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Cantillon on the Cause of the Business Cycle

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Tags Business CyclesHistory of the Austrian School of Economics

07/30/2014Mark Thornton

Volume 9, No. 3 (Fall 2006)

 

Richard Cantillon was the first economist to successfully examine the cyclical nature of the capitalist economy. He lived at a time (168?–1734) when the institutions of the modern capitalist  economy were first fully and widely established and the first major business cycles occurred. In contrast to the Mercantilists, Cantillon was an astute  observer who developed a clear economic understanding of money, banking, international trade, and stock markets because this is where he risked his capital and earned his fortune. He modeled the economy as an interconnected whole and developed what we now know as the circular-flow model of the economy and the price-specie-flow mechanism of international money movements. He discovered that markets were regulated by the movements of prices based on supply and demand and identified equilibrating tendencies with market exchange.

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Thornton, Mark. "Cantillon on the Cause of the Business Cycle." The Quarterly Journal of Austrian Economics 9, No. 3 (Fall 2006): 45–60.