Richard Cantillon (1680?–1734), author of the Essai sur la nature du commerce en general (1755), is considered by many to be the earliest writer on economic matters who might appropriately be described as an “economist,” because his analysis encompassed the price system and its workings. He was of Irish birth, directly descended from Roger Cantillon, who in 1556 married Elizabeth Stuart (the Cantillons were Stuart partisans). The family had been established in County Kerry, Ireland, since the twelfth century and could trace its ancestry to a companion of William the Conqueror. In 1716 Cantillon settled in Paris (where many Stuart supporters lived) and successfully engaged in banking and trade. A shrewd and perceptive financier, Cantillon foresaw the failure of John Law’s scheme. (Law’s animosity caused Cantillon to quit Paris temporarily in 1719.) Cantillon undertook to profit from the failure and, upon the collapse of Law’s scheme in 1720, realized a great fortune. The remaining 14 years of his life were spent largely in the Low Countries, France, Italy, and London; he died in London in 1734, murdered by his recently discharged cook.
In his Essai Cantillon dealt with many of the topics subsequently of concern to classical and neoclassical economists. Among these topics are population growth and its distribution; the determination of prices, wages, and interest; the role of the entrepreneur (which he was the first to isolate); banking operations and the financing of trade; and the response of exchange rates and the price structure to changes in the supply of money. He seems to have conceived of a state’s economy as an essentially autonomous subsystem in which the major functions are performed by landowners, entrepreneurs, and persons working for hire. Unlike the medieval writers on the subject, he was little concerned with ethical considerations; he found them “outside my subject.” When possible, he reduced his analyses to terms of supply and demand.
Population movements in space and time reflect underlying costs and demands. Variation in mortality, internal migration, and (above all) nuptiality and (hence) natality adjust population to the means made available for its support within social classes and regions, given prevailing standards of living and the structure of demand. The structure of demand is dominated by the expenditure patterns of rich landowners. Cantillon thus made the size of a closed economy’s population depend mainly upon the domestic food supply and prevailing (although variable) standards of life; but he showed that this supply is susceptible of augmentation through the importation of land-embodying produce or of diminution through its exportation in exchange for labor-embodying wrought goods. He examined the relation between the distribution of population in space and the conduct of marketing and transport, noting, among other things, that too much activity is concentrated in cities with the result that transportation costs are excessive.
Although Cantillon did not put forward a functional theory of distribution, he did attempt to explain commodity and factor prices. He defined the “intrinsic value” of goods in terms of the land and labor entering into their production; but he noted that actual or “market” price may exceed or fall short of this value. He treated land rent as a surplus. Interest varies not with the supply of money but with the comparative number of lenders and borrowers and their circumstances. The price of labor tends to approximate its cost; it varies with the workers’ standards of living (which can be elastic upward) and in some instances with other supply-regulating conditions, such as costs of training craftsmen. He looked upon profit (or loss) as a concomitant of the risks and “uncertainty” that entrepreneurs bear when organizing production and distribution, for while they contract for land, labor, etc., at stipulated prices, they can dispose of their output only at such prices as rule at the time of sale.
The value of money is but a special case of value in general. The amount of real cash for which a state or economy has need approximates in value one-ninth “of all the produce of the soil,” given ruling habits of payment and monetary velocity together with equilibrium in international payments. The purchasing power of gold and silver coins normally corresponds closely to their intrinsic value, although their purchasing power is sensitive to a country’s debtor or creditor status, which conditions both its rate of exchange and the domestic market price for gold. A country’s rate of exchange depends mainly upon the state of its trade balance.
Cantillon’s analysis of the impact of increases in the money supply was particularly insightful. He distinguished the principal sources of such increase (that is, mines, a favorable trade balance, foreign travelers) and then traced, for each type of increase, its distribution and its various effects upon wages, salaries, rents, patterns of expenditure, and different prices. Although he believed it advantageous to a state to have an abundance of money, he indicated that increase in its supply would eventually elevate costs and prices expressed in money and result in a flow of precious metals abroad. Conversely, falling prices would attract money from abroad. He thus recognized the self-regulating specie-flow mechanism, although he did not define it as precisely as did Hume.
The Essai was not published until 1755, though a manuscript copy was known and used by Malachy Postlethwayt and Mirabeau, and may have been known to others (for instance, Joseph Harris, David Hume, Josiah Tucker). It became known after publication to a number of important eighteenth-century writers and influenced some of them, although only one translation, in Italian, was made (in 1767). Representative of the writers who knew or were influenced by the Essai were some of the physiocrats, a variety of other French authors (for example, J. C. M. V. Gournay, Accarias de Serionne, Turgot, Condillac, Andre Morellet, G. B. de Mably, Abbé F. A. A. Pluquet, G. Garnier), Arthur Young, Adam Smith, James Steuart, G. A. Will, J. A. Graumann, J. G. Busch, J. F. von Pfeiffer, C. M. de Jovellanos, Beccaria, F. Ferrara, and (apparently) C. Filangieri and A. Genovesi. During the first three-quarters of the nineteenth century Cantillon’s work was referred to only occasionally, although some of his ideas continued to exercise influence anonymously. Interest revived, however, after W. S. Jevons called the Essai’s merits to the attention of economists in 1881. Since then at least five new editions have been published, a facsimile in 1892, and editions in German and French–English in 1931, Spanish in 1950, and French in 1952.
Joseph J. Spengler
[For the historical context of Cantillon’s work, see the biography ofAquinas. For discussion of the subsequent development of his ideas, see the biographies ofCondillac; Hume; Law, John; Smith, Adam; Steuart; Turgot.]
Cantillon, Richard (1775) 1952 Essai sur la nature du commerce en général. Paris: Institut National d’Études Démographiques.
EstapÉ, FabiÁn 1951 Algunos comentarios a la publicación del Ensayo sobre la naturaleza del comercio en general, de Cantillon. Moneda y credito 39:38−77.
Jevons, W. S. 1881 Richard Cantillon and the Nationality of Political Economy. Contemporary Review 39: 61−80.
Spengler, Joseph J. 1954 Richard Cantillon: First of the Moderns. Journal of Political Economy 62:281−295, 406−424.
"Cantillon, Richard." International Encyclopedia of the Social Sciences. . Encyclopedia.com. (February 24, 2018). http://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/cantillon-richard
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Cantillon, Richard c. 1680-1734
Richard Cantillon was an Irish banker and economist who emigrated to Paris, where he profited from the financial scheme known as John Law’s Mississippi bubble (1720). His lone surviving book, Essai sur la nature du commerce en général (Essay on the Nature of Commerce in General) was written around 1730 and circulated in manuscript form for a quarter century in France until it was published anonymously in 1755. Legend has it that Cantillon was murdered in London, although his biographer, Antoin Murphy, convincingly hypothesizes that he staged his murder and left the country to avoid impending legal battles.
Cantillon’s Essai is often considered a product of his financial exploits because it contains a defense of usury that justifies charging illegally high rates of interest. It also contains an analysis and condemnation of what caused the Mississippi bubble. But it is much more than a mere position paper. Brevity notwithstanding, its scope and probity raise the Essai to the level of a theoretical treatise.
When the economist William Stanley Jevons (1835–1882) rediscovered Cantillon’s Essai in 1880, he called it the “cradle of political economy” and “the first treatise on economics.” The English translator of the Essai, Henry Higgs (1864–1940), wrote that Cantillon was “the economist’s economist.” Joseph Schumpeter (1883–1950) labeled the Essai the first “bird’s-eye view of economic life” Schumpeter (1954, p. 222), and Murray Rothbard (1926–1995) dubbed Cantillon “the founding father of modern economics.” Antoin Murphy concluded that the Essai has “stood the test of time and is of increasing interest to modern-day economists.”
Cantillon’s contributions to economics include critical aspects of methodology, such as the use of ceteris paribus, price and wage determination, the crucial role of the entrepreneur, the circular-flow nature of the economy, the price-specie flow mechanism, the function of money, and the problems of inflation. He showed that wealth was determined not by money but by the ability to consume, and that the source of wealth was land and productive labor. He demonstrated that saving and investment were critical to productivity and higher wages, and he maintained that in the absence of government intervention, markets—including the market for loans—would be regulated by competition. He also analyzed the forces that cause business cycles and stock market bubbles. It has been asserted that Cantillon’s puzzling use of the term intrinsic value now represents the discovery, 140 years prior to its conventional dating, of the concept of opportunity cost, by means of which the economist analyzes not just the ticket price of a good, but the full cost to the decision maker, including his or her time.
Despite its relative obscurity, Cantillon’s Essai was very influential. It provided a major stimulus to the founding of the physiocrat school in 1757. There is now strong evidence that it influenced David Hume’s (1711–1776) economics. Adam Smith (1723–1790) referred to Cantillon in the Wealth of Nations (1776), where even the invisible hand is evocative of Cantillon. There are also strong parallels between Cantillon and Charles Louis Montesquieu (1689–1755), Étienne Bonnot de Condillac (1715–1780), Anne Robert Jacques Turgot (1721–1781), and Jean-Baptiste Say (1767– 1832). Thus, Cantillon foreshadowed the physiocrat and classical schools of economics and the economics of the French Enlightenment.
SEE ALSO Economics; Economics, Classical; Hume, David; Inflation; Laissez Faire; Law, John; Money; Physiocracy; Scottish Moralists; Smith, Adam; South Sea Bubble; Value
Cantillon, Richard.  1959. Essai sur la nature du commerce en general, ed. and trans. Henry Higgs. London: Cass.
Murphy, Antoin E. 1986. Richard Cantillon: Entrepreneur and Economist. New York: Oxford University Press.
Schumpeter, Joseph A. 1954. History of Economic Analysis. New York: Oxford University Press.
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