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The 250th Anniversary of the Discovery of Economics

May 10, 2005

There are those who have claimed Ludwig von Mises to be the greatest economist of the 20th century, particularly the first half of the century. Others have claimed that Murray Rothbard is the greatest economist or social scientist of the second half of the 20th century. I agree with both of these claims. These men were great in many different respects. However, the title of the best economist in history, I would give to Richard Cantillon.

My research follows closely Murray Rothbard's writings on Cantillon. I have made some dramatic discoveries—by history of economic thought standards—regarding Cantillon's economics and his influence of the subsequent development of economics. He was the first person to invent economic method and to provide a theoretical model for understanding the economy, but his contributions have never been fully appreciated, until now, the 250th anniversary of the publication of his Essay on the Nature of Commerce in General (hereafter, Essai).

But first, who was Richard Cantillon? Cantillon was a man of mystery. His biographer Antoin Murphy can only date his birth sometime between 1680 and 1690. He was born into an Irish Catholic family that had been dispossessed of its lands by Cromwell's forces. Ironically, his first job was as a clerk for the British Paymaster General during the War of Spanish Succession (1701–13). His employer, James Brydges, was the most successful and notorious war profiteer of the time. After the War, Brydges would become Cantillon's financial patron and would later become one of the largest investors in the South Sea Bubble.


 Essay on the Nature of Commerce in General

The amazing Cantillon: $25

As a young man Cantillon moved to Paris, where he had two relatives in the banking business. In addition to Brydges, one of Cantillon's first banking clients was none other than Lord Bolingbroke, a Jacobite leader in the British Parliament. In 1715 Bolingbroke fled his country in fear of his life, suspecting that he would be arrested for undermining the government. His money was sent to Cantillon, and Bolingbroke lived with Cantillon in Paris for a time and they became good friends. Bolingbroke also lived in the house next to Cantillon in London when Cantillon was mysteriously murdered in 1734.

Cantillon quickly built up a successful banking business and paid off the debts of his bankrupt uncle despite the very chaotic financial conditions in France. The condition of public finances in France was so untenable that the infamous John Law was given carte blanche over French finances, taxation, the mint, a monopoly on international trade, and was allowed to launch his inflation scheme that resulted in the Mississippi Bubble.

Cantillon was deeply involved in the Mississippi Bubble both as an investor and as Law's partner in the company that was supposed to colonize and exploit the lands the company controlled in the Louisiana Territory. He made two fortunes from the Bubble, the first being on the appreciation of company shares, the second by selling shares short that his bank held as collateral against loans made to his customers. As a result, he was one of the wealthiest private citizens in the world.

It was this second fortune, as well as his involvement with John Law, that landed Cantillon in French and English courts for various lawsuits and legal charges, including usury. Murphy found that all this litigation was a catalyst for Cantillon to write the Essai. Murphy also speculates that Cantillon was not murdered, but faked his murder, burned his house to hide the evidence, and escaped to South America.

As a result of the fire, Cantillon's Essai on the Nature of Commerce in General was the only work that survived and it was not published until more than twenty years after Cantillon's "death." Even then it was published anonymously under the name of a printer that had long been out of business. Virtually everyone who has read the Essai has been impressed, although it must be pointed out that readers have had a great deal of difficulty understanding the full import and message of its contents. Economic theory is difficult to understand.

The first major influence that the Essai had was the formation of the Physiocrats in 1756, the year after its publication. The Marquis de Mirabeau based his best-selling book, The Friend of Man, on his reading of the Essai. He encouraged Vincent de Gourney to read the Essai and Francis Quesnay's Tableau Economique is considered an unsuccessful attempt to simplify Cantillon's economics. Cantillon’s influenced extended to Turgot, Adam Smith, Condillac, Say and the French Liberal Tradition.

Among the Austrians, Menger owned a copy of the Essai, Mises owned a copy, and Hayek and his wife translated the Essai into German. Rothbard dubbed Cantillon the founding father of modern economics and he devoted an entire issue of his Journal of Libertarian Studies to retrospective essays on Cantillon's economics.

William Stanley Jevons, one of the co-founders of the Marginalist revolution and 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 "more emphatically than any other single work . . . the Cradle of Political Economy." [1]

Joseph Schumpeter described the Essai "as the first systematic penetration of the field of economics. It bears the stamp of a scientific spirit." [2]

F.A. Hayek wrote that Cantillon was "the first person to succeed in penetrating and surveying nearly the entire range of what today we call economics."

Problems with Cantillon:

The two major shortcomings of Cantillon are that in theory he was an objective cost theorist, and that in terms of policy he was a mercantilist. My findings resolve those problems, but first I want to turn to Adam Smith's invisible hand. Rothbard loves Cantillon stating that he "was the first theorist to demarcate an independent area of investigation—economics—and to write a general treatise on all its aspects." He applauded Cantillon's contributions to methodology. In particular he noted that he "brilliantly began the economic analysis in his Essai with the assumption that the whole world consists of one giant estate." Cantillon shows in his model of the isolated estate that the owner can directly allocate resources to satisfy his demands. Then he changes the model so that the estate owner rents lands to individual farmers who then bring about a system of trade and money prices, but all production is still aimed at meeting the needs of the estate owner, guided by this new system of profits and losses.

I believe that this model is where Adam Smith got his "invisible hand." A cottage industry has sprung up to define the meaning of Smith's phrase "invisible hand" and to play off the widespread recognition and use of the phrase. Spenser Pack says that the invisible hand is about slavery. Syed Ahmad offers us four "invisible hands" while William Grampp offers ten different possibilities. We are told that the invisible hand derives from Smith's theology, that it is an important secular device, and that it is an ironic, but useful joke. Whatever its true meaning, it is important enough that the American Economic Review, the Journal of Political Economy, and the Journal of Economic Perspectives have all recently published articles on the meaning of the invisible hand.

The debate, or rather confusion, stems from the fact that Smith used the term three different times. He used the term "invisible hand" in his History of Astronomy, where he scorned those who attribute a divine presence for things that can be explained scientifically. The second use is in the Theory of Moral Sentiments (1759), where Smith describes the vile landowner who is forced to distribute the majority of the bounty of his land to the peasants in order to obtain the things he wishes—by an invisible hand—so that people get almost the same sustenance as if the land was equally divided, because the classes are mutually interdependent. [3]

The third use of the phrase appears in the Wealth of Nations (1776), [4] where the invisible hand is used as a simile for self-interest—in that people pursuing their self-interest unintentionally promote the general interest and the largest possible production. Only through Cantillon do the combination of uses inThe Theory of Moral Sentiments and The Wealth of Nations make sense.

Cantillon, after establishing the natural inequality of wealth and the pervasive role of entrepreneurship in the economy, developed his model of the "isolated estate." He starts out with the estate owner personally directing all the resources on his estate. Then he moves on to leasing individual farms for rental payments so that everyone is as well off afterward and the owner continues to consume a big chunk of production (1/3 rd of the total). Exchange, markets, and money prices develop, and most importantly the system of profits and losses keeps all the individual farmers in line with market conditions, the wishes of the owner, and the maximization of value.

It is now widely acknowledged that Cantillon presented the self-regulating market long before Smith and that Smith had read Cantillon, but we have in this section of the Essai the connecting ground between Cantillon, Smith, and the invisible hand. In the quote from The Theory of Moral Sentiments, Smith tells how the "unfeeling landlord" need not look after his lands, but is forced to distribute most of what is produced to the laborers. Even though they only try to attain their own desires, they end up distributing their resources a la the invisible hand because the classes are dependent on each other. What at first appear to be two different meanings to the invisible hand came from the same source. You can still debate what Smith meant, etc., but it seems clear that Smith's source of it was his reading of Cantillon.

Rothbard also applauded Cantillon for his contributions to value and price theory, but this has been an area of heated debate and divided discussion in the economics profession. All schools of economic thought want to claim Cantillon for their own, despite his use of the term intrinsic value, which is now the anathema of economists.

Rothbard declares the term intrinsic value "an unfortunate one" and then tries to defend Cantillon by showing that his discussion of market prices is one based on consumer demand and that costs must be covered by market prices or resources will be diverted elsewhere. It is a brilliant defense but still leaves Rothbard with a "big gap" in Cantillon: the question of where the costs of production come from.

I too puzzled over Cantillon's intrinsic value—it is a subject over which a great deal of ink has been spilt in academic journals and books. When you read the Essai you get the distinct impression that Cantillon could not have meant what we understand today as intrinsic value, or that he believed in a truly objective measure of cost. In addition to Rothbard, several scholars have noted a similar impression about Cantillon's intrinsic value, including Joseph Schumpeter, Joseph Spengler, Robert Hébert, David O'Mahony and Guido Hülsmann.

I decided to take a closer look, and what I found is shocking. Cantillon's phrase intrinsic value is actually used to denote opportunity cost—the defining concept of economics. The fact that Cantillon discovered so much of what is today economics should reduce the shock because the concept of opportunity cost is really necessary to think economically.

The first thing I did was to look at the dictionaries, and what I found is that the primary meaning of intrinsic in Cantillon's day (in French and English) was “to place something inside, usually something of value” and the second meaning was that this "something" was intimate and private and difficult to communicate with others. If you combine the two primary meanings (circa 1730) you get "value placed into the good that is private and difficult to communicate with others"—that sounds to me an awful lot like opportunity cost.

The third meaning, which is now dominant, stems from the revolution in the physical sciences that took place after Cantillon's death. This is the sense in which Adam Smith used the term when he referred to the weight of pure metal in a coin or bar of precious metal. Essentially the commonly accepted meaning of the term changed as a result of the revolution in the physical sciences. This meaning was also the use that John Locke made of the term, to refer to the amount of true metal in a coin. But Cantillon attacked Locke's views on money, specifically mentioning that his use of intrinsic value is not the one connecting the purity of gold and silver in bars and coins. [5]

There are several places where Cantillon wrote that intrinsic value is the amount of land and labor used in production of a good, and this is not a correct theory of cost. However, when he discusses value in depth he clearly qualifies and expands on this definition. First, he recognizes that there are different types of land and labor and that they have different comparative advantages. He also recognizes that there are different qualities of each type of land and labor and that higher quality inputs receive greater compensation. Finally, he recognizes that resources can be put to alternative uses, so that the entrepreneur must try to anticipate the best way—among many—to put his lands and labor to use. Taken together, from start to finish, Cantillon's intrinsic value is opportunity cost, in that he recognizes explicitly all the components that the modern term entails.

Not only did Cantillon use opportunity cost implicitly, he used it in a precise and detailed manner for several key illustrations involving land, labor, and capital. The classic textbook illustration of opportunity cost is the decision to attend college, where the decision to attend is affected by both the foregone income of four years and the explicit costs of college. Cantillon (23–24/19/12) gave us the 18 th century equivalent of this illustration when he described a father's decision to send his son to an apprenticeship or keep him on the farm:

A laborer's son at seven or twelve years of age begins to help his father either in keeping the flocks, digging the ground, or in other sorts of country labor which require no art or skill. If his father puts him to a trade he loses his assistance during the time of his apprenticeship and is necessitated to cloth him and to pay the expenses of his apprenticeship for some years. The son is thus an expense to his father and his labor brings in no advantage till the end of some years.

The father loses the cost of the apprenticeship (tuition) as well as the foregone labor (wage income) for a period of seven years (four years). Cantillon went on to use opportunity cost—"the time lost in learning the trade and the cost and risk incurred in becoming proficient"—to help explain the higher wage paid to artisans and craftsmen.

Economists would be correct to object that the cost of clothing should not be included because children must be clothed whether they go to college or not. However, in Cantillon's time children on the farm contributed much to their own upkeep, including the production of their clothing. They assisted in the production of wool and leather and undertook tasks such as weaving and sewing. Therefore, Cantillon included the need to clothe the apprentice in the father's decision because children on the farm participated in the production and upkeep of their homespun clothing, while those in apprenticeships did not. [6] This meant that the father would have an additional expense for the provision of clothing for children sent to apprenticeships. So, what first appears as a typical freshman mistake turns out to be an even more impressive and complete construction of opportunity cost by Cantillon.

The next example is similar to the one Stigler would later point to in John Stuart Mill as an early formulation of the opportunity cost concept:

If a gentleman cuts canals and erects terraces in his garden, their intrinsic value will be proportionable to the land and labor; but the price in reality will not always follow this proportion. If he offers to sell the garden possibly no one will give him half the expense he has incurred. It is also possible that if several persons desire it he may be given doublethe intrinsic value, that is twice the value of the land and the expense he has incurred.

Cantillon described intrinsic value here in terms of the direct expenses and opportunities foregone, stating that the garden's intrinsic value is "the value of the land and the expense he has incurred." He included both the direct expenses of building the gardens as well as the opportunity cost of the land in farming—a masterpiece example of opportunity cost with clear subjective elements that conforms to contemporary practice. It is even reminiscent of modern textbook examples that examine the opportunity cost of capital invested in a small business, the entrepreneur who accepts a lower income in order to become her own boss, and the potential to reap large profits if the demand for her services is high.

The third major example of Cantillon's use of opportunity cost comes in the crucial chapters on the interest rate and usury. Cantillon wrote that the interest rate is the result of supply and demand, but that the rate of interest on a loan must be adjusted by the risk factor. He showed that interest rates will be affected by the size of the loan, the existence and type of collateral, and the type of business, credit history, overall credibility, and time preference of the borrower. He then went on to demonstrate, using logic and examples, that interest is related to the opportunity cost of capital.

To defend the charging of high interest rates, he showed that entrepreneurial borrowing at interest is essentially the same thing as buying capital on credit, where the interest charges are reflected in the higher prices of capital goods purchased on credit. One of his examples was the case of a brewer who sold kegs of beer to alehouses on credit but charged a price high enough to cover an interest charge and the risk of default. "It is customary for the London brewers to lend a few barrels of beer to the keepers of alehouses, and when these pay for the first barrels to continue to lend them more." He found this form of implicit loans to be pervasive between wholesalers and retailers. "All the merchants in a state are in the habit of lending merchandise or produce for a time to retailers, and proportion the rate of their profit or interest to that of their risk."

After constructing his positive case against usury laws based on the opportunity cost of capital, Cantillon mentioned the Casuists, scholastic theologians who wrote on the topic of usury and over time moved towards accepting the concept of interest, the charging of high rates of interest, and eventually to the position that any rate determined in the market and agreed to by both parties was a just price for a loan. Their support of payments of interest was based in part on the concept of opportunity cost. Despite the moral support they provided, Cantillon made the distinction between his analysis and their moral views by deriding the Casuists as "hardly suitable people to judge the nature of interest and of matters of trade" and that they were "wiseacres who were hardly acquainted with trade and always without effect."

Was Cantillon a Mercantilist?

Cantillon is widely interpreted as being a member of the mercantilists, an unorganized, difficult to define group of writers and pamphleteers who dominated public debate before the time of David Hume and the Physiocrats. There is a certain logic to this claim in that Cantillon was a merchant and merchant banker, he wrote during the mercantilist period, he personally knew some prominent mercantilist writers, and he worked with John Law on a great mercantilist project, the Mississippi Bubble. Connecting him further to that label are some prominent statements in the Essai where he speaks favorably of a large supply of money, promoting industry, exports and a favorable balance of trade, and even of regulating industries—these are all signature mercantilist issues.

However, there is something about this claim that Cantillon was a mercantilist that doesn't smell right. Rothbard wrote: "there is no point in wasting time in fruitless speculation on whether or not Richard Cantillon was a 'mercantilist.'" But of course he did spend time defending Cantillon against the charge, noting that Cantillon was the first one to show that the market was self regulating and the he opposed a key tenet of mercantilism—usury laws. Hayek and Lord Robbins took similar views to Rothbard.

Let us begin the analysis of Cantillon's views with the word "regulated." In modern parlance this word quickly conjures up notions of government regulation and regulated industries. In an economic context, the word regulation now generally means regulation by government and to suggest regulating something implies government intervention. Cantillon's statement where he wrote of regulating "each branch of commerce singly," naturally evokes images of tariffs, quotas, and outright trade prohibitions that are so common under mercantilist regimes.

However, the word "regulated" in Cantillon's time did not have the same meaning as it does today. In his day the term simply meant well functioning. For Cantillon, it simply meant good, regular behavior. Every other time he used the word regulated in the Essai he was explaining how the price system regulated markets, and there were other more common French words that did mean government regulation, so that there should be no presumption that he was calling for government regulation of industry.

There was, however, a specific meaning for "regulated" industries. The French economy in Cantillon's day was being strangled by a repressive mercantile regime that would ultimately lead to the French Revolution.[7]In international trade, the French relied not so much on private companies, or even private monopolies, but on government enterprises. As Heckscher, the famous historian of mercantilism (1934, pp. 345–6) noted:

France showed stronger traces of direct state enterprise in foreign trade and in colonization than most other countries, though it was more veiled than in the Iberian peninsula. The very numerous trading companies, which arose at the time of Colbert and later, differed fundamentally from those of Holland and England. Their initiative usually came from the state or, in Colbert's time, from Colbert himself, since he embodied French state power in the economic field. A large proportion of the capital was put up by the king and the royal house, in other words by public means, and, for the rest, it was raised by strong pressure on the part of the authorities on officials and others. The capital risk, too, was largely carried by the king. The directors of the companies were strictly controlled and their treatment was hardly different from that accorded to the intendants of provinces, colonial governors and ambassadors abroad. Finally the management was predominantly in the hands of non-merchants and the merchants proper generally had a poor opinion of the Parisians who were to carry on the trade under high protection. [8]

Thus, Heckscher (1934, p. 351, 452) concluded that while France relied on Colbert's mercantilism and state enterprises, her competitors in England and Holland relied on private business and foreign trade companies, which "in England were called 'regulated' companies." As a merchant banker, Cantillon was highly experienced with all forms of business organization as they related to international trade, as well as their relative advantages and disadvantages. Thus in all likelihood Cantillon was not arguing for government regulation of trade, but against the state-run trading enterprises of France and for private enterprise as it existed in England—the "regulated" company.

Also arguing against Cantillon as a mercantilist, nowhere in the Essai does Cantillon call for tariffs, quotas, or prohibitions that would actually enforce mercantilism. In fact, he argued against the prohibition of exporting gold and usury. It would be a peculiar conclusion indeed, that Cantillon was a mercantilist who advocated mercantilist policy, but never even mentioned the central mercantilist trade policies in a favorable light and even famously attacked two prominent mercantilist policies.

Another statement by Cantillon would also be seen as mercantilist: "It is needful to discourage all foreign manufactures and to give plenty of employment to the inhabitants." But read it in context and we can see that Henry Higgs's translation from the French leaves something to be desired. Right before this line Cantillon writes that you cannot artificially stimulate manufacturing and that what is needed is the production of well-made goods that are highly esteemed by the local population. " This is needful to discourage all foreign manufactures and to give plenty of employment to the inhabitants." There are many such problems with the Higgs translation and I am currently working on a new American translation of Cantillon's Essai with Dr. Chantal Saucier.

And what are we to make of Cantillon's admonition against the Dutch for selling Indian merchandise into Europe, and that it is an "evident disadvantage" to allow Europeans to wear Indian clothing when they can make their own? Has Cantillon violated the principle of comparative advantage and adopted the mercantilist view? To understand Cantillon's remarks it is important to place them within the context of his times. France was ruled by an absolutist monarchy and dominated by a repressive mercantilist economic policy regime. The country was subject to extremely harsh taxation, profligate spending by the King and aristocracy, systemic corruption, and a strong guild system that monopolized labor markets in manufacturing industries.

With tax revenues maximized, France turned increasingly to the granting of monopoly rights to increase revenues. In this manner, government intervention turned the existing local guild and cartel arrangements into uniform national monopolies. Cantillon apparently made calculations that showed that France had comparative advantages in many of these monopolized industries, but they were so highly restricted and inefficient that France even imported a substantial share of its luxury goods. Cantillon's claim is supported by Perelman (2000, p. 131) who noted: "Almost all observers concurred that the French economy was dysfunctional at the time when classical political economy came to France."

More directly to Cantillon's comment on Holland's imports of Indian garments is the matter of calicos (printed cotton textiles), where France banned the production, importation and even the wearing of calicos. The initial boom in cotton textiles put the manufacturers of silk, wool, and linen under intense competition. The ban on imports helped maintain their monopoly profits, while the ban on local production of calicos was necessary because printed calicos differed too much in terms of quality and variety to come under the strict rubric of French regulation. As a result the French cotton textile industry was probably set back by more than a century. Therefore, Cantillon should clearly not be labeled an advocate of trade barriers on imports because a complete prohibition was already in place. Rather, he was arguing for the freedom to produce in France and that the French could produce their own calicos, as they had prior to the prohibition. [9] Placed into the context of the times, Cantillon's conclusions make perfect economic sense. The French were restricting output where they had a comparative advantage.

Cantillon on the money

We come finally to the matter of money and the balance of trade. Cantillon argued that a nation should trade for gold and that it should try to maintain a positive balance of trade against the foreigner. Why did he argue these positions? We know that he did not do it for many of the standard mercantilist reasons. He made a clear break with the mercantilists, who viewed money as wealth, in the opening lines of theEssai, writing distinctively that "wealth in itself is nothing but the maintenance, conveniences, and superfluities of life." We also know that he was not under the mercantilist fallacy that a nation could build up its gold holding ad infinitum, for Cantillon was the first discoverer of the specie-flow mechanism that provides for equilibrium tendencies in international gold flows. He also argued against attempts of government to forcibly keep gold in their country. What then do we make of his contradictory argumentation that we should maintain a large money stock even though we are unable to do so?

First, a positive gold flow could also represent a capital inflow whereby foreigners invest in your economy and raise productivity and overall production. He showed that increasing the money in circulation would result in higher prices, but that if money was imported in the form of loans that it would reduce the interest rates and encourage entrepreneurs to invest in businesses and create better jobs. Unlike the mercantilists, Cantillon carefully distinguished between money in circulation and loanable funds.

It is a common idea, received of all those who have written on trade, that the increased quantity of currency in a state brings down the price of interest there, because when money is plentiful it is more easy to find some to borrow. This idea is not always true or accurate. For proof it needs only to be recalled that in 1720, nearly all the money in England was brought to London and over and above this the number of notes put out accelerated the movement of money extraordinarily. Yet this abundance of money and currency instead of lowering the current rate of interest which was before at 5 per cent and under, served only to increase the rate which was carried up to 50 and 60 per cent. It is easy to account for this increased rate of interest by the principles and the causes of interest laid down in the previous chapter.

Second, Cantillon's primary argument regarding gold was that a large store of money should be held in the public treasury as a precaution or possibly even as a preventative against war. He also thought that France's large national debt would bring it to ruin. However, with a large cash hoard, the prince could purchase all the provisions of war from overseas and thus not impoverish his subjects should war come to pass. Therefore a sufficiently large cash hoard would discourage invasions. Jacob Viner (1937) found that this type of argument for hoarding gold was rare among mercantilist writers, but Cantillon, who was omitted from Viner's survey, gave it as his most important reason. [10]

In retrospect then, Cantillon's views on money and the balance of trade are not those of a mercantilist. In many cases, he directly addressed the as yet unnamed mercantilists ("all those English authors who have written on the subject") and provided a complete refutation of their views both on theoretical and empirical grounds. In this light it would therefore be wrong to suggest that he was a mercantilist in the central issue of monetary policy. Indeed, his own views on this subject seem to be well informed and on strong theoretical grounds. Cantillon was a hard money man.

The Curious Case of David Hume

When writing about Cantillon's influence on economics, Rothbard notes the Essai was certainly read and echoed by the eminent Scottish philosopher, David Hume. This has been a hot topic in the history of economic thought. Mark Blaug twice accused Hume of plagiarizing from Cantillon, but recanted when I challenged him. What Blaug (1986, pp. 97–8) did see correctly was a very clear connection between Cantillon and Hume's economic writings based on the fact that, of Hume's three major contributions to economic science, all are anticipated in the Essai. Hume's answer to the mercantilists—the specie-flow mechanism—is clearly in Cantillon as is the difference between normative and positive economics. The third contribution is the idea that the short-run effect of increases in the supply of money is providing extra output and employment. This is especially telling in connecting Hume to Cantillon because they stand virtually alone during this period in recognizing this point in relation to the specie-flow mechanism. Hayek too, believed that based on the evidence that the impression is inescapable that Hume must in fact have known Cantillon. Murphy however rejected this connection because Cantillon's presentation of the specie-price mechanism is much superior to that of Hume.

Did Hume read Cantillon?

Prior to his visit to France (1734–37), Hume was unaccomplished and without a degree. In an anonymous letter to a medical doctor (March or April 1734) he described his own incurable distemper that had left him unable to study and for which he had taken many types of drugs and cures and seen numerous doctors without remedial effect. [11] His description and self-diagnosis is certainly indicative of hypochondria, and perhaps depression, resulting from his lack of success in his studies or his possible involvement in the Galbraith Affair, a case of fornication and bastardry, in which Hume was named the offender. [12] In the letter to a friend he wrote of his self-diagnosed cure: to become a merchant. Despite his self-described diligence at work and best efforts to fit into his new circumstances—he even changed his name from Home to Hume in line with English pronunciation and spelling—he soon found himself unsuited to the merchant trade business and left Bristol in the summer of 1734 to go to France. Hume's visit to France was a critical event in his life because, while promising and ambitious, he was yet an unaccomplished student, but on his return to England he embarked on a publishing career that would see him become a prolific and path-breaking philosopher and historian and one of the greatest and most celebrated minds of his age. [13]

A former schoolmate, Michael Ramsey, set up Hume with a visit with his cousin Andrew Michael Ramsey on the basis of their mutual interest in philosophy and religion. Ramsey was a convert to Roman Catholicism, the tutor of the two sons of the Pretender, Prince Charles Edward Stuart and his brother Henry, and most importantly, a key disciple of Fénelon—one of the original architects of anti-mercantilism. As Rothbard (1995, p. 264) observed:

Fénelon led a powerful cabal at court who were deeply opposed to the absolutist and mercantilist policies of the king and determined to reform them in the direction of free trade, limited government and laissez-faire.

Based on the fact that Ramsey was Fénelon's student and biographer, as well as his own writings, Ramsey should be considered a dissident thinker in terms of politics, economics and foreign policy. A comparison of Fénelon's and Ramsey's views shows a definite correspondence with Cantillon's views and clearly suggests that Ramsey would have traveled in dissident and anti-mercantilist circles.

Hume wrote that he had received three letters of introduction from Ramsey to some of the "best families in town." Mossner found that one letter was for the Abbé Noel-Antoine Pluche "a learned man, a Jansenist and an anti-Cartesian, having held the chairs of Humanity and Rhetoric in the University of Rheims." Hume reported that he was studying in Pluche's library, that it was a great library, and that "new works of learning & philosophy from London and Paris" arrive each month. As an important writer on natural religion and a Jansenist, Pluche could be classified as a dissident thinker who would have been most interested in acquiring nonconformist manuscripts.

Louis-Jean Lévesque de Pouilly, another renowned scholar of the town, was also suggested by Mossner (1980, p. 97) as someone likely to have met Hume during his one-year stay in Rheims. Even though there is no direct evidence of such a meeting, Mossner found that there were several likely bases for such a meeting to have taken place. Given that Hume claimed in his letters to have attended parties in many of the best houses in Rheims, and that there were surprisingly few people of affluence in town, it appears likely that he was entertained at Pouilly's house or met him at parties and events. Mossner (1980, p. 98) even raised the possibility that Hume lived with Pouilly.

Pouilly was Bolingbroke's tutor in philosophy, and this relationship is most important because Bolingbroke was a client of Cantillon's bank, and Bolingbroke, as both politician and scholar, was the centerpiece of the anti-mercantilist movement.

The subsequent connection between Hume and Bolingbroke is most likely because, as Mossner (1980, p. 93) suggested, one of Hume's letters of introduction in Rheims "may have been written by the Earl of Stair, that distinguished Scottish soldier-diplomat and former ambassador to France." According to Dickinson (1970, pp. 237, 221), Stair was a longtime close personal friend and political ally of Bolingbroke. As the British Ambassador in Paris, Stair and his spies kept a close watch on the Mississippi Company, especially Cantillon and Law's partner Joseph Gage, and certainly he knew of Cantillon as well. Kramnick (1968) noted several areas of similarity between Hume and Bolingbroke, many of which are tenets of anti-mercantilism, such as opposition to national debt and trade monopolies.

We can then surmise that Hume had connected with a very lively and generally dissident intellectual environment in France and it was this environment that greatly clarified and stimulated his scholarly development. This intellectual climate was Catholic, but also tended to be dissident and non-conformist relative to traditional Catholicism. There was also an intellectual opposition to absolutist monarchy and mercantilism within these circles. They were against both the King of France and the Protestant regime in England. These themes are greatly amplified when examined in the context of the career of Lord Bolingbroke, the student of Pouilly in philosophy and the client and confidant of Cantillon.

Bolingbroke was a Tory leader of Parliament and one of the authors of the Treaty that sought to end the War of Spanish Succession. The initial treaty sought not only peace but also free trade and closer relations between England and France. According to Kramnick (1968, p. 181–2):

In negotiations for a commercial treaty with France, for example, Bolingbroke assumed a position virtually identical with that of nineteenth-century liberals like Cobden who felt that peace and cooperation would result from lowering trade barriers. Nations, he assumed, whose mutual interests were served by trade, could not desire war with one another.

Thus Bolingbroke explicitly and knowingly wedded the anti-mercantilist planks of free trade and peace in the same manner as Bright and Cobden would. However, the free trade clauses of the treaty caused uproar among English merchants and were eventually dropped. In the political upheaval that followed, Bolingbroke fled the country in fear of his safety and eventually became the Pretender's Secretary of State, and found himself briefly as a non-religious leader of the Jacobites.

Bolingbroke spent ten years in France in philosophical inquiry, all the while plotting his return to power in England. According to Dickinson (1970, p. 156) he was introduced to:

. . . genuine scholars, such as Pierre Joseph Alary, Lévesque de Pouilly, Voltaire, the Abbé Asselin, the Abbé Conti and the British mathematician and philosopher, Brook Taylor. In such a wide circle, he came into contact with ideas of people who were playing a crucial role in the development of the French Enlightenment.

He would also have known the Marquis d' Argenson—the first person to use the phrase Laissez faire, laissez passer in scientific literature—Montesquieu and the Chevalier Ramsay who were all members of the Club de l'Entresol, a hotbed of dissident thinking among the nobility that was eventually closed by the French government for its anti-government tendencies. [14]

As his study of history and philosophy proceeded, Bolingbroke developed many ideas and beliefs in common with Hume such as empiricism, skepticism of Biblical evidence, and deism, although Bolingbroke never created a coherent system of philosophy like Hume. Dickinson (1970, p. 162) reported that the ideas were studied and developed in his first prolonged stay in France, but "were revised during Bolingbroke's second prolonged residence in France after 1735" during the same period as Hume's visit to France.

All of these connections (and many others) establish that Hume was most certainly connected with many of the same people Cantillon knew. The Cantillon-Bolingbroke-Hume connection is particularly strong and noteworthy because all three were anti-mercantilist theorists. I believe that this evidence establishes that Hume had ample opportunity, but does not establish that Hume actually read the Cantillon manuscript.

Hume certainly was interested in the economy and trade, having just spent time working in the merchant trade business. According to his letters, Hume was always concerned about his lack of money and ways to improve his economic standing. His latter economic and political writings indicate that trade was an important component of the overall system. Cantillon's recent murder and the fact that he had accumulated large fortunes during the Mississippi Bubble, when others involved were losing them, would have attracted considerable attention to the Essai. This is exactly what Hume was looking for. His analytic interest in trade combined with his interest in improving his economic circumstances would have given Hume a powerful motive to seek out the Essai.

Interest alone also does not imply taking action. This is especially so if there was indeed only one copy of the manuscript, but there is evidence that suggests that several copies of the manuscript existed and circulated. It is vital to realize that this period was one of intellectual censorship and it was the common practice to copy unpublishable manuscripts by hand. Evidence of the clandestine distribution of manuscripts suggests that the distribution of such manuscripts was far wider than previously thought or than could be surmised by remaining copies. Cantillon employed clerks in his bank—professional copyists and document preparers—who could have made copies in their spare time. By the time David Hume arrived in France, Cantillon's manuscript would have been circulating for four or more years and numerous copies would have been made. Therefore it can be determined from all the circumstantial evidence that Hume had the opportunity, the means, and the motive to obtain and read the Essai. His reading of the Essai would explain the similarities between the economic contributions of the recently failed merchant—Hume—and Cantillon.

Some of Hume's early notes did survive and were subsequently published by Mossner (1948), and some of these notes were probably written during Hume's time in France. Mossner labeled the third section as "general" based on the fact that the title page was lost. However, it could also be the case that more than one page is missing. Hume used the notes frequently in his writings and once a note had been used he crossed it out. If a page or pages had all been used and crossed out, it is not unlikely that such pages were removed, set aside, lost, or destroyed. What is clear from the notes in the "general" section is that Hume had read widely from both the mercantilist and anti-mercantilist writers and that it was really a section about economics.

The first two surviving notes of section three are the most interesting. The first note, which is entirely crossed out, concerned the practice of infanticide in China. Cantillon wrote about China in several places in the Essai, including on the topic of population and infanticide. It is clear that Hume's note could have been based on Cantillon's Essai and it is unlikely that Hume would have had another source to draw on for the specific nature of the note because most writers (such as the Figurists) who studied Chinese culture were trying to emphasize the similarity of people across the planet, not their differences. Cantillon indicated that he obtained his information about China from his contacts in the merchant trade, something that Hume probably had no access to. [15]

The second surviving comment in the third section of notes represents a radical change in topics from the first, so much so that you would assume that they came from different books. Hume generally would write several notes together based on a single book. Here he commented on the great productivity of labor in manufacturing: "A pound of steel when manufactur'd may become of 10,000 £ value." This is suspiciously similar to Cantillon's statement:

The fine steel spring which regulates an English watch is generally sold at a price which makes the proportion of material to labour, or of steel to spring, one to one million so that in this case labour makes up nearly all the value of the spring. See the calculation in the supplement.

If both observations—from Cantillon and Hume—were drawn from the same calculations then the price of steel would be 2.4 pence per pound, or 22.4 £ per British ton (2240 pounds). Barraclough (1984, p. 72) presents data on steel that indicates that the price of steel in the late 1720s was in the mid to lower 20 £ range so based on this data it seems reasonable to link the two quotes via the price of steel.

This linkage clearly indicates that Hume was relying on Cantillon's Essai and possibly the supplement, or some derivation of it. The use of steel in manufacturing did produce high levels of added value, but this was especially so in watchmaking because watches were expensive luxury goods, and the use of improved spring mechanisms was a key issue in watchmaking technology just prior to 1730. Watch springs would have been one of the very few items that would have produced the necessary one-to-one million ratio between the cost of steel and the value of the output. It would not be surprising if the very wealthy Cantillon owned a watch at this time and that he acquired his data about watch springs in either acquiring a watch or in replacing a broken watch spring. Hume, on the other hand, lived on a rather modest income during the time period when he made the notation, and this would have precluded him having a watch until after his publishing successes. [16]I have not found an alternative source from which Hume could have derived his calculations and on the evidence that I have seen I am convinced that Hume read Cantillon.

Connecting Hume to Cantillon closes the circle. Cantillon was the primary inspiration of all the first economists including Adam Smith and David Hume in Scotland and the Physiocrats and Turgot in France. Tracing this connection also finds that Cantillon was in the middle of a hotbed of a dissident intellectual community, the likes of which the world had never seen before and possibly since.

In conclusion, we now know that in addition to inventing economic method and theory, Cantillon was a positive influence on Adam Smith and the source of Smith's "invisible hand." He discovered the core concept of economic opportunity cost. He was a thorough-going anti-mercantilist supporter of laissez-faire economic policy. And he was the inspiration of David Hume's economic contribution and the real teacher of all the early economists, including the Physiocrats and Turgot.

Like I said—the greatest economist of all time.

Mark Thornton [ send him mail] is an economist who lives in Auburn, Alabama. He is author of The Economics of Prohibition, is a senior fellow with the Ludwig von Mises Institute, and is the Book Review Editor for theQuarterly Journal of Austrian Economics. He is co-author of Tariffs, Blockades, and Inflation: The Economics of the Civil War. This lecture was presented at Austrian Scholars Conference on March 18, 2005. The archived audio and video versions of this lecture are available in Mises.org's extensive  online media database. Comment on this article on the economics blog.

[1]   As reprinted in Higgs, p. 342 with emphasis in the original.

[2] Joseph Schumpeter, Epochen der Dogmen- und Methodengeschichte, GrundriB der Sozialökonomik, vol. I, part I, first edition, p. 143 (Tübingen: J.C.B. Mohr, 1914) as quoted in Hayek, p. 258.

[3] It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets, which are employed in the oeconomy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for.


[4] But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.


[5] Usage has conferred upon gold and silver the title intrinsic value, to designate and signify the quantity of true gold or silver contained in a bar; but in this essay 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. When gold and silver are not in question the term will always hold good without any confusion.


[6] See Braudel (1981, p. 315).

[7] See Ekelund and Tollison (1981) on the severity of French mercantilism and brutality of penalties for violating economic policies.

[8] Also see Ekelund and Tollison (1981, pp.127–30).

[9]Cantillon also believed that it made sense that factories should be established in rural areas near the source of raw materials because it was too costly to transport raw materials to distant factories. Finished products could be shipped at much lower expense relative to their value. For example, you could not ship a cow profitably from one end of France to the other, but you could do so with pairs of fine leather shoes and boots—possibly an early recognition of the Alchian and Allen Effect. Some commentators have suggested that this was Cantillon's call for the State to set up such factories or some sort of industrial policy, but such an interpretation cannot be sustained in the text of the Essai. It is more logical that Cantillon was calling for the French government to freely allow the setting up of such new factories, which it highly restricted at the time and Cantillon clearly suggests that it must be entrepreneurs who make such decisions because of the complex profit calculation involved. The same is true regarding commentators who have suggested that Cantillon supported state-sponsored training for manufacturing labor. His point was that training from any source is useless unless there are more jobs available and employment in industry was highly restricted because of mercantilist rules enforced by the French monarchy.

[10] Money held in the public treasury would place no upward pressure on prices. If deposited in banks the money would serve to reduce interest rates and reduce the need for tax revenues, all of which Cantillon might approve of.

[11] Greig (1932, pp. 12–18).

[12] See Mossner (1980, pp. 81–91). He (p. 86) wrote: "Hume's case history of his psychosomatic disorder is as clear as could possibly be penned by any highly intelligent person today, and, as such, is diagnosable by modern psychiatrists."

[13] See Mossner (1980, pp. 103–4) on the "mellowing" of Hume while in France.

[14] According to Higgs (1952, p. 14) "The Abbé Alary had indeed founded a little club, theClub de l'Entresol in 1724, which counted Bolingbroke, D'Argenson, and the Abbé de Saint-Pierre among its members, and met in the Abbé Alary's rooms, in the Place Vendôme at Paris, to discuss political economy. But the club was closed in 1731, because the Cardinal de Fleury, then minister, disliked its debating Government affairs."

[15] Hume refers to infanticide in China on page 399. He did spend a short period in the merchant trade business, but he worked for a company that was focused on the West Indian trade in slaves and sugar.

[16] Hume wrote in his autobiographical essay of 1776 that "My family, however, was not rich; and being myself a younger brother, my patrimony, according to the mode of my country, was of course very slender. . . . My very slender fortune, however, being unsuitable to this plan of life. . . . I went over to France, with a view of prosecuting my studies in a country retreat; and I there laid that plan of life which I have steadily and successfully pursued. I resolved to make a very rigid frugality supply my deficiency of fortune, to maintain unimpaired my independency, and to regard every object as contemptible, except the improvements of my talents in literature. . . . Never literary attempt was more unfortunate than my Treatise of Human Nature. It fell dead-born from the press, without reaching such distinction as even to excite a murmur among the zealots.


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