Abstract
The money multiplier approach asserts that banks are unique in that they implement a creation of money, while the finance approach regards banking institutions as financial intermediaries among others. In retrospect, Cantillon’s Essai stands between these two extreme approaches. It both challenges the money multiplier approach and grants to banks a significant monetary role. The aim of the paper is to clarify Cantillon’s theoretical propositions on bank issuing of debts convertible on demand into money at face value and to explore further the proposition according to which banks contribute to accelerating the circulation of money.
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Notes
Richard Cantillon’s Essai sur la Nature du Commerce en Général (hereafter, Essai) was written around 1730 but first published in Paris only in 1755. The English translation I shall use is Higgs’ edition published in 1931 [Cantillon (1755) 1931]. On the Cantillon’s monetary theory, readers might like to refer to Holtrop [1929], Hayek [1931], Schumpeter [1954], Bordo [1983], Murphy [1986], and Niehans [1987].
The quantity approach of banking was first held by Hume [(1752) 1985]. For a synthetic view of Hume’s monetary thought, see Wennerlind [2005, 2008], Schabas and Wennerlind [2011]. For a comparison of the Cantillon’s Essai and the Hume’s Discourses on money and banking, see Le Maux [2014].
In the 1755 edition of the Essai [p. 322], one can read the curious expression “on en viendrait à crever la bombe” — translated by “the bomb would burst” in Higgs’s edition [p. 323]. Mirabeau’s manuscript corrects this in using the expression “on en viendrait à sauve qui peut.” See INED edition of the Essai [Cantillon (1755) 1952, note 1, p. 173]. The French expression sauve qui peut means “every man for himself.”
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Le Maux, L. Banks as Accelerators of the Circulation of Money. Eastern Econ J 41, 537–546 (2015). https://doi.org/10.1057/eej.2014.75
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DOI: https://doi.org/10.1057/eej.2014.75