An Essay on Economic Theory

0:00Hello, my name is Jeffrey Tucker. I work for the Mises Institute, and it's my pleasure to sit here today with Professor Mark Thornton, who's the editor, co-translator of a new book, Essay on Economic Theory, by Richard Cantillon, who lived before the time of Adam I'm Smith and wrote a wonderful treatise. The Mises Institute has just published a new translation. Welcome, Professor Thornton. Thank you very much, Jeff. It's a great pleasure to be here with you today. Tell us first a little bit about Richard Cantillon. Okay, Cantillon is a very mysterious character. He comes from Ireland, County Kerry. His family lands had been taken by the Protestants.

0:53and so he and his brother left to go to Paris to find work and to find a livelihood and he ended up in his uncle's bank and eventually taking over his bank making it very profitable. He was tapped by John Law to be a director of the Mississippi Company. This is John Law of the famous Mississippi bubble, yes absolutely and Cantillon was a very bright person and he actually made money on the stocks as they went up. He made money by selling them short on the way down and he also made money in a currency transaction taking advantage of changing values of different currencies. So he's very brilliant person, lived all over Europe and made a lot of money. And when did the book come out during his Lifetime? No, it did not. It's written, we think, around 1730, and it was not published until 1755, which was long after his death. He was supposedly murdered in 1734. Others have come to doubt that, and his biographer has suggested that he faked his own death to get away from various lawsuits.

2:13Just as today, when you see a bubble and a bust and somebody making money off of it, Everybody wanted to sue Cantillon to get part of his money back. So it was written around 1730. It circulated in Europe amongst his friends and colleagues until it was finally published in 1755. And that was brought about by the physiocrats who had gotten a copy of it. Had it published under very mysterious circumstances. It was anonymous. It was supposedly published by a publishing house that had gone out of business. And so everywhere you turn in And what did he look like? We don't know. That's the one thing I'm working on right now as we speak, is to try to find an image that I think I have found, but there's no pictures or representations of him as a man. There's a few written descriptions, but other than that, we don't have anything official quite yet.

3:13What was in the book that was so controversial or is that why the publication was so delayed? Well it was delayed because of censorship laws in France at the time. You had to get government permission and you know economics is something that very often Government Likes to Cover Up. And this is really the first book ever in terms of economic theory. And so he wasn't interested in publishing it. It would have only gotten him in more trouble. And so the censorship laws were relaxed around mid-century, around 1750. And so the physiocrats who had public standing thought that this was the time to bring it out.

4:02You said it was the first book on economic theory. Is that really the case? Yeah, that's really the case. I mean, there's economics that's going on prior to Cantillon, but most of it was mercantilist, which is not really economic theory to speak of its economic policy, and it's mostly misguided economic policy. You can get some good economics if you go back to the scholastics, but again, it's not really economic theory per se. From first page to last, scientific treatment. That's correct. And that's what you find in Cantillon. It's not unlike a good book on economic theory today. I mean, he starts off with the very basics and goes through price theory and develops it systematically until you get to the end of the book where you've gone through production, distribution, price theory, monetary theory, banking, which was all brand new, and ending up with business cycle theory. So it's all there, systematically He laid out from the very basics to the most complex things.

5:09This is why Rothbard called him the founding, what did he say, the founder of modern economics, I guess is his phrase, right? Yeah, that's correct. And actually Murray's essay on Cantillon is what really got me interested in him in the first place. And Murray had not only great descriptions of what was in Cantillon, but also a lot of The Mysteries and his observations about what he thought would resolve those mysteries and so I wrote about Cantillon for the book 15 Greatest Austrian Economists and then I spent about the next 10 years trying to unravel those mysteries in detail, the type of detail that Murray didn't have time to do. And as a matter of fact, I mean, I wouldn't have had time to do it if I had a regular Academic Job. I mean, if I wasn't working at the institute and having the time to put into those kind of mysteries and into the translation itself, which took six years to complete, and I had the assistance, of course, of Chantal Saussier, who's a French translator,

6:14none of this would have ever come to be. And I can assure listeners that Dr. Thornton has been absolutely obsessed. tracking down you know sometimes I we would spend a couple of days trying to unravel the meaning of a single sentence or a single paragraph and very often we have to come back and revisit it because you know we would only find the clues to unravel it later on in the text and so we we use the original French we used and the English translation by Henry Higgs in 1931. There's the only other translation available, right? That's correct. Well, there's also a German translation by Hayek and his wife. And we consulted that in a couple of instances to see what Hayek had to say about particular points.

7:01And so we had a good set of data to work from. But still, there's a lot of mysteries that were seemingly took forever to unravel. on Ravel and there was a case where he discusses a landowner building canals and terraces on his property and we couldn't really figure that out what he was talking about there until we ran into a book on 18th century French landscaping and what that actually involved was lowering the level of land further away from your house and raising it to a flat level closer to your house so that deer and other animals couldn't jump up into your garden and eat all your plants and flowers.

7:52And it was a common technique back then, but Higgs's translation led you to wonder what in the world was going on. Yeah, that seems very strange. Well, then of course you have the other issue that Kantian was the founder of the notion of entrepreneurship, you could say, in economic theory, and yet the term doesn't appear in the old English translation. That's correct. Adam Smith and Henry Higgs, who translated the Kantian's essay in 1931, both used the word undertaker. And so that's just one instance, but it's a repetitive one where the reader is faced with a term that just isn't the correct meaning and so one of the most obvious changes that we made is to put entrepreneur back into the book because he I mean that is one of the key contributions that Cantillon made it's his whole system of economics is built on the entrepreneur nothing moves nothing ever comes about in terms of economic theory if you take the entrepreneur out of the equation so to speak.

8:58You know we talked about this a couple of days ago and in the meantime I should have I've asked at the time, but 48 hours have gone by, and only now am I puzzling as to how it came to be that the word undertaker replaced entrepreneur. What possible relationship could there be between these two terms? Well, the word entrepreneur, we're doing some research on this, but the original meaning of entrepreneur was somebody who was a government contractor who built forts and who built bridges and things of that nature. and the Future. Then it became more of a general notion of just somebody who undertook various projects. And it was Cantillon who redefined the term to mean somebody who bought in the present at fixed prices but sold in the future at uncertain prices and therefore faced uncertainty and risk, where the government contractor then and now of course does not face risk.

9:56They get their money under all conditions. So Cantillon changed the word to mean almost the exact opposite and it stuck in all the early dictionaries after Cantillon. We see the word meaning what it does today and also very often quoted by students of Cantillon, readers of his book. Okay, now I understand that Undertaker doesn't have anything to do with death and graveyards. That's correct. Somebody who undertakes an activity or something. That's correct, but it's very unsettling, you know, for a modern reader to see that the Undertakers are in charge of everything. I mean, I can think of some entrepreneurs who probably ought to be called Undertakers insofar as they're linked up with, say, bailouts or whatever.

10:44That's correct. Yeah. Now, you had mentioned that Adam Smith actually quoted Cantillon in The Wealth of Nations. That's correct. He quotes Cantillon on the matter of par value between land and labor. Because, of course, value theory was all messed up in the early days and still is to a large extent. And so Cantillon really straightens out value theory for the early economist and introduces what we call today opportunity cost. Cost. And for many years, people misunderstood Cantillon's value theory. And I was able to do some research and show that what he meant by opportunity cost is precisely what we mean by opportunity cost. And he used examples in his text that are very reminiscent of examples in modern text. He uses the example of the farmer making the decision of whether or not to send his child into a craft where you have to spend years learning how to do a certain and Trade, and you lose all that time, whereas the sun could have been working on the farm.

11:53So it's precisely the modern definition, and Smith references Cantillon, he read Cantillon, he derived the invisible hand out of Cantillon, of course Cantillon did not use the term invisible hand, and also David Hume read Cantillon, the physiocrats of course who helped get his This book published, Turgot read in references, Cantillon and also Kondiak, so all the early economists read him, although in some cases they didn't even know who they were reading because the book was published again, anonymously. So you said he didn't use the word invisible hand, did he have some notion of a self-regulating society or a spontaneous order?

12:39Yes, he has a model of what he calls the isolated estate where one man owns everything in the world and there's nothing outside of that and of course the owner has to hire labor and direct them and so forth and then he changes the model where he leases parts of his land to individual entrepreneurs who then undertake to grow various crops and raise various animals and to make various goods and services which are then priced on the marketplace. So he starts out with feudalism where one person owns this massive estate and then he develops capitalism by breaking it all up into individual pieces, creating entrepreneurs, prices and markets. So he has the division of labor all worked out there.

13:25Oh, absolutely. In fact, he develops the division of labor much earlier on than all of that. But as you get further into the text where he's building this model of the invisible hand, he shows that if demand is reduced for a certain product, the price falls, the farmers have to adjust, so you've got the price system and you've got entrepreneurial adjustment, and Loss, all the basic components of what we know of as the invisible hand. Yeah, that's really remarkable. From your description, it seems like his name ought to be added to the list of the founders of classical liberalism. Well he does, he pulls his punches in a lot of areas. He clearly doesn't like government, government, taxes, national debt, war, things of those obvious natures, but you'll find them very often coming to a policy conclusion and he'll say, but that is beyond the nature of my subject.

14:32Yeah. So he... Well, Mises says that sometimes too. That's correct. Yeah. He stops at various points where the positive scientific economic analysis ends and where It goes without saying, I suppose, that you consider him a predecessor to the Austrian School. Well, no doubt about it. I mean, in fact, I wrote an article, it's titled, Cantillon as an Austrian Economist. Again, very much modeled on Murray's work, but yes, I mean, he's an important influence. We know that Menger read him, he had a copy of the book, in fact, he had two copies of of the Book, one of which he gave Hayek, and that became very influential on Hayek's business cycle theory and Cantillon effects and relative prices and all that nature.

15:22Do you think that book will ever go for sale on eBay, is there any chance of that? Wow. Well, actually, the copies of Cantillon's essay are so rare and tightly held that the first edition is probably the most expensive book in economics, or maybe one of the most and the most expensive books in the social sciences. There's currently only one copy for sale and I think it's for over $65,000. So it leaves the wealth of nations and things like that in the dust as far as the resale used book market or the antiquarian book market. It's number one as far as I can tell. So your new book is a little more affordable than that. Well, you could speak to that.

16:07These aspects, the division of labor, and all the things you're talking about. Are they clearer in your translation than in the older translation? Oh yes, absolutely. We do all sorts of things to improve the book and to make it more readable. The grammar, the punctuation, the sentence structure, we add abstracts to all the chapters to tell the reader what they're going to get into in the chapter. And then after we have explanatory footnotes for all the terms and historical characters, because of course, Cantillon's read everything that's available. He's just talking about all of the economists of the day and criticizing their work. We had footnotes for various types of money and just everything that the modern reader wouldn't be familiar with, we provide some explanation.

17:02And then again, we also make some, I think, some important corrections in the original translation where Higgs leaves the essay either with error or with ambiguity and we painstakingly work through all of that with our various sources and try to make that as clear and as correct as we possibly could. This isn't entirely unusual. It's often the case that Translation 2.0 is necessary to gain a full understanding of somebody's work. Yeah, that's right. Higgs's translation is what translators would call a literal translation where he's just going word for word, sentence by sentence, paragraph by paragraph. And what What you need for a fuller understanding from the modern perspective is more of a wholesale translation where you're really looking at what was the original author trying to convey and then rewriting it in that fashion.

18:05We're not writing anything new into them. We're just both updating it and correcting it so that it can be understood. With the Hayek's translation, if you were to read it, you would be stumbling through words, sentences, paragraphs, whole chapters, and just thinking you might get the true understanding. With our translation, we're hoping it's going to be much easier for the reader. Yeah. You know, one thing we left out when we were talking about Kantian himself is his influences. If you were going to name two or three economic thinkers that had the biggest influence on on his thought, who would they be? Well, that's a very good question. Lord Bolingbroke, who was the prime minister of England, was a friend of his and a very conservative thinker in favor of peace and free trade.

18:58And it's often said that his conservative values were important for Cantillon. And then there were also some early anti-merchanalist writers in France, Vabon and Boucher-Guebert and other people, I can't pronounce their names, who were not economic theorists, but who wrote on economic topics. And so when he discusses the English mercantilists, it's clear that he is in disagreement with mercantilist positions, that he doesn't like the English people in general, and that he He really is highly critical of their work. William Petty and Davignon and Sir Isaac Newton, who was the director of the London Mint, all very highly critical of those people. But with the French anti-mercantilist semi-libertarian writers who weren't right on economic theory but on policy, he was very sympathetic and when he said something negative about their work, he wasn't as highly critical in his tone. So he did have some influences. He was extremely widely read in various disciplines in history, ancient history, economics, agriculture, minting coins, just every time you did have the emergence of the beginnings of an economic

20:32System of Economic Theory growing out of that scholastic tradition in Europe. Correct. And he did read the scholastics as well. Sure. So he's digging through all the old Latin treatises and putting a lot of things together. But still, his work represented something of an intellectual leap forward. Oh, absolutely. He did read the scholastics because, again, he was critical of them on a couple of points, although he didn't necessarily disagree with them. Right. but again they were you know sort of on the normative rather than on the positive side but yes there's a tremendous background that he brings to the table but what he adds to the table is something incredibly significant in terms of developing economic theory that was what was really the leap of advance and and that was really, I think, what the contribution is.

21:29Would you say that his book could be read... Well, let me ask it this way. How would a modern reader respond to the text that you've produced? Well, that's a good question. Hopefully they'll buy it, first of all, and then when they read it, they'll realize that economics is a systematic, deductive, logical system. Kantian was big on numbers and histories and dates and testing out various things but his economics and the development of economic theory is a logical deductive system where he demonstrates how he comes to various conclusions and why alternatives to those conclusions are illogical and don't really stand the test of anything.

22:19So you would say that the book is capable of serving as an instrument of teaching? Absolutely. I think it's, it absolutely, you could teach economics to somebody from the beginning to the end, and you'd get a good history lesson in the process, and a history of thought lesson. It would all be interwoven within this new translation, at least. I mean the old translation is fairly hollow except for the fact that Higgs added some explanatory essays by Jevons and by himself that do provide some context in which we of course did use in developing the translation. Are there insights in Kantian that Adam Smith, well he must have taken some of them, but did he overlook some as well?

23:12Oh yeah, that's clear. As a matter of fact, I've written an article explaining how the invisible hand comes from Cantillon, and in doing so, I quote a number of modern scholars who on all the various points say that Cantillon really got it right, and then Smith kind of either watered it down or didn't get it quite right after that. So it's pretty obvious to the leading scholars in all those various fields that Cantillon was much clearer, much more direct and much more complete than both Adam Smith and David Hume. A lot of people, I did this paper showing how Hume got his economic analysis from Cantillon and then various scholars have debated it because they say, well, it couldn't be that way because Hume's analysis isn't as good as Cantillon's and it should have been better, right?

24:09But they're basically, Smith and Hume were watering down Cantillon in order to appeal to a much wider audience and of course, Smith and Hume are famous for appealing to a very wide audience so I'm not blaming them or chastising or criticizing them, that's just the way they did things. Yeah. They were more popularizers whereas Cantillon was more, would you say, rigorous or scientific? Very rigorous and it would have been censored. I mean if he had published it during his lifetime they would have hunted him down and threw him in prison. So yes, he was fearless in the way that he was writing. He wasn't trying to appeal to the masses. He was trying to appeal to a very small group of the leading scholars of his day and he lived in Paris amidst the leading scholars of the day. And he also lived in London amidst the leading scholars of the day. And so he knew Sir Isaac Newton, and he knew Voltaire, and he knew Bolingbrook, and a bunch of other people. You know, Montesquieu was a family friend.

25:21Have them over to dinner? Yes. It really is bizarre, but the mystery of Cantillon is that he's cut out of all these histories. You can read a two-volume set about Lord Bolingbroke's life, and Cantillon's never mentioned. He was very secretive, as any banker of the day was, and was not a member of society, so he wasn't officially in all of these high Society type organizations, but he was there and he's equal to all the greats of the day. You can't be the first thinker in the history of thought who's taken up the cause of Cantillon. Are you one in a long line of champions? Oh, absolutely. I mean, and maybe the least in the line of all these champions because, you know, William Stanley Jevons, one of the contributors to the marginal revolution said, described the essay as the cradle of political economy.

26:17Joseph Schumpeter thought that Cantillon was one of the great economist of all time. Spengler, the famous American historian of economic thought, devoted a lot of his work to Cantillon and published two big articles in the JPE on it. And then of course Murray and the Austrians have made a big deal about Cantillon. So yeah, I think in Hayek, of course, thought it was important enough to translate it into German. This is where you turn and you look to the real scholars in the profession and you find that they place a lot of emphasis on Cantillon and of course, Bob Hebert, who wrote the foreword for us, we're very grateful for that. He's a Cantillon scholar and a French economic scholar who's written on a variety of French economists.

27:07He told me that he thought that there was a need for a new translation and he actually mentioned to me that at a conference a number of years back that he had discussed Cantillon and that afterwards someone came up to him and commented on his work and said that there needed to be a new translation, English translation of Cantillon and it turns out it was Shackle who mentioned that to Hebert. So I think I'm the last to figure out Cantillon, not the first, and a lot of the very biggest and brightest stars of the economics profession have all come to the same conclusion. Or maybe you're the one to finally break him out of obscurity.

27:53Well we've solved a lot of mysteries and I think we've brought something forth that even And the general public will find a lot of insight in there because not only does he provide full and complete theoretical explanations, but he does so in a straightforward manner. And it's not all that long. I mean, he's covering all of economics in a fairly short period of time. He discusses wealth in chapter one, which is only one page long, where he sort of blows up the mercantilist idea that money is wealth. and he does that all in just one page. Well, I guess what we should be attempting, I guess over the next coming months, we should run some excerpts of the book in the Mises Daily, but the book is available free online under the literature tab at Mises, Oregon and also in the store with the beautiful cover designed by Chad Parrish.

28:49Oh yeah, it's beautiful. I can't wait to get my hands on it. I know. We're all sitting around, where's the book? Where's the book? Thank you for being with us here today and for giving us a great overview of this fascinating figure. Absolutely my pleasure.