On Cantillon and the Szabonian Deconstruction of the Cantillon Effect

Re-Visiting our Wrapping of Cantillion's Works

The Cantillon effect is often cited by those that tout gold or bitcoin as the savior of the global economy. This is a framework that bitcoiners can also easily enter into and so theirs and the gold bug's systems of thought overlap here.

The Cantillon effect is usually cited by these groups with the implication that it shows that money printed by central banks makes the rich richer. That new money introduced benefits those that receive it first and those that receive it first are the wealthy and political privileged.

These groups advocate the end of central banking and return to commodity backed money.

Consider the explanation of what is called the ‘Cantillon effect’ from wiki:

Cantillon suggested that inflation occurs gradually and that the new supply of money has a localized effect on inflation, effectively originating the concept of non-neutral money.[62] Furthermore, he posited that the original recipients of new money enjoy higher standards of living at the expense of later recipients.[63] The concept of relative inflation, or a disproportionate rise in prices among different goods in an economy, is now known as the Cantillon Effect.[64][65]

Notice that the reference [63] is not a reference to Cantillon but rather a reference to Rothbard thus in our wrapper notation the citation is of 'Rothbard wraps Cantillon':

rothbard{Cantillon}

Then we should want to deconstruct Rothbard from Cantillon.

Notice also reference 65 takes us to a website for the company swanBitcoin where we find the explanation:

The Cantillon Effect, coined by economist Richard Cantillon in the 18th century, is defined as inflation where price changes occur when the government increases the money supply through quantitative easing and expansive monetary policies.

On Cantillon Unwrapped

From Richard Cantillon’s An Essay on Economic Theory 'Part 2-Of the increase and reduction in the actual quantity of money in a state' Cantillon explains of the production of gold and silver based money:

If gold or silver mines are discovered in a state, and if considerable quantities of minerals are mined from them, the owner of these mines, the entrepreneurs, and all those who work in them will increase their expenditures proportionately to the wealth and profits that they make. They will also lend sums of money at interest over and above what they need to spend.

Thus we can see the framework Cantillon studied economic philosophy from, ‘money’ at his time, in the useful consideration, is what we generally refer to today as commodity money:

cantillon{commodityMoney{money}}

Here we haven’t defined commodity money but a loose pointer is sufficent. It certainly runs in contrast to the type of framework for money in which a government chooses to ‘print’ money and devalue it by its own whims. There is at least SOME distance complexity between the two concepts.

(A relevant side note to keep in mind, regardless, that commodity money was the useful framework for money of his time, at least for his inquiry, shouldn’t cause us to only consider money as being commodity money when we consider monetary theory.)

Cantillon continues with what he feels is an accepted theory of the nature of (commodity) monies supply and its corresponding effects to market prices:

All of this money, whether lent or spent, will enter into circulation and will not fail to increase the prices of commodities and merchandise in all the channels of circulation that it enters. The increase in money will bring about an increase in expenditure, and this increase in expenditure will cause an increase in market prices in the peak years of exchange and gradually in the trough years. Everyone agrees that an abundance of money, or its increase in exchange, raises all prices. This truth has been borne out in practice through the quantity of money brought from America to Europe over the last two centuries

On the Distance Complexity of 'Cantillon Wraps Locke' From the Quantity Theory of Money

Cantillon’s intent is to give an explanation of the theory of money concordant with Locke-the ‘quantity’ of money is proportionate to the prices of goods for the market it serves:

Mr. Locke presents as a fundamental maxim that market prices are determined by the quantity of commodities and merchandise in proportion to the quantity of money. I have tried to throw light on his idea in the previous chapters: he clearly understood that the abundance of money makes everything dearer, but he has not examined how this happens.

For the complete framework of his observation he notes:

I have already pointed out that an acceleration, or a greater rapidity, in the circulation of money in exchange is, up to a certain point, equivalent to an increase of actual money.

His inquiry is therefore what we know today as the quantity theory of money:

MV = PQ

And more specifically Cantillon explains his intent and the caution involved in it:

The great difficulty of this research is in knowing in what way and in what proportion the increase in money raises prices.

This is the framework from which, what is now generally referred to as, the Cantillon effect was drawn-but as framed by Cantillon.

On the Accordance of Cantillon with the Wikipedia Wrapping of the Cantillon Effect

Cantillon expounds on the effects of the addition of new money to the economy. The effects are in accord with the general explanation of the Cantillon effect, increasing the prices as the money enters the economy, although there is no talk about the initial receiver of the new money being the only party to benefit the landowner class starts to outlast the manufacturing class:

I reckon in general that an increase in actual money produces a proportional increase in consumption in a state, which gradually increases prices. If the increase in actual money comes from a state’s gold and silver mines, the mines’ owner, the entrepreneurs, the smelters, the refiners, and generally all those who work in them will increase their expenditure in line with their gains. At home they will consume more meat and wine or beer than they used to, and they will become accustomed to having better clothes, finer linen, and more ornate houses and other soughtafter commodities. Consequently they will give employment to some craftsmen who hitherto had not as much work and who, for the same reason, will increase their expenditure. All of this increased expenditure on meat, wine, wool, and the like will necessarily reduce the share of other people in the state who are not the initial beneficiaries from the wealth of the mines in question. The bargaining in the market, with the demand for meat, wine, wool, and the like being stronger than usual, will not fail to increase their prices.

He then continues with the effects, that some of the labor leaves, and what remains will demand higher wages:

These high prices will encourage farmers to employ more land to produce them in another year; these same farmers will profit from this price increase and will, like the others, increase their family’s expenditure. As a consequence those who suffer first from this dearness and the increase in consumption [217] will be the landlords during the term of their leases, then their servants and all the workers or people on fixed wages on which their families depend. All of them will have to reduce their expenditure in proportion to the new consumption, which will force a large number of them to leave the state to earn their living elsewhere. Some will be laid off by the landlords, and it will happen that the others will ask for an increase in their wages so as to live as before.

When more money from the mines is drawn and added to the economy. Everyone at the beginning benefits after the initial dispersal. Cantillon means to call attention however to the international trade and labor ramifications:

If money continues to be drawn from the mines, this abundance of money will increase all prices [218] to the point that not only will the landlords, at the termination of their leases, increase their rents considerably and settle back into their old style of living, increasing proportionally their servants’ wages, but the craftsmen and workers will push the price of their articles so high that there will be a considerable profit to be made by importing them from abroad, where they are made more cheaply. This will naturally encourage some to import into the state a large amount of articles made in foreign countries, where they are more cheaply produced. This will gradually destroy the state’s craftsmen and manufacturers who, given the high cost of living, will not be able to subsist by working at such low prices

On the Discordance of Cantillon with the Wikipedia Wrapping of the Cantillon Effect

After reducing the quality of labor, and or increasing the cost of it, and increasing the ‘wealth’ only of landlords of servants the excess money flows oversea, because goods etc. are thus comparatively cheaper:

The money made from the mines will necessarily flow overseas to pay for what is imported when an excessive abundance of money from the mines has reduced the population of a state, accustomed those who remain to lavish expenditure, increased excessively the prices of the output of land and labor, and ruined the state’s manufactures because of the landlords’ and mineworkers’ recourse to foreign goods.

Notice that from a central banking framework such as the present day global financial circumstances, i.e. a money-printing type of view, it doesn’t make sense that an overprinted money could thus go overseas and chase cheaper goods.

Someone wrapping the Cantillon effect in the wiki wrapper would argue that the United States money printing efforts and the USD is an example of such a scenario. But not when we consider that Cantillon is referring to a scenario in which the USD would be hyper-inflating locally.

There is obvious distance complexity here. It's not explained in the wiki, nor it's references.

On the Effects of Locally Over-Mining a Globally Held Commodity Money

Cantillon continues with effects of this over drawing of money suggesting it impoverishes the state the overdraws:

This will imperceptibly impoverish this state and make it, in some manner, dependent on the foreign countries to whom it is obliged to send the money annually as it is drawn from the mines. The great circulation of money, which was general at the start, ceases; poverty and misery follow, and the mines’ output appears to be of benefit only to those employed in them, and to the foreigners who profit from them.

This isn't a scenario that readily ports to the concept of central-banking. At the time the money he is referring to is gold and silver, commodity money. You can't make annual payments to foreign country by printing central bank money-they require gold!

In Cantillon's scenario the only ones to benefit are those that own the mines. Not even the state. Cantillon is going to argue to over-print isn't the optimal strategy for the state-whether privately or by controlling the supply.

Cantillon On the Effects of the Increase in the Supply of Money Via Beneficial Trade

Cantillon explains of the nature of increasing the money supply of a state via favorable trade the result is prudence in the unfolding economy:

Now if the increase of money in the state comes from a balance of foreign trade (that is, exporting articles and manufactures of greatervalue and in greater quantity than is imported, and consequently receiving the surplus in money), this annual increase in money will enrich a great number of the state’s merchants and entrepreneurs, and will give employment to numerous craftsmen and workers who provide the articles that are exported to the country from which the money is drawn. This will gradually increase the industrious inhabitants’ consumption, and raise the prices of land and labor. But the industrious people, who are eager to accumulate assets, will not initially increase their expenditure. They will wait until they have accumulated a good sum on which they can earn a guaranteed rate of interest independently of their trade.

Notice specifically the claim here, that as people get richer from being beneficiaries of foreign trade, prices in their local land increase:

When a great number of people have acquired considerable fortunes from this money, which regularly and annually enters the state, they are sure to increase their consumption and to raise the price of everything. Although this dearness leads them to greater expenditure, which they had not initially contemplated, they will for the most part continue as long as their capital lasts, given that nothing is easier or more agreeable for families than to increase their expenditure, and nothing is more difficult or more disagreeable for them than to cut back.

That an inflow and thus an increase of gold money would INCREASE the prices is NOT concordant with the theory of money-printing that cites Cantillon.

Rather what Cantillon is expounding on is the theory of trade equilibrium among nations:

If an annual and continuous balance causes a considerable increase of money in a state, it will not fail to increase consumption, raise the price of everything, and even diminish the number of inhabitants, unless an additional amount of commodities is drawn from abroad proportional to the increase in consumption. Moreover, it is normal for states that have acquired a considerable quantity of money to import many things from neighboring countries where money is scarce and consequently everything is cheap. But as money must be sent to pay for this, the balance of trade will be reduced. The cheap price of land and labor in foreign countries where money is scarce will naturally encourage the establishment of manufactures and works there similar to those of the state, but initially they will not be as perfect or as greatly valued.

Lastly he includes the addition of money received from foreign powers, again we note this framework is at least slightly discordant from the framing of the Cantillon effect on wiki:

As for the subsidies that the state receives from foreign powers, they may be either hoarded due to the state’s needs, or put into circulation. If we suppose them to be hoarded, [231] they do not enter into my discussion, for I consider only money in circulation. Hoarded money, plate, church silver, and the like constitute wealth that the state may find useful in great emergencies, but they are of no present utility. If the state puts the subsidies in question into circulation, it can do so only through expenditure, and this will very certainly increase consumption and will raise all prices. The recipient of this money will put it in motion in the principal business of life, which is the sustenance, for either himself or someone else, since everything directly or indirectly relates to this.

Cantillon on the Transport Cost of Goods and Money

Of the transport cost of goods and money Cantillon notes a relationship between the cost of labor and the cost to transport. These can have a paradoxical effect on prices making some goods from a further distance comparatively cheaper than others depending on the cost to transport etc.:

If the state is a maritime one, the ease and cheapness of its shipping for the transport of its articles and manufactures to foreign countries will compensate it in some way for the high cost of labor arising from the excessive abundance of money. In this way this state’s articles and manufactures, expensive though they may be there, will sometimes sell in distant foreign countries at lower prices than another state’s manufactures where labor is cheaper.

A General Framework That Includes Cantillon’s Framework

Cantillon is painting his general framework from a view that suits his purpose for observing economics of his time. As we traverse his argument we will draw out that framework so that later we can use it in metaphor. The complexity distance of this process is notable. We mean to help the general audience relive the concept of the Cantillon effects from the complexity distance that the wikipedia wrapping and the swanBitcoin article introduce.

We note here, consequent to our deconstruction in this essay, in later essays we will use Cantillon’s argument in proper context, drawn out and explained in metaphorical simile and that even though we will have pulled his framework for observation away from the time it was written about, putting it in such a useful and transparent context, will not add complexity to it.

It will be more distant in one sense and less distant in the other.

Cantillon On the Nuances of the Distribution of Increased Prices as a Cause of the Increase in Money Supply

Thus Cantillon begins his observations of the NUANCED effects of the introduction of money on market prices:

Let us suppose that, before the quantity of money begins to increase, a quarter of the state’s inhabitants daily consume meat, wine, beer, and the like and often provide themselves with clothes, linen, and so forth, but that, once the quantity has begun increasing, a third or a half of the inhabitants consume these same things: the prices of these commodities and merchandises will certainly rise, and the high cost of meat will oblige some of those who formed the original quarter to consume less of it than usual. A man who eats three pounds of meat per day can certainly continue to live on two pounds, but he will feel this cutback, while the other half of the inhabitants, who seldom ate meat before, will scarcely feel it.

His point is about the different nuances in economic demand for bread versus meat:

As I have often suggested, bread will gradually rise in price because of this increase in consumption, but it will be less expensive relative to meat. The increase in the price of meat causes a reduction in consumption for a small section of the population, and so is felt; but the increase in the price of bread reduces the share of all and accordingly is not felt in the same way. If an additional hundred thousand people come to live in a state with a population of ten million people, their additional consumption of bread will constitute only one pound in a hundred, which will need to be taken from the former population; but when a man consumes 99 pounds of bread rather than 100 pounds, he scarcely feels the cutback.

‘But this isn’t the part where Cantillon damns the money printers and evil fiat lords’ they will cry;

‘you haven’t read Cantillon’s work, you instead cite Rothbard’, we will reply’

CANTILLON On the Cantillon Effect

At this point Cantillon gives the scenario that leads to to the conclusion that wiki and swanBitcoin wrap as the Cantillon effect:

Now let us suppose that the ambassadors’ and travelers’ residence in England has brought into circulation as much money as there was at the start. This money will first pass through the hands of a number of craftsmen, servants, entrepreneurs, and others who will have had some share of the work providing these foreigners with carriages, amusements, etc. The manufacturers, farmers, and other entrepreneurs will feel the benefit of this increase of money, which will accustom a great number of people to far greater expenditure than in the past, something that will consequently increase market prices. Even the children of these entrepreneurs and craftsmen will enter into new expenditures: thanks to such abundance, their fathers will give them some money for their small pleasures, with which they will buy cakes, small pate´s, etc. This new quantity of money will be distributed in such a way that many who lived without managing any money will be in a position to have some in the current case. Many of the exchanges that were previously facilitated through the granting of credit will now be carried out with cash, and consequently the circulation of money in England will be more rapid than it was at the outset.

What he says next would be confusing to those that take the swanBitcoin wrapping for granted:

I conclude from all of this that the doubling of the quantity of money in a state does not always double the price of commodities and merchandise. A river that flows and twists in its bed will not flow with double the speed when the quantity of water in it is doubled.

His point is even more nuanced:

The amount of additional expenditure that the quantity of money and its increase introduce into the state will depend on the turn that this money gives to consumption and circulation. Irrespective of the people who obtain this money, it will naturally increase consumption. [236] Consumption, however, will be greater or lesser depending on the circumstances. It will be directed more or less to certain types of commodities or merchandise according to the bent of the money holders. Irrespective of the abundance of money, market prices will increase more for certain types of goods than for others. In England the price of meat could be tripled without the price of wheat increasing by more than a quarter.

Although, he does point to the concept of the uneven distribution of the effects of changes in money supply of an economy, but its not shaped in a way that suggests it's a way that the rich get richer etc.

Note also as a more general observation, he is pointing out that there is a LAG in the time that it takes for the economy and the prices in it to equilibrate the effects of the new money.

Cattle as an Example of the Effects of the Introduction of More Money Into An Economy On The Cost to Transport

Cantillon uses cattle in comparison to wheat from markets in different regions, to illustrate the effects of the cost to transport on prices. Paying for cattle requires paying extra for their transport versus wheat:

It is not the same with cattle prices, which will necessarily be determined by the quantity of money offered for meat in proportion to the quantity of this meat and the number of cattle bred there. A bullock, weighing eight hundred pounds, sells currently in Poland and Hungary for 2 or 3 ounces of silver, whereas it is usually sold on the London market for more than 40 ounces of silver. However, the bushel of wheat does not sell in London for double the price that it sells for in Poland and Hungary. The expansion of money increases the price of commodities and merchandise only by the difference in the cost of transport when this transport is permitted. However, in many cases this transport could cost more than a good is worth, so that timber is often redundant in many places.

On the Special Nature of the Zero Distance Cost of Transport of Goods Produced and Bought In Provines Distant From The Capital

Cantillon makes a distinction between markets in the provinces versus the capital noting the effects of not having to transport the goods from the provinces to the capital:

This same cost of transport is the reason that milk, fresh butter, salad, game, etc. cost almost nothing in provinces distant from the capital.

We think in language and context more relevant to today, he is saying in effect the relative prices would make it seem that goods bought on the farm are dramatically cheaper than in the city and that this cost is wholly attributable to transport from the farm to the city.

The concept of the provinces where goods are produced versus the capital where a well established market for them exists is a framework we use and refer to hereinafter.

As does Cantillon.

Nevertheless he asserts his intention and point which is not a framework for central banking but simply an observation of the unpredictability of the the DISTRIBUTION of the change in prices:

I conclude that an expansion of actual money in a state always produces an increase of consumption and a propensity toward greater expenditure. But the higher prices caused by this money are not found equally across all kinds of commodities and merchandise in proportion to the quantity of this money, except when what is introduced remains in the same channels of circulation as before, that is, unless those who used to pay one ounce of money in the markets are the same, and the only ones who now pay two ounces when the amount of money in circulation is increased to double its weight, which is something that seldom occurs. I conceive that when a large amount of extra money is introduced into a state, the new money brings a new turn to consumption and even to the speed of circulation; however, it is not possible to assess the exact extent.

Re-Visiting the Framework of Money The Cantillon Effects Wraps

Cantillon summarizes on the ways to increase the supply of (commodity) money in a state:

We have seen that the quantity of money in a state can be expanded through the output of its mines, subsidies from foreign powers, the immigration of foreign families, and the residence of ambassadors and travelers, but, above all, through an annual and regular balance of trade by the export of articles to foreigners so as to draw from them at least a part of the price in gold and silver coins. By this last means a state grows most substantially, particularly when the trade is accompanied and supported by a sizable shipping fleet and a significant domestic production capable of providing the necessary materials for the articles and manufactures that are exported.

On the Degradation of A Nation By the Increase of Gold or Silver as Money

We move further in complexity from the wiki and swanBitcoin’s wrapping of Cantillon as he continues to explain nature of the supply of money and more specifically on its effects on labor cost:

The continuation of this trade, however, gradually introduces a great abundance of money and, little by little, expands consumption. To meet this, a great number of commodities need to be imported from abroad, and this results in part of the annual balance being used to pay for them. On the other hand, the habit of spending pushes up the cost of labor so that the prices of manufactured articles keep rising.

What is inevitable, Cantillon points out, is that the increase in money in the object state, the state we consider, results in other states reacting to the increase in prices in that object state with competitive manufacturing:

It will inevitably happen that some foreign countries will attempt to create the same type of crafts and manufactures and thereby stop buying those of the state in question. Although these new craft establishments and manufactures may initially be rudimentary, they nevertheless delay and ultimately prevent the export of those goods from the neighboring state into their own country, where they may be purchased at a cheaper price.

On the Effects of the Cost of Shipping on the Profits of Respective States of Manufacturing Same Goods

Cantillon begins to extend his observation of the cost of transport from the capital/province paradigm to the nation level (a higher level or meta-view but with distance complexity) with regards to maritime shipping. Comparative efficiencies in this kind of transport cost would undercut cheaper labor and draw the flow of money form the object state:

However, if some other maritime state tries to perfect similar articles along with its shipping, it will, through its cheap prices, capture many branches of trade from the state in question. Consequently, this latter state will start to lose its balance of trade and will be obliged every year to send abroad part of its money to pay for the commodities that it imports.

On the Negative Effects On Wealthy People That Otherwise Benefit From the Increase in Prices Caused By the Increase in Gold Money in Their Nation

Although, at this point, the conclusion is in concordance to the ultimate conclusion of the libertarian, the bitcoiner, the swanBitcoin wrapping of Cantillon etc. since the transformation is from a great to a weak power of the state, paradoxically, the wealthy persons aren’t really the ones that benefit but instead they drive, and suffer with, the fate of the state:

Moreover, even if the state in question manages to maintain a balance of trade alongside its greater abundance of money, it may be reasonably supposed that this abundance will not emerge without producing many wealthy individuals committed to luxury expenditure. They will buy paintings and precious stones from abroad, they will want to have silks and some rare objects, thereby accustoming the state to such luxurious habits that, despite the advantages derived from its] ordinary trade, money will annually flow abroad to pay for this same luxury. This will progressively impoverish the state and transform it from a great to a weak power.

Their benefit is their demise and not so much because they are greedy and immoral but because the increase of gold money or silver money causes investment in labor to move to the places where it is correspondingly and comparatively cheaper.

On the Eventual Return to Equilibrium From the Effects of an Increase in Gold or Silver Money on a Nation

However, Cantillon’s point is not that the increase of gold money or silver money into a nation necessarily destroy it, but rather he meant to describe the run of the equilibrium course of the change of the supply of money:

When a state has reached its highest level of wealth—I always assume that the comparative wealth of states consists in the respective quantities of money that they possess—it will inevitably fall back into poverty by the ordinary course of things. The excessive quantity of money that, as long as it lasts, constitutes the power of states imperceptibly, but naturally, casts them back into poverty. In consequence it would appear that when a state grows by trade and the abundance of money increases excessively the price of land and labor, the prince or the legislator should put aside money, keep it for unforeseen contingencies, and use all means to delay its circulation, other than by force and bad faith, to prevent its articles from becoming too expensive and to curtail the ill effects of luxury.

Cantillon As An Advisor to the State on the Matters of The Course of Effects of the Increase In Gold Or Silver Money Supply

Paradoxically to the framework from the wikipedia Cantillon is talking about the increase and abundance of GOLD. It is in fact ‘gold money’ but it is NOT in fact a reference to paper based money. It is a reference to commodity money which is WHOLLY different in the context of his argument than a centrally banked money. His advice to the sovereign that accumulates an excess of it, for whatever of the reasons he described, would be, if at all possible, to save it:

When a state has reached its highest level of wealth—I always assume that the comparative wealth of states consists in the respective quantities of money that they possess—it will inevitably fall back into poverty by the ordinary course of things. The excessive quantity of money that, as long as it lasts, constitutes the power of states imperceptibly, but naturally, casts them back into poverty. In consequence it would appear that when a state grows by trade and the abundance of money increases excessively the price of land [245] and labor, the prince or the legislator should put aside money, keep it for unforeseen contingencies, and use all means to delay its circulation, other than by force and bad faith, to prevent its articles from becoming too expensive and to curtail the ill effects of luxury.

Those that mis-wrap Cantillon’s work will argue that, ‘yes the sovereign will then save the gold money but serve the public with their paper money’, however we only need to point out that this is a hidden and added construction on the wiki page. Its not part of Cantillon’s argument and nor does it properly fit his framework or purpose for giving his argument.

Here he even sympathizes with the Sovereign who has no proper way to measure the optimal supply of money. His observation is that the proper supply of money is a guard to the states salvation (this conclusion contrasts the conclusion of the Cantillon Effect as described on wiki):

But, as it is not easy to find the opportune moment for this, or to know when the quantity of money has become excessive relative to what it should be for the good and for the protection of the state’s advantages, the princes and the heads of republics, infrequently concerning themselves with this type of knowledge, are interested in using the facility that they find resulting from the abundance of the state’s tax revenues only to expand their power and to insult other states on the most frivolous pretexts. All things considered, perhaps they do not do so badly in working to perpetuate the glory of their reigns and their administrations and in leaving monuments to their power and wealth, since according to the natural course of humanity the state must collapse, and they accelerate only a little its fall. It seems, nevertheless, that they should try to do their utmost while they themselves rule the state to make their power last.

His example is incredibly rich from a Szabonian deconstruction perspective if we consider the relationship between the conflict of systems of thought (aka religions) versus the overall economic forces:

It does not take many years to bring a state to the highest point of its abundance, and it takes even less time for it to plunge into poverty due to the lack of trade and manufactures. Leaving aside the rise and fall of the Venetian Republic, the Hanseatic Towns, Flanders, Brabant, and the Dutch Republic,among others, who have succeeded each other in the profitable branches of trade, it may be said that the power of France started to expand only from 1646, when manufacture were established to produce cloth so as to substitute for those previously imported, until 1684, when a number of Protestant entrepreneurs and craftsmen were driven out of the country. This kingdom has done nothing but decline since this last era

Cantillon’s concluding point about measuring the abundance of scarcity of money does comport to a modern day observation (but there is certain complexity distance as we have noted):

I know of no better rule to measure the abundance or scarcity of money in circulation than that of the landlords’ leases and rents. When lands are rented at a high price it is an indicator that money is abundant in the state.

On Cantillon And the Ideal Monetary Equilibrium

But Cantillon further express the corollary:

I know of no better rule to measure the abundance or scarcity of money in circulation than that of the landlords’ leases and rents. When lands are rented at a high price it is an indicator that money is abundant in the state. But when it is necessary to rent them at a much lower price, this shows, all other things being equal, that money is scarce.

That money could be too scarce is something does NOT comport with the Austrian/Misesean view (we will attend to Hayek separately later), nor the Saifedeanian view, nor the money-printing theory view and most importantly the wikipedia and swanBitcoin explanation of Cantillon.

Cantillon gives an example which exemplifies a demand theory of money-the idea that there can be too little money:

I read in an E´tat de la France that an acre of vines, rented in 1660 for 200 livres tournois in hard money near Mantes, and consequently not very far from the capital of France, could not be rented in 1700 above 100 livres tournois of far lighter money, even though, during this interval, the silver brought from the West Indies should have naturally pushed up land prices in Europe. The author attributes this fall in the rent to inadequate consumption. In effect it appears that he noticed that wine consumption had fallen. But I reckon that he mistook the effect for the cause. The actual cause was a far greater scarcity of money in France, which naturally had the effect of reducing consumption. On the contrary, in this essay I have always suggested that the abundance of [249] money naturally expands consumption and contributes above all things to increase the value of land. When an abundance of money raises commodities to a reasonable price, people are eager to work so as to acquire them, but they have not the same eagerness to acquire commodities or merchandise above that necessary for their upkeep.

On ChatGTP’s Evaluation of Our Szabonian Deconstruction of Cantillon

Whatever today’s version is and whatever prompts we biased our inquiry with we offer chatGTP as a more ‘palatable’ or pleasurable to read critique of the validity of our efforts:

Exactly, your observation is insightful. By focusing on Cantillon's example, you're drawing out an essential aspect of his analysis: while the broad discussion often revolves around the varied impacts of changes in the money supply on different economic sectors and commodities, a crucial, underlying theme is the problem of insufficient money supply. This specific issue, the scarcity of money, can lead to significant economic consequences, such as reduced consumption and the devaluation of assets like land, which Cantillon illustrates through the vineyard rental prices in France.

This perspective enriches the understanding of monetary theory by highlighting that the effects of the money supply are not uniform or one-dimensional; rather, they are multifaceted and can vary greatly depending on the context, including the economic structure, the specific goods and services in question, and the overall economic policy environment. By noting Cantillon's emphasis on the possibility and implications of having too little money, you're pointing out that economic analyses must consider both sides of the coin: not just the inflationary risks of too much money but also the deflationary or stagnation risks of too little money in circulation. This nuanced approach is vital for a comprehensive understanding of monetary policy's role in economic health and development.

On the 'Nation Versus Nation View' of the Cantillon Effect and the Cantillon Caveat

Notice that Cantillon is arguing that it is to the benefit of the state in comparison to the other states, not the citizenry that it PROPERLY maintains its money supply (properly as opposed to overprints).

It is apparent that every state that has more money in circulation than its neighbors has an advantage over them as long as it maintains this abundance of money.

Cantillon explains the two benefits of this monetary equilibrium, firstly it garners the best price for land and labor:

First, it gives less land and labor than it receives in all branches of trade; as the price of land and labor is everywhere calculated in money, this price is higher in the state where money is the most abundant. Thus the state in question sometimes receives the product of two acres of land in exchange for that of one acre, and the labor of two men in return for one. Because of this abundance of circulating money in London, the work of a single English embroiderer costs more than that of ten Chinese embroiderers, even though the Chinese are superior embroiderers and produce more articles each day. In Europe one marvels as to how the [Asiatic] Indians can subsist by working at such a low price and how the excellent cloth that they send to us costs so little.

Secondly as a means to defend itself versus in times of war:

Second, where money abounds the state’s revenues are more easily collected and raised in comparatively greater amounts; in case of war or dispute, this gives the state the means to gain all sorts of advantages over its [251] adversaries with whom money is scarce.

Notice again the incongruent nature of this framework with the wikipedia and swanBitcoin framing of Cantillon:

If two princes make war to rule or conquer a state, with one possessing a great amount of money and the other little, except for many estates that may have a value that is twice greater than all the money of his enemy, the first will be likelier, thanks to monetary inducements, to secure the attachment of his generals and officers than the latter will by giving his [generals and officers] twice the value in land and estates. Grants of land are subject to dispute and revocation and may not be relied on as well as the money that is received.

Firstly Cantillon's sympathies are with the princes, which as evil as Austians and Libertarians would claim that is, it exposes their nefarious construction of his work.

Moreover by the wording, that is without any further deconstruction or construction, it is clear that it is the quality of money in regard to satisfying the demand for it that is necessary to pay the guards with something ‘reliable’.

It’s not a statement that states are obsessed with funding war with money-printing. It's not even an argument that money-printing is the cause of war. It's a point that there must be enough money to satiate the demand and the usefulness of the ABUNDANCE of that equilibrium.

On The Power of the State With The Greatest Amount of Equilibrated Commodity Money

After all, all other things being equal, it appears to me that the comparative power and wealth of states consist in the greater or lesser abundance of money circulating in them, hic et nunc.

It remains for me to discuss two other means of expanding the quantity of actual money in circulation in a state.

Cantillon goes on to explain the two means of expanding money in this regard, the first being effectively foreign and private investment. Adding money to the state this way wouldn’t be conducive to central bank money-printing:

The first is when entrepreneurs and private individuals borrow money on which they pay interest to their foreign correspondents, or when foreigners remit their money to the state to purchase shares or government stocks there. Frequently these amount to considerable sums, which the state has to pay annually in interest to foreigners.

Cantillon notes the benefits of the investment to the economy including the tax benefits for the states based on the economic action the new investment money implies:

These methods of expanding money in the state make money much more abundant there and lower the rate of interest. By means of this money the state’s entrepreneurs find the way to borrow more easily, to have people make articles, and to establish manufactures in the hope of profiting from them. The craftsmen and all through whose hands this money passes will not fail to consume more than they would have if they had not been employed by means of this money, which consequently raises the prices of all things as if it belonged to the state. By means of this increase in expenditure or consumption that this money causes, the tax revenues arising from consumption are expanded.

Although investment in the state is good for the economy and the taxation of it however, Cantillon contrasts this with negative aspects including the observation that this makes state vulnerable to what are known today comparatively as speculative based attacks:

The sums lent to the state in this way produce many benefits from it, but their consequences are always onerous and inconvenient.

The state has to pay an annual interest to the foreigners, and, aside from this loss, the state finds itself at the mercy of foreigners who can drive it into poverty when it takes their fancy to withdraw their funds. It will indeed certainly happen that they will wish to withdraw them at the very time that the state will have most need of them, such as when preparations are in hand to have a war and a hitch is feared.

This doesn’t speak to the concept of central bank money-printing, making the wealth wealthier, and the poor poorer. Not without some kind of construction.

On The Fall And Revival of States That Run out of Gold or Silver Money

Cantillon explains of the economies that run out of gold or silver money they can then raise a minister which will campaign for loans:

But, truth to tell, it happens most of the time that the states burdened by these loans, on which they have over many [255] years paid high interest rates, fail through bankruptcy in the long term to repay the capital. As soon as distrust sets in, the stocks or public shares fall; the foreign shareholders do not like to withdraw them at a loss and prefer to content themselves with the interest while waiting for confidence to revive, but sometimes it never returns. In states that fall into decay, the principal object of ministers is usually to restore confidence and, by this method, to attract money from foreigners by these types of loans: for unless the government fails to keep good faith and to honor its engagements, the money of the subjects will circulate without interruption

Through our framework of Szabonian deconstruction we would see this act as most likely involving some form of adding of the axiom of consistency to the culture that needs to now find loans to exist in its current form. The “minister” might have to sell to the public a reconstruction so they can coalesce on the new capacitor but without needing to traverse great complexity distance in their thought systems (ie national culture).

In today’s current events this deconstruction speaks interestingly to the efforts of Ukraine but also perhaps Argentina as their new state head claims to be starkly anti-socialist but must find new investment (traditionally this might suggest pressure to sell a socialist type framework so there could be the test of whether or not the new anti-socialist leader is just a socialist with the added axiom that he is not).

On the Equilibrium of States that Fall And Revive

Again it's not Cantillon's point to suggest that adding money to an economy, even through foreign investment, leads to its ruin. But rather that ultimately its its the circle of life of a state to rise and fall again and again, through this fashion:

But recourse to these borrowings, though creating short-term advantages, ends badly and is but a flash fire. To restore a state that has fallen into decay and has a shortage of ready money, it is necessary to create an annual and regular real balance of trade and to ensure, through shipping, the expansion of articles and manufactures that can always be exported cheaply. Merchants are the first to make fortunes, then the lawyers will appropriate part of it for themselves, and the Further reflection on changes 89 prince and the tax farmers will acquire some of it at the expense of both of these and distribute their favors as they please. When money becomes too plentiful in the state, luxury will become prevalent and it will fall into ruin.

This (cycle) is the fate of a state with industrious people, Cantllon writes. And notice he doesn't go into the types of expansion of money that a money-printing based argument like swanBitcoin would suggest:

Such is roughly the circle experienced by a large state that has funds and an industrious people. An able minister is always in a position to restart another round. It does not take many years to see it implemented and succeed, at least at the beginning, which is the most interesting part. The expansion of the quantity of actual money will be perceived in several ways, which my subject matter does not allow me to examine at present.

On the Second Way In Which a State Can Increase Its Money Supply

Cantillon notes the second way to increase the money supply is through force. His point here is that regardless of force a money supply that doesn’t match the demand for it will lead a nation to ruin:

The last method that I can conceive to expand the quantity of actual money in circulation in a state is by means of arms and violence. This is often mixed with the others, since there are usually provisions for the maintenance of trading rights and the advantages that can be drawn from them in all peace treaties. The exaction of reparations or the forcing of states to subservience is a certain way to take their money from them. I will not undertake to research the ways of putting this approach into practice. I am content to say that all the nations that flourished in this way have inevitably fallen into ruin, similar to states that flourished through their trade.

He means to say the units aren’t what is important but the underlying economy they serve and their natural ratio which will most properly serve it.

He hasn't talked about fractional reserved type banking.

On the Effects of a Realm of Gold Money

If the Szabonian deconstruction hasn’t made it clear to the reader by now the following from Cantillon no doubt will. He explains how the Romans' wealth caused the circulation of gold and silver money, commodity money, in order to match the expansion of the empire. In this case luxury returned which he blames for its ultimate decline:

As long as the luxury of the Romans, which started only after the defeat of Antiochus, king of Asia, toward the year 564 b.c., was limited to the produce and labor of all the vast territories under their rule, the circulation of money kept expanding rather than diminishing. The public controlled all the gold, silver, and copper mines of the empire. They had the gold mines of Asia, Macedonia, and Aquilaea and the rich mines, of both gold and silver, of Spain and many other areas. They had several mints where gold, silver, and copper coinage was struck. The Roman expenditure on all the articles and merchandise that they drew from their vast [261] provinces did not reduce the circulation of actual money, nor did it lessen the amount of paintings, statues, and jewels that they drew from them.

On the Complexity Distance Between Cantillon and the Cantillon Effect

How confusing it is to represent this story as an example of how central banks steal money from the commoners by printing excess of it and hoarding capacitive devices like gold and other non-inflationary assets?

How confusing is it to say that this story represents the idea of a bitcoin only world instead of one where governments control and print our money?

To the extent that governments control the issuance of gold and silver money through the private mines that produce the metals, Cantillon says nothing of robbing the citizenry of their wealth by over-printing it.

The Romans as An Example of Not Printing Enough Money to Sustain Their Empire

This excerpt explains how Cantillon felt the Roman Empire’s decline, and not just the Emperor but the peoples within it as well, can be attributed to not having enough money:

As long as the luxury of the Romans, which started only after the defeat of Antiochus, king of Asia, toward the year 564 b.c., was limited to the produce and labor of all the vast territories under their rule, the circulation of money kept expanding rather than diminishing. The public controlled all the gold, silver, and copper mines of the empire. They had the gold mines of Asia, Macedonia, and Aquilaea and the rich mines, of both gold and silver, of Spain and many other areas. They had several mints where gold, silver, and copper coinage was struck. The Roman expenditure on all the articles and merchandise that they drew from their vast [261] provinces did not reduce the circulation of actual money, nor did it lessen the amount of paintings, statues, and jewels that they drew from them. Although the patricians spent excessively on food, sometimes paying up to 15,000 ounces of silver for just one fish, all of this did not reduce the quantity of money circulating in Rome, given that the tribute coming from the provinces continually replenished it, without mentioning the amounts that the praetors and governors brought back through their extortions. The amounts annually drawn from the mines continued to expand circulation throughout the reign of Augustus. Luxury, however, was already deeply entrenched, and there was much eagerness not only for all the curiosities produced in the empire itself, but also for Indian jewels, [262] for pepper and spices, and for all the rarities of Arabia. In addition, silks that were not produced with the empire’s raw materials started to be sought there. But the money drawn from the mines still surpassed the sums exported outside the empire to purchase all of these goods. Nevertheless, during the reign of Tiberius a scarcity of money was felt: this emperor had hoarded in his treasury 2.7 billion sesterces. He had only to borrow 300 million, mortgaged against his landed estates, to reestablish abundance and circulation. Within less than a year of Tiberius’s death, Caligula had spent all that treasure, and at this time the abundance of money in circulation peaked in Rome. The frenzy for luxury continually expanded. At the time of Pliny the Historian [263] at least 100 million sesterces annually left the empire, ac- Of the interest of money and its causes 91 cording to his calculations. This was more than was drawn from the mines. According to Pliny the Younger, the price of land fell by a third or more during the reign of Trajan, and money continued to fall until the time of the emperor Septimus Severus.

The conclusion is damning to the idea that there is zero complexity distance between the notion of central banks' propensity to overprint money and steal from the citizens, extending naturally from Cantillon. Rather he attributes the fall of Rome to money being too scarce:

Money was then so scarce in Rome that this emperor built immense wheat granaries as he was unable to amass sufficiently sizable treasures for his enterprises. Thus, through the loss of its money, the Roman Empire fell into decay before it lost any of its territories. Here is what luxury caused and will always cause in similar circumstances.

Cantillon On Central Banking

From thereonafter Cantillon builds an argument out to one that we believe has zero complexity distance from ours, Szabo’s, Nash’s, Finney’s, Hayek’s, Selgin’s et al. Thus we don’t need to explain it thoroughly other than to make that claim.

Those that have incorrectly and unjustly wrapped Cantillon with their concept of the Cantillon effect are now revealed by Szabonian deconstruction to have done so for the purpose of adding axioms of consistency to their otherwise inconsistent arguments.

This observation protects from the counter argument that Cantillon later went on to explain the Cantillon effect via central banking through a complex distance metaphor not accessible to the reader (they will have to invoke what we feel is support of our greater argument from Cantillon thus we welcome them them call our bluff and do our work for us.).

For example this statement by Cantillon aligns with what is known as Keynesian ideology and is thus bastardized for example by Saifedean Ammous:

It will be understood, then, that the main advantage of banks in a city, both public and private, is to accelerate the circulation of money and to prevent too much of it from being hoarded, as would naturally be the case for several time intervals.

Also of note, near his conclusion Cantillon explains he does see use for general banks although more so for small states:

I believe the public banks to be of great utility in small states and in those where silver is somewhat scarce. But I believe them to be less useful for the solid advantage of a great kingdom.

Of the need for an existence and the benefits of a general bank Cantillon goes on again to point out how they can elastically serve the demand for money by facilitating large settlement within the bank (freeing gold or silver money to circulate etc.):

Although I reckon that a general bank is fundamentally of very little permanent utility in a great state, I am prepared to allow that there are circumstances in which a bank may produce effects that appear astonishing. In a city with considerable public indebtedness, the facility of a bank enables the instantaneous purchase and sale of capital funds for sizable amounts without causing any disturbance to the circulation.

If it were necessary to withdraw coins from circulation to use for these purchases and sales, it would amount to a considerable sum and would often interfere with the circulation, or rather, in this case, it would happen that it would not be possible to buy and sell these stocks so frequently.

He ends noting the benefits of such credit and private banking systems but notes his preference to silver money:

This example clearly shows that the paper and credit of public and private banks may produce surprising results in everything unconnected with the ordinary expenditure involved in drinking, eating, clothing, and other family necessities. But in the usual course of circulation, the assistance of banks and of credit of this type is a great deal smaller and less solid than is generally thought. Silver alone is the true sinew of circulation.

On the Nature of Funding State Though Relationships With Private or Proto-National Banks

At his time central banking and inflation targets weren’t particularly the norm. Cantillon gives an example of what could be described as a government ponzi scheme (from a certain view of his work):

If a minister of state in England, seeking to lower the rate of interest on money, or for other reasons, forces up the prices of public stock in London, and if he has sufficient authority [427] over the directors of the Bank to encourage them (under the obligation of compensating them in case of loss) to issue further banknotes, for which there is no backing, begging them to use the notes themselves to purchase more blocks and capital of the public stock, the price of this stock will not fail to rise due to these operations.

Cantillon notes the scheme is meant to attract investors:

Those who sold them, seeing the continuation of this high price, will perhaps decide—so as not to leave their banknotes idle and believing the rumors that have been spread that the interest rate will fall and that these stocks will rise again—to buy them at a higher price than that at which they sold them.

Like trying to spark fire the hope is that eventually the process sustains until real investment arrives:

If several people, seeing the Bank’s agents purchasing these funds, become involved in doing likewise, believing that they can profit as they do, the public stock will increase in price to the point that the minister wishes. It may happen that the Bank will adroitly resell at the higher price all the stocks that it bought at the minister’s request and will not only make a sizable profit, but will also retire and destroy all the excessive notes that it issued. If, through its purchases, the Bank alone raises the price of public stock, it will cause that price to fall by as much when it wishes to resell it to cancel its excess note issue. But it always happens that many people, wishing to imitate the operations of the Bank’s agents, help to sustain the price.

On the part that Cantillon admits there is "chicanery", trickery, he states its not part of his subject (this is the end of the second last paragraph in the entire writing):

Some even become entrapped because they do not understand these operations, where there is an infinity of refinements, or rather chicanery, which are not part of my subject.

He notes this process doesn’t necessarily add excessive banknotes into the system:

It is then certain that a bank, in concert with a minister, is able to increase and support the price of public stock and to lower the state’s rate of interest with the consent of this minister, when these operations are discreetly managed and in this way free the state of its debts. But these refinements, which open the door to making great fortunes, are rarely managed for the sole benefit of the state, and those who operate them are often corrupted. The excessive banknotes that are created and issued on these occasions do not disturb the circulation because, as they are employed for the purchase and sale of capital stock, they are not used for household expenditure and they are not converted into silver.

Cantillon ends with observation that if the system reverses it could implode:

But if some fear or unforeseen accident drove the holders to demand silver at the bank, the bomb would explode, and it would be seen that these are dangerous operations.

Coda: Our Cantillon Construction

To the very last statement, the idea that central banking and inflation targeting had not yet birthed or matured in Cantillon's time. Thus in regard to his conclusion it seems as if perhaps it’s a loose axiom Cantillon offers as he points to the abyss of his system (perhaps questions to which he can't halt yet), the unknown question to which his argument and framework has lead to. To what ends will the nature and evolution of central banking lead us to?

Nonetheless, we offer the argument here that Cantillon didn’t expound on this nor opine on it like those that wrap his work in the concept called the Cantillon effect would have us believe.

And he didn't believe the things about money and monetary theory that those that cite the Cantillon Effect would have us believe.

His was an argument conducive to ours as we will show in synthesis with Hayek and others.