Richard Cantillon, Irish Political Economist

Since we’re about to celebrate St. Patrick’s Day, Richard Cantillon, the 18th century Irish political economist, and author of Essai sur la Nature du Commerce en General (Essay on the Nature of Trade in General), comes to mind. Like other Irish authors I’ve run across, Cantillon is an unknown responsible for many very well known things—in this case, modern political economic theory.

Richard Cantillon’s Essai sur la Nature du Commerce en General is generally considered to be the origin of modern political economic thought. His Essai was completed and distributed as a pamphlet sometime between 1730 and 1734, but was not published until 1755, long after Cantillon’s death. The book was recently reprinted by the Ludwig van Mises Institute .

Besides founding most modern political economic thought, Richard Cantillon had a very interesting life. He was born in County Kerry, Ireland, sometime during the 1680s, to a family long loyal to the Stuart Catholic cause. Because there were Cantillons who fought for the Stuarts, his family held titles and influential positions in banking, especially in Paris. Cantillon moved to Paris in 1714. By 1716 he was a banker to the Stuart court and to other Irish émigrés in Paris. Around this time, Cantillon became involved with British mercantilist and banker to the French government, John Law. The French government granted Law and his bank a virtual monopoly over the right to develop French territories in North America through his Mississippi Company. Law began a financial speculative bubble by selling shares of the company, using his bank’s control on the issue of bank notes to finance investors. Working with Law, Richard Cantillon bought Mississippi Company shares early and sold them at inflated prices, amassing a huge fortune for himself. Their relationship eventually broke down, causing John Law to threaten Cantillon with imprisonment if he did not leave Paris within “twenty-four hours.” His exact words were, “I can send you to the Bastille tonight if you do not give me your word to quit the kingdom in four and twenty hours!” (see Anthony Brewer, Richard Cantillon: Pioneer of Economic Theory, 1992). Instead of leaving Paris, the intrepid Cantillon promised Law he, and only he, could make his (Law’s) system succeed. Soon after, the “Mississippi bubble” collapsed, and Cantillon came out on top, having collected on debt that had accrued at very high interest rates. Most of his debtors suffered huge financial losses in the bubble. They hounded Cantillon with countless lawsuits, murder plots and criminal accusations for the rest of his life, and into his suspicious death.

In 1722, Cantillon had married Mary Mahony, daughter of Count Daniel O’Mahony—a wealthy merchant and former Irish general. By 1729, their permanent residence became London. In May 1734, Cantillon’s London residence was burned to the ground, with Cantillon inside. The fire was believed to have been set by his servant to cover up the murder of Cantillon—the murder having been committed either by the servant because of unpaid wages, or by the servant on behalf of one or a group of Cantillon’s debtors. Lately, however, the theory that Cantillon staged his own death to escape the endless harassment of his debtors has been floated; Cantillon later appeared in Suriname under the name Chevalier de Louvigny (Antoin Murphy, Richard Cantillon: Entreprenuer and Economist, 1987).

So what were the modern theories of political economy developed by this Irishman? His manuscript, published in 1755 in Paris, was pretty much neglected until the end of the 19th century, when it was “rediscovered” by William Stanley Jevons, who considered it the “cradle of political economy,” though it had been one of the few works referenced by Adam Smith in his Wealth of Nations. Essai was translated into English in 1932 by Henry Higgs.

In a nutshell, Richard Cantillon’s Essai sur la Nature du Commerce en General was the first dedicated treatise of economics as an analysis of the entire economic system . His theories on wealth, inflation, uncertainty, entrepreneurship and value are just some of the original contributions to political economic theory. Other contributions in Essai include his theory of interest, the creation of a spatial theory of economics (economic geography), exchange rate and international monetary relations theory, and the introduction of the notion of economic self-regulation and the “invisible hand.”

In Essai, Cantillon distinguishes between wealth and money, considering wealth in itself “nothing but food, conveniences, and pleasures of life.” Cantillon advocated a theory of value based on the cost of production (input of land and labor). He held that market prices are not immediately decided by this “intrinsic value.” Market prices are derived from supply and demand, by comparing the quantity of a particular good in a particular market (supply) with the quantity of money brought to be exchanged (demand). He was one of the first to consider demand subjective, varying with human fancies, such as styles of living.

One of Cantillon’s most positive contributions to economics is his introduction of the concept of the entrepreneur into economics, though Jean-Baptiste Say is credited with coining the word. Cantillon saw the entrepreneur as a risk-taker. An entrepreneur balances supply and demand in a market while bearing the risk of uncertainty, due to the speculative nature of pandering to an unknown demand for his product. The “hired man,” on the other hand, earned a contractual income, bearing no uncertainty. Cantillon divided society into these two principal classes—fixed income wage-earners (hired men) and non-fixed income earners (entrepreneurs).

You can read more about Richard Cantillon here, and here and, of course, here. Or check your library's eResource, Business Source Premier, for more on theories of political economy.

Have a great St. Patrick’s Day.