The Cantillon Legacy: Extending Rothbardian Revisionism

0:00Some of the people in this room have a great ability, an ability which very few other people in the world have. This is the ability to foresee the course of economic events and to predict the outcome of various economic policies. We are not fortune tellers and we cannot forecast the exact future, but we can, if we put our minds to it, predict the impact of various government policies on the economy. This is a tremendous skill to possess. Line up all the various policy options and Austrian economists can give you a description of the effects of each policy. We can, in effect, create prosperity. The subject of my lecture this afternoon is the individual who discovered all of the basic methods and theories and who first conducted successful economic analysis, Richard Cantillon.

0:51First, I would like to thank Jeff Herbiner for inviting me to address the Austrian Scholars Conference and the great honor of delivering the Rothbard Memorial Lecture. I would also like to thank Lew Rockwell and the members of the Mises Institute for supporting my research, which forms the basis of this lecture. I would further like to thank Jeff Tucker and Randy Holcomb for first getting me involved in writing about Kantian and to my professors in the history of economic thought, Robert Robert Eakland and Robert Hebert, and of course I would like to express my great admiration for the great inspiration that Murray Rothbard provided. There are those who have claimed that Ludwig von Mises to be the greatest economist of the 20th century, particularly the first half of the century when he made so many great contributions.

1:41Others have claimed that Murray Rothbard is the greatest economist and social scientist of the second half of the 20th century. I agree with both of these claims. However, the title of the best economist in all history I would give to Richard Cantillon. My research follows closely on Murray Rothbard's writings on Cantillon. I have made some dramatic discoveries, by history of thought standards at least, regarding Cantillon's economics and his influence on the subsequent development of economics. He was the first person to invent economic method and to provide a theoretical model for understanding the economy, but his contributions have never been fully appreciated until now, the 250th anniversary of the publication of his book, An Essay on the Nature of Commerce in General.

2:38But first, who is Richard Cantillon? Let me tell you a little bit about his interesting, fascinating life. Antione was a man of mystery. His biographer, Anthony Murphy, can only date his birth sometimes between 1680 and 1690. He was born into an Irish Catholic family that had been dispossessed of their lands by Cromwell's forces. Ironically, his first job was as a clerk for the British paid master general's office during the War of Spanish Succession. His employer, James James Bridges was one of the most successful and notorious war profiteers of his time, possibly of all time. After the war, Bridges would become Cantillon's financial patron and would later become one of the largest investors in the South Sea bubble.

3:27As a young man, Cantillon moved to Paris where he had two relatives in the banking business. In addition to Bridges, one of Cantillon's first banking clients was none other than Lord Bolingbroke, a Jacobite leader in the British Parliament. In 1715, Bolingbroke fled his country in fear of his life, suspecting that he would be arrested for undermining his own government. His money was sent to Cantillon. Bolingbroke lived with Cantillon in Paris for a time, and they became good friends. Bolingbroke also lived in the house next to Cantillon in London when Cantillon was mysteriously murdered in 1734. Cantillon quickly built up a successful banking business and paid off the debts of his bankrupt uncle despite the very chaotic financial conditions in France.

4:20The conditions of public finance in France were so untenable that the infamous John Law was given carte blanche over French finances, taxation, the French mint, and a monopoly on French international trade and was allowed to launch his inflation scheme that resulted in the Mississippi Bubble. Cantillon was deeply involved in the Mississippi Bubble as both an investor and John Law's partner in the company that was supposed to develop the Louisiana Territory. He made two large fortunes from the Mississippi bubble. The first on the appreciation of company shares as the market went into a boom and the second by selling shares short at the top of the bubble right before the shares crashed.

5:06As a result, as a very young man, he was one of the wealthiest private citizens in the world. It was the second fortune, as well as his involvement with John Law, that landed Cantillon in French and English courts on various lawsuits and legal charges, including usury, kind of the Martha Stewart syndrome of the day. Murphy found that all this litigation was a catalyst for Cantillon to write his book, The Essay. Murphy also speculates that Cantillon was not murdered, but faked his murder, burned his house to hide the evidence, and escaped to South America in order to avoid all these lawsuits. As a result of the fire, Cantillon's essay on the nature of commerce in general was the only one of his books that survived, and it was not published until more than twenty years after his death. Even then it was published anonymously under the name of a printer that had long been out of business. Again, the mystery continues. Virtually everyone who had read the essay has been impressed, although it must be pointed out that most people who

6:16have read the essay have had a difficult time understanding its full import, its full message. Economic theory is difficult to understand. The first major influence the essay had was on the formation of the physiocrats in 1756, the year after its publication. The Marquis Guy de Merbaugh based his own best-selling book, The Friend of Man, on his reading of the essay. He encouraged Vincent de Guernier to read the essay, and Francis Keney based his Tableau Economique as a rather unsuccessful attempt to simplify Cantillon's economics. Cantillon also, we know, influenced Turgot, Adam Smith, Kondiak, Jean-Baptiste Say, and and many others.

7:02Among the Austrians, I have found that Menger owned a copy of the essay. So did Mises. Hayek and his wife actually translated the essay into German, and of course Rothbard loved Cantillon. He dubbed Cantillon the founding father of modern economics, and he devoted an entire issue of the Journal of Libertarian Studies in 1985 to retrospective essays on Cantillon's economics. William Stanley Jevons, one of the co-founders of the Marginal Revolution is generally credited with rediscovering Cantillon. He called the essay a systematic and connected treatise going over in a concise manner nearly the entire field of economics. It was the first treatise in economics and he dubbed the work more emphatically than any other single work, the cradle of of Political Economy.

7:55The laudatory comments are just everywhere to be found. Joseph Schumpeter loved the book. Hayek, of course, loved the book and wrote extensively about Cantillon's economics. But there are problems with Cantillon's economics. The two major perceived problems or shortcomings in Cantillon is that in the area of theory, he is often considered an objective cost theorist. and in terms of policy, he was a mercantilist, which would make him in today's terms a Republican. My findings in my research resolve these problems, those two problems, but first I want to turn to Adam Smith's invisible hand. Rothbard, as I said, loved Cantillon, stating that he was the first theorist to demarcate an independent area of investigation, economics, and write a general treatise on all its aspects. He applauded Cantillon's contribution to methodology and in particular he noted that quote, he brilliantly began the economic analysis in his essay with the assumption that the whole world consists of one giant estate and that's important that Rothbard noted that. Cantillon shows in his model of the isolated estate

9:12that the owner can directly allocate resources to satisfy his own demands but then he changes establishes the model so that the estate owner simply rents the lands out to farmers who then bring about a system of trade, money prices, but all the production is still aimed at meeting the needs of the estate owner, guided by this new system which Cantillon identifies as the system of profits and losses. I believe that this model is where Adam Smith got his invisible hand. A cottage industry has sprung up to define the meaning of Adam Smith's invisible hand and to play off the widespread recognition and use of the phrase. Spencer Pack, for example, says that the invisible hand is about slavery.

9:59Syed Ahmad offers us four different invisible hands, while William Graham offers ten different possibilities. We are told that the invisible hand derives from Smith's theology, that it is an important Secular Device and that it is nothing more than an ironic but useful joke. Whatever its true meaning, it's all important enough that the American Economic Review, the Journal of Political Economy and the Journal of Economic Perspectives have all recently published articles on the meaning of the invisible hand. The debate or rather the confusion stems from the fact that Smith used the term in different Senses at Different Times, he used the invisible hand in his history of astronomy where he scorned those who would attribute a divine presence for things that could be explained scientifically.

10:53The second use is in the theory of moral sentiments where Smith describes the vile land owner who is forced to distribute the majority of his bounty from his land to the peasants in order to get them to do the things he wants and produce the goods that he wishes. by the invisible hand, so that people get almost the same sustenance as if the land was equally divided because the classes, rich and poor, are mutually interdependent. The third use of the phrase, the wealth of nations, is where the invisible hand is used as a simile for self-interest, and that people pursuing their self-interest unintentionally promote the general interest and the largest possible production. It's only through Cantillon's model do the combination of uses in the theory of moral sentiments and the wealth of nations make sense. It is widely acknowledged that Cantillon was the first to present a model of a self-regulating economy long before Smith and that Smith had indeed read Cantillon.

12:05But we have in this section of the essay the connecting ground between Cantillon Smith and the invisible hand. In The Theory of Moral Sentiments, Smith tells of the unfeeling landlord who need not look after his lands but is forced to distribute most of what is produced to the laborers. Even though they only try to attain their own desires, they end up distributing their and their resources, a la the invisible hand, because the classes are dependent upon one another. What at first appears to be two different meanings of the invisible hand came from the same source. We can still debate what Smith meant by the invisible hand, but it seems clear that Smith's source of this was his reading of Cantillon.

12:56Now, Rothbard also applauded Cantillon for his contributions to value and price theory. But this has been an area of heated debate and divided discussion in the economics profession. All schools of economic thought, it seems, want to claim Cantillon for their very own. Despite his use of the term intrinsic value, which is now, of course, an anathema of the and Economics Profession. Rothbard declares the term of intrinsic value, quote, an unfortunate one and then tries to defend Cantillon by showing that his discussion of market prices is based on consumer demand and that cost must be covered by market prices or resources will be diverted elsewhere. It's a brilliant defense but still leaves Rothbard with, quote, A big gap in Cantillon. Where do cost of production come from? Well, I too puzzled over Cantillon's intrinsic value. It's a subject over which a great deal of academic ink has been spilt in journals and in books. When you read the essay, you get the distinct impression that Cantillon could not have meant what we understand as intrinsic value today, or that he believed

14:11and even a truly objective measure of cost. In addition to Rothbard, I've noted several scholars who have a similar impression about Cantillon's intrinsic value, including Joseph Schumpeter, Joseph Spengler, the great historian of economic thought, Robert Hebert, David O. Mahoney, and Guido Holtzman. So I decided to take a closer look, and what I found is shocking, again, by history of Thought Standards. Cantillon's phrase, intrinsic value, is actually used to denote what we now know as opportunity cost, the very defining concept of economics. The fact that Cantillon discovered so much of what today is economics should reduce the shock because the concept of opportunity cost is really a necessary one to think economically.

15:07The first thing I did was to look at dictionaries, dictionaries from the time, and what I found is that the primary meaning of intrinsic in Cantillon's day in both French and English dictionaries was to place something inside, usually something of value, and the second meaning was that this something was intimate, private, and difficult to convey to others. If you combine the first two meanings of the term intrinsic, then what you have is value placed into a good that is private and difficult to communicate with others. That sounds an awful lot like me, to me, like opportunity cost. The third meaning, which is now dominant in our understanding as well as in the dictionary, stems from the revolution in the physical sciences that took place right after Cantillon's death.

16:02This is the sense in which Adam Smith used the term when he referred to the weight of pure metal in a coin or in a bar of precious metal. Essentially the commonly accepted meaning of the term changed as a result of this revolution in the physical sciences. Now John Locke had also used the term intrinsic value prior to Cantillon around 1700, but Cantillon attacks Max Lock in the essay taxes views on money and specifically mentions his use of intrinsic value is not the one connecting the purity of gold and silver and coins and bars. There are several places in the essay where Cantillon wrote that intrinsic value is the amount of land and labor used in production of a good and this is not a correct theory and the Theory of Cost by Austrian Standards. However, when he discusses value and cost in depth, he clearly qualifies and expands on this definition. First, he recognizes that there are different types of land and labor, and that they have different comparative advantages. Second, he also recognizes that there are different qualities of each type of land and labor, and that higher quality inputs or resources receive greater compensation.

17:25He recognizes that resources can be put to alternative uses, so that the entrepreneur must try to anticipate the best way, among many, to put his lands and labor to use. Taken together from start to finish, Cantillon's intrinsic value becomes opportunity cost, and he recognizes explicitly all of the components that the modern term entails. Not only did he use intrinsic value to mean opportunity cost in a general sense, he used it in a precise and detailed manner in several key illustrations involving land, labor and capital. Now, for those who teach economics and for those who have recently taken economics, the classic textbook illustration of opportunity cost is the decision to go to college, where Where the decision to attend is affected both by the foregone income of four years of college as well as the explicit cost of going to college, which is tuition.

18:32Cantillon gave us the 18th century equivalent to this illustration when he described a father's A labor's decision to send his son to an apprenticeship or to keep him on the farm. And this is a quote from Cantillon, a labor's son at seven to twelve years of age begins to help his father either in keeping the flocks, digging the ground, or in other sorts of country labor which require no art or skill. If his father puts him in a trade, he loses his assistance during the time of his apprenticeship and is necessitated to clothe him and to pay the expenses of his apprenticeship for some years.

19:19The son is thus an expense to the father and his labor brings no advantage till the end of some years. So in contrasting and comparing the examples, the father loses the cost of the apprenticeship as well as the foregone labor, the wages income of the student, for a period of seven years or four years in the case of college or five or six years I suppose. Kenton went on to use opportunity cost, the time lost in learning to trade and the cost and risk incurred in becoming proficient to help explain higher wages of Artisans and Craftsmen. Now if you're looking at this example carefully and teach economics you may see a problem in Cantillon. I'm surprised John Sophocles is not raising his hand on this one because economists would be correct to object that the cost of clothing should not be included because children must be Children on the farm contributed much to their own upkeep, including the production of clothing.

20:43They assisted in the production of wool and leather and undertook tasks such as weaving and sewing. Therefore, Cantillon included the need to clothe the apprentice in the father's decision because children on the farm participated in the production and upkeep of their home spun clothing while those in apprenticeships did not. This meant that the father would have an additional expense of providing the clothing for children sent into apprenticeships. So what it first appears as a typical freshman mistake turns out to be even more impressive and an even more complete construction of opportunity cost by Cantillon. Now Cantillon also has illustrations of applying opportunity cost, in this case it was to labor, he also has it in applying capital to land, which I'm not going to cover, and also in In the area of capital itself, and this is an important area where Cantillon basically explained the pain of interest as an opportunity cost of capital, defending his own behavior in essence, and defending himself against usury laws, and actual sections of the essay

22:05wound up in testimony submitted by Cantillon's lawyers to defend himself against these charges of Usury. It's a brilliant illustration of opportunity cost, and he even mentions the scholastic theologians who also supported the pain of interest at any rate, even usurious interest rates, on the basis of opportunity cost. So he actually draws out that explicitly. Okay, was Cantillon a mercantilist? Cantillon is widely interpreted as being a member of the mercantilists, an unorganized, difficult to define group of writers and pamphleteers who dominated public debate before the time of David Hume and the physiocrats. There is certainly a certain logic to this in that Cantillon himself was a merchant and a merchant banker. He was writing during the mercantilist period. He personally knew some of the The Greatest Mercantilist Experiment The Mississippi Bubble of All Time and Mercantilist Issues. However, there is something about this claim that Cantillon was a mercantilist that just doesn't smell right. Rothbard wrote, quote,

23:48There is no point in wasting time and fruitless speculation on whether or not Cantillon was a mercantilist. But of course Rothbard did spend a good deal of time trying to defend Cantillon against this charge, noting that he was the first to recognize that the market was self-regulating and that he opposed key tenets of mercantilism. Hayek and Lord Robbins also felt the same way, that this charge of mercantilism was an invalid one. Let us begin the analysis of Cantillon's views with the word regulated. In modern parlance, This word quickly conjures up notions of government regulation and regulated industry. Cantillon's statement where he wrote of regulating each branch of commerce singly naturally evokes images of tariffs, quotas, prohibitions, regulations that were so common under mercantilist regimes.

24:48However, the word regulated in Cantillon's time did not have the same meaning that it does today. In his day, the term simply meant well functioning. For Cantillon, it simply meant good, regulated, regular behavior. Every other time he used this word regulation in the essay, he was explaining how the price system regulated markets. And there are other common words in French that did specifically mean government regulation. So there should be no presumption that he was calling for government regulation of industry that quote was basically taken out of context and as a matter of fact there is a specific meaning in this day and age of the 1700s about regulated industries.

25:41The French economy in Cantillon's day was being strangled by a repressive mercantile Regime that would ultimately lead to the French Revolution. In international trade, the French relied not on private companies or even private monopolies, but on government-run enterprises. As Heckscher, the famous historian of mercantilism, noted, France showed stronger traces of direct enterprise in foreign trade and in colonization than most other countries. Trading companies These which arose at the time of Colbert and later differed fundamentally from those of Holland and England. Their initiative usually came from the state. A large proportion of the capital was put up by the king and the royal house.

26:31In other words, by public means. The capital risk too was largely carried by the king. Finally, the management was predominantly in the hands of non-merchants. and the merchant's proper generally had a poor opinion of the Parisians who were to carry on the trade under high protectionism. Thus, Heckscher concluded that while France relied on Colbert's mercantilism and state enterprises, her competitors in England and Holland relied on private business in foreign trade companies, which in England were called regulated companies. As a merchant banker Cantillon was highly experienced with all forms of business organization as they related to international trade as well as the relative advantages and disadvantages of all forms of organization thus in all likelihood Cantillon was not arguing for government regulation government already completely controlled the trade but against state-run trading enterprises of France and four private companies as they existed in England, the regulated company.

27:45As you can see, a lot of this is just misinterpretation taking out of context from a period of time that was separated by a long period of time. Also arguing against Cantillon, the mercantilist, is that nowhere in the essay does Cantillon explicitly call for tariffs, quotas, or prohibitions that would actually enforce mercantilism. In fact he argued against the prohibition of exporting gold and he argued explicitly against usury laws. It would be a very peculiar conclusion indeed that Cantillon was a mercantilist who advocated mercantilist policy but never mentioned the central mercantilist trade policies in a favorable light and even famously attacked two prominent mercantilist policies.

28:35Another example is a statement by Cantillon that would have to be seen as mercantilist. Quote, it is needful to discourage all foreign manufacturers and to give plenty employment to the inhabitants. Most mercantilist writers wrote something to that effect. But let's read it in context so we can see that Higgs's translation from the French leaves something much to be desired. Right before this line, Cantillon wrote that you cannot artificially stimulate manufacturing and that what is needed is production of well-made goods that are highly esteemed by the local population. This is needful to discourage all foreign manufacturers and give plenty of employment to the inhabitants.

29:26It's just a bad translation. It's been taken out of context to make Cantillon look like a mercantilist. There are many such problems with the Higgs translation and I am currently working on a new American translation of Cantillon's essay with Dr. Chantal Saucier. And what are we to make with Cantillon's admonition against the Dutch for selling Indian merchandise into Europe? and that it is, quote, evident disadvantage to allow Europeans to wear Indian clothing when they can make their own. Has Cantillon violated the principle of comparative advantage and adopted the mercantilist view? Well, to understand Cantillon's remark, it is important to place them within the context of his time.

30:14France, again, was ruled by an absolutist monarchy and dominated by a repressive, mercantilist economic policy regime. The country was subject to extremely harsh taxation, profligate spending by the king, systematic corruption, and a strong guild system that monopolized labor markets and manufacturing industries. With tax revenues maximized, France increasingly turned to the granting of monopoly rights to increase revenues. In this manner, government intervention turned existing guilds and cartel arrangements into uniform national monopolies. Cantillon apparently made calculations that showed that France had a comparative advantage in many of these monopolized industries, More directly to Cantillon's comment on Holland and the imports of Indian garments is the matter of calicoes, which were printed cotton textiles, where France banned the production of cotton textiles.

31:31They banned the importation of cotton textiles and even the wearing of cotton textiles. The initial boom in cotton textiles had apparently put the manufacturers of silk, wool and linen garments under intense competition. So they sought a ban on cotton textiles. They banned the imports to help maintain their monopoly profits and they banned the local The technical production of calicoes, because calicoes differ too much in terms of quality and variety to come under the rubric of strict French regulations. As a result, the cotton textile industry of France was probably set back by more than a century. Therefore, Cantillon's statement, which initially sounds very mercantilist, should clearly not be labeled mercantilist or an advocate of trade barriers, because imports had already been completely prohibited at the time.

32:33They were already in place. Rather, he was arguing for freedom to produce in France and that France could produce all of their own textiles as they had prior to the prohibition. So placed in the context of his time, Cantillon's conclusions make perfect economic sense. The French were restricting output in a product they had a comparative advantage in. Now Cantillon also has statements about money. And this is an interesting sort of area of contradiction because in some places he says that we need a lot of money in the economy. In other areas, he developed the gold price species flow model, which says you can't continually add gold into your economy because it's going to start to flow out to other nations.

33:25He also argued not to prohibit the export of gold, so you have kind of a circular sense here that he was arguing for something and arguing against that same issue. Well, he certainly didn't argue for more money based on mercantilist reasons. He was always critical of their particular reasons. For example, they viewed money as wealth, while Cantillon did not. He viewed goods and services and even luxuries as wealth. We also know that he was not under the mercantilist fallacy that a nation could build up its gold holdings ad infinitum. Professor Cantillon discovered the species flow mechanism. He also argued against attempts of the government to forcibly keep gold inside the country. So why did he argue for more money? Well, first he argued for a positive flow of gold if it represented a capital inflow from foreigners into your country, investing into your country to raise productivity and and overall production. He showed that increasing the money in circulation could result in higher prices, but if the money was imported in the form of loans, it would reduce the interest

34:43rate, encourage entrepreneurs to invest in business and create better jobs. Unlike the mercantilists, Cantillon carefully distinguished between money in circulation and loanable funds. The second reason, which is kind of a novel reason for increasing the and the supply of money is that he wanted the king essentially to accumulate a large stockpile of gold in the public treasury as a precaution or even a possible preventative against war. He also thought that France's large national debt would bring it to ruin, as it did. However, with a large cash hoard, the prince could purchase all the provisions of war from overseas and thus not impoverish his subjects should war come to pass.

35:34Therefore, a sufficiently large cash hoard would discourage invasions. Jacob Weiner found that this type of argument for holding and hoarding gold was rare amongst mercantilists. Cantillon, who was omitted from the survey, gave it as his most important reason. So in retrospect, Cantillon offered very good reasons for having a large supply of money in the economy that did not violate any of the mistakes of the mercantilists. Finally, I want to turn to the curious case of David Hume. When writing about Cantillon's influence on economics, Rothbard noted that the essay was certainly read and echoed by the eminent Scottish philosopher, David Hume.

36:27This has been a hot topic in the history of economic thought. Mark Blau twice accused Hume of plagiarizing from Cantillon. And when I read that, I wrote Blau and asked him, and he recanted when I challenged him, that he hadn't actually seen any evidence to that effect. But what Blau did see, correctly, was a very clear connection between Cantillon and Hume's economics, based on the fact that all three of Hume's major contributions to economic sciences are all anticipated in Cantillon's essay. Hume's answer to the mercantilist, the species flow mechanism, is clearly in Cantillon, as is the difference between normative and positive economics.

37:16The third contribution is the idea that of the short-run effect of increases in the supply of money in providing extra output and employment. And this is especially telling in connecting Hume to Cantillon because they stand virtually alone during this period in recognizing this point. Hayek too believed, based on the evidence, that the impression was inescapable, that Hume must have in fact known Cantillon. Murphy and others, however, have rejected this connection because they find Cantillon's presentation of the model, of the species flow model, to be so superior to Hume's that he could have not possibly have seen it. So I looked into this question of did Hume read Cantillon?

38:07Prior to his visit to France in 1734, Hume was an unaccomplished student without a degree. In a letter to a medical doctor, he described his own incurable distemper that had left him unable to study and for which he had taken many types of drugs and cures and seen numerous doctors without any effect. His description and self-diagnosis is certainly indicative of hypochondria and perhaps depression, resulting from his lack of success in his studies and his possible involvement in the Galbraith affair, a case of fornication and bastardry in which Hume In a letter to a friend, he wrote of his self-diagnosed cure. After he'd gone to all these doctors, he decided that what would cure him was to become a merchant. He went to Bristol, England, to work at a merchant house, but despite his self-described diligence and best efforts to fit into his new circumstances and he even changed his name from H-O-M-E to H-U-M-E to fit in with English pronunciation and spelling. He soon found himself unsuited to the merchant

39:27trade business and he left Bristol in the summer of 1734, almost the exact time that Cantillon was murdered to go to France and Hume's visit to France is critical in his life because while he was promising and ambitious he was still very much an unaccomplished student but on his return to England he embarked on a publishing career that was unbelievable and that would see him become a very prolific, path-breaking philosopher and historian and and one of the greatest and most celebrated minds of his age. Now basically a friend of his set him up with a visit to his cousin in France who was interested in philosophy and religion.

40:16This guy Ramsey was a convert to Roman Catholicism, the tutor of the two sons of the pretender, Prince Charles Edward Stuart and his brother Harry and most importantly he was a key disciple of Fennelon, one of the original architects of anti-mercantilism. As Rothbard observed, Fennelon led a powerful Kabbalit court who were deeply opposed to the absolutist and mercantilist policies of the king and determined to reform them in the direction of free trade, limited government and laissez-faire. Now basically I've got lots of details here of all of the people that Hume met, a lot of the important people in France of the underground intellectual circles, but I can't pronounce any of their names so I'm just going to skip over all that section.

41:14One of the philosophers, however, that he was involved with and studying with was actually Lord Bolingbroke's tutor in philosophy. This relationship is very important because it brings together Bolingbroke, Cantillon and Hume as basically within the same intellectual circles at basically the same period of time. The only difference is that Cantillon dies and then Hume almost directly afterward goes to France, but all the same players are there in Paris and in Reims during Hume's stay there and there's a lot of different connections that are developed which shows basically that Hume was essentially in the same intellectual circles as Bolingbroke and as Cantillon had The Marquis d'Argonne was the first person to use the phrase laissez-faire, laissez-passer.

42:26Montesquieu was actually a friend of Cantillon and a friend of Cantillon's wife. He met Voltaire. He met Sir Isaac Newton. The list of people that he was involved in was actually quite incredible. Just about anybody who was anybody was involved in these intellectual circles and it was very much against the French monarchy as well as in many cases the Protestant rule in England. and Against Mercantilism is really the beginning of anti-mercantilism and the beginning of the liberal tradition is setting up shop underground in Paris at this time.

43:11Okay, all these connections and many others established that Hume was most certainly connected with many of the same people who Cantillon knew. The Cantillon-Bowenbrook-Hume connection is particularly strong and noteworthy because all three were anti-mercantilist theorists. I believe that this evidence establishes that Hume hadivid opportunity but does not establish Hume certainly was interested in the economy and trade having just spent time in the merchant trade business. He was always worried about money, always complaining that he didn't have enough money, always asking friends and relatives to send him money.

43:57So the idea of this book by the world's wealthiest man who was in the banking business and in the merchant trade business would certainly have been something that was of interest to Hume. This is basically exactly what Hume was looking for. His analytic interest in trade, combined with his interest in improving his own economic circumstances, would have given Hume a powerful motive to seek out the essay. Of course, interest alone does also not imply access. And if there was only one copy of the manuscript, it would be hard to believe that Hume had actually gotten his hands on it. but at this time in these underground intellectual circles what people would do is hand copy the manuscript so that you would give it to a friend and in reading the manuscript they would write out a new copy and then you would get your copy back and your friend would hand it off to the next person who would then recopy it and so as a matter of fact Cantillon employed clerks at his bank whose job it was was to copy and prepare documents

45:03So when Hume arrived in France, there were probably several copies of the document, including in the hands of Bowenbrook and some of the other leading intellectuals of the time. But here's the clincher, you know, you've got the motive, you've got the opportunity, but is there any real evidence that he saw the essay? And here's the clincher. Some of Hume's early notes did survive and were subsequently published in 1948. Some of these notes, as indicated by the evidence, were written during Hume's time in France. Mosner labeled the third section of these notes general based on the fact that the title page of this section had been lost.

45:51However, it could also be the case, and I think it is, that more than one page was missing. Hume used the notes frequently in his writings, and once a note had been used, he crossed it out. If a page or pages had all been used up and crossed out, it is not unlikely that such pages were removed, set aside, lost or destroyed. What is clear from the notes in the general section is that Hume read very widely amongst both the mercantilist and the anti-mercantilist. So really, this was a section about economics. In the first two surviving notes of this section of notes, the third section is the most interesting. They don't refer to any specific writer, which most of the other notes do.

46:39The first note, which is entirely crossed out, concerned the practice of infanticide in China. Cantillon wrote about China in several places in the essay, including on the topic of population and infanticide. It is clear that Hume's note could have been based on Cantillon's essay and it is unlikely that Hume would have had any other source to draw from on the specific nature of the note because most writers on China or who studied the Chinese culture were trying to emphasize the similarities of all people across the planet, not their differences. The second surviving comment in the third section of notes represents a radical change, a radical So that anybody would say that you'd have to assume that they came from different books.

47:48However, Hume generally wrote several notes together on a single book. And here he was commenting on the productivity of labor and manufacturing. And this is from Hume. And this is from Hume, quote, a pound of steel when manufactured may become 10,000 pounds, British pounds, value. So what he's saying here is manufacturing can turn a little bit of steel into a whole lot of money. And this to me was very suspiciously similar to Cantillon's statement in the essay, quote, A fine steel spring, which regulates an English watch, is generally sold at a price which makes the proportion of material to labor, or of steel to spring, one to one million.

48:44So that in this case, labor makes up nearly all the value of the spring. See my calculation in the supplement. So here you've got Hume saying a pound of steel can become 10,000 British pounds of value and you've got Cantillon saying that the value of steel to the price of the spring can increase by a million times. So what I did was I looked at these observations from Cantillon and Hume and I tried to draw a connection as to what would the price of steel have to be for both of those calculations to be based on the same information and what I came up with is that the price of steel would have had to have been 2.4 pence per pound or 22.4 British pounds per ton So that was the ratio, and so then the next thing I had to do was find out what was the price of steel in the 1720s.

49:51And it turns out the data from a historian, Baraklaw, was that in the mid-1920s, that the price of steel was in the range of the mid to lower 20 pounds per ton. So the data, you know, from the data it seems reasonable to link those two quotes via the price of steel. Of course, Hume never talked about watches in his calculation. But this linkage clearly indicates that Hume was relying on Cantillon's essay and possibly even the supplement, which has long been missing. The use of steel in manufacturing did produce high levels of added value, but this was especially so in the watchmaking business because watches were a very expensive luxury good and the use of improved steel mechanisms was a key issue in watchmaking technology just prior to 1730.

50:52Watch springs would have been one of the very few items on the entire planet that would have produced the necessary one to one million ratio between the cost of steel and the value of output. It would not have been surprising if the very wealthy Cantillon owned such a watch at this time and that he acquired his own data about the watch springs either in acquiring a watch or more likely in replacing a broken watch spring. Hume, on the other hand, had a rather modest income during this time period when he made the notation. This would have precluded him having a watch until long after his publishing successes.

51:40In addition, I have found no other alternative source from which Hume could have derived his calculations and on this evidence that I have seen has convinced me that Hume actually read Cantillon. Now connecting Hume and Cantillon closes the circle. Cantillon was the primary inspiration for all the first economists, including Adam Smith and David Hume in Scotland and the physiocrats in Turgot in France. Tracing this connection also finds Cantillon in the middle of a hotbed of dissident intellectual In conclusion, we now know that in addition to inventing economic method and theory, Cantillon was a positive influence on Adam Smith and the source of Adam Smith's invisible hand.

52:39Cantillon discovered our core concept of opportunity cost and he was also a thorough going anti-mercantilist supporter of laissez-faire economic policy, and that he was the inspiration of David Hume's economic contribution and the real teacher of all the early economists, including, as I mentioned, the physiocrats in Turgo. Like I said at the beginning, the greatest economist of all time.