Richard Cantillon’s stabilizing market dynamics

Abstract

We consider a dynamic input output model that represents important aspects of Richard Cantillon’s discussion of economic structure and market dynamics. Merchants and inventories determine prices that diverge from (longer run) equilibrium. We contrast this stable formulation of price determination with an unstable benchmark specification in which variations in mercantile inventories play no role. Appreciated the stabilising properties of classical dynamics but did not isolate the influence of inventory behaviour. We briefly consider the role of inventories in macroeconomics, and note that balance sheet effects have rendered credit dislocations considerably more persistent than they were in Cantillon’s day.