Chapter Fourteen: The Desires, Fashions, and the Ways of Life of the Prince, and especially of the Property Owners, determine the Use to which Land is put in a State and Cause the Variations in the Market Prices of all Things

Chapter Fourteen

The Desires, Fashions, and Ways of Life of the Prince, and especially of the Property Owners, Determinethe Use to which Land is put in a State, and Cause the Variations in the Market Prices of all Things

Abstract: Cantillon constructs a model of the isolated estate or closed economy where the choices of property owners determine outputs and prices, regardless if they manage the isolated estate or lease it to farmers. Mistakes of the farmers or changes in demand by the property owners cause changes in prices, profits and losses, which drive the economy back to equilibrium. The result is that the price system directs resources to the same outcome as that provided by the direct management of the estate owner, ala Adam Smith’s use of the “invisible hand” in the Wealth of Nations.

IF THE OWNER OF A LARGE ESTATE (that I wish to consider here as if there were no other in the world)³⁵ cultivated it himself, he will follow his desires in the uses he puts it to. (1) He will necessarily use part of it for grain to feed the laborers, artisans and supervisors who work for him, and another part to feed the cattle, sheep and other animals necessary for their clothing and food or other conveniences, according to the way in which he wishes to maintain them. (2) He will turn part of the land into parks, gardens, fruit trees or vines according to his inclinations, and into meadows for the horses he will use for his pleasure, etc.

Let us now assume that to avoid all the care and trouble, he makes a deal with the supervisors of the laborers, gives them farms or pieces of land, and leaves to them the responsibility for maintaining, in the usual manner, all the laborers they supervise. The supervisors, now farmers or entrepreneurs, give the laborers, for working on the land or farm, another third of the production for their food, clothing and other requirements, such as they had when the owner employed them. Assume further that the owner makes a deal with the supervisors of the artisans for the food and other conveniences that he gave them, that he makes the supervisors become master artisans, fixes a common measure, like silver, to settle the price at which the farmers will supply them with wool, and they will supply him with cloth, and that the prices give the master craftsmen the same advantages and enjoyments they had when they were supervisors, and maintain the journeymen artisans the same as before. The artisans’ work will be paid for by the day or by the piece, and the merchandise they have made, hats, stockings, shoes, clothes, etc. will be sold to the property owner, farmers, laborers, and other artisans reciprocally, at prices that leave all of them with the same advantages as before. The farmers will sell, at a proportionate price, their produce and raw material.

It will then come to pass that the supervisors, now entrepreneurs, will become the absolute masters of those who work under them, and they will have more care and satisfaction in working on their own account. We assume that after this change, all the people on this large estate live just as they did before, and all the portions and farms of this great estate will be put to the same use as they formerly were.

If some of the farmers sowed more grain than usual, they will feed fewer sheep and have less wool and mutton to sell. Consequently, there will be too much grain and too little wool for the consumption of the inhabitants. Wool will be expensive, which will force the inhabitants to wear their clothes longer than usual, and there will be too much grain and a surplus for the following year. And as we assume that the property owner has stipulated for the payment in silver for the third of the production of the farm that is owed to him, the farmers who have too much grain and too little wool, will not be able to pay him the rent. If he excuses them, they will plan to have less grain and more wool for the next year, for farmers always take care to use their land for the production of those things, which they think will fetch the best price at market.³⁶ If, however, next year they have too much wool and too little grain for the demand, they will not fail to change from year to year the use of the land, until they arrive at proportioning their production to the consumption of the inhabitants. Thus a farmer who has appropriately proportioned his output to consumption will have part of his farm in grass, for hay, another for grain, wool and so on, and he will not change his plan unless he sees some considerable change in demand. However, in this example, we have assumed that all the people live approximately in the same way as when the property owner cultivated the land for himself, and consequently, the farmers will employ the land for the same purposes as before.

The owner, who has one-third of the product of the land at his disposal, is the principal agent in the changes that may occur in demand. Laborers and artisans, who live from day to day, change their way of living only out of necessity. However, some well-to-do farmers, master artisans and other entrepreneurs, whose expenses and compensations vary, will always take as their models the nobility and property owners. They imitate them in their clothing, meals, and way of life. If the property owners like to wear fine linen, silk, or lace, the demand for these goods will be greater than that of the owners themselves.

If a noble or property owner, who has leased out all his lands to farm, decides to considerably change his way of life; if, for example, he decreases the number of his domestic servants and increases the number of his horses, not only will his servants be forced to leave the estate in question, but also a proportionate number of artisans and of laborers who worked to maintain them. The portion of land that was used to maintain these inhabitants will be turned into pasture for the new horses, and if all landowners in the state did the same, they would soon increase the number of horses and diminish the number of inhabitants.

When a property owner has dismissed a great number of domestic servants, and increased the number of his horses, there will be too much wheat for the needs of the inhabitants, and so the wheat will be cheap and hay expensive. That will make the farmers enlarge their pastures and decrease wheat production to proportion production with consumption. Thus the demands of the owners determine the use of the land and when they bring about the variations in demand, this causes variations of market prices. If all the property owners of a state cultivated their own estates, they would use them to produce what they wanted. As the variations of demand are chiefly caused by their way of living, the prices that they offer in the market determine, for the farmers, all the changes that they make in the employment and use of the land.³⁷

I do not consider here the variations in market prices, which may arise from the good or bad harvest of the year, or the extraordinary consumption, which may occur from foreign troops or other accidents. In order to not complicate my subject, I am considering only a state in its natural and uniform condition.³⁸

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³⁵ Closed economy assumption invoked here.

³⁶ Cantillon model of the isolated estate where the direction of resources is transferred from the estate owner to a number of entrepreneurs is probably the basis of Adam Smith use of the invisible hand in the Wealth of Nations. Here is a clear statement of how self interest drives consumer sovereignty in the market economy.

³⁷ Here again Cantillon is showing how the market economy transmits the demands of consumers and directs the allocation of resources and the production of goods a la the invisible hand.

³⁸ More simplifying assumptions (or ceteris paribus conditions) regarding weather, crop production, war, and other conditions.