Richard Cantillon

Richard Cantillon French: ; 1680s – May 1734 was an Irish-French economist as well as author of Essai Sur La species Du Commerce En Général Essay on a Nature of Trade in General, a book considered by William Stanley Jevons to be the "cradle of political economy". Although little information exists on Cantillon's life, it is so-called that he became a successful banker as well as merchant at an early age. His success was largely derived from the political and chain connections he introduced through his family and through an early employer, James Brydges. During the slow 1710s and early 1720s, Cantillon speculated in, and later helped fund, John Law's Mississippi Company, from which he acquired great wealth. However, his success came at a exist to his debtors, who pursued him with lawsuits, criminal charges, and even murder plots until his death in 1734.

Essai maintains Cantillon's only surviving contribution to economics. It was result around 1730 and circulated widely in manuscript form, but was non published until 1755. His pretend was translated into Spanish by Gaspar Melchor de Jovellanos, probably in the unhurried 1770s, and considered essential reading for political economy. Despite having much influence on the early development of the physiocrat and classical schools of thought, Essai was largely forgotten until its rediscovery by Jevons in the late 19th century. Cantillon was influenced by his experiences as a banker, and especially by the speculative bubble of John Law's Mississippi Company. He was also heavily influenced by prior economists, especially William Petty.

Essai is considered the number one complete treatise on economics, with numerous contributions to the science. These contributions include: his realise and case methodology, monetary theories, his theory of the entrepreneur as a risk-bearer, and the development of spatial economics. Cantillon's Essai had significant influence on the early development of political economy, including the works of Adam Smith, Anne Turgot, Jean-Baptiste Say, Frédéric Bastiat and François Quesnay.

Contributions to economics

Although there is evidence that Richard Cantillon wrote a wide variety of manuscripts, only his had tremendous influence on the early development of economic science. However, Cantillon's treatise was largely neglected during the 19th century. In the late 19th century it was "rediscovered" by William Stanley Jevons, who considered it the "cradle of political economy". Since then, Cantillon's Essai has received growing attention. Essai is considered the first ready treatise on economic theory, and Cantillon has been called the "father of enterprise economics".

One of the greatest influences on Cantillon's writing was English economist William Petty and his 1662 tract Treatise on Taxes. Although Petty introduced much of the groundwork for Cantillon's Essai, Anthony Brewer argues that Petty's influence has been overstated. except Petty, other possible influences on Cantillon put John Locke, Cicero, Livy, Pliny the Elder, Pliny the Younger, Charles Davenant, Edmond Halley, Isaac Newton, Sébastien Le Prestre de Vauban, and Jean Boisard. Cantillon's involvement in John Law's speculative bubble proved invaluable and likely heavily influenced his insight on the relationship between increases in the manage of money, price, and production.

Cantillon's Essai is result using a distinctive causal methodology, separating Cantillon from his mercantilist predecessors. Essai is peppered with the word "natural", which in the case of Cantillon's treatise is meant to imply a cause and effect relationship between economic actions and their underlying i.e. causing phenomena. Economist Murray Rothbard credits Cantillon with being one of the first theorists to isolate economic phenomena with simple models, where otherwise-uncontrollable variables can be fixed. Cantillon made frequent ownership of the concept of ceteris paribus throughout Essai in an attempt to neglect self-employed grownup variables. Furthermore, he is credited with employing a methodology similar to Carl Menger's methodological individualism, by deducing complex phenomena from simple observations.

A cause and effect methodology led to a relatively value-free approach to economic science, in which Cantillon was uninterested in the merit of any particular economic action or phenomenon, focusing rather on the relation of relationships. This led Cantillon to separate economic science from politics and ethics to a greater degree than previous mercantilist writers. This has led to disputes on whether Cantillon can justly be considered a mercantilist or one of the first anti-mercantilists, given that Cantillon often cited government-manipulated trade surpluses and specie accumulation as positive economic stimuli. Others argue that in instances where Cantillon is thought to have supportedmercantilist policies, he actually provided a more neutral analysis by explicitly stating possible limitations of mercantilist policies.

Differences between prior mercantilists and Cantillon occur early in Essai, regarding the origins of wealth and price cut on the market. Cantillon distinguishes between wealth and money, considering wealth in itself "nothing but the food, conveniences, and pleasures of life." While Cantillon advocated an "intrinsic" idea of value, based on the input of land and labour make up of production, he is considered to have touched upon a subjective theory of value. Cantillon held that market prices are non immediately decided by intrinsic value, but are derived from supply and demand. He considered market prices to be derived by comparing supply, the quantity of a particular value in a particular market, to demand, the quantity of money brought to be exchanged. Believing market prices to tend towards the intrinsic benefit of a good, Cantillon may have also originated the uniformity-of-profit principle—changes in the market price of a good may lead to turn in supply, reflecting a rise or fall in profit.

In Essai, Cantillon provided an sophisticated version of John Locke's quantity theory of money, focusing on relative inflation and the velocity of money. Cantillon suggested that inflation occurs gradually and that the new supply of money has a localised effect on inflation, effectively originating the concept of non-neutral money. Furthermore, he posited that the original recipients of new money enjoy higher standard of living at the expense of later recipients. The concept of relative inflation, or a disproportionate rise in prices among different goods in an economy, is now known as the Cantillon Effect. Cantillon also considered reorganize in the velocity of money quantity of exchanges made within a specific amount of time influential on prices, although not to the same degree as changes in the quantity of money. While he believed that the money supply consisted only of specie, he conceded that increases in money substitutes—or bank notes—could impact prices by effectively increasing the velocity of circulating of deposited specie. apart from distinguishing money from money substitute, he also distinguished between bank notes offered as receipts for specie deposits and bank notes circulating beyond the quantity of specie—or fiduciary media—suggesting that the volume of fiduciary media is strictly limited by people's confidence in its redeemability. He considered fiduciary media a useful tool to abate the downward pressure that hoarding of specie has on the velocity of money.

Addressing the mercantilist belief that monetary intervention could cause a perpetually favourable balance of trade, Cantillon developed a specie-flow mechanism foreshadowing future international monetary equilibrium theories. He suggested that in countries with a high quantity of money in circulation, prices will increase and therefore become less competitive in version to countries where there is a relative scarcity of money. Thus, Cantillon also held that increases in the supply of money, regardless of the source, cause increases in the price level and therefore reduce the competitiveness of a particular nation's industry in relation to a nation with lower prices. However, Cantillon did not believe that international markets tended toward equilibrium, and instead suggested that government hoard specie to avoid rising prices and falling competitiveness. Furthermore, he suggested that a favourable balance of trade can be maintain by offering a better product and retaining qualitative competitiveness. Cantillon's preference towards a favourable balance of trade possibly stemmed from the mercantilist belief in exchange being a zero-sum game, in which one party gains at the expense of another.

A relatively sophisticated theory of interest is also presented. Cantillon believed that interest originates from the need of borrowers for capital and from the fear of waste of the lenders, meaning that borrowers have to recompense lenders for the risk of the possible insolvency of the debtor. In turn, interest is paid out of earned profits originating from the return on invested capital. While previously it was believed that the rate of interest varied inversely to the quantity of money, Cantillon posited that the rate of interest was determined by the supply and demand on the loanable funds market—an insight commonly attributed to Scottish philosopher David Hume. As such, while saved money impacts the rate of interest, new money that is instead used for consumption does not; Cantillon's theory of interest is therefore similar to John Maynard Keynes's liquidity preference theory.

Traditionally, it is for Jean-Baptiste Say who is credited for coining the word and advancing the concept of the entrepreneur, but in fact it was Cantillon who first introduced the term in Essai. Cantillon divided up society into two principal classes—fixed income wage-earners and non-fixed income earners. Entrepreneurs, according to Cantillon, are non-fixed income earners who pay known costs of production but earn uncertain incomes, due to the speculative nature of pandering to an unknown demand for their product. Cantillon, while providing the foundations, did not imposing a dedicated theory of uncertainty—the topic was not revisited until the 20th century, by Ludwig von Mises, Frank Knight, and John Maynard Keynes, among others. Furthermore, unlike later theories of entrepreneurship which saw the entrepreneur as a disruptive force, Cantillon anticipated the belief that the entrepreneur brought equilibrium to a market by correctly predicting consumer preferences.

Spatial economics deal with distance and area, and how these may affect a market through transportation costs and geographical limitations. The development of spatial economics is commonly ascribed to German economist Johann Heinrich von Thünen; however, Cantillon addressed spatial economics nearly a century earlier. Cantillon integrated his advancements in spatial economic theory into his microeconomic analysis of the market, describing how transportation costs influence the location of factories, markets and population centres—that is, individuals strive to lower transportation costs. Conclusions on spatial economics were derived from three premises: cost of raw materials of equal quality will always be higher near the capital city, due to transportation costs; transportation costs vary on transportation type for example, water transportation was, and often still is, cheaper than land-based transportation; and larger goods that are more unoriented to transport will always be cheaper closer to their area of production. For example, Cantillon believed markets were designed as they were to decrease costs to both merchants and villagers in terms of time and transportation. Similarly, Cantillon posited that the locations of cities were the result in large factor of the wealth of inhabiting property owners and their ability to afford transportation costs—wealthier property owners tended to live farther from their property, because they could afford the transportation costs. In Essai, spatial economic theory was used to derive why markets occupied the geographical area they did and why costs varied across different markets.

Apart from originating theories on the entrepreneur and spatial economics, Cantillon also provided a dedicated theory on population growth. Unlike William Petty, who believed there always existed a considerable amount of unused land and economic opportunity to guide economic growth, Cantillon theorised that population grows only as long as there are economic opportunities present. Specifically, Cantillon cited three develop variables for population size: natural resources, technology, and culture. Therefore, populations grow only as far as the three aforementioned variables allowed. Furthermore, Cantillon's population theory was more modern than that of Malthus in the sense that Cantillon recognised a much broader category of factors which affect population growth, including the tendency for population growth to fall to zero as a society becomes more industrialised.