Friday, December 7, 2012

Steve Horwitz seems to agree wtih me on Cantillon Effects


If you're talking about injection points, you're missing the point. Yes, that's how Cantillon himself talked about it but that's not what Hayek talked about.

Monetary policy lowers the interest rate and raises the price level. That's the point. It will also change the price of more specific kinds of assets to do that, but let's just stick to the interest rate and price level. Those are market signals. Forget the injection effects themselves - loans made in a lower interest rate environment are going to be made to a different sort of borrower than loans made in a higher interest rate environment. Hayek is very concerned about whether investments by that different sort of borrower are sustainable or whether the changes to the capital structure are ultimately unsustainable or impoverishing.

My post from a couple days ago on this point is here.


  1. You might want to stop and contrast Cantillon's world of gallons arriving in Spain with money and Kimball's world of electronic funds.

    Cantillon may have been looking at his world correctly.

    1. I'm not criticizing Cantillon, I'm just saying his version is fundamentally different from the "Cantillon effects" we talk about today where injection itself is much less important an issue.

      In some ways we could call it the "Hayek effect". He's not elaborating on Cantillon's point - he's making a new one and it's called the "Cantillon effect" because Cantillon inspired him.

      I'm not sure if you're new here coming from Bob's blog - so I'll let this stay up but please in the future use a pseudonym at least. Otherwise I'll start deleting comments. This is written very clearly right above the comment window.

    2. Daniel, the Cantillon effects cause the interest rate changes and the account falsification. It's not that those Austrian economists are discussing something entirely different, rather they're taking a point and moving further with it into slightly different ideas.

  2. Here is my full comment on your blog

  3. Selgin just posted about this on Free Banking....

    One thing I don't understand is if these folks who are agreeing with Horwitz think they're disagreeing with Richman.

  4. Well Daniel....

    Since I hadn't read a word you've written on the subject and since I've been writing on this issue for 25 years, I think this post should more appropriately be titled "I seem to agree with Steve Horwitz on Cantillon effects." Just sayin'.


All anonymous comments will be deleted. Consistent pseudonyms are fine.