Richard Cantillon

Richard Cantillon (1860 – 1734)

– Richard Cantillon, Renegade Entrepreneur and Founder of Economics

Most students and academics of economics if asked to draw the family tree of Economic theory would start at the root and write down one thing: Adam Smith, The Wealth of Nations, 1776. They would then go on to expand the economic family tree with full ignorance of any deeper roots to the discipline. In my first year of studying economics one of the first questions they asked the class was ‘who is the farther of economics’ which was promptly answered with a chorus of ‘Adam Smith’. If this wasn’t enough if you type ‘founder of economics’ into Google, you guessed it, Adam Smith.

The history of Economics, as with most areas of investigation, has a far richer history than is recognised. Economics as a discipline did not just spring from the mind of an armchair logician in 1776, no logician is that good. Least anyone is surprised, they study actually arises in its present form through a practical merchant banker named Richard Cantillon. His surviving work ‘Essai sur la nature du commerce en général’ (Essay on the Nature of Commerce in General), was written four decades before the work of Smith and is one of the few texts Smith, known for his lack of credit giving’, actually references in his ‘Wealth of Nations’.


Little is left in the historical record about Richard Cantillon, we know that he was born in Ireland around 1680 and spent time in Spain making political and business affiliations. Some time around 1714 to 1716 he emigrated to France and after working in his cousins bank for a period managed to fully buy him out, making Richard Cantillon the owner. He then developed the bank in Paris dealing largely with trade between Paris and London as well as heavily involving it in John Law’s Mississippi bubble.

– Knowing When the Bubble will Pop

The Mississippi bubble was a mercantile scheme thought up by John Law. Law took complete control of the development of France’s North American territories on the order of the French monarchy in return for buying French state debt. Law established the Mississippi Company for the territorial development and then allowed shares to of the company to be publicly bought driving the share prices up through run away demand and in Law’s mercantile mind his actual wealth. This could occur without having to actually develop the Mississippi territory and increase real wealth – a speculative boom.

During 1720 the hysteria that John Law shrouded Mississippi in caused an unquestioned expectation that the Mississippi’s share price would continually increase. This made elite and commoners alike to seek out large loans and buy shares in the company, they could then sit back and watch their wealth grow, or that was Law’s theory anyway.

This is where our entrepreneur Richard Cantillon comes back into the picture. It was then that his bank ‘Cantillon and Hughes’ embraced the speculative Mississippi bubble of John Law managing masses of clients shares. Through his bank ‘Cantillon and Hughes’ Cantillon issued loans, at a high interest, to speculators in order to purchase shares. Cantillon’s bank, after setting up loan contracts, then bought shares as instructed by his speculators to hold in his bank. Anticipating a collapse in shares price against that neither John Law or the excitable speculators imagined, Cantillon decided to capitalise.

Thousands fell into bankruptcy when the Mississippi prices collapsed, but through penetrating sense and knowledge of the mechanisms associated with money, Richard Cantillon made the inevitable fall work for him while it was tearing others apart.

He did this by selling off the mass of shares he held for his clients in his bank while their price was still high. Then buying them back when the price collapsed as he theorised it inevitably would. This left the clients with their held shares intact and Cantillon with the profit from the difference. For example if Cantillon issued £1,000,000 in loans in order to buy shares and bought 20,000 at £50 a share, then he would need 20,000 in order to settle his deposits at his bank. But expecting a fall in price assume Richard Cantillon sold all the shares when they hit $75 making him self £1,500,000 making an extra £500,000. Then waiting for the price to collapse and buying the shares back in order to satisfy his contracts. Only now the shares are at a lower price of £8 a share. For £160,000 Cantillon could satisfy all his contracts and keep the extra £1,340,000 difference. He then could also collect the original loans he had issued once they matured, which he could collect, with interest, a little over the £1,000,000 he loaned out. It total making Richard Cantillon a sweet £1,340,000 in profit and a very happy man.

Some may see this as a devious act and some as exceptionally clever. It is not my place or intent to judge the character of Cantillon but to show how acute his observation and confidence was in the principles of economics when surrounded in the speculative culture of France at the time.

– The Founding of Economics

After the Mississippi bubble incident contractors, speculators and many others wanted Cantillon’s head on a stick, literally, so he decided to blow off steam and travel and adventure for a period on the profits. Sometime between 1730 and his death in 1734 Cantillon, not a man to do anything by half, wrote down his principles in a French manuscript titled the ‘Essai sur la nature du commerce en général’. The manuscript for the first time set out not just causal hints or unconnected theory but a systematic analysis of the monetary economy.

The work, which is discussed in detail here, considerably differed from other works on economics that surrounded Cantillon. Other works were either tied closely with politics or ethics. Richard Cantillon for the first time separated human action from other disciplines by systematically and theoretically pulling them apart to form the independent investigation of economics. This system would not be interfered with through politically motivated ends or philosophical beliefs.

From here human action could be studied independently from ‘how it should be’ as ethics saw it or ‘how it could be manipulated’ as politics investigated.

The Medieval Scholastic school which triumphed such figures as Thomas Aquinas, Ockham and Anselm of Canterbury although rigorous in their conceptual understanding, were still influenced by the beliefs of Christianity. This tainted their view and investigation of human behavior. They therefore sought to discover the principles in which a man should live and therefore accidentally entwined economics and ethics.

While the Medieval Mercantilist’s investigation sought to increase state power and control through accumulating international trade and control of foreign land through colonialism. Mercantilism therefore threw in economics as a discipline with politics and ended up manipulating human behavior to ‘accumulate’ resources.

Rothbard observes: “it was impossible to decide the ethics of economic life, or what government should or should not do, without finding out how the market worked”. What Cantillon managed to do was divorce his theoretical approach from any political and ethical leanings.

Cantillon conceptualised human behavior in the Newtonian sense: “[He thought] of the economy as Newton thought of the cosmos — as an interconnected whole made up of rationally functioning parts”. What Adam Smith would term in a backward turn towards religion as “the invisible hand”.

Cantillon took it upon himself to conceptually defined and theoretically analyse the relationship between economic principles. Giving us a whole picture of how the market within a state functions and what effect interventions have. In the first part of the work he redefines wealth from the mercantile conception of accumulation of goods to its rightful conception as the production of goods through land and labour. The second part gives us an analysis of changes within the money supply, which previously was thought to uniformly change prices, a belief put forward by John Locke. Cantillon firmly grasped the relative nature of prices and explained how and why a uniform increase in prices misunderstands the nature of circulation in the economy, instead putting forward a view dictating that the prices effected in a change in money supply is wherever the new money circulates – this is now know in economics the Cantillon effect. In the third part of the Essai Cantillon goes on to expand on the previous principles laid out and explains how the exchange rate between states is connected to the balance of trade between those nations. While he also takes on the effects of a centrally planned economy through national banks and how monetary regulation causes wealth to be driven out of the state.

– The Forgotten Treatise

The Essai was largely forgotten for around a century until, due to its reference in Adam Smith’s Wealth of Nations, W. Stanley Jevons hunted down and re-credited it to its true author. The reference was originally thought to belong to a Philip Cantillon who had also wrote a treatise on trade taking densely from the Richard Cantillons manuscript. This left Cantillon’s original Essai unrecognised from the time the Wealth of Nations was published in 1776 to 1881 upon Jevons’ rediscovery.

There was also a case of blatant forgery in this time. Mirabeau, the French physiocrat, had acquired the English translation of the manuscript and sat on it for 16 years. During which time he made a copy with extensive changes, removing details of an ‘experts knowledge’ to ‘hoodwink’ the reader as to the author. Writing a Preface to the Duke of Noailles Mirabeau then presented the work as his own. Mirabeau also unashamedly published his ‘Ami Des Hommes’ which drew heavily on the manuscript.

– The Forgotten Founder

On May 14th 1734 Cantillon was murdered and robbed by an ex-servant using the alias LeBlanc, yes he called himself ‘The White’. The act was attempted to be covered over by setting fire to the house in a much less subtle opportunist scheme. We find this report on the case:

Found smothered in his Bed, and his head almost burnt or cut off. A fire which began in his chamber about three o’clock the same morning consumed that and the two adjoining houses, and damaged others.”

Although little can be found on Cantillon’s life, there is no shortage as to his influence on economics. The treatise unpublished in English till 1932 had a great uncredited influence on the early modern economists such as the Physiocratic school, Jean-Baptiste Say and of course Adam Smith. Which lead to W. Stanley Jevons, a eminent English logician and economist to dub the work ‘the cradle of political economy’. His analysis is far superior to that of Smith or most economists of his time, so much so that most would fail in comparison. One only has to read the manuscript itself to understand the profound structure that Cantillon puts together around a study muddled up in so many others when he first considered it.

Cantillon’s Essai is available in full here, you can also read my summary of Richard Cantillon’s work here.

  • F. Hayek, Richard Cantillon, Journal of Libertarian Studies, 1985
  • Mark Thornton, A Portrait of Richard Cantillon
  • Antoin E. Murphy, Richard Cantillon – Economist and Banker, Journal of Libertarian Studies, 1985
  • Murray N. Rothbard, Austrian Perspective on Economic Thought Vol 1, 1995
  • Ekelund and Hebert 1986
  • Richard Cantillon, Essai sur la nature du commerce en général, 1730 – 1734

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