Cantillon, Economic Policy, and the Entrepreneur

0:00We've presented a paper on Richard Cantillon. This will be the third straight year that we've done this. And we found some, I think, very interesting things about Cantillon. And Chris has got his PhD in entrepreneurship. And of course, mine is in economics. And so we're using each other's knowledge base to try to wring out some more information, some more knowledge about Cantillon and entrepreneurship. And Cantillon has always been linked with entrepreneurship because he was the first person really to use it extensively in his writings. The first paper, it turns out, however, we showed that Cantillon actually created the word entrepreneurship. He gave it its current modern meaning in 1730, and we showed that as of 1729, the entrepreneur actually referred to government contractors, people who got a fixed price in the future and then had variable prices of their inputs going in and of course the modern definition is somebody who buys inputs at fixed prices only to sell them much later at an uncertain

1:16price. So the entrepreneur is the uncertainty bearer in the economy. So that was an interesting paper, sort of a historical paper where we showed that people started picking up his meaning. The second paper, I think was last year, that we show that Cantillon actually not only created entrepreneurship theory, but he actually used entrepreneurship theory to create all of his economic theories, supply and demand, circular flow, price species mechanism, labor market Analysis, on and on and on. Everybody's always wondering, you know, how did Cantillon discover all basics of economic analysis, including money, interest, business cycle, what he wasn't trained in economics. And we showed, well, he had this great entrepreneurship theory that he was then able to use as a fundamental tool for creating all of these other theories.

2:17In another paper, which is the subject of today's lecture, we always wanted to go back and look at Cantillon's views on economic policy and how those policy recommendations affected entrepreneurs, job creation, economic growth, and so forth. I guess the topic of job creation and the role of the entrepreneur in the economy has come under more focus during this crisis, so we thought about, well, I think now is the time to do that. Cantillon has long been known as a mercantilist in economic policy thought, where he had some free market views, and then he had some sort of pro-government interventionist views, and he was kind of a mishmash of public policy views, and that's the standard sort of view of Cantillon that we wanted to seek to address. Now 1730, what's going on then? This is very important for getting the correct meaning on Cantillon is understanding what's going on in his world because he doesn't talk a lot about that. First, England and France are in basically a constant state of war. So they're basically battling for global dominance,

3:37not just between the two countries but for the rest of Europe and all the colonial empires. The second thing, Cantillon is living in France and France is under the strict mercantilist regime of Colbert. In other words, the French economy is highly regimented through Colbert's mercantilism and the guild system, which is an early form of unions. The third thing that was going on in Cantillon's world were the Mississippi and South Sea bubbles. So for the first time, really, the world went on an uncontrolled frenzy of investment and then crisis and crash. And those three things don't really get much explicit coverage in Cantillon's work, but they're there.

4:28The first policy we looked at was job training programs, which is, of course, a standard mercantilist idea where people don't have jobs, so let's train them for jobs, and Cantillon has sort of an unusual take on this, he says, with regard to shipping and sailing, whether to train people to be engaged in this or not, and so on. Kenton has sort of an unusual take on this. He says, with regard to shipping and sailing, whether to train people to be engaged in shipping, Kenton says, no, we don't want to train people in sailing, quote, it would be of no use if no more ships were sent to sea. However, so he's against the idea of training people for sailing and transportation, a topic near and to his heart, but in terms of training for manufacturing he thought that was a good idea. So he says, quote, it is true that it would be a great advantage for a state to teach its subjects to produce the manufactured goods that are

5:34customarily drawn from abroad and all the other articles brought there, but I am at present only considering the state in relationship to itself. So he thinks The idea is that, yeah, we'll train people to manufacture goods here so we don't have to import goods, which is a standard mercantilist sort of idea. When he talks about job training, job skills and that sort of stuff, he discusses this at great length in his book. And basically, through most of the analysis, it's something that the market can do. It's a market-determined process where people have to look at the cost and the benefits of having a higher-skilled job. So he tells us, no, we don't want to train people to sail, but we do want to train them to manufacture.

6:24Well, why would he have that sort of contrary view? Well, Cantillon was actually involved in shipping. His bank helped finance the shipment of goods. One of the things that he knew that isn't discussed in detail in the book was that France at the time had an artificial disadvantage in shipping. In other words, there wasn't much of an industry in France for shipping goods. He said that Holland had the natural advantage in shipping, but that Britain had an artificial advantage in shipping. And that was the British Navigation Acts. Starting in 1651, the British Navigation Acts required that all goods being shipped in or out of England had to go on English ships with English sailors and any goods shipped out of their colonies had to be shipped to England and therefore also had to be shipped on English ships with English sailors. So basically anybody Somebody who is doing shipping would be more or less out of luck unless they used English ships and English sailors.

7:40And so another thing that comes into play here that we don't really know is with regard to this artificial advantage that Britain has and the artificial disadvantage that France Hans has is that a merchant marine or shipping industry is the basis of modern navies. So that in times of war, a nation with a large number of merchant marine ships can turn those ships into warships, can turn those sailors into people in their navy, working their boats, and also the ships can be turned into commerce raiders to steal your enemy's ships. So that But the reason Cantio was basically thought we had to have this government regulation was not because he was for government regulation. This is the only time that he explicitly calls for government regulation. It had nothing to do with the economy per se, but had to do with military disadvantage that France had. He says, quote, just as it is disadvantageous for a State to Encourage Foreign Manufacturers, so it is also to encourage foreign navigation.

8:55When a state sends its articles and goods abroad, it can obtain the full advantage if it sends them on its own ships. This way, the trade supports a large number of sailors who are useful to a state as workers. If it leaves ocean transportation to foreign vessels, it strengthens foreign navies and weakens its own. I will simply say that in countries where Notice that the trade does not support a large number of ships and sailors. It is almost impossible for the prince or the government to maintain a flourishing navy without ruining the state treasure with large expenditures. So in other words, it would require onerous taxes in order to maintain a flourishing navy unless you have a large shipping business. Notice that that quote begins with the statement just as a disadvantage for a state to encourage foreign manufacturers.

9:48He actually wants to have people taught how to manufacture goods. This is kind of a little bizarre because he's had several chapters where he's shown that the market can handle job training. So it certainly seems like as if it would be another example of mercantilism. And then later in the book he actually calls for setting up factories in remote places to alleviate poverty. Quote, therefore, whenever possible, factories for cloth, linen, lace, etc. ought to be set up in remote provinces and factories to make tools of iron, tin, copper, etc. It should be located in neighborhoods In this way, finished manufactured goods can be sent to the capital with much lower transportation costs than by sending the raw materials to be manufactured in the capital, as well as the subsistence of the artisans who manufacture them.

10:48And then he goes on to say why that's more economical to have these factories in remote areas. Well, golly, that sounds pretty mercantilist on the face of it. How can we explain that? How can we explain this call for training in manufacturing and also placing factories in remote areas? This would certainly seem like a call for government policies to subsidize subsidized the training to subsidize these factories. But again, that's not the case because those statements are basically taking out of the historical context that I referred to earlier. France, in the time that this book was written, in 1730, was really suffering on, suffering under a rigid regime of mercantilism or government control, regulation, taxing Banking and Monopolization of French Industry. The French government suppressed factories.

11:54The French government prevented people from going into manufacturing jobs. They had strict quotas and other forms of limitation which prevented people from becoming skilled artisans to make clothing, metal tools and so forth, and they also suppressed the building of factories in remote areas. They wanted all of the factories to be brought into the large cities so that they could be regulated, because the regulators couldn't go out all over France and to make sure that people weren't producing manufactured goods, and so everything had to be brought and so forth. And so it was really the government policy, longstanding, of well over a century that had basically limited French industry at a time when other countries, of course, were enjoying the Industrial Revolution, such as England. So, when Cantillon was in power, it was a time when all the factories had to go out into the city and all of the factories had to label their products with who manufactured them so that the government could rigidly regulate them, tax them, and so forth. And so it was really the government policy, longstanding, of well over a century that had basically limited French industry at a time when other countries, of course,

13:06He was calling for this training in manufacturing and factory in remote places, he's not calling for government intervention, he's simply calling for an elimination of government restrictions. Later on he also refers to the decay of France, that there was a period from the mid-seventeenth century to the late seventeenth century when France was really doing extremely well in In terms of manufacturing, and that all came to an end after 1685, refers to the decay of France. What actually was going on there, you can find out by actually reading history, is that at that point the French government expelled the Huguenots from the country. The Huguenots were Protestants who were involved in the manufacture of textiles, cotton textiles, Cotton Textiles, which was often viewed historically as a religious matter, but it was more strictly speaking an economic matter to suppress French manufacturing.

14:16So the examples that we've seen in Cantillon, which seem like they were calls for mercantilism, We're actually not, except for the call for the British Navigation Act, which Cantillon felt was necessary to both defend France against England and to prevent onerous taxation to maintain the French Navy. Throughout the book, we find that mercantilism basically is bad for entrepreneurship, it's It's bad for job creation, and that the only example we can find of sort of a non-free market policy is the Navigation Acts, which Cantillon argued would keep taxes lower.

15:05We can look at other things that also that Cantillon showed that usury was a good thing and that usury laws were a bad thing, that manipulating the value of money caused a boom and the boom and bust cycle, that national banks or central banks cause booms and bubbles, and that all of those things when the government gets involved is bad for entrepreneurs, bad for job formation and bad for the overall economy. Thank you very much.