Richard Cantillon: Founder of Political Economy
The Mises Institute has finally published the long-awaited new edition of Richard Cantillon's Essai sur la Nature du Commerce en Général (Essay on Economic Theory).1 Finished sometime between 1730 and 1734, the Essai was only finally published in French many years after his death.2 It was not published and distributed in English until Henry Higgs's 1932 translation from the original French edition.3 For some reason, perhaps related to Cantillon's death in 1734, the posthumous publication of the Essai, or the lack of a widely distributed English edition, the Essai remained generally unknown until its "rediscovery" by William Stanley Jevons in the late-19th century.4
The Essai's broad scope as a general inquiry into economic theory sets it apart from the various other works published around that era by a web of independent and unrelated theorists now known collectively as the pamphleteers.5 Not only was the Essai quite possibly the first complete foray into economics but it also exerted an impressive amount of influence on the early development of modern economic thought. Indeed, Cantillon's Essai influenced Adam Smith, many of the Physiocrats, Turgot, and Jean-Baptiste Say.6 The Essai's coherency and scope, along with its influence on early Classical economists, led Jevons to dub it the "cradle of political economy."7
The Essai's lapse into obscurity seems an unjust fate when you consider the fact that Cantillon's treatise is one of the few referenced in Adam Smith's Wealth of Nations.8 This fact is all the more impressive knowing how rarely Smith tended to cite those he borrowed from.9 Ultimately, it may have been Wealth of Nations' unparalleled success in revolutionizing and popularizing economic science that sealed the Essai's fate.10 This is ironic, given that Adam Smith has been accused of basing much of Wealth of Nations on Cantillon's Essai.11 Smith's Wealth of Nations, of course, soon became the premier treatise on political economy, becoming the principal influence for future development of economic thought up until the marginalist revolution of the late-19th century.
While Cantillon's "rediscovery" at the hands of Jevons certainly provided the Essai some historical recognition — including stimulating further historical investigation into Cantillon's life and additional analysis of his theories — this stimulus unfortunately proved rather limited. Furthermore, despite emerging criticism of Adam Smith during the mid-20th century,12 Wealth of Nations continues to be revered as the foundation of the study of political economy. As such, even to this day, Cantillon's Essai does not receive the attention it deserves. Even more tragically, the Essai continues to be ignored by some in the Austrian community13 — this despite recent Austrian scholarship highlighting the genius and insightfulness of Cantillon's analysis, especially as compared to that of Adam Smith, and also despite the labeling of Cantillon as a proto-Austrian.14
Revisiting the theories of Richard Cantillon is useful not only for setting today's history of economic thought straight, but also as a means of isolating sound economic theory from fallacy. If we accept that the development of theory is the product of an accumulation of knowledge, or a progressive growth in the pool of knowledge,15 it necessarily follows that all present theory is in some way based on older knowledge that has been accumulated and assimilated and developed upon. It is therefore useful to rigorously test past concepts through the use of logic, distinguishing logically valid from invalid theory. Revealing the fallacious logic behind a particular theoretical conjecture can therefore test the soundness of all theory reliant on its validity.
The present essay sets out to underscore the importance of Richard Cantillon for modern economics. Cantillon is the rightful father of modern political economy, and as such his contributions should hold as much weight as those of any other economist of that era, including Adam Smith.16 More important, however, the major differences between Cantillon's and Smith's theories should be studied under greater scrutiny — the validity of either economist's theories should be reviewed. Knowing that the Classical School of economics, based nearly exclusively on the insight of Adam Smith, dominated the science of political economy for almost one hundred years, it is quite possible that much of today's theory sits upon erroneous foundations.17
A Brief History
Cantillon, thought to be born in Ireland sometime in the late 1660s,18 became well acquainted with the world early in his life. Moving to France in 1708, he took French nationality, and soon thereafter found work as a clerk to an assistant of the British paymaster general in Spain.19 Paymaster General James Brydges was a very wealthy man with much influence, which allowed Cantillon to make political and business connections before again leaving for France in 1714.20
In Paris, Cantillon's cousin — who also went by the name of Richard Cantillon — hired him to work in the family banking business. By 1716, Cantillon was able to buy his cousin out and attain complete ownership of the Paris branch of the bank.21 While at first financially backed by Brydges, his former government employer in Spain, Cantillon proved very adept at the banking business. At the time, private banking dealt more with the movement of money than with the handling of deposits. A successful banker relied heavily on contacts and connections throughout the major commercial centers of Western Europe and on skill and experience. Cantillon enjoyed both, largely thanks to his stint as a clerk to James Brydges in Spain.22
Cantillon's entrepreneurial success was to climax through his peculiar relationship with Scottish mercantilist John Law. Law was of the mercantilist ilk that associated revenue with wealth and was greatly influenced by William Potter. Potter, in his 1650 tract The Key of Wealth, suggested a currency based not on metallic specie but on land. Of course, the difficulty in redeeming bank notes for land — or exchanging land for other goods and services — meant that Potter's scheme still relied on the convertibility of money substitute and base money. As such this land-based currency proved to be more of an effort to justify an inflationary monetary policy.23
John Law built upon Potter's monetary theory in his own pamphlet, published in 1705, Money and Trade Considered, with a Proposal for Supplying the Nation with Money. Law's scheme included an inconvertible paper currency and borrowed Potter's ambiguous concept of land backing (which would lead to great prosperity through what can only be called quantitative easing). Law suggested that monetary inflation would lead to low interest rates and an expansion in productive output, which would maintain a stable price level despite the increase in the money supply.24 The central premise Law operated on was that an increase in the circulation of money would bring about an increase in production. Law absolutely detested and argued against the concept of "hoarding" (saving).25
Law first presented his scheme to Scottish parliament but, after some deliberation, it did not accept his proposal. A decade later, he posited his theory to the French government and by 1716 he had been granted the ability to found a central bank, the Banque Générale.26 Law soon developed the Mississippi Company, which operated in conjunction with the new central bank. Law offered to accept the burden of France's debts at a low rate of interest in exchange for monopoly privileges over the development of France's North American territories. The Mississippi Company turned into a sort of primitive real-estate company, selling shares of their value to the general public. By asking for a low initial deposit to procure the shares, Law increased the quantity demanded, and soon began his inflationary monetary scheme in France. The result was a speculative boom.27
Cantillon was introduced to Law early on and soon became Law's personal banker and agent. Cantillon invested early into Law's Mississippi Company, buying shares of land and then selling them at highly inflated prices. In this fashion, Cantillon built a fortune.28 For some reason, Cantillon's relationship with Law turned sour, whereupon Law threatened Cantillon with imprisonment. In response, Cantillon offered Law his services in helping the inflationary monetary scheme succeed.29 Soon thereafter, around 1718, Law, Cantillon, and speculator Joseph Gage — who also had amassed great wealth due to speculation in Law's Mississippi Company — formed a private company.
Predicting an inevitable crash, Cantillon lent heavily to Gage and other clients, garnering high rates of interest that took into account future inflation. When the Mississippi Company and Law's monetary scheme crashed, Cantillon's wealth was firmly guaranteed in the form of the debt owed to him by Gage and other clients. Of course, this creditor-debtor relationship brought Cantillon a great deal of enemies late in his life, as Cantillon was tasked to collect from those who owed him.30
Cantillon's experience with John Law's money-induced speculative bubble proved invaluable, and undoubtedly influenced his beliefs on economic theory. The stage was set for Cantillon to write his treatise, the Essai.
The Essai as the Genesis of Modern Economics
Cantillon was probably highly influenced by the economist Sir William Petty,31 who wrote Treatise of Taxes and Political Arithmetic and provided many of the foundations for Cantillon's theories.32 Cantillon could have very well also been influenced directly or indirectly by such figures as Antoine de Montchrestien and Antonio Serra, among others.33 All of these men formed the roots of economic science.34 However, while prior contributors to economics published "mere collections of casual hints," Cantillon provided the world with the first dedicated treatise of economics as an analysis of the entire economic system.35 Furthermore, while Cantillon may have borrowed the foundations of his economics from past scholars, the application, development, and growth of these foundations were the work of Cantillon's own intellect.36
One of the distinctive qualities of Cantillon's Essai is the methodology employed. Indeed, Cantillon's intentions are to study the casual relationships of economic phenomenon through value-free deductive reasoning.37 While the debate on whether or not Cantillon was a mercantilist continues38 — and Cantillon certainly did occasionally display mercantilist influences39 — his ultimately value-free approach to economic science sets him apart from all other major economists of his era.40 It was certainly Cantillon's causal-approach that allowed him to develop theory very advanced for the time — theory analyzed in much greater detail elsewhere.
Cantillon's insights on the source of economic wealth also set him apart from typical mercantilists before him. Wealth is not money,41 nor a product of money; rather, it is formed by the economic goods produced through the mixture of land and labor. He makes this point in the Essai's opening paragraph,
Land is the source or matter from which all wealth is drawn; man's labor provides the form for its production, and wealth in itself is nothing but the food, conveniences, and pleasures of life.42
He further distinguishes himself from past scholars through his insights on price inflation. Whereas Potter and Law predicted a rise in productivity as the result of an increase in the supply of money and therefore a stable price level, Cantillon instead focused on the microeconomic aspect of monetary inflation. In many ways, this focus is a forerunner to the Austrian School's emphasis on relative inflation, as opposed to general price inflation. Cantillon explained how an increase in the volume of money in circulation will lead to an increase in the price level of the channels the money is circulated into.43 This was a great advance over John Locke's rudimentary and aggregated quantity theory of money, which had formed the basis of existing monetary theory until then — one that assumed that changes in the quantity of money would bring about a uniform increase in prices.44
In the Essai, Cantillon surprisingly also introduces a kernel of the subjective theory of value. While Cantillon is unable to fully break away from an objective theory of value, and thus offers his explanation for "intrinsic value," he nevertheless concedes that this "intrinsic value" is not the one that manifests itself on the market. On intrinsic value, writes Cantillon,
By these examples and inductions, I believe it will be understood that the price, or intrinsic value of a thing, is the measurement of the quantity of land and of labor entering into its production, having regard to the fertility or productivity of the land, and to the quality of the labor.45
Cantillon provides as an example the water industry in Paris. While extraction of water from the Seine River was cheap, those in the city were willing to pay a high price for the final product. Cantillon suggests that this high price covered the cost of the application of labor in transporting the water from the Seine River to the city.46
There have been many different interpretations of Cantillon's theory of intrinsic value, including some that have tried to disprove any overarching flaws to Cantillon's reasoning.47 It may be safer to suggest that given that Cantillon was operating in a time when there was no subjective theory of value, nor any marginal theory of value, it was difficult for him to reason outside of the existing paradigm of "objective value."
Nevertheless, there is evidence that he did at least attempt to tread outside of this paradigm. Indeed, as aforementioned, the Essai offers some of the earliest evidence of the development of a subjective theory of value. In his explanation of market prices, Cantillon elucidates his market value theory through the application of supply and demand,
The price of meat will be determined after some bargaining, and a pound of beef will be valued in silver [i.e., money] approximately the same as all beef offered for sale in the market [i.e., supply], is to all the silver brought there to buy beef [i.e., demand].48
He further proposes that the market price will fluctuate as a product of a change in the buyer's subjective interests.49 This is in stark contrast to Adam Smith, who sticks by the notion that the original market price of any given good is its cost of production.50 Cantillon's belief that market prices never wildly vary from the good's "intrinsic value" should not be confused for further support of a labor (or land) theory of value,51 as this concept is in line with the modern principle that prices will tend towards their cost of production.52
One of Cantillon's most positive contributions to economics was introducing the concept of the entrepreneur into economics.53 Cantillon saw the entrepreneur as a risk taker — as opposed to what he called "hired men" who earn a contractual income — and someone who balances supply and demand in a market while bearing the risk of uncertainty.54 The Essai's contributions to the topics of entrepreneurship and uncertainty were largely blotted out as a result of the popularization of Smith's Wealth of Nations, and not rediscovered until the first half of the 20th century by the Austrians, Keynes, and Frank Knight.55
Wealth, money, inflation, uncertainty, entrepreneurship, and value are just some of the topics Cantillon covers in his seminal Essai.56 Other important theoretical contributions include his theory of interest, the creation of a spatial theory of economics (the economic role played by geography),57 exchange rate and international monetary relations theory, and the introduction of the notion of economic self-regulation and the "invisible hand."58
As aforementioned, the wide scope of the Essai makes it the rightful claimant for the title of the first complete economic treatise, and thus suggests Richard Cantillon as the true founder of modern economics.59
The Value of Cantillon's Treatise
The value of Cantillon's Essai goes beyond deciding who rightfully deserves the title of "father of economics," or even clarifying the historical and theoretical roots of any particular school of economic thought. The Essai, especially when compared to economic literature published between 1776 and 1870, illustrates that development of economic thought during that era was hardly linear, and demonstrates how the Classical Smithian movement negatively influenced economic theory.60 In other words, the Essai exposes the academic and student to a variety of differing opinions on economic theory — opinions
In a recent article,61 Bruce Caldwell — one of the editors of Liberty Fund's series The Collected Works of F.A. Hayek — elucidated the importance of the study of the history of economic thought. The development of economic theory includes the resurfacing of old, abandoned concepts and it is worthwhile to become well acquainted with these concepts to either reintroduce valuable insight or disprove rehashed fallacy. Additionally, addressing old economic theory serves the purpose of engaging that economist's mind, both serving to assimilate different perspectives on similar topics and to realize that economics is subject to argumentation and criticism.
Reading and absorbing Richard Cantillon's Essai, and moreover comparing it to other works, offers the reader another angle on economic science. Most importantly, the differences between Cantillon's Essai and much of the Smithian economics of the century that followed suggest that the foundations of today's economic theory are not as stable as commonly believed. The dissimilarity between Smith's and Cantillon's economic theory implies that all economics — and all schools of thought — need to revisit and perhaps reconsider the validity of their theoretical roots and premises.62
- 1. Richard Cantillon (2010), An Essay on Economic Theory (Auburn, Alabama: Ludwig von Mises Institute). All page references made to Cantillon throughout this essay pertain to this edition of the book.
- 2. Joseph J. Spengler (August 1954), "Richard Cantillon: First of the Moderns I." The Journal of Political Economy 62(4); p. 61. Wrote Spengler, "Written between 1730 and 1734, the Essai was not published in entirety until 1755. The English original must have gotten into the hands of Malachy Postlethwayt… the French translation of the Essai, reportedly by Cantillon himself, after supposedly remaining sixteen years in the hands of Marquis or Mirabeau, was restored to its rightful owner at the latter's request; and from this manuscript, presumably, the Essai was printed in London in 1755."
- 3. Joseph Hone (April 1944), "Richard Cantillon, Economist: Biographical Note." The Economic Journal 54 (213); p. 96. In 1944, Hone wrote, "Richard Cantillon's Essai sur la Nature du Commerce en Général was printed in full for the first time in English twelve years ago."
- 4. W. Stanley Jevons (1881), "Richard Cantillon and the Nationality of Political Economy." Contemporary Review.
- 5. On the Essai's scope, see: Cantillon (2010), p. 15. "Cantillon's contributions span the entire gamut of economics including entrepreneurship, methodology, theory, microeconomics, macroeconomics, international trade and finance, economic policy, and even areas such as population theory, economic geography, and transport economics. If you want to know the scientific 'magic' of the market, here is the man who literally wrote the book." On the pamphleteers, see: Joseph A. Schumpeter (1954), History of Economic Analysis (Routledge); pp. 156–57. Also, see: Murray Rothbard (1995), An Austrian Perspective on the History of Economic Thought, Volume 1: Economic Thought Before Adam Smith (Auburn, Alabama: Ludwig von Mises Institute); 255–74.
- 6. Friedrich Hayek (1991), The Trend of Economic Thinking (Indianapolis, Indiana: Liberty Fund); p. 246. Describing the Essai's scope and influence, Hayek wrote that, "Here was a work that had exerted the very greatest influence on the initial stages of a science and that had given the first coherent survey of this new science, only to disappear completely from view for nearly a century, so that its purely accidental rediscovery was in the nature of a revelation."
- 7. Jevons (1881), p. 342.
- 8. Adam Smith (2007), An Inquiry into the Nature and Causes of the Wealth of Nations (Petersfield, Hampshire: Harriman House Ltd.); p. 45. Here, Adam Smith cites Mr. Cantillon as the source of the notion that the "lowest species of common laborers" must earn twice the cost of their own maintenance. Hayek notes that at the time of the writing of The Wealth of Nations there also circulated a manuscript by a Philip Cantillon. Regarding Philip Cantillon as the possible "Mr. Cantillon" that Smith cites, Hayek wrote, "In this book [Philip Cantillon's], however, there are to be found no discussions to which Smith could have been referring by the passage quoted [Smith (2007), p. 45]. On the other hand, French literature of the same period, particularly the writings of most of the physiocrats, shows that another work that had appeared anonymously in French was generally attributed by contemporaries to a "de Cantillon"—namely, the Essai sur la nature du commerce en général…"Hayek (1991), p. 248.
- 9. Rothbard (1995), p. 435. Rothbard, quite critical of Adam Smith, wrote that "[t]he problem is that he originated nothing that was true, and that whatever he originated was wrong; that, even in an age that had fewer citations or footnotes than our own, Adam Smith was a shameless plagiarist, acknowledging little or nothing and stealing large chunks, for example, from Cantillon."
- 10. Ibid., p. 502. "The most unfortunate aspect of the total Smithian takeover in economics was not so much his own considerable tissue of error, but even more the blotting out of knowledge of the rich tradition of economic thought that had developed before Smith."
- 11. Rothbard (1995), p. 435; see also: n. 9. Henry Higgs (1891), "Richard Cantillon," The Economic Journal 1(2), p. 263. Higgs writes, "There is reason to think that the direct influence of Cantillon upon Adam Smith was not unimportant."
- 12. Schumpeter (1954), p. 179. Referring to Adam Smith and Wealth of Nations, Schumpeter wrote, "But no matter what he actually learned or failed to learn from predecessors, the fact is that the Wealth of Nations does not contain a single analyticc idea, principle, or method that was entirely new in 1776." Rothbard's criticism (Rothbard 1995, pp. 435–71) is even more critical than Schumpeter's.
- 13. George Reisman, Capitalism: A Treatise on Economics (Laguna Hills, California: TJS Books; Reprint Ottawa, Illinois: Jameson Books.); pp. 1–6. Reisman's — one of today's foremost Misesian scholars — Capitalism is completely devoid of mention of Richard Cantillon and his contributions to economic science.
- 14. Jörg Guido Hülsmann (2001), "More on Cantillon as a Proto-Austrian." Journal des Economistes et des Etudes Humaines 11(4), pp. 693–703. Building on Rothbard's belief of Cantillon as the true father of modern economics, Hülsmann goes on to suggest, "Cantillon's Essai sur la nature du commerce en général anticipated even more teachings of modern Austrian economics than Rothbard's analysis suggests."
- 15. George Reisman (1990), Capitalism, p. 65. "In this process, advances … in knowledge … themselves set the state for further advances in knowledge … thereby operating to give man … ever greater understanding. For example, learning arithmetic sets the stage for learning algebra, which in turn sets the stage for learning calculus, and so on."
- 16. While Richard Cantillon may have been the father of modern economics, the roots of economic science were firmly developed by the Spanish Scholastics of the 16th and early-17th centuries. These also deserve careful attention. See: Rothbard (1995), pp. 99–133; Marjorie Grice-Hutchinson (2009), The School of Salamanca (Auburn, Alabama: Ludwig von Mises Institute); Llewellyn H. Rockwell Jr. (October 2009), " The World of Salamanca."
- 17. Rothbard (1995), p. 502. Discussing Smith's conquest of economics and the disregarding of Cantillon's economics, Rothbard asserts that "the Austrians and their nineteenth-century predecessors, largely deprived of knowledge of the pre-Smith tradition, were in many ways forced to reinvent the wheel, to painfully claw their way back to the knowledge that many pre-Smithians had enjoyed long before." An example of such is the prominence of Smith's primitive labor theory of value (distinctive from and more primitive than the later Marxist version), that was later corrected by the marginalists of the late-19th century who developed the subjective theory of value and the concept of diminishing marginal returns (see: Reisman 1990, pp. 2–4).
- 18. The exact year of Cantillon's birth is unknown. Anthony Brewer (1992), Richard Cantillon: Pioneer of Economic Theory (London, United Kingdom: Routledge); p. 2. Brewer's research on Cantillon is based mostly on Antonin Murphy's biography Richard Cantillon. Brewer writes, "Murphy (1986) thinks that Cantillon was probably born in the 1680s, at Ballyronan in County Kerry, Ireland… He was certainly in France by 1708, when he took French nationality. If he did this on reaching his majority at the age of 21, he must have been born in 1687."
- 19. Ibid.
- 20. Ibid., pp. 3–4.
- 21. Rothbard (1995), p. 345.
- 22. Brewer (1992), p. 4. After taking over his cousin's Paris bank, it seems that Cantillon brought a moribund business back to life largely thanks to his connections in both London and Paris, which gave him an advantage over other banks when it came to transferring money between these two commercial centers. As Brewer writes succinctly, "Cantillon's business was international from the start, because his comparative advantage was in his excellent connections in London and Paris."
- 23. Rothbard (1995), pp. 327–28. Rothbard explains how Potter expected the result of his monetary system to lead to a rise in general productivity, rather than price inflation, and even sometimes suggested that prices would actually fall.
- 24. Ibid., pp. 329–30.
- 25. Joseph Salerno (2010), Money, Sound and Unsound (Auburn, Alabama: Ludwig von Mises Institute); p. 5. Salerno clarifies Law's position on hoarding as follows: "According to Law, hoarding creates a deficiency of circulating money and spending, resulting in a reduction of trade and employment." Salerno makes the distinction between Law and other theorists who conflated money for wealth, and argues that Law realized the difference. He writes that "[i]t is important to note that Law does not fall victim to the naive mercantilist fallacy of confusing money with wealth. Law, in fact, upholds the modern view that money is merely the means or 'policy tool' by which the goal of increasing national income and wealth is achieved."
- 26. Rothbard (1995), p. 331.
- 27. Brewer (1992), p. 5–6. For a detailed history of the Mississippi Bubble, see: Douglas E. French (1992), Early Speculative Bubbles and Increases in the Supply of Money Auburn, Alabama: Ludwig von Mises Institute); pp. 35–74.
- 28. Brewer (1992), p. 6.
- 29. Higgs (1891), p. 276. Henry Higgs writes, "His great credit during the Regency aroused the jealousy of John Law, who held blunt language with him: 'I can send you to the Bastille to-night if you don't give me your word to quit the kingdom in four and twenty hours!' Cantillon answered: 'I shall not go away; but I will make your system succeed.' Accordingly he floated a mass of Law's paper to great advantage."
- 30. Rothbard (1995), p. 346. "Richard Cantillon returned to Paris a multimillionaire, albeit unpopular with his former associates and debtors."
- 31. On Petty, see: Schumpeter (1954), pp. 202–08. Interestingly, Schumpeter suggests that Adam Smith's insights on the division of labor had already been laid out by Petty. "On division of labor, however," he writes, "we find all the essentials of what Adam Smith was to say about it, including its dependence upon the size of markets."
- 32. Ibid., p. 210. Schumpeter suggests Petty's influence on Cantillon in the following statement: "What Petty failed to accomplish — but for what he had offered almost all the essential ideas — lies accomplished before us in Cantillon's Essai."
- 33. For a discussion of Cantillon's possible influences, see: Henry Higgs (1892), "Cantillon's Place in Economics," The Quarterly Journal of Economics 6(4); p. 436 and pp. 442–50.
- 34. Ibid., p. 436. Higgs writes, "Among these others, a place of high honor is due to Cantillon. He shares, with Adam Smith, Steuart, Mirabeau, Quesnay, Petty, Montchrétien, Serra, Sully, the dignity of a reputed paternity of economics."
- 35. Jevons (1881), p. 342. Jevons explains, "The Essai is far more than a mere essay or even collection of disconnected essays like those of Hume. It is a systematic and connected treatise, going over in a concise manner nearly the whole field of economics, with the exception of taxation."
- 36. Schumpeter (1954), p. 210. Schumpeter, regarding the Essai, writes, "it was not accomplished in the style of a pupil who at every step looks back over his shoulder for the master's guidance, but in the style of an intellectual peer who strides along confidently according to his own lights."
- 37. Hayek (1991), p. 260; Rothbard (1995), pp. 347–48; Karen de Coster (June 2006), "Cantillon for Laymen." De Coster quotes Thornton, "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."
- 38. Mark Thornton defends Cantillon as an antimercantilist; Mark Thornton (March 2007), "Cantillon the Anti-Mercantilist" (Mises Institute Working Papers).
- 39. Hülsmann (2001), pp. 699–701. On Cantillon's supposed mercantilist sympathies, Hülsmann concludes, "However, in spite of his investigations being centred around government interests, Cantillon makes clear that, whatever the results of his analysis be, it is not his business to indulge in value judgements."
- 40. Hayek (1991), p. 260. Writes Hayek, "It is especially characteristic for him and quite contrary to the views of his contemporaries … that he regards even investigations into the expediency of particular taxes as no longer belonging to his subject." Even when discussing state-oriented economic policies, he describes the consequences rather than the validity of these policies. Hülsmann (2001), p. 700: "In refuting various government interventions, Cantillon anticipates the characteristically Misesian way of arguing they do not bring about the goal that the Prince originally had in mind."
- 41. As previously mentioned, later mercantilists such as John Law recognized the distinction between money and wealth as well. Law, unlike Cantillon, simply believed — or made believe — that an increase in the supply of money would lead to an increase in production, thus maintaining a stable price level. Law, indeed, influenced Cantillon's monetary theory to a great extent (Hayek 1991, p. 264).
- 42. Cantillon (2010), p. 21.
- 43. Ibid., p. 147; Accordingly, "All this money, whether lent or spent, will enter into circulation and will not fail to raise the price of commodities and goods in all the channels of circulation it enters."
- 44. Rothbard (1995), p. 355. Cantillon explains in further detail (Cantillon 2010, p. 148), "Mr. Locke lays it down as a fundamental maxim that the quantity of goods in proportion to the quantity of money is a regulator of market prices. I have tried to elucidate his idea in the preceding chapters: he has clearly seen that the abundance of money makes everything more expensive, but he has not considered how this happens. The great difficulty of this question consists in knowing in what way and in what proportion the increase of money raises the price of things."
- 45. Cantillon (2010), p. 54.
- 46. Ibid.
- 47. Hülsmann (2001), p. 696. Hülsmann argues, "In fact, Cantillon's notion of intrinsic value is not conceptually detached from the market for he defines intrinsic value <em>as a price</em>. It is this price, which needs not to be realised on the market, which measures the quantity of labour and land in a product." It seems as if Hülsmann is suggesting that Cantillon's "intrinsic value" theory merely describes the costs of production, rather than any actual objective value, and that Cantillon concedes that this cost of production is not necessarily what is paid on the market.
- 48. Cantillon (2010), p. 119.
- 49. Ibid., p. 55. "But it often happens that many things, which actually have a certain intrinsic value, are not sold in the market according to that value; that will depend on the desires and moods of men, and on their consumption."
- 50. Smith (2007), pp. 36–37. "The commodity is then sold precisely for what it is worth, or for what it really costs the person who brings it to the market." Smith further suggests that competition between buyers will lead to market prices higher than the costs of production, although concedes that if the producer supplies the market with a quantity of the commodity greater than the demand then he may have to settle for a lower market price. Adam Smith's price theory is far more contradictory and confusing than Cantillon's. Rothbard (1995), p. 450; Rothbard quotes Emil Kauder, "the father of our political economy wrote that water has a great utility and a small value. With these few words Adam Smith had made waste and rubbish out of the thinking of 2,000 years."
- 51. Cantillon (2010), p. 119; "In general, these prices do not vary much from intrinsic value."
- 52. Reisman (1990), pp. 200–201. George Reisman offers a number of reasons for why this may be true, including the fact that as prices rise over their cost of production producers will tend to increase the supply of that particular good in the market, creating a downward pressure on prices. Alternatively, if the price is below the cost of production, producers will tend to decrease the supply of that particular good in the market, creating an upward pressure on prices.
- 53. Brewer (1992), p. 51. Brewer notes that traditionally it is believed that Jean-Baptiste Say had introduced the concept of the entrepreneur, while in truth it was Richard Cantillon writing nearly a century earlier than Say.
- 54. Ibid., pp. 50–52; Rothbard (1995), pp. 351–52; Hülsmann (2001), p. 698; Cantillon (2010), pp. 73–77. Writes Cantillon, "These entrepreneurs never know how great the demand will be in their city, nor how long their customers will buy from them since their rivals will try, by all sorts of means, to attract their customers. All this causes so much uncertainty among these entrepreneurs that every day one sees some of them go bankrupt."
- 55. Rothbard (1995), p. 352; Vincent J. Tarascio (1985), "Cantillon's Essai: A Current Perspective," The Journal of Libertarian Studies 7(2); p. 251–252.
- 56. Cantillon's theories are analyzed in greater detail here: Rothbard (1995), pp. 347–60; Joseph J. Spengler (August 1954), "Richard Cantillon: First of the Moderns I," The Journal of Political Economy 62(4), pp. 281–95; Joseph J. Spengler (October 1954), "Richard Cantillon: First of the Moderns II," The Journal of Political Economy 62(5), pp. 406–424; Brewer (1992), pp. 19–119.
- 57. See: Robert F. Hébert (February 1981), "Richard Cantillon's Early Contributions to Spatial Economics," Economica 48(189), pp. 71–77.
- 58. Rothbard (1995), pp. 359–60; Mark Thornton (2009), "Cantillon and the Invisible Hand," The Quarterly Journal of Austrian Economics 12(2), pp. 27–46.
- 59. Cantillon (2010), p. 5. Regarding the foundations of modern economics, Robert Héberet makes an interesting point, "Smith was a philosopher and educator … Smith gave an answer based on the nature and function of an exchange economy operating under a rule of law. The Wealth of Nations is full of useful advice to those who hold political power. Hence, Smith earned his sobriquet 'father of political economy' … Cantillon was a businessman and banker… The economy he described was an enterprise economy, not a political one, in which certain individuals played key roles, some passive and some active… Hence, he deserves to be called "the father of enterprise economics."
- 60. This is not to suggest that Adam Smith and his disciples made no positive contribution to economic theory, as such as a claim would be patently false. For example, while Smith's explanation of the division of labor was imperfect, the division of labor today is considered one of the most basic necessities of a capitalist system and one of the major driving forces behind rising standards of living. Reisman's Capitalism, for example, is written largely around the concept of the division of labor. Furthermore, Austrians make wide use of Classical concepts by Ricardo, Say, and others. Finally, one cannot overlook Smith's role in popularizing laissez-faire economic theory and rooting out mercantilism.
- 61. Bruce Caldwell, ”Adam Smith? Who's He?”
- 62. The heterodox nature of the Austrian School has perhaps led Austrian scholars to pursue a much wider examination of the history of economic thought, and thus it is not surprising that Austrians are oftentimes the most willing to engage old economic theory not considered pertinent to that accepted by today's mainstream. In other words, it is oftentimes the Austrian School that provides the broadest look at the history of economic thought. This is definitely one of the Austrian School's advantages.