The Cantillon Effect is the most important economic concept you’ve never heard of.
Here's a breakdown of what it is (and why you should care):
1/ Richard Cantillon was an Irish-French economist and philosopher born in the 1680s.
He achieved success as a banker—which he attributed to the formidable connections made through his family and employer.
At a young age, he had learned of the impact of proximity to power...
2/ Around 1730, Cantillon wrote a paper—Essay on the Nature of Commerce in General—which is considered a foundational work in the study of the political economy.
It was widely circulated in manuscript form, though it was not published until 1755, well after his death.
3/ In the paper, Cantillon posited that the early recipients of new money entering an economy will benefit more significantly than those it trickles down to.
In other words, the "flow path" of the new money matters!
4/ In 18th century terms, those closest to the King—the source of money/power—benefitted first when new money entered the economy.
Broadly, Cantillon observed that new money creates distributional effects based on where it enters the system.
The Cantillon Effect was born...
