A connection between the consumer theory and quantity theory of money
a Cantillon’s approach
Keywords:consumer theory, Cantillon effect, QTM, elasticity of money supply at consumer price level, money non-neutrality
This essay shows a connection between consumer theory and quantity theory of money, inspired by Richard Cantillon's approach, in which changes in the money stock influence price levels, characterizing the elasticity of the money supply in relation to the price level to the consumer. Thus, changes in the money supply generate changes in the price level, and such monetary effects impact the consumer's optimal choice if the change in the money supply influences the prices of two goods with different intensities. When the government expands the amount of money in the economy, it affects relative prices and, consequently, changes the decisions of economic agents in a market economy. Based on US quarterly data, 1946:04 to 2019:04, the empirical results show that the change in the stock of money directly affects the optimal change in consumption and indirectly affects the optimal change in consumption via the change in relative prices, showing that money does not it's neutral.
BERG, Richard van den. Richard Cantillon's Early Monetary Views? Economic Thought, v. 1, p. 48-79, 2012. Available in: https://www.semanticscholar.org/paper/Richard-Cantillon%E2%80%99s-Early-Monetary-Views-Berg/6f1943067faf73b4a565962abd7fa77ec910bf10 Acessed: 25 set. 2022.
BERG, Richard van den. Circular reasoning. Forbonnais and the intricate history of circular flow analysis in the 1750s. The European Journal of the History of Economic Thought, 2019. https://doi.org/10.1080/09672567.2019.1635180 DOI: https://doi.org/10.1080/09672567.2019.1635180
BLAUG, Mark. Why is the quantity theory of money the oldest surviving theory in economics? In: BLAUG, Mark (Org.). Quantity theory of money from Locke to Keynes and Friedman. Hants, England: Edward Elgar Publishing Limited, 1995. p. 27-49.
BORDO, Michael D. Some aspects of the monetary economics of Richard Cantillon. Journal of Monetary Economics, v. 12, n. 2 (August), p. 235-258, 1993. https://doi.org/10.1016/0304-3932(83)90002-8 DOI: https://doi.org/10.1016/0304-3932(83)90002-8
BROWN, Christopher; Thornton, Mark. How entrepreneurship theory created economics. The Quarterly Journal of Austrian Economics, v.16, n. 4, 2013. Available in: https://mises.org/library/how-entrepreneurship-theory-created-economics Acessed: 25 set. 2022.
CANTILLON, Richard. An essay on economic theory: an english translation of Richard Cantillon's essai sur la nature du commerce en général. Translated by Chantal Saucier and Edited by Mark Thornton. Auburn: The Ludwig von Mises Institute, 2010.
CHENA, Langnan; HUANG, Shoufeng. Transmission effects of foreign exchange reserves on price level: evidence from China. Economics Letters, v. 117, n. 3, December, 2012. https://doi.org/10.1016/j.econlet.2012.06.037 DOI: https://doi.org/10.1016/j.econlet.2012.06.037
DERKSEN, S.; KESELMAN, H. Backward, forward and stepwise automated subset selection algorithms: frequency of obtaining authentic and noise variables. British Journal of Mathematical and Statistical Psychology, v. 45, 1992. https://doi.org/10.1111/j.2044-8317.1992.tb00992.x DOI: https://doi.org/10.1111/j.2044-8317.1992.tb00992.x
HÉBERT, Robert F. Richard Cantillon's Early Contributions to Spatial Economics. Economica, New Series, v. 48, n. 189, p. 71-77, 1981. https://doi.org/10.2307/2552944 DOI: https://doi.org/10.2307/2552944
HUMPHREY, T. F. Wicksell on the quantity theory. Federal Reserve Bank of Richmond. Quarterly, v. 83, n. 4, 1997. Available in: https://www.richmondfed.org/-/media/richmondfedorg/publications/research/economic_quarterly/1997/fall/pdf/humphrey.pdf Acessed: 25 set. 2022.
HURVICH, C. M.; TSAI, C. L. The impact of model selection on inference in linear regression. American Statistician, v. 44, p. 214-217, 1990. https://doi.org/10.1080/00031305.1990.10475722 DOI: https://doi.org/10.1080/00031305.1990.10475722
MURPHY, Antoin E. Richard Cantillon: banker and economist. The Journal of Libertarian Studies, v. 7, n. 2, Fall, 1985. Available in: https://cdn.mises.org/7_2_1_0.pdf Acessed: 25 set. 2022.
MOREIRA, Tito Belchior Silva; TABAK, Benjamin Miranda; MENDONÇA, Mario Jorge; SACHSIDA, Adolfo. An evaluation of the non-neutrality of money. Plos One, March, 2016. https://doi.org/10.1371/journal.pone.0145710 DOI: https://doi.org/10.1371/journal.pone.0145710
PESARAN, M. H.; SHIN, Y. An autoregressive distributed-lag modelling approach to cointegration analysis. Econometric Society Monographs, v. 31, p. 371-413, 1998. https://doi.org/10.1017/CBO9781139052221.011 DOI: https://doi.org/10.1017/CBO9781139052221.011
PESARAN, M. H.; SHIN, Y.; SMITH, R. J. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, v. 16, n. 3, p. 289-326, 2001. https://doi.org/10.1002/jae.616 DOI: https://doi.org/10.1002/jae.616
ROECKER, E. B. Prediction error and its estimation for subset-selection models. Technometrics, v. 33, p. 459-469, 1991. https://doi.org/10.1080/00401706.1991.10484873 DOI: https://doi.org/10.1080/00401706.1991.10484873
ROTHBARD, Murray N. Economic thought before Adam Smith: an Austrian perspective on the history of economic thought. Aldershot, England: Edward Elgar Publishing, 1995. v. 1
SIERON, A. The non-price effects of monetary inflation. The Quarterly Journal of Austrian Economics, v. 20, n. 2, 2017. Available in: https://mises.org/library/non-price-effects-monetary-inflation Acessed: 25 set. 2022.
THORNTON, Mark. Was Richard Cantillon a mercantilist? Journal of the History of Economic Thought, v. 29, n. 4, 2008. https://doi.org/10.1080/10427710701666495 DOI: https://doi.org/10.1080/10427710701666495
THORNTON, Mark. Cantillon and the invisible hand. The Quarterly Journal of Austrian Economics, v. 12, n. 2, p. 27-46, 2009. Available in: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.169.3656&rep=rep1&type=pdf Acessed: 25 set. 2022.
VAN DEN BERG, R. Richard Cantillon's early monetary views? Economic Thought, v. 1, n.1, p. 48-79, 2012a. Available in: http://et.worldeconomicsassociation.org/papers/richardcantillons-early-monetary-views/ Acessed: Jan 10 2022.
VAN DEN BERG, R. Something wonderful and incomprehensible in their economy: the English versions of Richard Cantillon's essay on the nature of trade in general. European Journal of the History of Economic Thought, v. 19, n. 6, p. 868-907, 2012b. https://doi.org/10.1080/09672567.2012.735683 DOI: https://doi.org/10.1080/09672567.2012.735683
How to Cite
Copyright (c) 2022 MISES: Interdisciplinary Journal of Philosophy, Law and Economics
This work is licensed under a Creative Commons Attribution 4.0 International License.
This Journal is licensed under a Creative Commons Attribution 4.0 International License.