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II

Concerning the contents of the Essai, not much needs to be said.47 For initial guidance, the three parts into which the book falls, may be informally entitled “On Wealth or Production,” “On Exchange,” and “On International Trade” respectively. Beyond that, and without attempting to offer a coherent summary of Cantillon's thoughts, one may be permitted to draw the reader's attention to some characteristics of his method and some particularly noteworthy theories contained in his treatise.

To begin with, there is the very definite meaning which the author attaches to the words “nature” and “natural,” the former occurring in the title itself. Incidentally, in terms of title and general range of subject matter the treatise has much in common with other works, that appeared around 1735, such as those of Melon and Dutot.48  49 In particular, Cantillon consistently uses the expression “natural” in the sense of a cause and effect relationship—in other words, as a scientific causal explanation—and as such it occurs about thirty times in the Essai. Closely related to this is his conscious and unremitting pursuit of “pure theory,” of explanation of relationships divorced from value judgments, which is particularly remarkable for a writer of his time. For this reason he frequently breaks off a discourse with the remark that “this is outside my subject”—for example, when the question prompts itself as to whether prices could also be influenced by an attempt on the part of entrepreneurs to cheat their customers (page 70), or when he eschews discussion of the question as to whether a state is better off with a small but well-nourished population or with a large but badly-nourished one (page 113). Other instances are his refusal to enter into motives which could prompt ministers of state to debase the coinage (page 392) and, very conspicuously, when, adopting a modern attitude in place of the contemporary one, he considers the practical desirability of certain taxes beyond his terms of reference (page 210). Indeed, the main reason why Cantillon's Essai influenced only a small, select group may lie in his single-minded desire to articulate relationships, to add neither reform proposals nor ethical considerations to his framework, but rather to explain soberly and free of all metaphysical speculation the status quo; added to this was his somewhat cumbersome French.

Within the confines of his theoretical analysis Cantillon wields its most important tool, the method of isolating abstraction, as we would call it today, with true virtuosity. He displays familiarity with the device of the ceteris paribus clause, as had indeed some other writers before him, with the device of the “isolated state” and the progression from monopoly to more complicated cases in explaining price formation (pages 60–61, 59, and 76 and 131 respectively). He repeatedly excludes the effects of accidental circumstances in order to avoid over-complicating an already complex problem (pages 112 and 350).

The best-known feature of the Essai is presumably the sentence with which the first chapter begins, and in which Cantillon's basic tenet is presented in its most compressed form, namely, the relationship between wealth, “which is nothing but the maintenance, convenience, and superfluities of life,” and its twin and equal sources, land and labor. This entirely psychological concept of wealth, by far the most important though also most overlooked element in that famous sentence, is an extraordinary achievement on Cantillon's part, and it is so decisive for his standpoint that a modern French scholar cannot be considered far wrong when he describes Cantillon as a precursor of the modern Hedonists.50 Without necessarily being a party to what is, perhaps, a rather daring verdict, one does well to bear this definition in mind when we read Cantillon's discussion of value and prices.

It is unnecessary to dwell here on the introductory Chapters II through VI of Part One, which deal with the formation and stratification of human society and the emergence of private property.51 Attention must be drawn, however, to the ensuing Chapters VII and VIII, which, together with Chapter XV of part One, contain Cantillon's exceptionally interesting population and wage theory, which has provided a specific focus for numerous subsequent studies.52 His population theory is of interest not only because, as Jevons suggested, it anticipates in a nutshell the core of Malthusian population theory, but because the relationship, in fact, goes deeper than that. The passage in Smith that appears to have triggered off Malthus's own research interest bears an almost literal similarity to the corresponding formulation in Cantillon's Essai.53 In this connection Higgs reminds us—just to show how far, with a little imagination, Cantillon's influence can be pursued—that Malthus in turn inspired the revolutionary work of Darwin.54

Cantillon's wage theory is integrally linked with his theory of value. The latter is a standard of living theory, which in turn evolves directly out of the population theory. That Cantillon devotes so much space to the wage theory reflects his belief that it holds the key to what Petty looked upon as the most important problem of political arithmetic, namely, the par or equation between labor and land, which is the foundation of Cantillon's cost theory of value. G. Pirou has summed up his assessment of this theory of value as follows:

In Cantillon we are confronted, for the first time in the history of economic doctrine, with a lucid, coherent, and well-constructed theory. The extent of its originality and novelty, compared with earlier theories in general and with Petty's theory in particular, can best be appreciated in terms of the following three aspects: (1) As regards the problem of normal value, Cantillon does not confine himself to casual or occasional remarks: he puts the question directly and openly and attempts to give a satisfactory answer. (2) In examining the disturbing factors that prevent the market price from agreeing with the normal value he strives in the most thorough and profound manner to attach rigorous scientific meaning to the concepts of supply and demand, and also to bare the mechanism by which variations in the quantity of money affect the price. (3) Finally and most importantly, Cantillon relates the two resulting theories to one another in the course of elucidating how, inhibiting factors notwithstanding, the deviation of market price from normal value is never very great, thanks to an economic force that tends incessantly to restore agreement. This viewpoint expressed by Cantillon is all the more remarkable because it is entirely devoid of providentialist or teleological content. It is no exaggeration to say that, in this respect, Cantillon is a precursor of the economic equilibrium theorists.55

While endorsing the concluding point of Pirou's remarks as entirely justified, we would like to add briefly to it for fear of a possible misunderstanding. The achievement of Cantillon's value and price theory derives its significance first and foremost from the fact that, instead of being satisfied to establish some rules and formulae, say for the “normal” relationship between the value and price of different goods, he consistently attempts to show what forces and process are involved, according as the normal relationship is necessarily restored. Suffice it to refer, for example, to the process of market price formation, the second chapter of Part Two (page 155), which is directly reminiscent of the famous horse fair example of Böhm-Bawerk.

Before we proceed to the subsequent sections of the Essai, it is necessary to highlight a further point from the first part, which, besides showing us how rigorously scientific Cantillon's conceptual framework was, is particularly noteworthy because it is the earliest exposition of a basic economic phenomenon, namely the role which he ascribes to the entrepreneur (Chap. XIII).56 In Cantillon's view, which is also the modern one, an entrepreneur is anyone who is a risk-bearer and whose income consists not of ground rent or wages but of profit. Not only in this juxtaposition, but indeed in many other points also, we find Cantillon anticipating a classification of income groups which was later to become conventional. This is true, for example, of the recurrent distinction, based on English usage, between the three rents which the leaseholder must generate—the actual ground rent, which goes to the owner; the wages to cover his own sustenance and that of his laborers; and his entrepreneurial profit, to which Cantillon adds, as an extra source of income, the interest received on money lent.57

The final chapter of Part One, which is devoted to the value of precious metals and the emergence of coinage, forms the basis for his development of the monetary theory which occupies most of Part Two and even extends into Part Three. This theory constitutes, without doubt, the supreme achievement of a man who was the greatest pre-classical figure in at least this field and whom the classical writers themselves in many instances not only failed to surpass but even failed to equal. In the present context it must suffice to highlight some salient points, a procedure which is now feasible, thanks to the existence of a detailed assessment in P. Harsin's fine history of monetary and financial doctrine in France from the sixteenth to the eighteenth century, as well as in other works to which the reader is referred.58 In his monetary theory Cantillon was apparently influenced in many respects by John Law, whom, however, he never mentions. This is seen clearly in his attitude toward John Locke, with whom he comes to grips several times and whose conventional theory of the origin of money he rejects in common with Law; likewise he explicitly rejects Locke's argument that the value of precious metals is determined by social consent. Law, whose importance as a monetary theorist nowadays tends to be obscured by his errors, none of which Cantillon shares, was, however, clearly surpassed by the latter. Among the achievements which distinguish Cantillon from other founders of monetary theory, may be counted his criticism of Locke's naive quantity theory, in place of which he gives us a detailed account of the process by which an increase in the quantity of money successively affects the prices of different goods. This account is found in the magnificent sixth chapter of Part Two and has been justifiably described by Jevons as one of the most wonderful things in the book. No less remarkable is his account, elaborating on Petty's approach, of what determines the velocity of circulation of money, “where one finds unequivocally stated for the first time that the velocity of circulation of money is as important as its quantity in determining its value.”59 Equally outstanding are his description of the functioning of a dual currency, in the context of which he criticizes the measures taken by Newton at the time of the English coinage reform in 1717, and finally his doctrine concerning exchange rate, which, in Jevons's opinion has never, not even in Goschen's well-known book, been treated with more perspicuity and scientific accuracy.60  61

The final two chapters of Part Two of the Essai also deserve attention, for they contain a rather well developed theory of interest, one which even Böhm-Bawerk, remarkably enough, overlooked: here the opinion that money begets interest is clearly refuted (an achievement for which Hume usually receives credit), and the effects of a temporary reduction in the rate of interest, brought about by an increase in the quantity of money, is accurately described. Following upon the discussion of exchange rates and dual currency, we find, finally, in Part Three a detailed description of the banking system, in which Cantillon explains, for example, the special circumstances which cause a banker to hold a cash reserve greater or less than the usual ten percent of his liabilities. With that we have covered the main points to which we wished to draw the reader's attention.

There is, however, a further point, which deserves to be singled out. In the first quarter of the Essai Cantillon repeatedly refers (on pages 9, 19, 25, 46, 50, 56 and 59) to an appendix in which are contained calculations, the results of which he used in the text. This appendix, which allegedly was seen together with the manuscript, is in none of the published versions and hence is lost. Its loss is regrettable, for it must have contained unique statistical data collected by Cantillon himself. It is, however, probable that Cantillon, having mentioned the appendix only in the Part One of his Essai, never succeeded in completing it and hence did not publish the work himself.

Finally, a brief word about Cantillon's place in the history of economic thought. We are not concerned here with the relatively unimportant question as to whether Cantillon was primarily a Mercantilist or a Physiocrat; indeed, by almost dominating the discussion, this question led many writers to miss the real significance of Cantillon. No reader of the Essai will fail to see that the basic ideas of the Physiocrats are to be found in Cantillon (see especially pages 9, 29 ff., 37 ff., and 78 ff.), and Quesnay himself has testified that he drew his inspiration mainly from Cantillon. Anyone interested in the relationship between Cantillon's views and those of the Physiocrats and the Mercantilists will find a detailed comparison in the already frequently quoted book by Legrand.62 Looking at it from a different point of view, it seems to me that Cantillon's importance derives directly from the fact that he stood apart from the schools. Like Petty before him, this gifted independent observer, enjoying an unsurpassed vantage point in the midst of the action, coordinated what he saw with the eyes of the born theoretician and was the first person who succeeded in penetrating arid presenting to us almost the entire field which we now call economics.

Accordingly, Cantillon represents in my view one of the important stages, and in many respects perhaps even the primary stage, in the straight developmental path of knowledge, from which the disciples of the “schools” have always deviated in one way or the other. The Physiocrats and, like them, at least some of the later classical writers, were thus hindering rather than promoting progress, while the great strides were always made outside the schools and mostly in opposition to them. In terms of really original insights of permanent value to our discipline, Cantillon offers us more than any other author writing before 1776, the year in which the works of Smith and Condillac appeared, and hence more than the Physiocrats, even though their presentation of the circular flow—which one could validly describe as a systemization of Cantillon's ideas—had greater visual impact and proved more influential for the time being. Whether one therefore calls Cantillon the founder of economic science or not, is a matter of little consequence. Determining the point of origin of a science always involves a high degree of arbitrary choice. The fact that we must rank him as one of the great scholars of our discipline will hopefully not be doubted by any reader of the Essai. The actual extent of his influence on the development of economic science is, of course, another question and one which is extremely difficult to answer. Before attempting to do so, let us record the little that is known of Cantillon's life and the history of his manuscript from the time of his death until its publication.

[47]The most detailed monograph concerning the subject matter of the Essai and its relationship to both earlier and later works is that of R. Legrand, Richard Cantillon, Un Mercantiliste Precurseur des Physiocrates (Paris, 1900). Like most other studies of Cantillon, it suffers from the shortcoming that a focusses not so much on Cantillon's originality as on the question whether one should consider him as being still part of the Mercantilists or already part of the Physiocrats. Detailed discussion of the contents of the Essai are also contained in the already mentioned studies of Jevons, Espinas. Higgs (Quarterly Journal of Economics 6 (1892), as well as in W. Rouxel, “Un Precurseur des physiocrates: Cantiflon,” Journal des Economistes (1892); W. Kretschmer, “Über den Richard Cantillon zugeschriebenen Essai sur la nature du commerce en général mit besonderer Berücksichtigung der Lehren von Otto Effertz” (diss., Liestal, 1899). Analytical studies of specific theories of Cantillon will be referred to as the occasion requires.

[48]J. F. Melon, Essai politique sur le commence (Rouen and Bordeaux, 1734).

[49]Dutot, Reflexions politiques sur les finances et le commerce, 1735.

[50]A. Huart, “Cantillon, Precurseur des Hedonistes,” Monde économique. May 17 and 31; June 7, 21 and 28; July 29, 1913. For information concerning this article, which was not available in either the Vienna or the Berlin libraries, I am indebted to Sektionsrat Dr. Ewald Schams, Vienna.

[51]With reference to Chapters IV and V on the formation of the towns and cities, see R. Meunier, “Théories de la formations des villes,” Revue d’Economie politique (Paris, 1910).

[52]Apart from the aforementioned studies of Jevons, Higgs, and Neumann, see especially A. Landry. “Une théorie négligée. De l’influence de la direction de la demande sur la produaivité du travail, les salaries et la population, Revue d’Economie politique, 24 (Paris, 1910), and “Les idées de Quesnay sur la population,” Revue d’histoire des doctrines économiques et sociales, 2 (1909): esp. 83 ff. In addition see R. Picard, “Etude sur quelques théories du salaire au XVIIIe siècle,” 3 (1910): 153 ff; and R. Gonnard, Histoire des Doctrines de La Population (Paris, 1923), pp. 142, 173 ff., as well as due idem, “Les doctrines de la population avant Malthus,” Revue d’histoire économique et sociale 17 (Paris, 1929): esp. 223.

[53]Compare the well-known sentence with which Part I of Chapter XI, Book I of The Wealth of Nations commences—“As men, like all other animals, naturally multiply in proportion to the means of their subsistence, food is always, more or less, in demand”—with the exposition in Chapter XV of Part One of Cantillon's Essai, but especially with the sentence—“Men multiply like Mice in a barn if they have unlimited Means of Subsistence” (p. 110). Huart ("Cantillon precurseur des Hedonistes") thinks one is justified in assuming that Malthus was directly influenced by Cantillon.

[54]Quarterly Journal of Economics 6:455.

[55]Gaetan Pirou, “La théorie de la valeur et des prix chez W. Petty et chez R. Cantillon,” Revue d’Histoire des Doctrines Economiques et Sociales,” 4th year (Paris. 1911), p. 271. Apart from the previously mentioned studies by R. Zuckerkandl and R. Legrand, the place of Cantillon's value and price theory in the history of economic thought is also dealt with in R. Kaulla, Die Geschichtliche Entwicklung den Modernen Werttheorien (Tubingen, 1906). pp. 92ff.; and H. R. Sewall, “The Theory of Value before Adam Smith, Third Series, American Economic Association, vol. II, no. 3 (New York, 1981). See also A. Dubois, Revue d’economie politique (Paris, 1897), pp. 849 ff. “Les theories psychologiques de la valuer au XVIIIe siecle.”

[56]On Cantillon's theory of entrepreneur see especially E. Cannan, A Review of Economic Theory, pp. 285 ff, 303 ff.

[57]See passage quoted from Silvers and referred to in n.22. [N.B. Note 22 above is to a “von Sivers”. I’ve not had time to verify the exact spelling of the name or whether this typo arose in Hayek's original or in the translation in the Journal of Libertarian Studies, but Sivers is probably the correct spelling based on quickly available circumstantial online evidence about last names and locations during that time period. The Jahrbücher cited in Note 22 above is also unfortunately missing from some library collections, so a table of contents for it was not easy to locate.—Econlib Ed.]

[58]P. Harsin, Les doctrines monetaires et financières en France du XVIe au XVIIIe Siècle (Paris, 1928), pp. 227–236. In addition to the studies of Jevons and Legrand, see A. E. Monroe, Monetary Theory before Adam Smith (Cambridge, 1923); J. W. Angell, The theory of international prices (Cambridge, 1923); J. W. Angell, The theory of international prices (Cambridge, 1926) especially p. 207 ff., and F. Hoffman, Kritische Dogmengeschichte der Geldwerttheorien (Leipzig, 1907), especially pp. 56–64.

[59]M. W. Holtrop, De Omloopsnelheid van het Geld (Amsterdam, 1928), p. 9.

[60]In addition to Jevons see S. D. Horton, Sir Isaac Newton and Englands Prohibitive Tarif upon Silver Money (Cincinatti, 1895), reprinted in the same author's Silver and Gold and Their Relations to the Problem of Resumption (Cincinnati, 1895), as well as W. St. Jevons’ unfinished reply, “Sir Isaac Newton and Bimetallism” reprinted in his Investigations in Currency and Finance, ed. by H. S. Foxwell (London, 1884), p. 330ff.

[61]In place of 1717, Cantillon himself wrote erroneously 1728 (p. 373) and the fact that he used words rather than numbers means that a writing or printing error can practically be ruled out. It is very difficult to understand such an error, since Cantillon not only experienced the event in question but even appears to have been in direct contact with Newton. The error persisted thereafter in the literature and is repeated in Steuart. Inquiry into the Principles of Political Economy, Book III, chap. 7, 3, p. 47 of the 1796 Basle edition or vol. 2, p. 135 of the collected works (London, 1805), as well as in J. G. Hoffmann, Die Lehre vom Gelde (Berlin, 1838), p. 104. On the other hand, in reproducing the relevant passage J. H. Graumann (Gesammlete Briefe vom Gelde etc., Berlin, 1762) corrected the error. See also Ph. Kalkmann, Englands Übergang zur Goldwährung im Achtzehnten Jahrhundert (Strabburg, 1895), p. 127.

On Cantillon's exchange rate theory see A. M. de Jong, Bijdrage tot de Geschiedenis van de Theorie den Wisselkoersen voor Adam Smith, De Economist, 74th year, Nos. 5–8, s’Gravenhage (May-August 1925).

[62]See also S. Weulersse, Le Mouvement Physiocratique en France (Paris, 1910), (2 volumes) and the same author's recent work Les Physiocrates (Encyclopédie Scientifique (Paris, 1931) and G. Schelle, Le Docteur Quesnay (Paris 1907), pp. 131–184.