The Cantillon Effect
| The Cantillon Effect is an economic principle that describes how a change in the money supply can lead to a change in relative prices. The effect is named after French economist Richard Cantillon, who first described it in the early 18th century. The Cantillon Effect is based on the idea that money is not neutral. That is, a change in the money supply can lead to a change in the price of goods and services in the economy. The effect is named after French economist Richard Cantillon, who first described it in the early 18th century. The Cantillon Effect is often used to explain how inflation occurs. When the money supply increases, there is more money chasing the same number of goods and services. This increases the price of goods and services, which is inflation. The Cantillon Effect can also help to explain why asset prices often go up when the money supply increases. When there is more money in the economy, people are willing to pay more for assets such as property and shares. The Cantillon Effect is an important economic principle that helps to explain how changes in the money supply can lead to changes in prices and asset prices. |
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