Claim OwnershipAn Essay on Economic Theory
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An English translation of Richard Cantillon’s Essai sur la Nature du Commerce en Général. Translated by Chantal Saucier. Edited by Mark Thornton.
This audio book is made available through the generosity of Mr. Tyler Folger. It is narrated by Millian Quinteros.
This audio book is made available through the generosity of Mr. Tyler Folger. It is narrated by Millian Quinteros.
37 Episodes
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When the government’s national bank inflates the money supply by increasing the supply of banknotes, it reduces the rate of interest and can increase the price of stocks. This is a corrupt process and when the notes are redeemed, the price of stocks falls and can result in bank runs and economic chaos. This is now known as the business cycle.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
National Banks are of little utility and can be the source of economic chaos. The increase in the supply of money that they provide is relatively small and offers the same disadvantages as increases in real money. They are therefore unnecessary and potentially very harmful, as in the cases of the Bank of Venice and the Bank of London. The roles of legal tender laws, fractional reserve banking, and regional trade fairs are described.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
Fractional-reserve banking is a system where the banks lend some of their deposits and earn interest. This increases the amount of money in circulation compared to warehouse or 100% reserve banking. This utility of banking comes at the risk of being unable to withdraw your deposits. The amount that can be lent into circulation depends on the type of bank and the needs of the depositors. There are goldsmith-bankers, the typical banker who issues banknotes, and the national bank.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
Raising and lowering the nominal value of money is shown not to undermine the theory of the value of money. In contrast, such measures are shown to be methods by which the prince acquires resources by deceiving individuals about the value of money. The process causes chaos in the market.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
The price of gold and silver and the ratio between them is determined by markets and is also based on their usefulness, cost of production, and transportation costs. When government mints establish a fixed ratio between gold and silver money that is not based on market prices, the overvalued metal will be driven from circulation. This is commonly referred to as “Gresham’s Law” where bad money drives out good money.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
Exchange rates are explained as a function of the balance of trade and other factors. A trade deficit can cause your money to exchange below par, while a trade surplus will cause it to exchange above par. In fact, the exchange rate, above and below par, is an indicator of the general balance of trade in a country. An attempt to prohibit the export of gold necessary to pay for deficits only hurts the economy.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
There is an expense associated with transporting money based on the distance, risks, and other transaction costs. Bills of Exchange are a type of contract that can reduce this cost by avoiding shipments that are offsetting between two locations. When money must be sent, bankers charge a fee for arranging the shipment and providing their customers with a bill of exchange, or check, that can be drawn or cashed at a correspondent bank where the money is sent. When the exchange rate is above par, it indicates a balance of payments deficit, and when the exchange rate is below par, it indicates a balance of payments surplus.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
Here the circular-flow economy is extended to international trade. Instead of barter or exchange with money, Cantillon explains how international trade takes place on the basis of bills of exchange. He showsthat a state which accumulates money will enjoy a temporary gain in international trade, but that states where manufacturing industries develop will enjoy a higher standard of living. The only clear exception Cantillon makes to free trade is his famous endorsement of the English Navigation Acts, where domestic shipping is protected, not in its own right, but to provide ships and sailors during wartime.From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.
The interest rate is determined by the supply and demand for loanable funds, not the supply of money. Savings and frugality decrease the interest rate while lavish spending increases it. War increases the interest rate, peace decreases it. Paying off the national debt decreases the interest rate. A positive balance of trade decreases the interest rate, but the government cannot effectively lower the interest by a usury law. The interest rate is a critical factor in the valuation of assets such as land.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Interest is established in the market by lenders and borrowers and the interest rate on a particular loan is determined by the risk of default. A loan is repaid from the income generated from capital investments and the interest paid is equivalent to the profits of fully capitalized enterprises. Small entrepreneurs pay high rates whether they borrow cash or purchase goods to be paid at a later date, based on risk and their propensity to spend beyond their means.Thereby, interest rates on loans are connected with an individual’s time preference.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Increases in the supply of money from a balance of trade eventually causes prices to rise. This in turn puts pressure on domestic producers and increases imports. The result is that the balance of trade is reduced and eventually is negative. This is Cantillon’s price specie-flow mechanism which demonstrates the reasons for the tendency for equilibrium in international monetary flows. The balance of trade can result in economic power, but this also causes the economy to lapse into luxury and decline.From Part 2: Money and Interest. Narrated by Millian Quinteros.
When there is an increase in the quantity of money, prices will increase depending on how the new money holders decide to spend their money. The price changes will also be affected by such things as regulations on trade and the perishability of the products that are traded. In other words the simple quantity theory of money is naïve in proposing that a doubling of the quantity of money would double all prices equally. Changes in the quantity of money will change relative prices and have real effects on the economy, a phenomenon now known as the Cantillon Effects.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Here Cantillon uses his price-specie flow mechanism to analyze some of the effects of inflation. Increasing the supply of money by mining hurtssome people and benefits others because certain prices and incomes rise faster than others. However, if the new money is accumulated and saved by those who successfully export goods, either because of superior quality or more efficient transportation, it will lead to higher standards of living.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Rural France was impoverished because commodities had to be sent to the capital and major cities to pay taxes to the state and rents to the property owners living there. It is argued here that if factories were permitted in rural areas, basic commodities could be turned into goods, which could then be sent to the cities at a much lower transport cost. This would save resources in transportation and benefit both rural populations and property owners.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Large transactions can be accomplished with the use of bills of exchange or barter, which reduces the demand for money. Ordinary transactions by people require actual coin money in circulation. A variety of factors, therefore, affect the flow of money in circulation and this in turn affects the amount of money in circulation.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Farm production produces three rents, one of which sustains the farm workers, while the other two can be sold at wholesale to entrepreneurs who in turn provide property owners and farmers with goods and merchandise. This is the circular flow model of the economy. Money facilitates the flow and timing of rent payments (i.e., “velocity”) and the rate of the monetary flow determines the ratio between the quantity of money and the value of annual production. This model is then used to explain the implications of international trade.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Market prices are determined by the bargaining between suppliers and demanders. Price determination by supply and demand is illustrated with a thought experiment that uses a fixed quantity of a perishable product (i.e., green peas) and known maximum valuations of consumers.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Because the opportunity cost of a good cannot be fixed, it is impossible to know the proper exchange ratios for barter. This problem is overcome in the market by using commodities that have marketable characteristics, such as transportability, durability, and a recognized economic value, to serve as a medium of exchange. Prices of goods do not strictly follow the quantity theory of money.From Part 2: Money and Interest. Narrated by Millian Quinteros.
Gold and silver were highly valued before they were used as money. They hold many advantages over other goods such as durability, divisibility, transportability, and homogeneity. These are the reasons which led gold, silver, and copper to be chosen as money, not “fancy” or common consent. When princes debase money or issue imaginary money, they hurt the economy.From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.
The wealth of a nation depends on putting the labor force to work. Those who are unnecessary for farming can be employed in making higher quality products and manufactured goods, particularly durable goods made from metal. Saving is the key determinant of wealth and gold is a particularly useful form of savings because it can purchase all things, even in time of war. The prince and property owners determine how people will be employed by their consumption choices, while the Catholic Church reduces the resources available to materially sustain the people.From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.
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