In: Economics
He was the first to explain the price relationship, between
supply and demand. His market price theory has been widely debated
in different ways by Adam Smith, David Ricardo, Ludwig Von Mises,
Hayek and Milton Friedman (cf. demand and supply in quantity theory
of money) since he is generally regarded as belonging to a class of
the 'Austrian'/capitalist school of economics. Such latter thinkers
promoted different versions of the 'equilibrium' market price
theory; which notes that demand exceeds cost of output as more
rivals and alternatives enter the supply market. Yet Cantillon 's
work was far more complex than his latter students, and in many
respects much further ahead. His market price thesis 'supply and
demand' was based entirely on the assumption that the markets are
constantly fluctuating and have irrevocable uncertainty.
To Cantillon, there will never be a price 'equilibrium,' no more
than the supply balance will ever be. According to Cantillon, the
markets are guided by several unpredictable uncertainties that make
any estimate irrelevant: whether in terms of 'equilibrium,' cost of
production, or price of the commodity. According to Richard, the
entrepreneur must price as the market dictates according to the
study of supply and demand; any other 'consideration,' irrespective
of how important the calculation is to the profitability, viability
or survival of the company. His theory of "market price," however,
is much simpler and 'abstracts' several variables that are
typically worried over by conventional economists, who are far from
real economic activity. For Cantillon, the most paramount supply
factor in pricing is. A product or service that is commonly
available, loses its interest. He is committed to creating a
consumer demand and controlling or restricting a commodity's
supply, rather than 'looking out' for certain variables that may
affect his quality. Cantillon's strategy can seem simplistic and
naive on the surface. But because he was more interested in 'making
the most confusion' than in 'accuracy' Others may argue that his
theory relates mainly to commodities like capital (because he was a
banker himself), and not so much to goods or consumables on the
market. Cantillon, however, did not foreshadow the classic
equilibrium theory that production costs represented the long-run,
and hence probably the most relevant, determinant of market price.
On the contrary, the cost of production for Cantillon had a very
different function: to decide whether a company could make profits
or should suffer losses and leave the business.