Cantillon Effect

  • It is named after the 18th century French economist Richard Cantillon who published his ideas in the 1755 book Essay on the Nature of Trade in General.
  • It explains the relationship between the general money supply and the prices of goods. According to the Cantillon effect, when new money circulates into the economy, asset prices increase at varying rates.
  • As new money initially enters the economy through central banks, private equity firms, and government institutions, these organizations have a greater purchasing power over the general public.
  • Thus, the Cantillon effect describes the disproportionate outcome money injection has on different ....
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