Comment: Understanding "The Cantillon Effect"

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Understanding "The Cantillon Effect"

Written some time around 1730 Richard Cantillon's Essai sur la Nature du Commerce en Général (Essay on the Nature of Trade in General) was considered the first complete treatise on economics.

In this essay, Cantillon reflected upon how the increase and decrease in the quantity of money (and the interest on money) led to an inequality of wealth distribution that was in favor of those closest to the source of the new money.

This is the main foundation of "The Austrian Theory of the Trade Cycle" explored by the second generation of Austrian economists.

In order to understand the reasoning behind some of the arguments that may come your way as a result of this post, it would stand you in good stead to study these subjects and reflect on it's conclusions.

Much of your post points out the undeniable truth that somehow - by some hidden means - there has been an unequal and unfair distribution of wealth from the poorest in society up to the richest and most politically connected. On this we all agree!

But before any of us can suggest the best way to correct this most evidently abhorrent wealth transfer, we must first reveal the hidden mechanism behind it and be sure to prevent further repercussions.

As Bastiat wrote:

Men naturally rebel against the injustice of which they are victims. Thus, when plunder is organized by law for the profit of those who make the law, all the plundered classes try somehow to enter — by peaceful or revolutionary means — into the making of laws.

According to their degree of enlightenment, these plundered classes may propose one of two entirely different purposes when they attempt to attain political power: Either they may wish to stop lawful plunder, or they may wish to share in it.

Woe to the nation when this latter purpose prevails among the mass victims of lawful plunder when they, in turn, seize the power to make laws! Until that happens, the few practice lawful plunder upon the many, a common practice where the right to participate in the making of law is limited to a few persons. But then, participation in the making of law becomes universal. And then, men seek to balance their conflicting interests by universal plunder.

Instead of rooting out the injustices found in society, they make these injustices general. As soon as the plundered classes gain political power, they establish a system of reprisals against other classes. They do not abolish legal plunder. (This objective would demand more enlightenment than they possess.) Instead, they emulate their evil predecessors by participating in this legal plunder, even though it is against their own interests.

It is as if it were necessary, before a reign of justice appears, for everyone to suffer a cruel retribution — some for their evilness, and some for their lack of understanding.

~Frédéric Bastiat

The Law:
http://bastiat.org/en/the_law.html

If you do take the time to look into the subject matter presented in this reply, please let me know your thoughts.

I think we are all trying to solve the same problem, the only difference is the approach.