 This is Jeff Deist and you're listening to the Human Action Podcast. You were listening to the Human Action Podcast and as you know the purpose of this podcast and this show is to get our listening audience interested in some of the primary sources in reading the great books and thinkers of the Austrian school where that's Manger, Bamberwerk or Mises or Hayek or Rothbard. And so we're really encouraging people not to sort of take at face value what other people say or how other people interpret Austrian economics to go out and read this stuff on your own. There's a lot of libertarian and economics content out there, a lot of commentary, a lot of social media, a lot of sites and blogs and it's very easy to get bogged down spending all your time or maybe wasting all your time reading stuff that isn't really doing you much good in terms of your own personal education. So that's really why we started the Human Action Podcast to get people reading these books. And of course we've been through a lot of the early stuff. We've been through Manger and Bamberwerk. We've been through Mises up until most of his work other than Human Action and we will tackle that shortly in a series of podcasts but we're going to start out before that with Nation, State and Economy which was in some ways the earlier version of what later became Human Action but in the meantime these Austrian thinkers didn't just arise out of the ether. They had influences and economists that came before them obviously people like Adam Smith, people like Jean Baptiste Sey and Turgot and you can go all the way back to the Spanish Galastics but one of the great French economists who has perhaps not gotten his due is Richard Cantillon who wrote a really remarkable essay on economic theory all the way back in 1730. And fortunately we have our own in-house Cantillon expert, Dr. Mark Thornton to join us this week to discuss everything about Cantillon and to help all of us understand his impact on what would come later in the field of economics. So that said, Mark, thanks for joining us. It's great to see you. It's great to be here, Jeff, of all the topics in economics. Cantillon is definitely number one with me. Wow. Well, in some of our earlier shows we have gone through concepts like value and method and interest and money and interventionism and socialism and fascism and liberalism and bureaucracy. All of these various concepts, but what's really remarkable in sort of reading up about Cantillon a little bit this week is that his book, his essay on economic theory written in the 1700s and 1730, it really is a wholesale treatise that attempts to present an entire theory, a broad theory of economics. It's absolutely amazing, Jeff. Basically everything, all the basics of economics is in that book, that one book that he wrote, method, theory, population theory, economic geography, business cycles, interest rate theory. It's just incredible. It's almost as if this is an ancient alien theorist type of issue where no one can imagine how just one person could come up with all of these concepts. On his own, virtually, it's really truly remarkable. When you say on his own, meaning that at that period, economics was not really a standalone science at all? No, it wasn't. Economics was something that philosophers did and bureaucrats did and did it very poorly. In the book, Cantillon refers to a lot of the great minds, John Locke, and just all of the great thinkers prior to Cantillon writing this book. Basically, he's very critical of what they did. Petty and Damion and just the list goes on and on of the books that he read and critically evaluated and then came up with the correct solution regarding how to estimate the money supply and just the velocity of money and how prices are formed and the difference between positive and normative economics. Just really, really remarkable. And of course, the Austrians learned from him. That's almost certainly true with Manger, Bambavrik, Mises, Hayek, learned a great deal from this book, really. And it's just chock full of insights, the basic method of economics, marginalism, subjective value. It's all in there. Well, before we get too much into the book, let's talk about the man himself. He lived from 1680 to 1734. He's got a French name, but he grows up in Ireland. So tell us a little bit about the man. He's got this unbelievable biography. He's actually quite successful in life. Oh, yes, very successful. The family comes from France, Britain, Britain, and has an estate in southwestern Ireland that's taken from them by the Protestants. And Canteone eventually leaves Ireland to seek his fortune during the war of Spanish succession. And then finally settles in Paris, takes over a bank that was run by his uncle, is involved in the Mississippi bubble, and becomes fabulously wealthy, probably one of the most wealthy private citizens in the world at the time. And then ultimately meets his death in 1734. That's also a mystery. We're not sure if he was murdered, who murdered him, or if he faked his death in order to escape some of the lawsuits that were filed against him as a result of the Mississippi bubble. So there's still more to learn about this man, but what we do know is it's really fabulous. And he starts his career working with the British War Office during the war of Spanish succession. And he devised a system of double books in which they hid money from the British government. And of course, his employer wanted the money and felt that somebody who had lost their property to the British Protestants would probably be a loyal employee in regards to ripping off the British government. So of course he dies at the relatively tender age of 54, and again under suspicious circumstances. Do you think he was a competent businessman or a corrupt businessman, or a little bit of both? I think he was definitely a competent businessman. You know, there's certain things about that business that lend itself to some dirty dealings, but basically you can tell in the book itself when he talks about banking and what bankers have to be weary of and how they charge interest. As a matter of fact, the book starts out probably as a defense of charging interest against the usury laws of the time. And he quite ably shows that a lot of businesses charge extremely high rates of interest. He mentions a couple of them. One is pubs who get kegs of beer from the brewery, but don't pay him back until the keg is gone. And the effective interest rate he calculates is something like 500% annually. And so it shows that he's very knowledgeable about the banking business and about business in general because he dealt with other businesses basically lending them money or lending investors' money during the bubble. And the book shows that he's very well versed in many different types of businesses, probably as a result of working with them. As a matter of fact, he shows in his theory of entrepreneurship, which I'm writing articles about right now, that the banker effectively becomes an entrepreneur lending money at risk to other businesses. But he's a successful guy. He's leading this tumultuous life. Why write the book at all? Is he just an intellectual on top of everything else and he feels the itch to write this? I mean, who's his audience and what's his motivation? Well, that's a very good question because he knew that the book could not be published. It was too radical at the time. Really? Yes. And there were censorship laws that would have prevented it for sure. And probably would have gotten him in a lot of trouble as it had other writers of his time and earlier. But he did know other intellectuals. It's really incredible. I can't remember the entire list, but he had a good friend named Lord Bolingbrook, who was the first minister of England and would later become an academic writer himself. He knew Montesquieu and Voltaire and Isaac Newton is apparently somebody he had met at least. And he criticized Isaac Newton's work at the British Mint for the way in which they handled the relationship between gold and silver. And Cantillon wrote that Newton did it the wrong way and this is the right way to do it. So he was criticizing Sir Isaac Newton in his role at the London Mint. So the manuscript sort of lays around for almost 100 years or so and Jevons resurrects it or breathes some life into it? Well, that's another issue that I've been working on lately trying to see the transmission path. But he wrote it as a manuscript and it's circulated in handwritten copies. And one would suppose that his clerks at the bank would be, you know, writing out additional copies for his friends and thinkers in general. One of the copies... You're literally writing out additional copies? Yes, by hand, yeah. But Mirbeau, the elder, had a copy in his possession for something like 12 to 14 years and it's unclear what copy made it into the hands of the physiocrats. But the physiocrats, the leaders of the physiocrat school, which was very free market school, they're the ones that are generally credited with getting the book published in 1755. And so, you know, they had readers... And also giving us the term laissez-faire. That's right. Physiocrats Argenstein, I think his name, is credited with the phrase laissez-faire that comes out of that. So the physiocrats were direct followers of Cantillon's manuscript and that is reflected in their emphasis on the land and population. Because in Cantillon's book, it's a bit of a misinterpretation of Cantillon, but there's a heavy emphasis on the value of land producing food and food being the basis of your population. And population was considered a key characteristic of whether society was wealthy and economically viable or if it was poor and degraded. And so they really lynched on to those two point, population and land. They ran away from, I think, Cantillon's original intent, but it shows a very heavy reliance on Cantillon's work. And then subsequently, of course, Turgot is heavily influenced by Cantillon. And Turgot was definitely one of the brightest leading thinkers and actually politician. He was a regional governor in France before coming First Minister trying to save the French regime. They didn't accept Cantillon's, excuse me, Turgot's guidance. They threw him out of office once he started making reforms at the kingdom-wide level. He was very successful in his regional role in France, but his, those reform measures really irritated the king and his court and the tax farmers who were threatened and the guilds who Turgot threatened. These are all things that you can find directly in Cantillon's book, but Turgot really was probably his best student and extended his analysis in many fundamental ways. And so in addition to Cantillon, Turgot is just a phenomenal contributor and publicizer of great economic ideas. And that influence continues on, of course. But after that, after the French Revolution, there's Cantillon's work seems to be get lost in the fray. For example, Jean-Baptiste Sey is credited with entrepreneurship, the theory of entrepreneurship, but that clearly comes out of Cantillon even in a much better form. So, but after Sey, his work seems to get lost in the shuffle and then is only rediscovered by William Stanley Jevons in the 1870s. And of course, it gets picked up. Manger had copies of Cantillon's essay in his library. I think he had three copies, actually. And so the work gets resurrected by Jevons and others. And then we wait till 1931 when Henry Higgs, the great British economist, translates the essay from French into English into a fine edition. So Higgs is one of the great historians of economic thought and thought it was important enough to translate Cantillon to get the job done into English. And meanwhile, at the exact same time, F.A. Hayek and his wife translated Cantillon's essay into German and they were both published in 1931. So that's another weird circumstance that seems to constantly pop up around the subject of Richard Cantillon. And then fast forward all the way to 2010 and the Mises Institute under your editorship and a woman named Chantal Saussier produce another English version of it, but this translation is a little more reader friendly. So, you know, tell us about how that project came to be. Well, I had been working on Cantillon since 1997. I did an essay for our book on the 15th Great Austrian Economist and that really opened my eyes. I mean, I'd read Rothbard on Cantillon, really exciting. That's a great essay that I actually used as an outline of what questions could Murray answer at the time. Those were the things I was going to tackle. So if he had a suspicion about a particular issue, I followed up on it and tried to get to the bottom of things. But there was a lot of things in the essay where it wasn't really quite clear. Higgs' translation was a direct translation, not really sort of searching for the ultimate meaning of his words. And there were a lot of things that an American audience, for sure, would not understand. And there were things that Higgs translated that just didn't make any sense. And so I always wanted to go in and try to tackle it. But of course, I don't read or speak French. Big drawback in that area. So, but I met Chantal here at the Mises Institute. Many years ago, she was here for a conference. And we started talking about that and I learned that she had PhD in French studies. It was very interested in economics and philosophy and politics. And so it became possible at that point once she agreed to help me with the translation. And really, she did the translating. I was editing to try to uncover some of the true meaning and the historical context in which Cantillon wrote. And that's very important because all of the misunderstanding about Cantillon's value theory and various things were based on the fact that the historians of economic thought didn't really understand the history in which he was writing. And once you understand the history in which he was writing, then the real story is obvious and simple. And so I was working on that and she was working on the translation. And it still took us six years to finish because this was like a hobby of ours that we did in addition to our regular jobs. And so we took it seriously and we made a commitment and we were able to finish it off. And I think it's a product that our audience has found very helpful because in addition to doing the translation, we provided abstracts for all of the chapters. We provided footnotes for further information about the historical context and footnotes defining terms. And so the reader is guided through what had previously been a real struggle. And so we've gotten a lot of compliments from readers and students. And so it was very long, very difficult, much more difficult than time-consuming than I had ever imagined. When you've got an English translation already, you wouldn't think that it would be that hard, but it really was. And we're very gratified with all the kind words that we've received as a result of doing that book. Well, for lay readers, which I guess everyone was in the 1730s, but lay readers like myself, it's called an essay on economic theory. It's actually broken up in some very brief chapters. Yes. It's a relatively short book. And if you go to the Mises Institute bookstore online and put in the code HAPOD for Human Action Podcast, HAPOD, you get a very nice discount on the book. And it's a paperback. And it's quite an interesting read I found. And Jeff, we even translated the title. So the original title was an essay on the nature of commerce in general. So it's an essay on the nature of commerce, which was the word that they would use in general. So the nature in general, that's what theory is. And so we translated even the title to an essay on economic theory because that's what translators do. And we have gotten some flack from that, but we considered that for a long time and felt that that was really how it should be translated and read. Well, let's walk through the book itself a little bit. I guess first and foremost, an overarching question. Is this book an early refutation of mercantilism that was dominating Europe at the time? Yeah, absolutely. In fact, I've written several papers on that subject. Kent Young wrote during the mercantilist period. And there are a few quotes in that that can be misconstrued as advocating for mercantilism. But Kent Young is really an anti-mercantilist. So it's not that he was quasi-mercantilist. He was actually anti-mercantilist. And it should have been obvious to previous commentators and historians of thought, the very first paragraph, the very first chapter, which is only a paragraph long, he refutes the idea that money is wealth and restates wealth being the ability to produce goods and to consume goods. The correct understanding of what wealth is is the ability to produce and consume. And so right from the very first page, he refutes mercantilism and he does it several times over. He also demonstrates that increasing the money supply actually has no positive benefit that once an economy is fully monetized, increasing the money supply doesn't have any benefit. It always has costs. And so the next round against mercantilism is that he produces the price-species flow mechanism, which says that even if you try to accumulate the price-species or gold in your country, if you prevented exporting of gold and if you subsidized the export of goods in order to bring gold in, even if you tried to accumulate it, as a result of the price-species flow mechanism, it would be all negated because as you accumulate gold in the country, what happens is the price of your goods goes up as a result of that inflation of the money supply and so people don't want to buy domestic goods, they want to buy foreign goods and so as they buy foreign goods, the gold is exported to other countries and so the price-species flow mechanism basically shows how money is equilibrated around the globe and so that's another way in which he defeats mercantilism and finally he shows that increasing the money supply can actually lead to a business cycle and it's here where he's credited with the concept of cantione effects or what's sometimes referred to as first round effects so that an injection of money into an economy will result in the prices of particular goods increasing and then a production structure is built up in order to produce more of those goods but ultimately if that first injection is just that a first injection then that change in demand will evaporate and that production structure that was built in response to that new money will collapse and cause an economic crisis in that industry so in those four ways he defeats the primary tenet of mercantilism which is money is wealth and therefore accumulate money, you'll be wealthier but cantione showed that that was all nonsense basically Well he's really pression in making some of his free trade arguments at this point, in other words he is advancing Locke's quantity theory of money somewhat I think in his arguments and he's also indirectly addressing this issue of balance of payments or having a trade deficit with another region or another country and he's showing, I think he's showing that that's nonsense Yes, he basically looks at trade quite a bit and the features of international trade which are really unseen basically by the common observer and in almost all cases he supports this idea of free trade certainly in the economy although there are instances where he said that this particular line of trade is unprofitable for example, this is very interesting he refers to the example of Belgium lace and that's ultimately going to be related to the portraits of Cantione because the Belgium lace is used to paint paintings on by and large and he did the calculation that one bundle of Belgium lace is equal to so many bottles of champagne and he said that this isn't really worth it that the Belgium lace is way too expensive in terms of French champagne which you wouldn't be surprised at but one of the reasons why it was such a lousy deal was because trade was prohibited and taxed and you had to pay all sorts of fees in order to make those kind of international trades basically so mercantilism had gummed up the trading network in France and elsewhere so that every time you move from city to city you had to pay fees and taxes and of course if you tried to transact on an international basis you would have tariffs in both directions and consequence of all these fees, taxes and tariffs that the value of trade in that manner was really he considered it problematic Well when you talk about the Cantione effect we see examples of that throughout the economy today it plays a role in your skyscraper curse book of course we hear a lot in the political discourse about inequality the Cantione effect is the untold story of our time Absolutely, you can see it everywhere around you and of course the Cantione and Cantione effects was a big part of the skyscraper book and really the first half of the book is about understanding the Cantione effect which is that injection of money changing demand for goods and services and then the resulting change in the structure of production which is a relatively permanent thing but if the money disappears then the demand is wiped out and the structure that you built is also becomes a very little value at that point but yes, the skyscrapers that we see going up around the world and the vast building projects that are currently being undertaken is a direct response to the zero interest rate policy that we've endured since the financial crisis in 2008 basically Europe and Japan have been zero to negative rates and the US was near zero for 10 years and it's only recently jacked up the federal funds rate to a little bit over 2% and we saw once we got to 2% which is one of the lowest rates in my lifetime the stock market starts to quake and President Trump goes bananas on Twitter because everybody I think has an understanding that something just isn't quite natural in the so-called recovery which I think everybody has doubts about the only thing that they have faith in is that we can continue to push the stock market higher and higher and higher and everybody will be taken care of and the Federal Reserve will come to the rescue no matter what but I think that the faith in the actual physical structure of the economy is not solid at all and I think you'll see a run for the exits at some point in the future So Kentian gives us an early concept of a business cycle theory almost but of course there aren't central banks at the time so he's viewing this more in political terms this is a political cycle Yes, he actually has two nascent cycle theories one is the foundation for the Austrian business cycle theory which is driven by money money injections leading to changes in demand changes in price changes in the structure of production which aren't viable in the long run that's what Manger and the early Austrians picked up on including Mises of course and then Hayek further developing the Austrian business cycle theory and then there's more of a fiscal-sided cycle where the regime the political regime is either good or bad and basically Kentian felt that once the mercantilist policy regime changed in favor of an even stronger mercantilist regime that the French economy started to go into decline and so, you know, mercantilism every country has mercantilist policies as did France of course it was all caught up in the idea of raising money extracting money out of the economy and, of course, was relatively ably run by Minister Colbert who was a mercantilist but then once he died Louis XIV took over direct control of the machinery of government and finance and he really pressed it to the limit and that's when France, Kentian said that's when France went into decline a multi-decade decline and so that was sort of a fiscal regime-oriented cycle that Kentian also noticed So one thing you point out in your essay about him is that he gives us a form of methodology I mean, who was even thinking about a method when economics scarcely existed and so he had this concept that you separate economic phenomena, you isolate them and study them, which does this harken forward to an individual methodology? Oh yes, I think very much think so Method was not discussed in a particular chapter in the essay but it was discussed throughout the essay and the methodology was implied by what he was actually doing in various chapters and so he very much understood economic value and he understood opportunity cost of course he didn't have these names he understood the distinction between positive economics or scientific analytics and normative economics which is your personal value judgment he would stop his discussion in a particular chapter and say, you know, this is an issue but I'm not going to talk about that because that's really not what I'm interested in here he's interested in the analytics of human action and he exposes a lot of things that the common person would not know or understand because they weren't in business they weren't familiar with lots of different types of businesses so he knew all of these different businesses and he looked for the general features of business and commercial actions basically and so yes, he very much understood methodology you know, the revolution that was taking place in physics I think is something he looked at and said, you know, we need to have something like that for commerce as well we need something like gravity to be able to build a truly scientific understanding of economics and this is another paper I'm working on right now and basically he showed that entrepreneurship was that fundamental thing the idea that we're self-interested in that we're profit motivated we want to stay away from losses so we incur our cost up front and then we only get to sell our products later we know how much they're going to cost but we don't know how much revenue we're going to get so entrepreneurship is something an activity that there's a lot of uncertainty about and so the entrepreneur is going to try to do everything in their power to try to make a profit but it's uncertain and so he generalized that so that all the entrepreneurs in the economy were basically under that same problem that same feature of trade and that's what he used to build economic theory from the ground up was the uncertainty due to entrepreneurship that was a guiding force just like gravity in the economy and so if you look at all this theories from simple to complex like the price species flow mechanism if you take entrepreneurship out of it it just evaporates so entrepreneurship is that fundamental building block of the economy and so you should understand economics is coming from Cantillon and he basically derived it as a result of his understanding of entrepreneurship is that guiding force like gravity is in the physical world but again understand this is 1730 he's writing this I mean you can fast forward a couple hundred years and Cain still doesn't see the entrepreneurs any kind of animating force they're still stuck on land, labor, capital I mean that's remarkable it's a remarkable achievement Oh absolutely I mean nobody had done it before as a matter of fact another paper is shows that I have shows that the word entrepreneur meant something very different before Cantillon the entrepreneur was the active person the risky person and ultimately it became linked with government contractor so somebody who builds fortresses somebody who builds ports and somebody who builds big projects for the government or somebody who basically is a war contractor those were considered the entrepreneurs of the time people who had known revenues but unknown costs and who were known to be always skimping on their costs in order to increase their profits so they were always cheating the government yeah so it was a bad thing and Cantillon said no no no we're not doing that we're changing it so that you know your costs but you don't know your revenue and so the entrepreneur effectively can't cheat on that fundamental equation and so yes he ultimately not only did he change the meaning of the word which I show by looking at French dictionaries of the time he changed it to almost the very opposite of what the entrepreneur had been known and then as you look at those French dictionaries and encyclopedias that his terminology becomes the accepted one through the writings of the physiocrats and Mirbault, Turgo, Condeac and others Jean-Baptiste Sesse who was only indirectly affected by Cantillon but affected nonetheless and so yeah that's really the fundamental concept of economics but it's a completely different meaning than the original meaning of that term Do you think he glimps but maybe didn't fully grasp the idea of subjective value he talks about property for example quite a bit real estate but so is he hung up on the idea that things have intrinsic value well yeah he uses the word intrinsic value and that would be an anathema to a modern economist that something had value in and of itself as a result of the physical characteristics of the good and of course we now know that the value of a good is based on subjective evaluations of people of the good and so he was criticized for that particularly that term but intrinsic value is a term that's also changed in meaning and it's now sort of the physical molecular characteristics of a good but that is a result of a changing meaning of intrinsic value to more of the physics oriented understanding of intrinsic value prior to that it was it was more subjective concept like how people valued the beauty of a certain person or a beauty of a flower or whatever they placed value into a product or into a person and if you really look at his discussion of value it's clear that what he's talking about is how much land do you put into the production of something what is the quality of that land how much labor do you put into the production of a good and what's the quality of that labor is it skilled or unskilled so what you're looking at is the entrepreneur's decision of how much and what quality of land and labor to put into the production of a good which is essentially our modern concept of opportunity cost and so in addition to everything else Cantillon is credited now with the invention of opportunity cost he used the word intrinsic value as it as its meaning existed in the 1720s and 30s which would later be redefined in the second half of the 18th century to the more physics oriented word but it's clear that he's talking about opportunity cost and what the dead give away of that is as he talks about the cost of an apprenticeship so if a father decides to put his son into an apprenticeship what's the cost of all that well Cantillon this is very much almost identical to the college economics textbook example of what is the cost of going to college so Cantillon notes that the cost of going to an apprenticeship is the fees that you have to pay to be an apprentice and the cost of clothing for the apprentice and also the time invested in that so he says an apprenticeship is like four years long so the father doesn't have the labor of the son for four years so it's the fees plus the time which is the example of what's the cost of going to college well it's the tuition and it's the books and it's the time you lose from the job market the only distinction between the two is that Cantillon says well it's the cost of clothing and of course that wouldn't work with the college example because you're going to have to pay for clothing whether you go to college or not but in Cantillon's case he's talking about children who on the farm would be working in part to help produce clothing for the family so that very much is a consideration for a typical French father wondering whether he should put his son into an apprenticeship but let's just clarify even though intrinsic might have meant something a little different back then and even though he's definitely giving us this concept yet at that point unnamed of opportunity cost we're not crediting him with the marginal revolution 100 plus years earlier there's glimpses of it yes there's glimpses of it so like with price formation he talks about there's a market day and the farmers bring their peas to the market for sale and a certain number of chefs show up with some idea of how much they're willing to pay for the peas and it all works itself out but he doesn't have the full fledged marginal revolution the way it would exist 150 years in the future now he we'll go back a little bit here but he does discuss interest at length and he sees this as sort of a supply and demand of loanable funds so he's not a proto-Austrian in that sense yes that's correct he has an extensive discussion of interest in the book and it's the roles that it plays and why it's a positive thing and why you know if again going back to the example of the pub if the brewery sells a keg of beer to the pub the price that they're going to collect when they bring the next keg the interest is embedded in that so he he shows that for example that the customers of the pub don't seem to think that this interest charge is really much of a problem so he puts it into the language of the common man as well so he he goes into the discussion of interest in its determination and its impact and its role at great length speaking of proto-Austrianism I want to bring up a paper that Gita Halsman wrote called More on Cantillon as a proto-Austrian and in this paper he discusses Rothbard's treatment of Cantillon which is very favorable and very laudatory but he also says maybe Rothbard didn't fully grasp the extent to which Cantillon really was a proto-Austrian and Halsman starts out by saying look you know the whole book the beginning of the book in particular is rooted in property it starts off with a property perspective and that was is something that other schools don't do now absolutely property plays a major role and that's not surprising because property actually did play a major role in determining who you are and what you did and how wealthy you would be so he makes a great deal of importance to the role of property and as a matter of fact he starts out by saying that society itself would be impossible without property that you have to have property rights those rights have to be protected and defended they have to be tradable and so he very much starts out with this concept of property as being absolutely necessary to take any steps further so in that sense it's just as important as entrepreneurship in the development of of economic theory and he dismisses the idea that property should be equal that everybody should have the same amount of property he says that that concept is ridiculous, unattainable and even if we did divide up all the land equally he said that within a generation or two it would all be right back in the hands of a small number of good property developers basically so it's a natural, it's necessary concept and it's you can see it's influenced throughout the the essay because it does play such a fundamental role in the economy. Isn't that interesting though we're sitting here in the U.S. in 2019 when we think of super wealthy people we tend to think of entrepreneurs like Bill Gates whose wealth is tied up in a company in stocks in ownership of publicly traded companies for example we don't think of the richest people in America as owning vast amounts of land but in 1730 and really up until pretty recently across the West I mean land was wealth I mean it played a much bigger role in people's mindset about who had land and who didn't was a lot more important than today. Oh yes absolutely and of course French society at this time was very unequal and would continue to get more unequal up to the French Revolution it was very much tied to the idea of land of growing food of having farm land of having forests of having mines those were all fundamentally important and also Cantillon doesn't mention this in the essay but it's really very important to to French economic history is that if you were part of the nobility and you did own vast swaths of land you wouldn't be taxed on it so if you were part of the nobility and this land owning aristocracy you were also operating in a tax-free zone which was very handy basically and he even imagines a world in which the entire world was owned by just one person and he owned essentially all of the land in this giant isolated state Cantillon said that that person would be relatively poor because one person even if they work like mad couldn't really derive much out of this vast land holdings and in order to actually generate the benefits of all this land the land owner or the state owner would want to hire as many people as they possibly could and not just unskilled workers but they'd also want to hire or train skilled workers masons and carpenters and you know, hire skilled people which he's already shown if you want hire skilled people you're going to have to pay more money if you want an apprentice who can make clothing fine clothing you're going to have to pay more money because of the opportunity cost so he's basically explaining the transition from feudalism to capitalism is this understanding that even during feudalism the state owners wanted to hire as many people as possible and to have skilled workers as much as possible and then he says well you know this is all kind of a complex thing for just one person to run so let's imagine the state owner leasing various farms of the estate to his farm managers and in a sense he says you've created entrepreneurs because these farm managers who are now entrepreneurs they're going to want to you know create as much revenue from that farm as possible so they're going to switch production from low price things to high price things to generate more revenues and if demand changes in the economy the entrepreneurs are going to respond to that so this is where he transitions from feudalism to capitalism by creating new entrepreneurs in the economy who will make the responses that the estate owner used to have to manage on their own so this is very influential on Adam Smith who in the theory of moral sentiments 1759 four years after the essay was published he basically says he paraphrases basically what Cantillon did and said you know what if this owner of this humongous estate owned everything around and he basically summarized what Cantillon demonstrated and in many cases Smith was influenced by Cantillon but he knew he wanted to sell a lot of books and so he simplified a lot of things and so when he would get to something that required an in-depth discussion of the fine-tuned workings of the economy he didn't really understand Cantillon well enough to be able to replicate that he knew his readers wouldn't want to see that so he would invent phrases like the invisible hand as a way to summarize to jump ahead so to speak with the discussion so he used that phrase first as an economic phrase in the theory of moral sentiments and then he used it again in the wealth of nations where the invisible hand was self-interest and that individuals following their self-interest would amazingly promote the general interest of society he couldn't go through that whole discussion because it was very complex and your average reader wouldn't want to go through all that so just fast forward using the phrase invisible hand but that phrase the concept behind it he swiped a little bit from Cantillon and the physiocrats I've got another paper where I showed that he used it three times once in a work before Cantillon where he dismissed the idea that the gods were controlling thunder and lightning and things of that nature so it was a negative use of the term invisible hand and then he used it in the theory of moral sentiments correctly with respect to Cantillon's essay on the isolated estate and then he used it in the most well-known context in the wealth of nation where self-interest would unintentionally promote the general interest of society so as we're starting to wrap up I want to get your general take is it fair to call Cantillon or think of him as a proto-Austrian or is that a stretch? I don't think it's a stretch at all I think that you know there's good economics and bad economics this is not only good economics it's the first economics it's the first attempt to try to generate and demonstrate economic theory this is where it's the wellspring of economic science and I think that Austrians can embrace all that Guido obviously did I have Murray obviously did the early Austrians were most obviously I think impacted by Cantillon's work and it was certainly true of the 18th century French anti-mercantilist school of thought which predates Cantillon in the work of Sebastien Velban and a few others who were kind of like liberals libertarians anti-statists but they didn't really have any good economics Cantillon provides the economics that is then used by the physiocrats and Turgo throughout the rest of the century So we'll wrap up on this you wrote a paper about a painting a famous painting that in your estimation depicts Cantillon it had been argued that there were no known paintings and no photographs of them so talk about the painting and how you got interested in this obviously you're an art guy in general you enjoy fine art and painting so this must have been sort of a too interest of tailing Oh yes and it was great I almost I hated to see it come to an end in some respect because it's like being a police inspector or something there was no known image of Cantillon you know forever basically that we knew of and that was been reported on by me and many others that we just didn't have any image of him and there's a few websites where they have the incorrect images of Cantillon but while vacationing in France 2005 went to the the Louvre Museum in Paris walked into a room of early French portraits which was the foundation really of the Louvre's collection they were given close to 800 such portraits about 100 years ago or more actually it was in the late 1700's when a collector donated them to the Louvre so there's this massive painting on the wall directly in front of me across the room measuring 8 feet across and 6 feet high and I looked at it and I said to myself as I had goosebumps that that's Cantillon and I walked over and looked at the artist and it was the same artist that had done Mrs. Cantillon's wedding portrait and we know that he did and this was the most expensive French portrait artist during Cantillon's life in Paris so only very wealthy people would go to him the reason I thought it was him from across the room because it consisted of a man a young wife and a daughter and that was the composition of Cantillon's family that we knew of and the painting had been incorrectly thought of as the artist's family but the artist's family who we have other portraits of that don't look anything like this one had multiple children so it couldn't possibly be the artist's family but I thought it was Cantillon the only problem is how do you prove that and so I was looking at just any kind of evidence circumstantial evidence that would connect this painting with the Cantillon's and so I went through every possible feature that was in that portrait to first of all I changed the date and experts on the subject have concurred that the date was incorrectly they put it down as 1715 come to know that it was really probably around 1730 when it would have been appropriate for Cantillon's family so that tied them together and the reason that we know it was 1730 is because the stockings on Cantillon had only been introduced in the late 1720s in Paris and so it couldn't have possibly been any earlier because those stockings existed at the time so he would have been about a 50 year old man in the portrait did he look like a 50 year old man in the portrait? yes he did and I subsequently found another painting of Cantillon that was done in 1720 the year of the Mississippi bubble when he became so fabulously wealthy and it's an individual portrait of him as a younger man but if you look at the family portrait and the individual portrait the men look very much the same except of a different age and if you look at the Mrs. Cantillon's wedding portrait and the family portrait they look very similar except of a different age and if the painting was done around 1730 or 1731 Cantillon's daughter would have been about 7 or 8 and if you measure the average height of the girl it basically that's about the height of the girl in the portrait and the final thing that I thought of was that the images on the internet look like they have dark eyes black eyes or brown eyes but basically all three of them genetically are from southwest Ireland where blue eyes dominate and I sent an email to the person at the Louvre who's in charge of 17th and 18th century French portraits and I said could you please examine the portrait and tell me the eye colors because I think all six should be blue and so she wrote back a couple hours later and said how did you know and at that point I thought that I had figured it out because it was them and a final piece of evidence is that they were all Jacobites they were all people who wanted to see England return to Catholicism and that was a secret Irish and Scottish society type of thing although it was very political as well I mean people were actually wanting to mount armies and to invade England over this issue and so these secret societies existed in Ireland, Scotland and in France where all the former Irish Catholics had moved to and the symbol of that movement is the rose and the portrait artists that I've been referring to had this advertisement that he used where it has 11 hands painted in different positions and that was important because if you had a portrait with your hands in them that would effectively double the price because hands were really hard to paint and was an expert at hands and so he had this advertisement at his studio a portrait of 11 hands and that's also in the Louvre as well and the middle hand on this portrait is holding a dish and on the dish is the rose and that hand gesture is also drawn in the portraits of the Cantillones if they're doing a hand gesture they're using this particular hand gesture so I speculate that it's this particular hand gesture which is the pistol grip hand gesture so you're pointing your finger out with your thumb up that would make sense that it was sort of like a military symbol that we're going to use force to try to restore Catholicism and that's how he painted Cantillon and his daughter Well, Mark Thornton I think today was more of a history lesson than an economics theory lesson but nonetheless is a fascinating guy he wrote a fascinating book and it's well worth your time to check out again if you go to Mises.org go to our store look up Cantillon an essay on economic theory and put in the code HAPOD for Human Action Podcast you will get a nice discount on that book Mark Thornton thanks so much for your time and we hope you guys enjoyed the show The Human Action Podcast is available on iTunes SoundCloud, Stitcher, Spotify Google Play and on Mises.org Subscribe to get new episodes every week and find more content like this on Mises.org