The Highly Visible Hand: Richard Cantillon

Though Cantillon should be a household name in the field of economics there is a very good reason people know little about Cantillon, very little survived. Whether it was by design to cover up his dealings or simply due to the ravages of time, very little of Cantillon’s documentation and letters survived. Thanks to an increasing scholarly interest in Cantillon, biographers such as Antoin Murphy have crafted a clearer picture of Cantillon’s life. But in the end, Cantillon will always remain an elusive figure. Even something as simple as Cantillon’s birthdate is disputed.

He was born sometime between 1680 and 1690 in the country Kerry in Ireland. Through the Cantillon family genealogy we can get an idea of how the Cantillon’s made their way from France to Kerry. In the 11th-​century, the Cantillon family followed William the Conqueror in his successful invasion of Britain. A century later, the Cantillon’s under the reign of Henry II took part in the invasion of Ireland and were granted large tracts of land in southern Ireland in the province of Munster. Being Catholic gentlemanly farmers aligned to the crown, when the English Civil War broke out in the 17th-​century, the Cantillon’s joined the Stuart cause, the eventual losers of the conflict. Being former enemies of the parliamentarian cause, 1,500 acres of the Cantillon’s lands were confiscated.

As stated, Cantillon was born sometime between 1680 and 1690. His father, also named Richard Cantillon married his wife Bridget and had three children, Thomas, Bernard, and the future economist Richard. Richard’s older brother had fought as a captain in the Jacobite cause against parliament. After the conflict had ended, Thomas made a living by leasing his lands for rent. With Thomas running the family’s land, Richard and Bernard both saw few opportunities for them in Ireland and left for France.

At the time Ireland was deemed by many European commentators to be an economically dire backwater. The dismal state of the Irish economy was explained by commentators as part of the Irish national character as a lazy and slothful people. But the reality is that English laws and regulations completely stifled any economic opportunities for the people of Ireland. The repressive nature of British laws killed off any entrepreneurial drive the Irish population could muster. Though Kerry located in the southwest of Ireland is at the edge of Europe, Kerry thanks to a lack of strong British governance in Ireland was a hotbed for smuggling.

The defeat of the Jacobite cause at the Battle of the Boyne in 1690 brought about the death of the Catholic landholding class in Ireland. Former Jacobites fled Ireland in what historians have dubbed the flight of the wild geese. Romantic versions of the wild geese tell tales of soldiers roaming the European continent fighting for the Catholic cause. But soldiers were not the only people who crossed borders. A professional class of commercially minded Irish also fled to France and established themselves as entrepreneurs and bankers. To take a simple example,by the 18th-​century, a fifth of the members of the Bordeaux Chambers of Commerce were Irishman, a testament to their financial expertise.

We have no idea of exactly when Cantillon left Ireland, but we know he successfully applied for French nationality in 1708. When Cantilon arrived in France he was by no means a rich man. One later commentator even said that before coming to Paris Cantillon could rarely be found wearing shoes, not a literal accusation but an allusion to his poverty. Something Cantillon was keen to rectify by making a fortune. Though Cantillon lacked money, he had a wealth of important banking and trading contacts through his family. Cantillon’s cousin, Richard Chevalier had begun as a merchant but his success allowed him to diversify into banking, a rare field of economic activity mostly unburdened by regulations in 18th-​century France. The wealthy Chevalier housed Cantillon and provided him with work at his bank. Chevalier was asked to provide funds to British prisoners of war, an opportunity he passed onto his younger cousin Cantillon.

Thanks to his diligence, Cantillon’s abilities were brought to the attention of the Englishman James Brydges, the paymaster general of British forces abroad. By 1711, Richard moved to the Iberian Peninsula during the Spanish War of Succession. Cantillon was appointed as acting paymaster in Spain, his duties included providing troops wages, food, equipment, and any other necessities that arose. Cantillon quickly distinguished himself, with a few months experience under his belt, Cantillon became a trusted advisor to Brydges who began to increasingly rely on Cantillon’s knowledge. In 18th-​century Britain a certain amount of overt corruption and graft was expected and even accepted. But Brydges took it to another level using his position to become the wealthiest war profiteer of the era. While working under Byrdges Cantillon learned how money moved across countries and became a young expert on transferring wealth across borders.

Brydges, who was fond of Cantillon, offered him a job in London as work in Spain died down. Cantillon refused his offer, instead he planned to return to Paris and establish himself as a banker. While working for his cousin Chevalier back in Paris, Cantillon was introduced to Henry Bolingbroke, an English of Jacobite sympathies who had recently fled England. Cantillon offered his services and the two became firm friends with Bolingbroke introducing Cantillon to the leading intellectuals of France Voltaire and Montesquieu. Cantillon spent much of his life interacting with the literati and intellectual circles conversing with other figures of the day such as Issac Newton, Rousseau, and John Law.

Cantillon had returned to Paris at a tough time for a budding entrepreneur. Louis XIV’s unprecedented government spending had bankrupted the French state. By 1715, Cantillon was busy using his accounting skills to delay the collapse of his cousin Chevalier’s bank. Chevalier eventually signed over the bank to his younger cousin Cantillon who quickly established himself as a skillful banker, specializing in the transfer of money between Paris and London. Around this time, Cantillon met Matthew Deckard, a director of the East India Company who agreed to extend him credit to expand his banking operations.

Cantillon experienced a degree of propensity and fortune, he was an avid drinker and dealer of wine, a hobby he pursued throughout the course of his life, though sometimes with a little too much enthusiasm. In his spare time, Cantillon was fond of reading with one friend commenting that he read for three hours a day in bed. Cantillon was well off, but through his association with the Scotsman John Law he would become one of the wealthiest private individuals in Europe.

In 1716, the Scotsman John Law was appointed as the Controller General of Finances of France. He created the General Private Bank, one of the first institutions to develop paper money. King Louis had racked up a substantial national debt but he had no intent of cutting his spending. Instead, Louis looked for a way to manage the national debt and for this he turned to John Law. Through the General Private Bank, Law was granted a monopoly over the right to expand French territories in North America called the Mississippi company by the French government. To return the favor, the Mississippi company under Law’s leadership financed the French government debt at a low rate of interest.

John Law was a follower of the economist William Potter who in 1650 wrote The Key of Wealth which solidified in Law’s mind that increases in the supply of money would increase employment and productivity. Assured of his monetary theory, Law sold Mississippi company shares using the General Private Banks monopoly on issuing bank notes to finance his investors. In the fall of 1718, Law hired Cantillon. But Cantillon did not have faith in the Misssisipi Company, it was a scam, it was simply a way to transfer the national debt into company shares using manipulation. Cantillon also disagreed with Law’s views on monetary policy that increasing the money supply would have a positive effect on employment and productivity.

Market mania eventually set in and there was a buying frenzy of Mississippi company shares. Everything was going well until the French government admitted that the number of paper notes being issued exceeded the metal coinage it held. As people began to sell their shares, the money supply of France effectively doubled and inflation began to increase rapidly as Cantillon predicted. The bubble burst and fortunes were lost, there are even some historians who argue the Misssissipi bubble set the stage for the later French Revolution. But Cantillon with his insider knowledge had shorted his shares early well before the peak and had made out like a bandit becoming one of France’s wealthiest private individuals. The relationship between Cantillon and Law soured with Laq eventually threatening Cantillon with arrest​.in 1719, Cantillon left for Amsterdam before returning to Paris in 1720. During the mania over Mississippi company shares, many had come to Cantillon for loans to finance buying more shares, shares which were now effectively worthless. Cantillon became wealthy collecting high rates of interest on people’s debt from an economic catastrophe, one which he profited from greatly.

Cantillon’s debtors blamed him for their ruin, from this point onward Cantillon was involved in a large number of court cases. But things were not all bad for Cantillon, in 1722, he married an Irish woman Mary Mahony, the daughter of a wealthy merchant and former general. Cantillon spent much of the remainder of 1720s traveling throughout Europe with his wife, probably doing his best to avoid his numerous enemies and court cases in France. By 1729 onwards, Cantillon lived permanently in London but made frequent sojourns to Paris for business. Retired and wealthy, Cantillon spent much of his life in the 1730s researching economics and writing treatises, tragically only one of which survives entitled Essay on the Nature of Trade In General.

Cantillon though revolutionary and well ahead of his contemporaries in terms of economic knowledge, he was still married to certain dogmas of his day. For example, he had little to say about the possibility of economic growth and privileged the landed elite in his economic analysis. Nonetheless, Cantillon distanced himself from the pervasive mercantilist views of his day and strove to move away from normative arguments towards a scientific explanation of economic forces. Inspired by the methods of Descartes and Newton, Cantillon writes about economic by using simple abstract models and thought experiments to think about economic problems. Nowadays this approach is widespread in economics, but at the time Cantillon was the first to build upon abstract models.

Essay is divided into three books. The first is an analysis in an isolated state. In this pre capitalist state, a king rules over landlords of cities, towns, and villages. Landlords collect rents from farmers who in turn work the fields. We can call this the centralized estate model. Cantillon dispassionately admits most estates of this sort were won by force, similar to his own family who gained lands in England and Ireland through military conquest. But unlike most of his moralistic 18th-​century contemporaries, Cantillon gives descriptive assessments without injecting his moral views. Frederich Hayek commented that this tendency of Cantillon was “especially remarkable for a writer of his time.”

In the second book, Cantillon undertakes his analysis on the monetary economy. Here Cantillon criticized the mercantilists who believed that money was wealth and so the best policy for a nation is to hoard as much gold and silver as possible. But as Cantillon points out, wealth isn’t money but the ability to consume. In the third and final part of Essay Cantillon discussed the issues of foreign trade, exchange rates, and banking. Cantillon also tales time to extensively critique the Mississippi Company and the British variant of the South Sea Company which ended in a similar catastrophe.

Some have theorized that Cantillon, wrapped up in numerous legal disputes over interest rates wrote Essay as a defense of usury and a justification of his profession. But Cantillon deals with some much more than just banking. Before Adam Smith the usually credited father of economics, lifted a pen, Cantillon had begun carving out the discipline of economics. There is a lot to digest in Cantillon’s essay. But I think Cantillon deserves praise for three major innovations, his description of the role of entrepreneurs, his discussion of spatial economics, and his methodological contributions to economics.

In the 16th and 17th centuries, the word entrepreneur was used to describe someone who is risky and at times even violent. It was not a word dripping with glory or prestige. In the first part of his essay, Cantillon discusses the centralized estate economy where a king rules cities, towns, and villages in which landlords collected rent from farmers who worked the fields. In this model there are only three roles, landlords, overseers, and workers. The landlord in this system is the sole decision maker who communicates his demands to overseers.

But Cantillon believed that the replacement of barter with money allowed for a new class, the entrepreneur. In Cantillon’s model of a market economy the landlord still has a large role to play as vast wealth is vested in their hands. But now landlords no longer dictatorially command the economy. Instead they express their desires for goods and services, entrepreneurs identify these demands and attempt to meet them. Cantillon defined an entrepreneur as someone who buys at a known price and sells at an uncertain price. Unlike Adam Smith’s Hand which acts in a quasi-​mythical manner, Cantillon;s entrepreneur is the highly visible hand of the economy that serves as the catalyst for production. Observing the role of supply and demand in determining prices, Cantillon viewed the entrepreneur as an essential member of the market economy, one who brings prices and production in line with demand.

Cantillon was arguably the first person to discuss spatial economics, the study of the relationship between economic activity and geographical distribution. Cantillon theorized how economics determined the geography of the state. A state’s capital cities where the seat of government resides act as a center for the economy. Moving outwards, cities act as regional centers with large populations and markets. Cities in turn are surrounded by market towns where the produce of villages are bought and sold. Cantillon examined how distances effected prices and explained how prices varied. Though this may sound obvious today, Cantillon was the first person we know of who applied the first principles of spatial economics.

Lastly, we have Cantillon’s contributions to economic methodology. Cantillon aimed to provide a scientific explanation for how the economy functioned. He was fundamentally concerned with establishing cause and effect. Unlike his mercantilist contemporaries who tended to blather on great lengths about tangential topics in their treatises, Vantillon kept his mouth shut. Cantilon distinguishes himself by limiting himself to discussing descriptive not normative matters. Cantillon’s method of using abstract models to theorize about the economy has today become a pillar of the discipline. Economists Joseph Schumpyter and Frederich Hayek praised for his logical deductive reasoning despite being one iof the first in the western world to write a fully systematic treatise on economics.

Due to France’s strict laws on censorship Essay was not published until 1755, twenty years after Cantillon’s death. But this is not to say essay had no impact on economic thinking. Though largely forgotten until recent scholarship, Cantillon influenced foundation thinkers in the history of economics. His writings were admired and studied by the one of the earliest schools of economics the physiocrats with figures such as Francois Quesnay and Marquis de Mirabeau openly citing Cantillon. He is even one of the few writers that Adam Smith mentions by name.

Most of Cantillon’s papers and books do not survive today, this is because in 1734 his London home was burned and Cantillon died in the flames. Over the course of his life Cantillon had made many enemies. Part of why Cantillon is such an enigma historically is that he took great pains to cover his tracks and keep a low profile. Some historians theorize that Cantillon was murdered while others say he could have faked his own death to escape disgruntled debtors, some of whom had made threats uppn his life before. Regardless, the truth is lost to time.

Though Cantillon’s works were eventually [published and translated to English, by the close of the 18th-​century, Cantillon became an obscure name. However in the 1860s William Stanley Jevons one of the founders of the marginalist revolution rediscovered Cantillon’s writings and called his Essay, “the first treatise on economics” he called Essay, “more emphatically than any other single work…the cradle of Political Economy. Fellow economist Joseph Schumpter similarly to Jevons credited Cantillon as an early pioneer of economics. A sentiment also shared by Austrian economists Frederich Hayek and Murray Rothbard. Increasingly historians of economic thought are realizing that many came before Adam Smith the supposed Father of economics, people such as Richard Cantillon. It is a great tragedy that the majority of Cantillon’s economic writings are lost to time, but we are also lucky to still have his Essay on the Nature of Trade in General a book that while forgotten today, arguably did more to establish economics as a discipline than any other.