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.

3.8. The Refinements of Credit of General Banks

Interest is established in the market by lenders and borrowers and the interest rate on a particular loan is determined by the risk of default. A loan is repaid from the income generated from capital investments and the interest paid is equivalent to the profits of fully capitalized enterprises. Small entrepreneurs pay high rates whether they borrow cash or purchase goods to be paid at a later date, based on risk and their propensity to spend beyond their means.Thereby, interest rates on loans are connected with an individual’s time preference. From Part 2: Money and Interest. Narrated by Millian Quinteros.

2.9. Interest on Money and its Causes

Fractional-reserve banking is a system where the banks lend some of their deposits and earn interest. This increases the amount of money in circulation compared to warehouse or 100% reserve banking. This utility of banking comes at the risk of being unable to withdraw your deposits. The amount that can be lent into circulation depends on the type of bank and the needs of the depositors. There are goldsmith-bankers, the typical banker who issues banknotes, and the national bank. From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.

3.6. Banks and their Credit

National Banks are of little utility and can be the source of economic chaos. The increase in the supply of money that they provide is relatively small and offers the same disadvantages as increases in real money. They are therefore unnecessary and potentially very harmful, as in the cases of the Bank of Venice and the Bank of London. The roles of legal tender laws, fractional reserve banking, and regional trade fairs are described. From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.

3.7. Further Explanations and Enquiries as to the Utility of a National Bank

The price of gold and silver and the ratio between them is determined by markets and is also based on their usefulness, cost of production, and transportation costs. When government mints establish a fixed ratio between gold and silver money that is not based on market prices, the overvalued metal will be driven from circulation. This is commonly referred to as “Gresham’s Law” where bad money drives out good money. From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.

3.4. The variations in the proportion of values with regard to the Metals which serve as Money

There is an expense associated with transporting money based on the distance, risks, and other transaction costs. Bills of Exchange are a type of contract that can reduce this cost by avoiding shipments that are offsetting between two locations. When money must be sent, bankers charge a fee for arranging the shipment and providing their customers with a bill of exchange, or check, that can be drawn or cashed at a correspondent bank where the money is sent. When the exchange rate is above par, it indicates a balance of payments deficit, and when the exchange rate is below par, it indicates a balance of payments surplus. From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.

3.2. On Bills of Exchanges

Here the circular-flow economy is extended to international trade. Instead of barter or exchange with money, Cantillon explains how international trade takes place on the basis of bills of exchange. He showsthat a state which accumulates money will enjoy a temporary gain in international trade, but that states where manufacturing industries develop will enjoy a higher standard of living. The only clear exception Cantillon makes to free trade is his famous endorsement of the English Navigation Acts, where domestic shipping is protected, not in its own right, but to provide ships and sailors during wartime. From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.

3.1. Foreign Trade

Exchange rates are explained as a function of the balance of trade and other factors. A trade deficit can cause your money to exchange below par, while a trade surplus will cause it to exchange above par. In fact, the exchange rate, above and below par, is an indicator of the general balance of trade in a country. An attempt to prohibit the export of gold necessary to pay for deficits only hurts the economy. From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.

3.3. Further explanations of the Nature of Exchange Rates

Raising and lowering the nominal value of money is shown not to undermine the theory of the value of money. In contrast, such measures are shown to be methods by which the prince acquires resources by deceiving individuals about the value of money. The process causes chaos in the market. From Part 3: International Trade and Business Cycles. Narrated by Millian Quinteros.

3.5. The Augmentation and Diminution of the Denomination of Money

Cantillon develops a circular-flow model of the economy that shows the distribution of farm production between property owners, farmers, and workers. Farm production is exchanged for the goods and services produced in the cities by entrepreneurs and artisans. While the property owners are “independent,” the model demonstrates the mutual interdependence between all the classes of people that Adam Smith dubbed the “invisible hand” in 'The Theory of Moral Sentiments' (1759). From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.

1.12. All Classes and Individuals in a State subsist or are enriched at the Expense of the Proprietors of Land

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An Essay on Economic Theory

William Petty set off the search for a par value between land and labor. Cantillon provides a theoretical answer (referenced in Adam Smith’s 'Wealth of Nations') that property owners must provide their labor with the production of at least twice the land necessary to sustain the worker in order that enough children are raised to maintain the workforce over time. The amount of land will actually vary from job to job, person to person, and among different countries and societies. Therefore, the practical circumstances of the world dictate that there is no such “par” value between land and labor, only money — a “most certain measure” — can be used for income measurements and comparisons. From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.

1.11. The Par or Relation between the Value of Land and Labor

Cantillon uses his price-specie flow mechanism to analyze some of the effects of inflation. Increasing the supply of money by mining hurtssome people and benefits others because certain prices and incomes rise faster than others. However, if the new money is accumulated and saved by those who successfully export goods, either because of superior quality or more efficient transportation, it will lead to higher standards of living. From Part 2: Money and Interest. Narrated by Millian Quinteros.

2.6. The increase and decrease in the quantity of hard money in a State

Farm production produces three rents, one of which sustains the farm workers, while the other two can be sold at wholesale to entrepreneurs who in turn provide property owners and farmers with goods and merchandise. This is the circular flow model of the economy. Money facilitates the flow and timing of rent payments (i.e., “velocity”) and the rate of the monetary flow determines the ratio between the quantity of money and the value of annual production. This model is then used to explain the implications of international trade. From Part 2: Money and Interest. Narrated by Millian Quinteros.

2.3. The Circulation of Money

Large transactions can be accomplished with the use of bills of exchange or barter, which reduces the demand for money. Ordinary transactions by people require actual coin money in circulation. A variety of factors, therefore, affect the flow of money in circulation and this in turn affects the amount of money in circulation. From Part 2: Money and Interest. Narrated by Millian Quinteros.

2.4. Further Reflection on the Rapidity or Slowness of the Circulation of Money in Exchange

Here Cantillon introduces, for the first time, the theory of entrepreneurship. Entrepreneurs are the prime directors of resources. Their occupations come with risks due to uncertainty, especially from competition and changing tastes. As a result, their income can be very large, but they also face the prospect of bankruptcy. The property owner is independent in having a large income (rent) from the land, and the capitalist, or large money owner, also can live independently on interest. Everyone else is ultimately dependent on the expenditures of property owners for their livelihoods. From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.

1.13. The Circulation and Exchange of Goods and Merchandise are Carried On in Europe by Entrepreneurs at a Risk

All human societies are based on a system of property rights. The distribution of rights will necessarily be unequal, and the use to which property is put will be dependent on the tastes of the owners. From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.

1.2. Human Societies

The opportunity cost of becoming a skilled worker includes both the direct expenses as well as the foregone labor during the training period or apprenticeship. As a result, skilled workers must be paid higher wages than unskilled workers. From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.

1.7. The Labor of the Plowman is of less Value than that of the Artisan

Because the opportunity cost of a good cannot be fixed, it is impossible to know the proper exchange ratios for barter. This problem is overcome in the market by using commodities that have marketable characteristics, such as transportability, durability, and a recognized economic value, to serve as a medium of exchange. Prices of goods do not strictly follow the quantity theory of money. From Part 2: Money and Interest. Narrated by Millian Quinteros.

2.1. Barter

Wherever a government establishes its capital, the city will grow in size because the additional spending attracts labor and businesses to service the government and its employees and thus, it becomes a commercial center for the nation as well. From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.

1.6. Capital Cities

The supply of workers adjusts itself to the demand for labor, across all professions, via wage rates, migration, and changes in population. Prosperity cannot be created by subsidizing job training. From Part 1: Production, Distribution, and Consumption. Narrated by Millian Quinteros.

1.9. The Number of Laborers, Artisans and others, who work in a State is naturally propotioned to the Demand for them

Introduction to Richard Cantillon's 'An Essay on Economic Theory'. Cantillon deals with a wide variety of fundamental and philosophical issues such as the nature of property, the distribution of income, the origin of money, and the role of government. Narrated by Millian Quinteros.

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