Biography of Richard Cantillon (1680-1734)
The Origin of Economic Theory: A Portrait of Richard
Cantillon (1680-1734)
by MARK THORNTON
MANY CRUCIAL AUSTRIAN insights have been found
in the economics of Irish banker Richard Cantillon
(16802-1734) and his lone surviving publication,
Essai sur la Nature du Commerce en General.3 It
seems clear that Cantillon was an important influence on the
development of Austrian economics, and that he can be considered a
member of the Austrian School. Carl Menger had a copy of the
Essai in his library prior to the publication of
The Principles of Economics.
Indeed, the origins of economic theory itself can be traced to
CantilIon. William Stanley Jevons, one of the cofounders of the
marginalist revolution, and the economist who is generally credited
with rediscovering Cantillon, called the Essai" a
systematic and connected treatise, going over in a concise manner
nearly the whole field of economics. . . . It is thus the first
treatise on economics." He dubbed the work the "Cradle of
Political Economy."4 Joseph Schumpeter, the great historian of
economic thought and student of Eugen von Bohm-Bawerk, described
the Essai as
"the first systematic penetration of the field of
economics."*5 In his treatise on the history of economic
thought, Murray N. Rothbard named I, Cantillon
"the founding father of modern economics."6
The key episode in Cantillon's life was his involvement with
John Law and his monetary schemes. Cantillon was opposed to the
inflationist theories of Law, but he understood how the schemes
worked and what their fatal flaws were. Thus, he was able to create
a large fortune from the Mississippi System and South Sea Bubble.
In the aftermath of these financial debacles, Cantillon wrote his
famous Essai, breaking out of the muddleheaded
Mercantilist thinking of his day to make a pathbreaking
contribution to our knowledge of method, theory, and policy.
Shortly after writing the Essai, Cantillon was
murdered under mysterious conditions, and his
Essai remained unpublished for more than
twenty years.
The Essai is considered influential for the
development of both the Physiocrats and the classical economists
and Cantillon was one of the very few people mentioned
by Adam Smith in the Wealth of Nations.
Unfortunately, Smith misrepresented Cantillon's work. Both
Cantillon and his Essai were largely forgotten during
the period of classical economics. The true significance of the
Essai was gleaned by the French economists
A.R.J. Turgot and J.B. Say, who were important precursors to the
modern Austrian School.7 Since his rediscovery during the
marginalist revolution, a substantial body of literature has
grown up in appreciation of Cantillon and a number of mysteries
surrounding him and the Essai have been solved. Most
importantly, the Scottish philosopher and tax collector Adam Smith
should no longer be considered the father of economics. That title
now belongs to the Irish entrepreneur and Austrian economist,
Richard Cantillon.
CANTILLON AND THE ESSAI
The mystery of Richard Cantillon begins with his birth, which is
now placed during the 1680s in southwest Ireland.8 He was
born into a family of Catholic landlords who had fought for the
Stuart cause, and thus were dispossessed of their lands by
Cromwell. His origins in the landed gentry shines through in the
Essai where the landlord, the truly
independent person in the economy, plays the crucial
decisionmaking role in both production and consumption.
The Essai follows a progressive arrangement of
ideas appropriate for the elucidation of economic theory (like
Menger's Principles), and also shows many links to
Cantillon's own life. Part one is an analysis of the real economy
of the isolated state loosely based on the pre-capitalist economy
of his family's heritage. Here the prince in the capital city rules
over the landlords of the cities, market towns, and villages.
Landlords collect rents from farmers who in turn hire labor to work
the fields. Cantillon acknowledges that the large estates were
taken by force, reflecting the fact that his ancestors took
ownership of the land from the Irish and that these estates were in
turn taken from them by force.9
The second half of part one is where Cantillon becomes the first
economist to develop the key Austrian insights concerning the
entrepreneur and the role entrepreneurship plays in the
economy.10 The entrepreneur is the bearer of risks
inflicted by the changes in market demand. This is a direct
reflection of Cantillon's own early career as an assistant to
British Paymaster James Bridges during the War of Spanish
Succession. There he learned and excelled in the role of
accountant and contract negotiator, and learned the basics of
banking and international finance. This experience also exposed
Cantillon to gross government inefficiency and corruption. His
travels through Europe during the War may have sparked his interest
and insights into his subjectivist theory that population was based
on the decisions of the landlord concerning how resources are d
used and on differences in cultural choice.
In part two of the Essai, Cantillon laid out his
pathbreaking Austrian analysis of the monetary economy, exposing
the great error of mercantil- ism (that money is wealth). This
parallels Cantillon's second career as a Parisian banker that began
in the service of his elder cousin's bank:11 After the War
of Spanish Succession, there was a great deal of economic
instability, and this made the business of banking particularly
dangerous. His cousin eventually had to sign over his bank to
Cantillon and declare bankruptcy in 1716. In a lost
manuscript, "Observations on the Trade and Luxury of Both Nations,"
Cantillon blamed conditions on the opulence and heavy war debts of
Britain and France.12
Two historically important people were influential at this stage
in Cantillon's life. Matthew Decker, a director of the East India
Company and a prominent banker, was important because he helped
Cantillon get established in banking. Another important influence
was Lord Bolingbroke, a leader of the Jacobite cause who fled to
France and became Cantillon's a friend through the banking
business. He introduced Cantillon to many of the leading thinkers
of the day, including Montesquieu and Voltaire. Bolingbroke, as a
leading opponent of the new financial system, was the important
intellectual influence, having solidified Cantillon's "innate
conservatism" on issues like monetary policy and the national
debt:1313
In part three of the Essai, Cantillon addresses
the issues of foreign trade, exchange rates, and the role of banks.
Here, Cantillon makes some of his most important contributions
to economic understanding. This section is a critique of
mercantilist policies and the financial innovations of John Law
during the Mississippi System and South Sea Bubble. This is a
reflection of the third period in Cantillon's career, during which
he made a fortune by understanding Law's system and its inevitable
consequences.
From 1721 to his death in 1734, Cantillon was embroiled in legal
disputes. He was involved with several lawsuits involving his
banking business and the South Sea Bubble. He was also accused of
attempted murder and was briefly imprisoned twice. The
Essai was written at this time and there is good
reason to suspect that Cantillon developed economic theory as part
of his legal defense against charges of usury.14
THE ORIGINS OF ECONOMIC THEORY
Cantillon was involved in the crucial events of his day, and he
knew many great intellectuals of his age, including several
important mercantilist writers. He did not completely escape the
mercantile mindset and vernacular, but it is truly amazing how
cleanly he broke with the past and struck out on his own to produce
the first coherent and comprehensive work of economic
theory.15
Cantillon's contributions to the method of economics, while
unappreciated in his time and largely forgotten, are truly
remarkable when placed in historical context. What impressed
important economists such as Jevons, Schumpeter, Hayek, and
Rothbard was Cantillon's scientific approach and the
logical-deductive theorizing that is so characteristic of the
Austrian School and the marginal revolution. Throughout the
Essai, Cantillon is concerned with providing a
scientific explanation for economic phenomena. His investigations
are concerned with establishing cause and effect. Cantillon often
expressed the causal relation with the term "natural," which he
used thirty times in the Essai.16
Another hallmark of his Austrian analysis is his intention to
limit himself to the positive economics of his subject, an
attribute that Hayek considered especially remarkable for a writer
of his time.17 In several chapters,
Cantillon halts his commentary and declines to offer
value judgments concerning the subject matter at hand.
For example, Cantillon writes that the issue of whether it is
better to have a large but poor population or a small,
wealthy population is a question outside of
his subject.18 He does likewise concerning the motives of a
French Minister who debased thecurrency.19
Cantillon also employs the method of abstraction or imaginary
construction to theorize about the economy. He uses the ceteris
paribus assumption, for example, when discussing the
productivity of labor. "The more labor is expended on it (land),
other things being equal, the more
it produces."20 He uses the theoretical tool of the small
isolated state as the modem theorist does to eliminate
complicating factors such as monetary disturbances and
international trade. More importantly, he used this construction or
model to deduce the core Austrian point that production depends on
demand, in this case the demand of the landowner of the great
estate. Furthermore, as the landlord contracts out the production
of his lands to farmers, he creates entrepreneurs, and an economy
develops with exchange, prices, money, and competition.21
The role of the entrepreneur is one of Cantillon's great
contributions to economic understanding. He speaks of the
entrepreneur in the classic sense of the undertaker of great
business adventures, but Cantillon also has a theoretical
distinction between those who work for a fixed return or wages and
those who face uncertain returns, including farmers,22 independent
craftsmen, merchants, and manufacturers. These entrepreneurs
purchase inputs at a given price to produce and sell later at an
uncertain price.23 In the pursuit of profit, the entrepreneur
must bear risks as he faces the pervasive uncertainty of the
market.24 For example, the farmer has fixed expenses
but:
The price of these products will depend partly on the weather,
partly on demand; if corn is abundant relative to consumption it
will be dirt cheap, if there is scarcity it will be dear. Who can
foresee the number of births and deaths of the people in a State in
the course of the year? Who can foresee the increase or reduction
of expense that may come about in the families? And yet the price
of the Farmer's produce depends naturally upon these unforeseen
circumstances, and consequently he con- ducts the enterprise of his
farm at an uncertainty.25
The unsuccessful entrepreneur will live poorly or go bankrupt,
while the successful entrepreneur will obtain a profit or advantage
and cause entry into the market, "and so it is that the Undertakers
of all kinds adjust themselves to risks in a State."26 The
entrepreneur brings prices and production into line with demand; in
well organized societies, government officials can even fix prices
of basic items without too much complaint.27
Cantillon has a sophisticated understanding of the price system
containing most of the elements of modem Austrian analysis. Price
is deter- mined by demand and relative scarcity. Demand is a
subjective concept based on the "humors" and "fancies" of the
people. It is the "consent of the people" along with the relative
scarcity of a product that determines the market price, where
market price is understood to be the price paid to the seller.
Likewise, the market value of metals "varies with their plenty or
scarcity, according to the demand."28
Cantillon makes an important distinction between price and
market price, and between value and market value, that has served
as a source of confusion concerning the meaning of his economics.
Market price and market value are the real prices that occur in the
market based on forces of supply and demand. Price and value are
separate and distinct concepts from market prices. They are related
to Cantillon's term "intrinsic value," and are used to describe the
opportunity cost of resources used to produce the particular good
in question, the specific land and labor that were sacrificed to
produce the good.29
The term intrinsic value has been a source of confusion.
Commentators have often been led to deride his value theory,
consider him an objective value theorist, and to misplace him in
the history of economic thought. Cantillon recognized the potential
for this confusion:
in this Essai I have always used the term
Intrinsic Value to signify the amount of Land and Labor which enter
into Production, not having found any term more suitable to express
my meaning. I mention this only to avoid
misunderstanding.30
What is very clear from a close reading of the
Essai is that intrinsic value does not refer to the
objective properties of the good (such as the purity of a gold
bar), or to some long-run equilibrium value, but rather to the
resources sacrificed to produce a particular good. As Hayek
observed:
What is most significant about Cantillon's achievement in the
field of value and price theory is his down-playing the quest for
rules and formulae that might account for the "normal" relationship
between the value or price of various goods, and concentrating
instead on the forces and mechanisms that are consistently at work
in restoring these normal relationships.31
Most importantly, Cantillon was naming and describing a concept
for which a term did not already exist in the Western world, for
Cantillon knew many different languages.
Cantillon's conception of cost as the sacrifice of land and
labor fore- gone is far more advanced than the land theory of cost
and value advanced by the Physiocrats, or the labor theory of cost
and value advanced by the classical economists. But Cantillon had a
far richer understanding of cost than a simple measure of the
quantity of land and labor that went into production. Cantillon
stressed two important concepts throughout the
Essai that provide greater depth to his conception of
cost. First, Cantillon viewed all resources as heterogeneous. Each
piece of land was of a different quality, and each laborer was also
of a different quality. Therefore, while intrinsic value was a
measure of cost, it was not possible in fact to simply count the
number of hours and acres except in an abstract way or in simple
illustrations. In fact, after establishing a preliminary land-and-
labor theory of value in part one, he notes at the very beginning
of part two that for specific goods in the real economy, it is
"impossible to fix their respective intrinsic values."32
The other concept that he stressed was the alternative use of
resources. Land could be used to grow corn or to provide hay for
horses. Labor could toil on the farm or be trained in a craft.
Cantillon clearly saw that when a landlord chose to own more
horses, what he was giving up was the production (and sale) of
grain, and that if France wished to import fine lace, then she
would have to forego a large amount of wine produced from her
vineyards. Cantillon understood the concept of opportunity cost,
and his Essai was an attempt to construct the concept
to explain economic choice.33 The discovery of opportunity
cost by this important precursor of the Austrian School truly marks
the origin of economic theory.
Cantillon made pathbreaking contributions to the subjective
theory of population. As part of his overall model of the economy,
population density and distribution are determined by the tastes of
the owners of productive resources. The prince and the landowners
can greatly affect population by their consumption choices, thus
helping to determine how labor-intensive the land will be used.
Culture and religion also play a role in population determination,
while technology and resource endowments are important determinants
of population density.
Cantillon took a scientific approach to population. He
recognized that humans might multiply like "mice in a
barn if they have unlimited means of subsistence," or that
population might fall substantially over time.34 Cantillon
even recognized that international trade would affect the level and
distribution of population, as land-poor countries could export
manufactured goods to land-rich countries in return for food,
fiber, and raw materials, and thus support a larger population than
otherwise. Here, Cantillon is often mistakenly labeled a
mercantilist, but Cantillon remains a value-free economist on the
subject of population size.35 However, he does offer the
prince technical advice of a nationalist nature on how to achieve a
greater population, which supposedly is good for national defense.
For example, he bemoans the export of large amounts of French wine
in order to pay the very high market price of a small amount of
lace imported from Brussels.36
Despite this, Cantillon's analysis is far superior to those he
influenced, like Malthus and Smith. They were concerned about
population because, in their thinking, economic growth would result
in a larger population of miserable people living at the
subsistence level. According to Professor Tarascio, "Smith and
Malthus do not reflect the spirit of Cantillon's
Essai. Hence the message has been lost to subsequent
readers of the later authors."37 Smith and Malthus extended
the idea of the subsistence wage to industrial workers, while
Cantillon recognized that
there would be a tendency towards higher wages for trained
workers or for those in risky occupations.38 In fact,
Cantillon generally wrote of a maintenance wage that was not a
subsistence wage at all, but rather a wage sufficient to maintain
the worker in his current job.39 In his model, economic
growth led to higher wages and a better standard of
living.
Another area in which Cantillon made an important contribution
was spatial economics, a subject that permeated much of the
Essai. Cantillon explained the economic geography of
a state, the center of which was the capital city where the prince
and government resided. Cities are regional centers with large
markets and population, surrounded by market towns where the
produce of the villages and farms are brought for sale. Cantillon
explained that villagers bring their output to market in order to
get the best price and to reduce transaction costs. He was
masterful in using the role of transportation costs to explain why
raw materials were more expensive near the cities, why heavy
manufacturing was located near the source of raw materials, and why
perishables should be produced near population centers. The role of
transportation costs is a central issue in his writing on money and
banking because the banker (like Cantillon himself) served as an
intermediary to reduce the risk and transportation costs of
shipping large amounts of money over great distances. Cantillon was
the first economist to apply the principles of spatial economics in
a general economic treatise. He "made original and lasting
contributions to spatial economics. . . in the nature of first
principles readily applicable to the fields of location theory and
spatial pricing."40
Cantillon's successful career in banking played a major role in
his monetary economics, which Hayek considered his greatest
achieve- ment.41 Cantillon was a hard-money man who understood
that the nature of money as a medium of exchange drove the
evolution of money to precious metals, and that princes cannot
introduce imaginary money or successfully debase money.42 Central to
his Austrian-style analysis was his rejection of the aggregate
approach of the naive quantity theory of money in favor of a
microeconomic-process approach to the study of the money. He showed
that the type of change in the money supply and where it entered
the economy were crucial to determining what the effects
would be. A big gold discovery would raise the prices of goods
demanded by gold mine owners and miners. Any large increase in
money will give a new turn to consumption, thus changing relative
prices, velocity, and the distribution of income.
New money can also affect the interest rate if the money comes
into the hands of lenders. Cantillon rejected the
Lockean-mercantilist view that the rate of interest was a purely
monetary phenomenon. Like Mises, he found that the interest rate
was based on the forces of supply and demand in the market for
loanable funds, and that if the new money increased supply it would
lower the interestrate.43
Cantillon thoroughly describes the forces that cause changes in
interest rates, and shows the interest rate to be a normal and
important aspect of the economy. He defends the earning of high
rates of interest via comparison to earning profits and rents of
even higher rates.44 On the basis of his description of interest
rates and what causes rates to be high, Cantillon ridicules the
notion that government should regulate interest rates with usury
laws.45
Cantillon presented a theory of the business cycle very similar
to the Austrian theory when he analyzed changes in the money
supply. Increased money supply is the boom phase that kicks off the
business cycle. His descriptions of this phase of the cycle are
what many commentators have used to label Cantillon a mercantilist,
because more money is seen as leading to a higher level of economic
activity.46 However, problems sooner or later arise. The
basic problem revolves around price inflation and the collapse of
domestic industry. Cantillon's Austrian lesson is that mercantilist
policy is a shortrun expediency that fails in the long
run.
Cantillon was the first to describe the workings of the famous
specie-flow price mechanism, a crucial component of the Austrian
theory of the business cycle, normally attributed to
Hume.4747 Here he analyzes changes in the domestic
money supply brought about by changes in the balance of payments in
a similar fashion to changes in the domestic gold supply described
above. He suggests ways in which the prince might try to offset the
negative effects of monetary inflation or to forestall them, but
theoretically the reversal is inevitable, and Cantillon is not
confident in the government's ability to micromanage the adjustment
process.48
In discussing the topics of foreign trade, the balance of
payments, and banking, Cantillon clearly shows how countries that
develop a skilled workforce in manufacturing, participate in
foreign trade, and avoid national banks will prosper. However, his
commentary also seems mercantilist when he laments the buying of
fancy lace from Brussels as "burdensome and unprofitable to
France," and uses this as an example of how foreign trade can be
usefully regulated.49
Although he comes across as supporting mercantilism, it is
plausible that the basis for the support of such policy lies in
theoretical analysis and his empirical observations of the world
economy, not in mercantilism. He showed that manufactured goods are
produced by skilled workers who earn higher real wages than
unskilled farm workers. By exporting high-valued manufactured
goods, average wage rates would be higher, the burden of
transportation costs would be lower, and the economy could import
either money or a much larger volume of food and raw materials.
Cantillon shows that if the money is quickly spent, prices will
rise and the positive impact of the money will quickly turn
negative. Here he suggests that the foreign money be saved by the
prince for purposes of national defense and to account for years of
bad harvests. Presumably, the additional cash could be invested in
the domestic economy.
Finally, Cantillon showed that monetizing the economy was good,
but that you could get too much of a good thing, thus exposing the
greatest error of mercantilism. Like modem Austrian economists,
Cantillon rejected the mercantilist-monetarist policy goal of
forever increasing the money supply. He thought that a set amount
of money was sufficient, and that amount need only change as an
economy switched from barter to monetary exchange, although there
were several factors that would naturally reduce the need for
money, such as banking services and an increased velocity of
money.
Cantillon showed why bimetallism would create shortages of
money, and warned against the use of paper money and national
banks.50 He also saw the problems of general
banks of a public and private nature such as the South Sea Company,
the Bank of England, and the yet-to-exist Federal Reserve System.
He closed his Essai with an indictment of John Law
and his system, which serves as a warning that continues to be
important (and unheeded) to this day:
It is then undoubted that a Bank with the complicity of a
Minister is able to raise and support the price of public stock and
to lower the rate of interest in the State at the pleasure of this
Minister when the steps are taken discreetly, and thus payoff the
State debt. But these refinements which open the door to making
large fortunes are rarely carried out for the sole advantage of the
State, and those who take part in them are generally corrupted. The
excess banknotes, made and issued on these occasions, do not upset
the circulation, because being used for the buying and selling of
stock they do not serve for household expenses and are not changed
into silver. But if some panic or unforeseen crisis drove the
holders to demand silver from the Bank the bomb would burst and it
would be seen that these are dangerous operations.51
No short essay can provide a complete picture of Richard
Cantillon and his contributions to economics. For example, he
presented a very good theory of prohibition; he had an excellent
analysis of government debt; and he provided an interesting and
useful perspective on the economics of slavery. Cantillon has been
misunderstood as a mercantilist and objective (i.e., intrinsic)
value theorist, but in fact he exposed the errors of mercantilism,
and clearly understood the concept of opportunity cost, the
fundamental principle in economic theory. Cantillon and his
Essai are the origins of economic theory and that
theory is clearly that of the latter-day Austrian
School.52
SELECTED READINGS
Bordo, Michael D. 1983. "Some Aspects of the Monetary Economics
of Richard Cantillon." Journal of Monetary
Economics 12, no. 2 (August): 235-58.
Brewer, Anthony. 1992. Richard Cantillon: Pioneer of
Economic Theory. London: Routledge.
-. 1988. "Cantillon and the Land Theory of Value." History
of Political Economy 20, no. 1 (Spring):
1-14.
-. 1988. "Cantillon and Mercantilism." History of Political
Economy 20, no. 3 (Fall): 447-60.
Cantillon, Richard. [1755] 1959. Essai sur la Nature du
Commerce en General [and other essays]. Henry
Higgs, ed. and trans. London: Frank Cass.
Hayek, F.A. [1931] 1991. "Richard Cantillon
(c.1680-1734)."Introduction to Richard Cantillon, Essai sur la
Nature du Commerce en General, Grete Heinz, trans.
Reprinted in Hayek, Economic History. Vol. 3. The
Collected Works of F.A. Hayek. W. W. Bartley, III, and
Stephen Kresge, eds. Chicago: University of Chicago
Press.
-. [1931] 1985. "Richard Cantillon; Michecil6. Suilleabhciin,
trans.Journal of Libertarian Studies 7, no. 2 (Fall):
217-48.
Hebert, Robert F.1985. "Was Richard Cantillon an Austrian
Economist?" Journal of Libertarian Studies 7,
no. 2 (Fall): 269-80.
-. 1981. "Richard Cantillon's Early Contributions to Spatial
Economics." Economica 48, no. 189 (February):
71-77.
Higgs, Henry. 1892. "Cantillon's Place in Economics."
Quarterly Journal of Economics 6:436-56.
-. 1891. "Richard Cantillon." Economic
Journal 1:262-91.
Hone, Joseph. 1944. "Richard Cantillon, Economist-Biographical
Note." Economic
Journal 54:96-100.
Hulsmann, Jorg Guido. 1997. "Cantillon As A Proto-Austrian:
Further Evidence." Working Paper.
Liggio, Leonard P. 1985. "Richard Cantillon and the French
Economists: Distinctive French Contributions to J.B. Say."
Journal of Libertarian Studies 7, no. 2 (Fall):
295-304.
Murphy, Antoin E. 1986. Richard Cantillon: Entrepreneur
and Economist. New York: Oxford University
Press.
-. 1985. "Richard Cantillon: Banker and Economist." Journal
of Libertarian Studies 7, no. 2 (Fall):
185-216.
-.1984. "Richard Cantillon: An Irish Banker in Paris."
Hermathena 135: 45-74.
O'Mahony, David. 1985. "Richard Cantillon-A Man of His Time:
A Comment on Tarascio." Journal of Libertarian
Studies 7, no. 2 (Fall): 259-68.
Prendergast Renee. 1991. "Cantillon and the Emergence of the
Theory of Profit."History of Political
Economy 23 (Fall): 419-29.
Rothbard, Murray N. 1995. Economic Thought Before Adam
Smith. Vol. 1.
An Austrian Perspective on the History of Economic
Thought. Cheltenham, U.K.: Edward Elgar.
Salerno, Joseph T.1985. "The Influence of Cantillon's
Essai on the Methodology of J.B. Say."
Journal of Libertarian Studies 7, no. 2 (Fall):
305-16.
-. 1978. "Comment on the French Liberal School." Journal
of Libertarian Studies 2, no. 3 (Winter):
65-68
Schumpeter, Joseph. [1914] 1991. Epochen der
Dogmen-und Metlwdengeschichte, Crundriz der
Sozialiikonomik.1st ed. Tiibingen: J.C.B. Mohr. Vol.
I, Pt. 1, P. 143, as quoted in F.A. Hayek (1991). Pp.
258-59.
Spengler, Joseph J. 1954. "Richard Cantillon: First of the
Modems I." Journal of Political Economy 62, no.
4 (August): 281-95.
-. 1954. "Richard Cantillon: First of the Modems II."
Journal of Political Economy 62, no. 5
(October): 406-24.
Tarascio, Vincent J. 1985. "Cantillon's Essai: A
Current Perspective." Journal of Libertarian
Studies 7, no. 2 (Fall): 249-58.
-. 1981. "Cantillon's Theory of Population Size and
Distribution." Atlantic Economic Journal 9, no.
2 Guly): 12-18.
Waddell, D.A.G. 1958. "Charles Davenant (1656-1714): A
Biographical Sketch." } Economic History
Review 2nd Series, II, no. 1: 279-88.
* The
author would like to thank Robert F. Hebert, Robert Ekelund,
Jeffrey Tucker, and Audrey Davidson for helpful comments and
suggestions.
1 No known picture of Cantillon
exists.
2 The
date of Cantillon's birth, like many things about his life, remains
a mystery.
3 See
for example, Robert F. Hebert, "Was Richard Cantillon an Austrian
Economist?" Journal of Libertarian Studies 7, no. 2
(Fall 1985): 269-80; Murray N. Rothbard, Economic Thought
Before Adam Smith, vol. 1, An Austrian Perspective on
the History of Economic Thought (Cheltenham, U.K.: Edward
Elgar, 1995); Jorg Guido Hiilsmann, "Cantillon as a Proto-Austrian:
Further Evidence," working paper, September 1997.
4
William Stanley Jevons, "Richard Cantillon and the Nationality of
Political Economy," Contemporary Review Ganuary
1881), reprinted in Essai sur la Nature du Commerce en General,
by Richard Cantillon [and other essays], Henry Higgs, ed.
and trans. (London: Frank Cass, [1931] 1959), p. 342, with emphasis
in the original.
* Jevons went on to say that "Richard Cantillon
had a sound and pretty complete comprehension of many questions
about which pamphleteers are still wrangling and blundering, and
perplexing themselves and other people," and that "the
third part especially is almost beyond
praise."
5 Schumpeter goes on: Individual
problems are presented in the light of unified explanatory
princi1pIes and form part of a boldly designed comprehensive
analysis. The narrowness of earlier trains of thought is
transcended. Primitive mistakes are 1 avoided, those arising from
deficient analytic training no less than those for I which the
influence of philosophy must shoulder the blame. Joseph
Schumpeter, Epochen der Dogmen-und Methodengeschichte, Grundriz
der Soz-
ialokonomik, 1st ed. (Tiibingen: J.C.B. Mohr,
1914), vol. 1, pt. 1, p.143, as quoted in F.A. Hayek, [1931]
"Richard Cantillon (c.168D-1734),"Introduction to Richard
Cantillon, Essai sur la Nature du Commerce en
General, Grete Heinz, trans., reprinted in F.A. Hayek,
Economic History, vol. 3, The Collected Works of
F.A. Hayek, W. W. Bartley, III, and Stephen Kresge, eds.
(Chicago: University of Chicago Press, 1991), p.
258-59.
6
Rothbard, Economic Thought Before Adam Smith, chap.
12, pp. 343-62.
7 See
Anthony Brewer, "Cantillon and the Land Theory of Value,"
History of Political Economy 20, no.1 (Spring
1988):1-14; Leonard P. Liggio, "Richard Cantillon and the French
Economists: Distinctive French Contributions to J.B.
Say," Journal of Libertarian Studies 7, no. 2
(Fall 1985): 295-304; Joseph T. Salerno, " Comment on the French
Liberal School," Journal of Libertarian Studies 2, no.3
(Winter 1978): 65-68; and idem, "The Influence of
Cantillon's Essai on the Methodology of J.B. Say,"
Journal of Libertarian Studies 7, no. 2 (Fall 1985):
305-16.
8 Antoin E. Murphy, Richard Cantillon:
Entrepreneur and Economist (New York: Oxford University
Press, 1986), p.10. My article relies heavily on this
biography.
9
The isolated state allows Cantillon to ignore the two great forces
that otherwise permeate the Essai. The first force is
the economic ebb-and-flow of foreign trade and the balance of
payments between nations. The second is the relative military power
between nations. Cantillon is concerned with the public good of
national defense (the duty of the Prince) throughout the
Essai, and his concessions from laissez-faire are
made in this light.
10 See for example, Rothbard, Economic
Thought Before Adam Smith, p. 351; and Hebert, "Was
Richard Cantillon an Austrian Economist?" p. 273.
11
Cantillon's secondary business was as a wine merchant, which no
doubt sharpened his understanding of entrepreneurship, risk taking,
and interest and price " formation.
12
See Murphy, Richard Cantillon, p. 50. Cantillon
thought that the superfluities of life were part of wealth, but he
often wrote as if he opposed excessive luxury. In " particular,
Cantillon opposed the opulence of the King and his court in terms
of (: imported luxury items, which required too great a sacrifice
from the provinces in t: terms of the productive capacity of the
land, and thus hurt the peasants and land- a lords, and weakened
the state.
13 Ibid., pp. 48-49. Murphy considers
Bolingbroke's strong Aristotelian views on b society to be a major
influence in chapter 12 of part 1 of Cantillon's
Essai.
14
Ibid., p. 247, shows that sections of the Essai are
very similar to sections of the legal defense testimony of his
lawyers.
15
As Hayek observed, "this gifted independent observer, enjoying an
W1Surpassed vantage point in the midst of the action, coordinated
what he saw with the eyes of the born theoretician and was the
first person who succeeded in penetrating and presenting to us
almost the entire field which we now call economics." See F.A.
Hayek, [1931]
"Richard Cantillon," Micheal6. Siillleabhain, trans.,
Journal of Libertarian Studies 7, no. 2
(Fall 1985): 227. Or, as Anthony Brewer observed, the
Essai "was the first systematic treatment of economic
principles, of a sort modem economists would recognize" it as "a
work of genius." See Brewer, "Cantillon and the Land Theory of
Value," p.10.
16
Hayek, "Richard Cantillon," p. 260. Cantillon writes that the
natural way to I bring about or cause an increase in population is
to have employment for the people I and to make the land produce
the means of their support. See Cantillon, Essai, p.
85.
17
Hayek, "Richard Cantillon," p. 260.
18
Cantillon, Essai, p. 85
19
Henry Higgs, "Richard Cantillon," Economic Journal 1
(1891): 279. Of course, Cantillon uses these limits both to refrain
from unnecessary value judgments and to prevent diverting himself
from the main objects of his task. For example, in one case, he
does make a brief value judgment concerning taxes, but quickly ends
the subject as not essential to his purpose. See Cantillon,
Essai, p. 159. In reading the
Essai, you will find Cantillon making many
value-laden statements but many of these can be explained with
reference to the theoretical development of the
Essai and his previous findings. This is, therefore,
a likely source of confusion when interpreting Cantillon's
work.
20 Ibid., p. 47. The fact that he used the
phrase "all things being equal" in the rather obvious case of more
labor resulting in more production is evidence of clear
intent.
21
Cantillon clarifies this at the end of chapter 14 in the
Essai with the statement:
I do not consider here the variation in Market prices which may
arise from the good or bad harvest of the year, or the
extraordinary consumption which may occur from foreign troops or
other accidents, so as not to complicate my subject, considering
only a State in its natural and uniform condition. (p.
65)
24 Cantillon laid the groundwork for Turgot
and the theory of profit. See Renee Prendergast, "Cantillon and the
Emergence of the Theory of Profit," History of Political
Economy 23 (Fall 1991): 429.
25 Cantillon, Essai, p. 49. His
use of the word "naturally" shows that the changes he refers to
cause a predictable change in price.
27 Ibid., p. 31. When he refers to
well-organized societies, Cantillon seems to be referring to an
advanced market economy in which monetary exchange and banking
services have been long and thoroughly established.
29 Hulsmann, "Cantillon as a Proto-Austrian,"
p. 3, defends Cantillon by noting he clearly did not think that
market prices were determined by cost, in terms of land and labor,
and that intrinsic value is merely being used as a measure of the
quantity of land and labor. Cantillon thus avoided the errors of
later economists who claimed that land and labor were measures of
value. His views are similar to Austrian economists who hold that
only exchange ratios and market prices permit economic
calculation.
30
Cantillon, Essai, p.l07.
31
Hayek, "Richard Cantillon," p. 263.
32
Cantillon, Essai, p. 115. He does note, however, that
a specific intrinsic value is one that does not change.
33
This point was first suggested to me by Professor Hebert; see
Hebert, "Was Richard Cantillon an Austrian Economist?" p. 272.
Spengler also hints at this in Joseph J. Spengler, "Richard
Cantillon: First of the Moderns II," Journal of Political
Economy 62, no. 5 (October 1954): 407; also see Michael
D. Bordo, "Some Aspects of the Monetary Economics of Richard
Cantillon," Journal of Monetary Economics 12, no.2
(August 1983): 235-58.
34
Cantillon, Essai, p. 83.
35
Brewer, "Cantillon and the Land Theory of Value," p. 452; and
Cantillon, Essai, p.85.
36
What Frenchman wouldn't be concerned with this issue? Cantillon is
clearly not against luxury per se, as he defines wealth as
consumption on the first page of the Essai, including
the conveniences and superfluities of life. What he is concerned
with is production. It is not possible to continue to consume, or
to consume greater amounts, without production. According to
Cantillon, the comparative greatness of States is their reserve
stock, which is savings measured in both money and materials in
order to improve the State and to offset bad harvests and wars. For
the State, gold is the true reserve stock, because with gold you
can even buy the implements of war from your enemy. See Cantillon,
Essai, pp. 89,91.
37
Vincent J. Tarascio, "Cantillon's Theory of Population Size and
Distribution," Atlantic Economic Journal 9, no. 2
July 1981): 12-18, is perceptive in noticing that Cantillon's
contribution was lost, and that neoclassical economics did not
adopt the classical-population theory because real wages were
clearly rising for a long time before the origins of neoclassical
economics.
38
See Cantillon, Essai, pt. 1, chaps. 7 and
8.
39
See ibid., pt.1, chap. 9; esp. Higgs, p. 25.
40
Robert F. Hebert, "Richard Cantillon's Early Contributions to
Spatial Economics," Economica 48, no. 189 (February
1981): 71-77.
41
Hayek, Economic History, p. 264.
42
See Bordo, "Some Aspects," p. 236; and Cantillon,
Essai, pp.111, 113.
43 Likewise, if the money comes into the hands
of spenders first, the increased consumption will stimulate
investment demand and raise interest rates (as prices rise, the
nominal rate will increase as well).
44
Remember Cantillon was a banker. When he was charged with usury in
the wake of the South Sea Bubble, part of his defense was to defend
high interest rates.
45
"Nothing is more amusing than the multitude of Laws and Canons made
in every age on the subject of the Interest of Money, always by
Wiseacres who were hardly acquainted with trade and always without
effect." Cantillon, Essai, p. 211.
46
Anthony Brewer, "Cantillon and Mercantilism," History of
Political Economy 20, no. 3 (Fall 1988):
447-60.
47
Hume was published before Cantillon, but we now know that Cantillon
wrote before Hume, and that Hume had probably read
Cantillon.
48
Cantillon, Essai, pp. 185, 323.
52
See Hebert, "Was Richard Cantillon an Austrian Economist?" It is
worth noting that the historians of economic thought who have
hailed Cantillon's accomplishments have been Austrian economists,
such as Hayek and Rothbard, or have been fellow travelers and
sympathizers, such as Schumpeter. An interesting fact is that a
copy of the Essai can be found in Carl Menger's
library, and also a German language edition (1931) is in Ludwig von
Mises's library. It seems clear that the Austrian School drew much
of its inspiration from Cantillon.