An Essay on Economic Theory

3.8. The Refinements of Credit of General Banks

An Essay on Economic Theory by Richard Cantillon
Richard Cantillon

When the government’s national bank inflates the money supply by increasing the supply of banknotes, it reduces the rate of interest and can increase the price of stocks. This is a corrupt process and when the notes are redeemed, the price of stocks falls and can result in bank runs and economic chaos. This is now known as the business cycle.

From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.