Richard Cantillon held that market prices are not immediately decided by intrinsic value, but are derived from supply and demand.
Changes in the velocity of money (quantity of exchanges made within a specific amount of time) increases in money substitutes—or bank notes, fiat currency Fiat money is a government-issued currency that is not backed by a physical commodity but rather by the government that issued it.Learn more —could affect prices by effectively increasing the velocity of circulating of deposited specie
If a central bank pumps more money into the economy, the resulting increase in prices does not happen evenly.
Richard Cantillon explained that the first ones to receive the newly created money see their incomes and purchasing power rise whereas the last ones to receive the newly created money see their purchasing power decline as consumer price inflation comes as a product of the newly created money already in circulation. Also known as the Cantillon Effect A Cantillon effect is a change in relative prices resulting from a change in money supply.Learn more.
Richard Cantillon famously noted that if the new money comes into the hands of savers, that the interest rate would decrease, but if it comes into the hands of consumers, the interest rate would increase, as entrepreneurs would need to borrow more to meet the increased demand for goods.
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