ABSTRACT
This chapter examines the existence of the Cantillon effect in the history of economic thought, and its perception and importance in various economic schools. It opens with the presentation of Cantillon’s work, but the chapter also presents the views of Hume, Cairnes, Fisher, Keynes, Friedman, Mankiw, Lucas, Hayek, and other economists from different economic schools. It shows that Hume’s interpretation of the first-round effect is not identical to the version originally presented by Cantillon, and that Cairnes’ work in this realm seems to be forgotten. The chapter also analyzes the more contemporary research on the Cantillon effect, discussing whether mainstream economics pays proper attention to this phenomenon. It argues that mainstream economists are generally not interested in studying the Cantillon effect, but they focus instead on price rigidities or imperfect information. The reasons for that include the holistic, macroeconomic approach and unrealistic assumptions, such as the assumption of homogeneous capital or of representative agent, as well as the use of the models of setting prices in an immediate and synchronous tâtonnement process.
