Money, Inflation, and Business Cycles: The Cantillon Effect and the Economy-Review of book by Mark Thornton

Mark Thornton

Abstract: Austrian economists hold that money matters a great deal in concrete terms in the immediate short run and has permanent long-run effects. Sieroń’s book investigates the Cantillon effect, which indicates that money is not neutral because inevitably it is injected unevenly, creating economic distortions. These distortions are important to the long run and the Austrian theory of the business cycle.

…the Fed’s monetary expansions tend to help the wealthy, banks, big corporations, and the financial industry more generally. Subsequently, as prices rise, the Fed’s policy hurts retirees, those on fixed incomes, and wage earners who receive the new money last, if at all. This is one reason why the Fed and most mainstream macroeconomists vigorously deny the existence and importance of Cantillon effects and adopt the assumption of neutral money. Tragically, they often get away with this ruse because the theft cannot be directly seen, except in the final result.

but the primary impact is for major central banks, in particular the Fed, to export business cycles, economic crises, and price inflation. Obviously, the Fed would vigorously deny that it is the source of global economic instability, but others have found that this is empirically the case. The book is concisely written and is “insight dense,” and is a muchneeded contribution to the literature.”

https://mises.org/library/money-inflation-and-business-cycles-cantillon-effect-and-economy

SEE:

Book: Money, Inflation and Business Cycles: The Cantillon Effect and the Economy (Routledge International Studies in Money and Banking)

 

A general, but serious, reason to read this book— The Skyscraper Curse: And How Austrian Economics Predicted Every Major Economic Crisis of The Last Century — is to avoid being one of the millions who will be duped when the next crash (bust) occurs. Millions were and continue to be duped as to the reason for the boom leading up to 2007 and 2008 and why the bust occurred in 2008 relating to real estate.

Thornton begins with an important discussion of money creation and Richard Cantillon, writing: “… Richard Cantillon (1680s-1734?) [was] the first economic theorist and proto-Austrian economist …[he] showed how the interest rate and the money supply can create changes and distortions in the economy, a phenomenon now referred to as “Cantillon effects.”

Monetary inflation is affected by who gets the money and credit first and who gets it last. As fiat money is created by central banks, private banks are in a position to expand the amount of loans they make. The wealthy have established relationships with the banks, and they have the real estate and assets to provide collateral for the loans. Large, established companies and wealthy individuals are in favorable positions relative to small businesses and people with low or average incomes. The loans allow big companies and wealthy individuals to invest in capital goods during the boom phase of the business cycle. Central banks thereby create artificial inequality and poverty. This is the primary Cantillon effect of redistributing wealth.”

Thornton shows that the biggest winners come from the Federal Reserve and the bank system’s creation of newly created currency and credit are the U.S. Government, its large contractors, such as weapons manufacturers, big banks, and Wall Street. The losers are also revealed: the labor class consisting of private-sector workers, those on pensions or fixed incomes.

 

Review by Richard Duke on the Mises Institute website of the book: The Skyscraper Curse: And How Austrian Economists Predicted Every Major Economic Crisis of the Last Century by Dr. Mark Thornton

 

 

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