An Essay on Economic Theory

2.8. Further Reflections on the Increase and Decrease of Money in a State

An Essay on Economic Theory by Richard Cantillon
Richard Cantillon

Increases in the supply of money from a balance of trade eventually causes prices to rise. This in turn puts pressure on domestic producers and increases imports. The result is that the balance of trade is reduced and eventually is negative. This is Cantillon’s price specie-flow mechanism which demonstrates the reasons for the tendency for equilibrium in international monetary flows. The balance of trade can result in economic power, but this also causes the economy to lapse into luxury and decline.

From Part 2: Money and Interest. Narrated by Millian Quinteros.