Back to Cantillon: On the Relevance of the Monetary Economics of Richard Cantillon
Date
2013
Authors
Bilo, Simon
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Abstract
Richard Cantillon was an eighteenth-century economist who raised the idea of monetary non-neutrality that we today also know as "Cantillon Effects". Cantillon and his followers emphasize that changes in the quantity of money progress over the economy in a step-by-step fashion and lead to wealth redistributions and to real effects on production processes. Cantillon's idea of monetary non-neutrality is the underlying theme of the three chapters of the dissertation. In the first chapter, I argue that the idea of "Cantillon Effects" has been downplayed in the modern macroeconomics. I conclude that it should not have been so because the idea stands the test of consistency of the equilibrium analysis as well as that of historical relevance. The following two chapters are additional illustrations of the usefulness of the idea of "Cantillon Effects". In the second chapter, I reconsider the Austrian business cycle theory, where "Cantillon Effects" are an important component. I show that the theory holds also for the assumption when people hold unbiased expectations. In the third chapter, I apply the Austrian business cycle theory into international context and show that the application is consistent with the basic stylized facts.
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Keywords
Economics, Austrian business cycle theory, David Hume, Expectations, International business cycle, Non-neutrality of money, Richard Cantillon