Richard Cantillon

Richard Cantillon: The Unseen Architect of Economic Thought

Imagine a time when the foundations of modern economics were being laid by an Irish-French economist who lived in the shadows of Paris and Amsterdam. Richard Cantillon, born in County Kerry in the 1680s, was not just a banker or merchant; he was a visionary whose ideas would shape the future of economic science.

Richard Cantillon’s journey to success was as tumultuous as it was remarkable. Through his family connections and employer James Brydges, he became a successful banker and merchant. His fortunes took a dramatic turn in the late 1710s when he speculated in John Law’s Mississippi Company, acquiring great wealth but also setting the stage for his eventual downfall.

Despite his success, Cantillon’s life was marked by lawsuits, criminal charges, and even murder plots. His death in 1734 came at a time when his manuscript ‘Essai Sur La Nature Du Commerce En Général’ (Essai) was still unpublished. Yet, it would go on to become the cradle of political economy, influencing early economic thought and laying the groundwork for Adam Smith, Anne Turgot, and Jean-Baptiste Say.

Although Cantillon wrote a wide variety of manuscripts, only his Essai survives today. Written in 1730 and published posthumously in 1755, it was translated into English by Henry Higgs in 1932. This work is considered the ‘cradle of political economy’ due to its profound influence on early economic science.

Essai: A Causal Methodology

Cantillon’s Essai stands out for its distinctive causal methodology, setting him apart from his mercantilist predecessors. The word ‘natural,’ peppered throughout the treatise, implies a cause and effect relationship between economic actions and their underlying phenomena.

This approach led to a relatively value-free approach to economic science, where Cantillon was uninterested in the merit of any particular economic action or phenomenon. Instead, he focused on explaining relationships. This methodological shift was crucial as it paved the way for more objective analysis in economics.

Key Economic Concepts

Cantillon’s Essai introduced several groundbreaking concepts that would shape future economic thought:

• Separation of Wealth and Money: Cantillon defined wealth as ‘nothing but the food, conveniences, and pleasures of life,’ distinguishing it from money. This distinction was revolutionary for its time.
• Intrinsic Theory of Value: He advocated an intrinsic theory based on the input of land and labor (cost of production). However, he also touched upon a subjective theory of value, suggesting that market prices are derived from supply and demand rather than intrinsic value.
• Quantity Theory of Money: Cantillon developed an advanced version of John Locke’s quantity theory of money, focusing on relative inflation and the velocity of money. He suggested that inflation occurs gradually, with early recipients enjoying higher standards of living at the expense of later ones.
• Specie-Flow Mechanism: Cantillon proposed a specie-flow mechanism to explain international monetary equilibrium, which is still relevant today.
• Theory of Interest: He presented an advanced theory of interest based on the supply and demand for loanable funds.

Cantillon’s theories on population growth also stood out. He believed that it grows only as long as there are economic opportunities present, with three determining variables: natural resources, technology, and culture.

Influence and Legacy

The Essai was published in 1755 and had a profound impact on the development of economic science. Cantillon’s ideas influenced many direct forerunners of the classical school of thought, including physiocrat François Quesnay. However, Quesnay also rejected some of Cantillon’s premises.

Adam Smith cited Cantillon as a precursor to the classical school of thought, with influences on both Smith and Jean-Baptiste Say. His work laid the groundwork for modern economic analysis, making him an unsung hero in the history of economics.

A Life Cut Short

Richard Cantillon’s personal life was as complex as his intellectual contributions. He married Mary Anne O’Mahony in 1722 and had two daughters, Henrietta, and a son who died at a young age. After his death, his widow married François de Bulkeley, whose lineage traced back to the Duchess of Richmond.

Despite the turmoil that surrounded him, Cantillon’s legacy endures through his Essai, which continues to influence economic thought today. His work stands as a testament to the power of ideas and the enduring impact of those who dare to challenge conventional wisdom.