentless money printing can weaken central bank credibility, amplify asset bubbles, and leave economies stuck in a low-yield trap — a pattern U.S. and global central banks risk repeating.

Case Study 2: The 2020/2021 Stimulus Packages

The economic response to the COVID-19 pandemic took the Cantillon Effect to a new level. This time, monetary expansion (more QE) was combined with massive fiscal stimulus, including direct payments to individuals and forgivable business loans (PPP loans).

While some new money was distributed more broadly than in the post-2008 era, the underlying mechanism remained the same. Trillions of new dollars flooded the economy, a significant portion of which flowed directly to large corporations. Simultaneously, the perception of runaway money printing and future inflation drove a massive influx of capital into financial assets as a perceived hedge. This included traditional stocks and digital assets like Bitcoin.

The result: double the inflationary shock (surprise, surprise).

First, asset prices exploded upwards in 2020 and 2021, generating immense wealth for those already invested in the markets. Second, as this tsunami of new money chased a limited supply of goods and services (exacerbated by global supply chain disruptions), the highest consumer price inflation in four decades was unleashed. The wealthy benefited first from the asset boom, while everyone else paid the price through a historic decline in their real wages and the purchasing power of their savings.

Flooding new, cheap money into specific sectors sends false signals to entrepreneurs and investors. When asset prices in tech or housing are soaring not because of genuine consumer demand financed by real savings, but because of newly created central bank credit, it encourages overinvestment in those sectors. This malinvestment creates economic bubbles.

Echoes of History

The policies of persistent monetary expansion and the resultant wealth redistribution are not new. While modern central bankers may believe they possess the sophisticated tools to manage inflation and avoid catastrophe, history is a graveyard of regimes that held the same conviction. The path of financing government deficits with a printing press follows a well-worn pattern. While the journey may take decades, the destination is always the same: monetary collapse and societal ruin. The following case studies serve as stark warnings of the ultimate consequences of the forces described in the previous sections.

The Universal Pattern of Monetary Collapse

Across different eras, cultures, and political systems, the prelude to hyperinflation is remarkably consistent. It begins with a fiscally insolvent government—its expenses far exceed its ability or political will to raise revenue through direct taxation or voluntary borrowing from the public. Faced with this crisis, the state turns to its central bank to monetize the debt, effectively printing the money it needs to pay its bills. What begins as a temporary solution soon becomes an addiction, leading to an accelerating cycle of currency creation and price inflation that ultimately destroys the currency and the society that depends on it.

The Exit Strategy: Bitcoin as Productive Capital

For most of history, there has been no viable alternative. Citizens were forced to use the currency issued by their sovereign, and the only “escape” was to a fiat of a different kind. Different cut, same cloth.

Bitcoin was conceived as a direct response to a sustainable opt-out. A tool for a voluntary exit from a system characterized by discretionary control, censorship, and the perpetual wealth redistribution of the Cantillon Effect. Bitcoin is an attempt to separate money from the state, just as past revolutions separated church from state.

Bitcoin's core feature is its absolute scarcity, with a hard cap of 21 million coins. The issuance of new bitcoin is transparent and disinflationary, as the rate of creation is cut in half approximately every four years in an event known as the "halving." This predictable, rules-based monetary policy is the direct opposite of the discretionary and often unpredictable policies of central banks like the Federal Reserve.

Neutralizing the Cantillon Effect and a Return to Free Banking Principles

Bitcoin's unique issuance mechanism fundamentally alters how new money enters the economy, neutralizing the primary channel of the Cantillon Effect.

New bitcoins are not created by a central bank and injected into the financial system to benefit primary dealer banks. Instead, they are awarded directly to the miners who successfully perform the computational work required to add a new block of transactions to the blockchain. The distribution of new money is therefore based on the expenditure of real-world resources (energy and computation), not on proximity to the centers of political and financial power. This creates a far more equitable system of monetary issuance, short-circuiting the wealth-concentrating feedback loop that defines the fiat system.

Bitcoin replaces political money creation with thermodynamic money creation.

Mezo: Become your own Banker

Mezo solves this dilemma by creating what Bitcoin always needed: a circular economy where your Bitcoin works without leaving your control.

Banks take custody, fractionally reserve your deposits, and loan them out at their discretion. Mezo operates on fundamentally different principles—the principles of free banking that existed before central banks monopolized money.

Through Mezo, you can:

• Borrow MUSD against Bitcoin at 1% fixed rates without selling a single satoshi. Your Bitcoin remains yours, merely locked in transparent smart contracts you can verify on-chain.
• Spend without selling using MUSD for daily expenses while your Bitcoin collateral appreciates. Break the cycle of converting back to fiat.
• Earn real yield through Mezo Pools and Vaults that make your Bitcoin work for you.

The money printer will keep going brrr. The Cantillon Effect will keep enriching those closest to the spigot. Houses will keep getting more expensive. Your dollars will keep melting.

But now you have an alternative that's more than just an escape—it's a construction site for the new financial system. Through Mezo, your Bitcoin becomes the foundation of your own personal bank. Self-sovereign. Productive. Free.

Join the Bitcoin Banking Revolution

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