Why are Austrians so keen on ‘Cantillon Effects’?

In all my life, living and/or studying in different countries and universities, I do not recall one single mention of the concept ‘Cantillon Effect’. So I was surprised to see a wide-ranging discussion of it in the blogosphere. I read a couple of posts that were put up but felt ‘zero excitement’.

So I went to take a look at Wikipidia. This came up:

At this time, Cantillon became involved with British mercantilist John Law through the Mississippi Company.[15]

 Richard Cantillon amassed a great fortune from his speculation, buying Mississippi Company shares early and selling them at inflated prices.[20] Cantillon’s financial success and growing influence caused friction in his relationship with John Law, and sometime thereafter Law threatened to imprison Cantillon if the latter did not leave France within twenty-four hours.[21] Cantillon replied: “I shall not go away; but I will make your system succeed.”[21] To that end, in 1718 Law, Cantillon, and wealthy speculator Joseph Gage formed a private company centered on financing further speculation in North American real estate.[22]

The highlighted words are key. The ‘Cantillon Effect’ is nothing more than the advantage the first or early movers have in a Ponzi Scheme!

Since Austrian Economics is much about credit booms and busts, ‘Ponzi schemes’ fit the bill. Maybe they consider all credit activity, in particular that involving government debt, as containing significant ‘Ponzi elements’.

Update: JP Koning has provided a ‘public service’ by linking most posts involved in the ‘CE’ debate.


3 thoughts on “Why are Austrians so keen on ‘Cantillon Effects’?

  1. Marcus, I have my own pet theory about the “Austrians”: I think the Austrians are really just the “Liquidationist Special Interest Group”, i.e., people who by mandate or disposition choose to hold a large amount of cash, and seek to invest that cash at distressed prices. Vulture funds, distressed debt funds, market neutral hedge funds, etc. These are the people who didn’t see any value in real estate or businesses in 2009, and were waiting for a further price drop that never happened. “Cantillon Effects” is just a euphemism for “I missed the bottom.” Just my theory…

  2. Steve:

    What you say, or they are monetary ascetics, who think a lower standard of living at zero inflation is preferable to a higher standard of living with moderate inflation.

    What did one Austrian say to the other after Russia launched a surprise, successful, first-strike nuclear attack on the USA?

    “We can prevent this from becoming a true catastrophe, if we immediately move to the gold standard.”

    • Ben,

      Maybe, but I believe people act in self-interest more than ideology. If I had a dime for every bond fund manager complaining about financial repression…

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