Cantillon, Richard (c.1680-1734)
Richard Cantillon, born in County Kerry in Ireland and lived a substantial portion of his life in France, was regarded by many historians of economic thought as one of the truly great early economists. He has been praised in the highest terms: Edwin Cannan referred to him as “that extraordinary genius,” W. S. Jevons has credited him with having written “the first treatise on economics,” while F. A. Hayek wrote of him that he contributed more “really original insights of permanent value” to economics than any other writer before 1776.
Although born in Ireland, Cantillon early amassed a fortune as a banker in Paris largely because he foresaw the collapse of John Law’s Mississippi scheme. Although his Essai sur la nature du commerce en général (Essay on the Nature of Trade in General) was published posthumously in 1755 (more than 20 years after Cantillon had been murdered in his London home), this book was originally written in English around 1730. After Cantillon translated his own book into French for the convenience of a friend, this version circulated in manuscript and influenced a number of French intellectuals, including François Quesnay, the founder of the Physiocrat School. Unfortunately, the original English version has not survived.
According to Cantillon, land (i.e., natural resources) is the “source” or “matter” of wealth, whereas labor is the “form” that produces it. Wealth “is nothing but the maintenance, conveniences, and superfluities of life.”
Cantillon distinguishes between the “intrinsic” price of a commodity and its “market” price. The intrinsic price—or what Adam Smith would later call the “natural” price—is basically the cost of production, which is the minimum price that sellers must receive as an incentive to bring their goods to market.
Although there is a tendency for the market price of a good to gravitate toward the intrinsic price, “it often happens that many things which have actually this intrinsic value are not sold in the market according to that value.” Rather, market prices, which are arrived at through bargaining, depend on the subjective “humors and fancies of men and their consumption.”
Among Cantillon’s many contributions to economic theory, three should be mentioned:
1. Cantillon developed an abstract model of a self-regulating free market. Throughout the Essai, Cantillon refers to the “natural” phenomena of the market; these are cause–effect relationships that operate independently of the desires and intentions of particular individuals. F. A. Hayek has noted that Cantillon, in developing his theory of an economic system governed by natural laws, uses “the method of isolating abstraction,” including “the device of the ceteris paribus clause,” with “true virtuosity.”
2. He was the first to examine the role of the entrepreneur (a term he apparently coined) in detail. An entrepreneur is a person who derives his profit from successfully dealing with the inherent “risk” and “uncertainty” in a free market.
3. Cantillon offered a detailed analysis of inflation. Although the “quantity theory” of money, according to which the injection of new money will cause a general increase of prices, was known to earlier theorists (e.g., John Locke), Cantillon was the first to explain the differential effects of inflation on the structure of prices. This differential impact, which depends on which segments of the economy are the earliest recipients of the new money, has become known as the “Cantillon effect.” These contributions, among others, helped lay the foundation of modern economics and have ensured Cantillon’s place as a theorist of the first rank.
Aspromourgos, Tony. On the Origins of Classical Economics: Distribution and Value from William Petty to Adam Smith. New York: Routledge, 1996.
Cantillon, Richard. Essays on the Nature of Commerce in General. Henry Higgs, trans. New Brunswick, NJ: Transaction, 2001.
Mark Blaug, ed. Richard Cantillon and Jacques Turgot. Brookfield, VT: Edward Elgar, 1991.
Originally published .