WEBVTT NOTE The Cantillon Legacy: Extending Rothbardian Revisionism 1 00:00:00.000 --> 00:00:06.000 Some of the people in this room have a great ability, an ability which very few other people in the world have. 2 00:00:06.000 --> 00:00:14.000 This is the ability to foresee the course of economic events and to predict the outcome of various economic policies. 3 00:00:14.000 --> 00:00:25.000 We are not fortune tellers and we cannot forecast the exact future, but we can, if we put our minds to it, predict the impact of various government policies on the economy. 4 00:00:25.000 --> 00:00:35.000 This is a tremendous skill to possess. Line up all the various policy options and Austrian economists can give you a description of the effects of each policy. 5 00:00:35.000 --> 00:00:51.000 We can, in effect, create prosperity. The subject of my lecture this afternoon is the individual who discovered all of the basic methods and theories and who first conducted successful economic analysis, Richard Cantillon. 6 00:00:51.000 --> 00:00:57.160 First, I would like to thank Jeff Herbiner for inviting me to address the Austrian Scholars 7 00:00:57.160 --> 00:01:02.240 Conference and the great honor of delivering the Rothbard Memorial Lecture. 8 00:01:02.240 --> 00:01:07.380 I would also like to thank Lew Rockwell and the members of the Mises Institute for supporting 9 00:01:07.380 --> 00:01:11.280 my research, which forms the basis of this lecture. 10 00:01:11.280 --> 00:01:15.680 I would further like to thank Jeff Tucker and Randy Holcomb for first getting me involved 11 00:01:15.680 --> 00:01:20.800 in writing about Kantian and to my professors in the history of economic thought, Robert 12 00:01:20.800 --> 00:01:27.160 Robert Eakland and Robert Hebert, and of course I would like to express my great admiration 13 00:01:27.160 --> 00:01:31.760 for the great inspiration that Murray Rothbard provided. 14 00:01:31.760 --> 00:01:35.480 There are those who have claimed that Ludwig von Mises to be the greatest economist of 15 00:01:35.480 --> 00:01:40.480 the 20th century, particularly the first half of the century when he made so many great 16 00:01:40.480 --> 00:01:41.800 contributions. 17 00:01:41.800 --> 00:01:47.600 Others have claimed that Murray Rothbard is the greatest economist and social scientist 18 00:01:47.600 --> 00:01:50.160 of the second half of the 20th century. 19 00:01:50.160 --> 00:01:56.400 I agree with both of these claims. However, the title of the best economist in all history 20 00:01:56.400 --> 00:02:02.480 I would give to Richard Cantillon. My research follows closely on Murray Rothbard's writings 21 00:02:02.480 --> 00:02:09.820 on Cantillon. I have made some dramatic discoveries, by history of thought standards at least, 22 00:02:09.820 --> 00:02:16.760 regarding Cantillon's economics and his influence on the subsequent development of economics. 23 00:02:16.760 --> 00:02:22.200 He was the first person to invent economic method and to provide a theoretical model for 24 00:02:22.200 --> 00:02:29.320 understanding the economy, but his contributions have never been fully appreciated until now, 25 00:02:29.320 --> 00:02:35.920 the 250th anniversary of the publication of his book, An Essay on the Nature of Commerce 26 00:02:35.920 --> 00:02:38.100 in General. 27 00:02:38.100 --> 00:02:40.440 But first, who is Richard Cantillon? 28 00:02:40.440 --> 00:02:44.840 Let me tell you a little bit about his interesting, fascinating life. 29 00:02:44.840 --> 00:02:50.520 Antione was a man of mystery. His biographer, Anthony Murphy, can only date his birth sometimes 30 00:02:50.520 --> 00:02:58.240 between 1680 and 1690. He was born into an Irish Catholic family that had been dispossessed 31 00:02:58.240 --> 00:03:05.020 of their lands by Cromwell's forces. Ironically, his first job was as a clerk for the British 32 00:03:05.020 --> 00:03:11.240 paid master general's office during the War of Spanish Succession. His employer, James 33 00:03:11.240 --> 00:03:17.540 James Bridges was one of the most successful and notorious war profiteers of his time, possibly 34 00:03:17.540 --> 00:03:19.680 of all time. 35 00:03:19.680 --> 00:03:23.960 After the war, Bridges would become Cantillon's financial patron and would later become one 36 00:03:23.960 --> 00:03:27.980 of the largest investors in the South Sea bubble. 37 00:03:27.980 --> 00:03:33.540 As a young man, Cantillon moved to Paris where he had two relatives in the banking business. 38 00:03:33.540 --> 00:03:38.720 In addition to Bridges, one of Cantillon's first banking clients was none other than 39 00:03:38.720 --> 00:03:46.720 Lord Bolingbroke, a Jacobite leader in the British Parliament. In 1715, Bolingbroke fled 40 00:03:46.720 --> 00:03:51.000 his country in fear of his life, suspecting that he would be arrested for undermining 41 00:03:51.000 --> 00:03:57.120 his own government. His money was sent to Cantillon. Bolingbroke lived with Cantillon 42 00:03:57.120 --> 00:04:02.360 in Paris for a time, and they became good friends. Bolingbroke also lived in the house 43 00:04:02.360 --> 00:04:11.560 next to Cantillon in London when Cantillon was mysteriously murdered in 1734. 44 00:04:11.560 --> 00:04:15.560 Cantillon quickly built up a successful banking business and paid off the debts of his bankrupt 45 00:04:15.560 --> 00:04:20.440 uncle despite the very chaotic financial conditions in France. 46 00:04:20.440 --> 00:04:25.920 The conditions of public finance in France were so untenable that the infamous John Law 47 00:04:25.920 --> 00:04:33.040 was given carte blanche over French finances, taxation, the French mint, and a monopoly 48 00:04:33.040 --> 00:04:39.480 on French international trade and was allowed to launch his inflation scheme that resulted 49 00:04:39.480 --> 00:04:42.120 in the Mississippi Bubble. 50 00:04:42.120 --> 00:04:46.780 Cantillon was deeply involved in the Mississippi Bubble as both an investor and John Law's 51 00:04:46.780 --> 00:04:51.560 partner in the company that was supposed to develop the Louisiana Territory. 52 00:04:51.560 --> 00:05:06.560 He made two large fortunes from the Mississippi bubble. The first on the appreciation of company shares as the market went into a boom and the second by selling shares short at the top of the bubble right before the shares crashed. 53 00:05:06.560 --> 00:05:13.560 As a result, as a very young man, he was one of the wealthiest private citizens in the world. 54 00:05:13.560 --> 00:05:30.560 It was the second fortune, as well as his involvement with John Law, that landed Cantillon in French and English courts on various lawsuits and legal charges, including usury, kind of the Martha Stewart syndrome of the day. 55 00:05:30.560 --> 00:05:37.560 Murphy found that all this litigation was a catalyst for Cantillon to write his book, The Essay. 56 00:05:37.560 --> 00:05:43.800 Murphy also speculates that Cantillon was not murdered, but faked his murder, burned 57 00:05:43.800 --> 00:05:48.920 his house to hide the evidence, and escaped to South America in order to avoid all these 58 00:05:48.920 --> 00:05:54.080 lawsuits. As a result of the fire, Cantillon's essay on the nature of commerce in general 59 00:05:54.080 --> 00:05:59.000 was the only one of his books that survived, and it was not published until more than twenty 60 00:05:59.000 --> 00:06:05.560 years after his death. Even then it was published anonymously under the name of a printer that 61 00:06:05.560 --> 00:06:11.320 had long been out of business. Again, the mystery continues. Virtually everyone who 62 00:06:11.320 --> 00:06:16.200 had read the essay has been impressed, although it must be pointed out that most people who 63 00:06:16.200 --> 00:06:22.760 have read the essay have had a difficult time understanding its full import, its full message. 64 00:06:22.760 --> 00:06:28.000 Economic theory is difficult to understand. The first major influence the essay had was 65 00:06:28.000 --> 00:06:34.080 on the formation of the physiocrats in 1756, the year after its publication. The Marquis 66 00:06:34.080 --> 00:06:39.760 Guy de Merbaugh based his own best-selling book, The Friend of Man, on his reading of 67 00:06:39.760 --> 00:06:46.280 the essay. He encouraged Vincent de Guernier to read the essay, and Francis Keney based 68 00:06:46.280 --> 00:06:53.200 his Tableau Economique as a rather unsuccessful attempt to simplify Cantillon's economics. 69 00:06:53.200 --> 00:07:00.480 Cantillon also, we know, influenced Turgot, Adam Smith, Kondiak, Jean-Baptiste Say, and 70 00:07:00.480 --> 00:07:02.020 and many others. 71 00:07:02.020 --> 00:07:05.540 Among the Austrians, I have found that Menger owned a copy of the essay. 72 00:07:05.540 --> 00:07:06.540 So did Mises. 73 00:07:06.540 --> 00:07:12.680 Hayek and his wife actually translated the essay into German, and of course Rothbard 74 00:07:12.680 --> 00:07:13.680 loved Cantillon. 75 00:07:13.680 --> 00:07:18.640 He dubbed Cantillon the founding father of modern economics, and he devoted an entire 76 00:07:18.640 --> 00:07:26.320 issue of the Journal of Libertarian Studies in 1985 to retrospective essays on Cantillon's 77 00:07:26.320 --> 00:07:27.320 economics. 78 00:07:27.320 --> 00:07:33.320 William Stanley Jevons, one of the co-founders of the Marginal Revolution is generally credited 79 00:07:33.320 --> 00:07:39.440 with rediscovering Cantillon. He called the essay a systematic and connected treatise going 80 00:07:39.440 --> 00:07:46.440 over in a concise manner nearly the entire field of economics. It was the first treatise 81 00:07:46.440 --> 00:07:53.360 in economics and he dubbed the work more emphatically than any other single work, the cradle of 82 00:07:53.360 --> 00:07:55.440 of Political Economy. 83 00:07:55.440 --> 00:07:59.360 The laudatory comments are just everywhere to be found. 84 00:07:59.360 --> 00:08:01.200 Joseph Schumpeter loved the book. 85 00:08:01.200 --> 00:08:04.440 Hayek, of course, loved the book and wrote extensively 86 00:08:04.440 --> 00:08:07.200 about Cantillon's economics. 87 00:08:07.200 --> 00:08:11.880 But there are problems with Cantillon's economics. 88 00:08:11.880 --> 00:08:16.800 The two major perceived problems or shortcomings in Cantillon 89 00:08:16.800 --> 00:08:19.920 is that in the area of theory, he is often 90 00:08:19.920 --> 00:08:22.560 considered an objective cost theorist. 91 00:08:22.560 --> 00:08:29.560 and in terms of policy, he was a mercantilist, which would make him in today's terms a Republican. 92 00:08:32.000 --> 00:08:38.600 My findings in my research resolve these problems, those two problems, but first I want to turn 93 00:08:38.600 --> 00:08:43.640 to Adam Smith's invisible hand. Rothbard, as I said, loved Cantillon, stating that he 94 00:08:43.640 --> 00:08:50.320 was the first theorist to demarcate an independent area of investigation, economics, and write 95 00:08:50.320 --> 00:08:56.200 a general treatise on all its aspects. He applauded Cantillon's contribution to methodology 96 00:08:56.200 --> 00:09:01.420 and in particular he noted that quote, he brilliantly began the economic analysis in 97 00:09:01.420 --> 00:09:07.640 his essay with the assumption that the whole world consists of one giant estate and that's 98 00:09:07.640 --> 00:09:12.520 important that Rothbard noted that. Cantillon shows in his model of the isolated estate 99 00:09:12.520 --> 00:09:18.800 that the owner can directly allocate resources to satisfy his own demands but then he changes 100 00:09:18.800 --> 00:09:23.440 establishes the model so that the estate owner simply rents the lands out to farmers who 101 00:09:23.440 --> 00:09:29.120 then bring about a system of trade, money prices, but all the production is still aimed 102 00:09:29.120 --> 00:09:35.920 at meeting the needs of the estate owner, guided by this new system which Cantillon 103 00:09:35.920 --> 00:09:39.640 identifies as the system of profits and losses. 104 00:09:39.640 --> 00:09:44.360 I believe that this model is where Adam Smith got his invisible hand. 105 00:09:44.360 --> 00:09:50.720 A cottage industry has sprung up to define the meaning of Adam Smith's invisible hand 106 00:09:50.720 --> 00:09:55.000 and to play off the widespread recognition and use of the phrase. 107 00:09:55.000 --> 00:09:59.880 Spencer Pack, for example, says that the invisible hand is about slavery. 108 00:09:59.880 --> 00:10:06.920 Syed Ahmad offers us four different invisible hands, while William Graham offers ten different 109 00:10:06.920 --> 00:10:08.400 possibilities. 110 00:10:08.400 --> 00:10:14.000 We are told that the invisible hand derives from Smith's theology, that it is an important 111 00:10:14.000 --> 00:10:20.400 Secular Device and that it is nothing more than an ironic but useful joke. 112 00:10:20.400 --> 00:10:25.800 Whatever its true meaning, it's all important enough that the American Economic Review, 113 00:10:25.800 --> 00:10:31.040 the Journal of Political Economy and the Journal of Economic Perspectives have all recently 114 00:10:31.040 --> 00:10:36.260 published articles on the meaning of the invisible hand. 115 00:10:36.260 --> 00:10:41.800 The debate or rather the confusion stems from the fact that Smith used the term in different 116 00:10:41.800 --> 00:10:47.120 Senses at Different Times, he used the invisible hand in his history of astronomy where he 117 00:10:47.120 --> 00:10:51.560 scorned those who would attribute a divine presence for things that could be explained 118 00:10:51.560 --> 00:10:53.320 scientifically. 119 00:10:53.320 --> 00:10:59.120 The second use is in the theory of moral sentiments where Smith describes the vile land owner 120 00:10:59.120 --> 00:11:05.280 who is forced to distribute the majority of his bounty from his land to the peasants in 121 00:11:05.280 --> 00:11:11.720 order to get them to do the things he wants and produce the goods that he wishes. 122 00:11:11.720 --> 00:11:17.160 by the invisible hand, so that people get almost the same sustenance as if the land 123 00:11:17.160 --> 00:11:24.920 was equally divided because the classes, rich and poor, are mutually interdependent. 124 00:11:24.920 --> 00:11:30.360 The third use of the phrase, the wealth of nations, is where the invisible hand is used 125 00:11:30.360 --> 00:11:36.400 as a simile for self-interest, and that people pursuing their self-interest unintentionally 126 00:11:36.400 --> 00:11:43.480 promote the general interest and the largest possible production. It's only through Cantillon's 127 00:11:43.480 --> 00:11:50.800 model do the combination of uses in the theory of moral sentiments and the wealth of nations 128 00:11:50.800 --> 00:11:58.480 make sense. It is widely acknowledged that Cantillon was the first to present a model 129 00:11:58.480 --> 00:12:05.160 of a self-regulating economy long before Smith and that Smith had indeed read Cantillon. 130 00:12:05.160 --> 00:12:10.400 But we have in this section of the essay the connecting ground between Cantillon Smith and 131 00:12:10.400 --> 00:12:14.380 the invisible hand. 132 00:12:14.380 --> 00:12:19.620 In The Theory of Moral Sentiments, Smith tells of the unfeeling landlord who need not look 133 00:12:19.620 --> 00:12:25.880 after his lands but is forced to distribute most of what is produced to the laborers. 134 00:12:25.880 --> 00:12:30.040 Even though they only try to attain their own desires, they end up distributing their 135 00:12:30.040 --> 00:12:37.040 and their resources, a la the invisible hand, because the classes are dependent upon one another. 136 00:12:37.040 --> 00:12:44.040 What at first appears to be two different meanings of the invisible hand came from the same source. 137 00:12:44.040 --> 00:12:56.040 We can still debate what Smith meant by the invisible hand, but it seems clear that Smith's source of this was his reading of Cantillon. 138 00:12:56.040 --> 00:13:02.040 Now, Rothbard also applauded Cantillon for his contributions to value and price theory. 139 00:13:02.040 --> 00:13:08.280 But this has been an area of heated debate and divided discussion in the economics profession. 140 00:13:08.280 --> 00:13:14.880 All schools of economic thought, it seems, want to claim Cantillon for their very own. 141 00:13:14.880 --> 00:13:21.360 Despite his use of the term intrinsic value, which is now, of course, an anathema of the 142 00:13:21.360 --> 00:13:27.320 and Economics Profession. Rothbard declares the term of intrinsic value, quote, an unfortunate 143 00:13:27.320 --> 00:13:33.200 one and then tries to defend Cantillon by showing that his discussion of market prices 144 00:13:33.200 --> 00:13:39.440 is based on consumer demand and that cost must be covered by market prices or resources 145 00:13:39.440 --> 00:13:44.920 will be diverted elsewhere. It's a brilliant defense but still leaves Rothbard with, quote, 146 00:13:44.920 --> 00:13:52.280 A big gap in Cantillon. Where do cost of production come from? Well, I too puzzled over Cantillon's 147 00:13:52.280 --> 00:13:58.280 intrinsic value. It's a subject over which a great deal of academic ink has been spilt 148 00:13:58.280 --> 00:14:05.160 in journals and in books. When you read the essay, you get the distinct impression that 149 00:14:05.160 --> 00:14:11.640 Cantillon could not have meant what we understand as intrinsic value today, or that he believed 150 00:14:11.640 --> 00:14:15.040 and even a truly objective measure of cost. 151 00:14:15.040 --> 00:14:21.000 In addition to Rothbard, I've noted several scholars who have a similar impression about 152 00:14:21.000 --> 00:14:27.120 Cantillon's intrinsic value, including Joseph Schumpeter, Joseph Spengler, the great historian 153 00:14:27.120 --> 00:14:32.880 of economic thought, Robert Hebert, David O. Mahoney, and Guido Holtzman. 154 00:14:32.880 --> 00:14:38.560 So I decided to take a closer look, and what I found is shocking, again, by history of 155 00:14:38.560 --> 00:14:40.560 Thought Standards. 156 00:14:40.560 --> 00:14:49.000 Cantillon's phrase, intrinsic value, is actually used to denote what we now know as opportunity 157 00:14:49.000 --> 00:14:53.860 cost, the very defining concept of economics. 158 00:14:53.860 --> 00:14:59.080 The fact that Cantillon discovered so much of what today is economics should reduce the 159 00:14:59.080 --> 00:15:07.700 shock because the concept of opportunity cost is really a necessary one to think economically. 160 00:15:07.700 --> 00:15:13.300 The first thing I did was to look at dictionaries, dictionaries from the time, and what I found 161 00:15:13.300 --> 00:15:18.180 is that the primary meaning of intrinsic in Cantillon's day in both French and English 162 00:15:18.180 --> 00:15:24.540 dictionaries was to place something inside, usually something of value, and the second 163 00:15:24.540 --> 00:15:32.420 meaning was that this something was intimate, private, and difficult to convey to others. 164 00:15:32.420 --> 00:15:38.420 If you combine the first two meanings of the term intrinsic, then what you have is value 165 00:15:38.420 --> 00:15:44.860 placed into a good that is private and difficult to communicate with others. 166 00:15:44.860 --> 00:15:50.520 That sounds an awful lot like me, to me, like opportunity cost. 167 00:15:50.520 --> 00:15:55.780 The third meaning, which is now dominant in our understanding as well as in the dictionary, 168 00:15:55.780 --> 00:16:01.220 stems from the revolution in the physical sciences that took place right after Cantillon's 169 00:16:01.220 --> 00:16:02.220 death. 170 00:16:02.220 --> 00:16:06.900 This is the sense in which Adam Smith used the term when he referred to the weight of 171 00:16:06.900 --> 00:16:13.820 pure metal in a coin or in a bar of precious metal. Essentially the commonly accepted meaning 172 00:16:13.820 --> 00:16:21.220 of the term changed as a result of this revolution in the physical sciences. Now John Locke had 173 00:16:21.220 --> 00:16:30.660 also used the term intrinsic value prior to Cantillon around 1700, but Cantillon attacks 174 00:16:30.660 --> 00:16:37.860 Max Lock in the essay taxes views on money and specifically mentions his use of intrinsic 175 00:16:37.860 --> 00:16:45.700 value is not the one connecting the purity of gold and silver and coins and bars. 176 00:16:45.700 --> 00:16:50.420 There are several places in the essay where Cantillon wrote that intrinsic value is the 177 00:16:50.420 --> 00:16:55.820 amount of land and labor used in production of a good and this is not a correct theory 178 00:16:55.820 --> 00:17:25.820 and the Theory of Cost by Austrian Standards. However, when he discusses value and cost in depth, he clearly qualifies and expands on this definition. First, he recognizes that there are different types of land and labor, and that they have different comparative advantages. Second, he also recognizes that there are different qualities of each type of land and labor, and that higher quality inputs or resources receive greater compensation. 179 00:17:25.820 --> 00:17:32.120 He recognizes that resources can be put to alternative uses, so that the entrepreneur 180 00:17:32.120 --> 00:17:38.700 must try to anticipate the best way, among many, to put his lands and labor to use. 181 00:17:38.700 --> 00:17:45.400 Taken together from start to finish, Cantillon's intrinsic value becomes opportunity cost, 182 00:17:45.400 --> 00:17:53.240 and he recognizes explicitly all of the components that the modern term entails. 183 00:17:53.240 --> 00:18:00.060 Not only did he use intrinsic value to mean opportunity cost in a general sense, he used 184 00:18:00.060 --> 00:18:06.560 it in a precise and detailed manner in several key illustrations involving land, labor and 185 00:18:06.560 --> 00:18:07.560 capital. 186 00:18:07.560 --> 00:18:12.720 Now, for those who teach economics and for those who have recently taken economics, the 187 00:18:12.720 --> 00:18:19.560 classic textbook illustration of opportunity cost is the decision to go to college, where 188 00:18:19.560 --> 00:18:26.760 Where the decision to attend is affected both by the foregone income of four years of college 189 00:18:26.760 --> 00:18:32.200 as well as the explicit cost of going to college, which is tuition. 190 00:18:32.200 --> 00:18:37.600 Cantillon gave us the 18th century equivalent to this illustration when he described a father's 191 00:18:37.600 --> 00:18:52.280 A labor's decision to send his son to an apprenticeship or to keep him on the farm. 192 00:18:52.280 --> 00:18:56.880 And this is a quote from Cantillon, a labor's son at seven to twelve years of age begins 193 00:18:56.880 --> 00:19:02.720 to help his father either in keeping the flocks, digging the ground, or in other sorts of country 194 00:19:02.720 --> 00:19:07.040 labor which require no art or skill. 195 00:19:07.040 --> 00:19:13.320 If his father puts him in a trade, he loses his assistance during the time of his apprenticeship 196 00:19:13.320 --> 00:19:18.760 and is necessitated to clothe him and to pay the expenses of his apprenticeship for some 197 00:19:18.760 --> 00:19:19.760 years. 198 00:19:19.760 --> 00:19:24.640 The son is thus an expense to the father and his labor brings no advantage till the end 199 00:19:24.640 --> 00:19:26.440 of some years. 200 00:19:26.440 --> 00:19:33.960 So in contrasting and comparing the examples, the father loses the cost of the apprenticeship 201 00:19:33.960 --> 00:19:40.320 as well as the foregone labor, the wages income of the student, for a period of 202 00:19:40.320 --> 00:19:47.040 seven years or four years in the case of college or five or six years I suppose. 203 00:19:48.120 --> 00:19:54.200 Kenton went on to use opportunity cost, the time lost in learning to trade and 204 00:19:54.200 --> 00:20:00.600 the cost and risk incurred in becoming proficient to help explain higher wages 205 00:20:00.600 --> 00:20:07.680 of Artisans and Craftsmen. Now if you're looking at this example carefully and 206 00:20:07.680 --> 00:20:14.280 teach economics you may see a problem in Cantillon. I'm surprised John Sophocles is 207 00:20:14.280 --> 00:20:20.760 not raising his hand on this one because economists would be correct to object 208 00:20:20.760 --> 00:20:26.600 that the cost of clothing should not be included because children must be 209 00:20:26.600 --> 00:20:43.720 Children on the farm contributed much to their own upkeep, including the production of clothing. 210 00:20:43.720 --> 00:20:47.680 They assisted in the production of wool and leather and undertook tasks such as weaving 211 00:20:47.680 --> 00:20:53.680 and sewing. Therefore, Cantillon included the need to clothe the apprentice in the father's 212 00:20:53.680 --> 00:20:59.400 decision because children on the farm participated in the production and upkeep of their home 213 00:20:59.400 --> 00:21:04.440 spun clothing while those in apprenticeships did not. This meant that the father would 214 00:21:04.440 --> 00:21:11.320 have an additional expense of providing the clothing for children sent into apprenticeships. 215 00:21:11.320 --> 00:21:18.160 So what it first appears as a typical freshman mistake turns out to be even more impressive 216 00:21:18.160 --> 00:21:24.400 and an even more complete construction of opportunity cost by Cantillon. 217 00:21:24.400 --> 00:21:35.000 Now Cantillon also has illustrations of applying opportunity cost, in this case it was to labor, 218 00:21:35.000 --> 00:21:42.600 he also has it in applying capital to land, which I'm not going to cover, and also in 219 00:21:42.600 --> 00:21:49.980 In the area of capital itself, and this is an important area where Cantillon basically 220 00:21:49.980 --> 00:21:58.420 explained the pain of interest as an opportunity cost of capital, defending his own behavior 221 00:21:58.420 --> 00:22:05.500 in essence, and defending himself against usury laws, and actual sections of the essay 222 00:22:05.500 --> 00:22:11.740 wound up in testimony submitted by Cantillon's lawyers to defend himself against these charges 223 00:22:11.740 --> 00:22:36.740 of Usury. It's a brilliant illustration of opportunity cost, and he even mentions the scholastic theologians who also supported the pain of interest at any rate, even usurious interest rates, on the basis of opportunity cost. So he actually draws out that explicitly. 224 00:22:36.740 --> 00:22:44.860 Okay, was Cantillon a mercantilist? Cantillon is widely interpreted as being a member of 225 00:22:44.860 --> 00:22:50.340 the mercantilists, an unorganized, difficult to define group of writers and pamphleteers 226 00:22:50.340 --> 00:22:56.060 who dominated public debate before the time of David Hume and the physiocrats. There is 227 00:22:56.060 --> 00:23:00.900 certainly a certain logic to this in that Cantillon himself was a merchant and a merchant 228 00:23:00.900 --> 00:23:06.700 banker. He was writing during the mercantilist period. He personally knew some of the 229 00:23:06.700 --> 00:23:36.700 The Greatest Mercantilist Experiment The Mississippi Bubble of All Time 230 00:23:36.700 --> 00:23:48.700 and Mercantilist Issues. However, there is something about this claim that Cantillon was a mercantilist that just doesn't smell right. Rothbard wrote, quote, 231 00:23:48.700 --> 00:24:02.700 There is no point in wasting time and fruitless speculation on whether or not Cantillon was a mercantilist. But of course Rothbard did spend a good deal of time trying to defend Cantillon against this charge, 232 00:24:02.700 --> 00:24:07.460 noting that he was the first to recognize that the market was self-regulating and that 233 00:24:07.460 --> 00:24:14.180 he opposed key tenets of mercantilism. Hayek and Lord Robbins also felt the same way, that 234 00:24:14.180 --> 00:24:18.860 this charge of mercantilism was an invalid one. 235 00:24:18.860 --> 00:24:25.860 Let us begin the analysis of Cantillon's views with the word regulated. In modern parlance, 236 00:24:25.860 --> 00:24:33.060 This word quickly conjures up notions of government regulation and regulated industry. 237 00:24:33.060 --> 00:24:39.740 Cantillon's statement where he wrote of regulating each branch of commerce singly naturally evokes 238 00:24:39.740 --> 00:24:48.060 images of tariffs, quotas, prohibitions, regulations that were so common under mercantilist regimes. 239 00:24:48.060 --> 00:24:53.740 However, the word regulated in Cantillon's time did not have the same meaning that it 240 00:24:53.740 --> 00:24:55.220 does today. 241 00:24:55.220 --> 00:24:59.860 In his day, the term simply meant well functioning. 242 00:24:59.860 --> 00:25:05.100 For Cantillon, it simply meant good, regulated, regular behavior. 243 00:25:05.100 --> 00:25:10.860 Every other time he used this word regulation in the essay, he was explaining how the price 244 00:25:10.860 --> 00:25:14.140 system regulated markets. 245 00:25:14.140 --> 00:25:21.300 And there are other common words in French that did specifically mean government regulation. 246 00:25:21.300 --> 00:25:26.660 So there should be no presumption that he was calling for government regulation of industry 247 00:25:26.660 --> 00:25:32.780 that quote was basically taken out of context and as a matter of fact there is a specific 248 00:25:32.780 --> 00:25:41.820 meaning in this day and age of the 1700s about regulated industries. 249 00:25:41.820 --> 00:25:48.080 The French economy in Cantillon's day was being strangled by a repressive mercantile 250 00:25:48.080 --> 00:25:54.400 Regime that would ultimately lead to the French Revolution. In international trade, the French 251 00:25:54.400 --> 00:26:02.480 relied not on private companies or even private monopolies, but on government-run enterprises. 252 00:26:02.480 --> 00:26:09.440 As Heckscher, the famous historian of mercantilism, noted, France showed stronger traces of direct 253 00:26:09.440 --> 00:26:15.620 enterprise in foreign trade and in colonization than most other countries. Trading companies 254 00:26:15.620 --> 00:26:21.620 These which arose at the time of Colbert and later differed fundamentally from those of Holland and England. 255 00:26:21.620 --> 00:26:26.620 Their initiative usually came from the state. 256 00:26:26.620 --> 00:26:31.620 A large proportion of the capital was put up by the king and the royal house. 257 00:26:31.620 --> 00:26:34.620 In other words, by public means. 258 00:26:34.620 --> 00:26:38.620 The capital risk too was largely carried by the king. 259 00:26:38.620 --> 00:26:43.620 Finally, the management was predominantly in the hands of non-merchants. 260 00:26:43.620 --> 00:26:51.620 and the merchant's proper generally had a poor opinion of the Parisians who were to carry on the trade under high protectionism. 261 00:26:51.620 --> 00:26:58.620 Thus, Heckscher concluded that while France relied on Colbert's mercantilism and state enterprises, 262 00:26:58.620 --> 00:27:04.620 her competitors in England and Holland relied on private business in foreign trade companies, 263 00:27:04.620 --> 00:27:10.620 which in England were called regulated companies. 264 00:27:10.620 --> 00:27:40.620 As a merchant banker Cantillon was highly experienced with all forms of business organization as they related to international trade as well as the relative advantages and disadvantages of all forms of organization thus in all likelihood Cantillon was not arguing for government regulation government already completely controlled the trade but against state-run trading enterprises of France and four private companies 265 00:27:40.620 --> 00:27:45.420 as they existed in England, the regulated company. 266 00:27:45.420 --> 00:27:56.220 As you can see, a lot of this is just misinterpretation taking out of context from a period of time that was separated by a long period of time. 267 00:27:56.220 --> 00:28:08.320 Also arguing against Cantillon, the mercantilist, is that nowhere in the essay does Cantillon explicitly call for tariffs, quotas, or prohibitions that would actually enforce mercantilism. 268 00:28:08.320 --> 00:28:16.320 In fact he argued against the prohibition of exporting gold and he argued explicitly against usury laws. 269 00:28:16.320 --> 00:28:24.320 It would be a very peculiar conclusion indeed that Cantillon was a mercantilist who advocated mercantilist policy 270 00:28:24.320 --> 00:28:35.320 but never mentioned the central mercantilist trade policies in a favorable light and even famously attacked two prominent mercantilist policies. 271 00:28:35.320 --> 00:28:40.720 Another example is a statement by Cantillon that would have to be seen as mercantilist. 272 00:28:40.720 --> 00:28:50.040 Quote, it is needful to discourage all foreign manufacturers and to give plenty employment to the inhabitants. 273 00:28:50.040 --> 00:28:54.680 Most mercantilist writers wrote something to that effect. 274 00:28:54.680 --> 00:29:01.720 But let's read it in context so we can see that Higgs's translation from the French leaves something much to be desired. 275 00:29:01.720 --> 00:29:18.720 Right before this line, Cantillon wrote that you cannot artificially stimulate manufacturing and that what is needed is production of well-made goods that are highly esteemed by the local population. 276 00:29:18.720 --> 00:29:26.720 This is needful to discourage all foreign manufacturers and give plenty of employment to the inhabitants. 277 00:29:26.720 --> 00:29:32.720 It's just a bad translation. It's been taken out of context to make Cantillon look like a mercantilist. 278 00:29:32.720 --> 00:29:42.720 There are many such problems with the Higgs translation and I am currently working on a new American translation of Cantillon's essay with Dr. Chantal Saucier. 279 00:29:42.720 --> 00:29:52.720 And what are we to make with Cantillon's admonition against the Dutch for selling Indian merchandise into Europe? 280 00:29:52.720 --> 00:30:01.720 and that it is, quote, evident disadvantage to allow Europeans to wear Indian clothing when they can make their own. 281 00:30:01.720 --> 00:30:08.720 Has Cantillon violated the principle of comparative advantage and adopted the mercantilist view? 282 00:30:08.720 --> 00:30:14.720 Well, to understand Cantillon's remark, it is important to place them within the context of his time. 283 00:30:14.720 --> 00:30:24.220 France, again, was ruled by an absolutist monarchy and dominated by a repressive, mercantilist economic policy regime. 284 00:30:24.220 --> 00:30:38.220 The country was subject to extremely harsh taxation, profligate spending by the king, systematic corruption, and a strong guild system that monopolized labor markets and manufacturing industries. 285 00:30:38.220 --> 00:30:46.220 With tax revenues maximized, France increasingly turned to the granting of monopoly rights to increase revenues. 286 00:30:46.220 --> 00:30:55.220 In this manner, government intervention turned existing guilds and cartel arrangements into uniform national monopolies. 287 00:30:55.220 --> 00:31:04.220 Cantillon apparently made calculations that showed that France had a comparative advantage in many of these monopolized industries, 288 00:31:04.220 --> 00:31:22.220 More directly to Cantillon's comment on Holland and the imports of Indian garments is the 289 00:31:22.220 --> 00:31:29.340 matter of calicoes, which were printed cotton textiles, where France banned the production 290 00:31:29.340 --> 00:31:31.700 of cotton textiles. 291 00:31:31.700 --> 00:31:38.420 They banned the importation of cotton textiles and even the wearing of cotton textiles. 292 00:31:38.420 --> 00:31:44.120 The initial boom in cotton textiles had apparently put the manufacturers of silk, wool and linen 293 00:31:44.120 --> 00:31:47.460 garments under intense competition. 294 00:31:47.460 --> 00:31:50.960 So they sought a ban on cotton textiles. 295 00:31:50.960 --> 00:31:56.060 They banned the imports to help maintain their monopoly profits and they banned the local 296 00:31:56.060 --> 00:32:09.060 The technical production of calicoes, because calicoes differ too much in terms of quality and variety to come under the rubric of strict French regulations. 297 00:32:09.060 --> 00:32:16.060 As a result, the cotton textile industry of France was probably set back by more than a century. 298 00:32:16.060 --> 00:32:33.060 Therefore, Cantillon's statement, which initially sounds very mercantilist, should clearly not be labeled mercantilist or an advocate of trade barriers, because imports had already been completely prohibited at the time. 299 00:32:33.060 --> 00:32:45.060 They were already in place. Rather, he was arguing for freedom to produce in France and that France could produce all of their own textiles as they had prior to the prohibition. 300 00:32:45.060 --> 00:32:51.060 So placed in the context of his time, Cantillon's conclusions make perfect economic sense. 301 00:32:51.060 --> 00:32:58.060 The French were restricting output in a product they had a comparative advantage in. 302 00:32:58.060 --> 00:33:02.060 Now Cantillon also has statements about money. 303 00:33:02.060 --> 00:33:11.060 And this is an interesting sort of area of contradiction because in some places he says that we need a lot of money in the economy. 304 00:33:11.060 --> 00:33:25.060 In other areas, he developed the gold price species flow model, which says you can't continually add gold into your economy because it's going to start to flow out to other nations. 305 00:33:25.060 --> 00:33:36.060 He also argued not to prohibit the export of gold, so you have kind of a circular sense here that he was arguing for something and arguing against that same issue. 306 00:33:36.060 --> 00:33:44.100 Well, he certainly didn't argue for more money based on mercantilist reasons. 307 00:33:44.100 --> 00:33:49.140 He was always critical of their particular reasons. 308 00:33:49.140 --> 00:33:52.660 For example, they viewed money as wealth, while Cantillon did not. 309 00:33:52.660 --> 00:33:59.840 He viewed goods and services and even luxuries as wealth. 310 00:33:59.840 --> 00:34:03.780 We also know that he was not under the mercantilist fallacy that a nation could build up its gold 311 00:34:03.780 --> 00:34:05.780 holdings ad infinitum. 312 00:34:05.780 --> 00:34:13.780 Professor Cantillon discovered the species flow mechanism. He also argued against attempts 313 00:34:13.780 --> 00:34:20.020 of the government to forcibly keep gold inside the country. So why did he argue for more 314 00:34:20.020 --> 00:34:26.980 money? Well, first he argued for a positive flow of gold if it represented a capital inflow 315 00:34:26.980 --> 00:34:33.240 from foreigners into your country, investing into your country to raise productivity and 316 00:34:33.240 --> 00:34:39.200 and overall production. He showed that increasing the money in circulation could result in higher 317 00:34:39.200 --> 00:34:43.600 prices, but if the money was imported in the form of loans, it would reduce the interest 318 00:34:43.600 --> 00:34:51.080 rate, encourage entrepreneurs to invest in business and create better jobs. 319 00:34:51.080 --> 00:34:56.320 Unlike the mercantilists, Cantillon carefully distinguished between money in circulation 320 00:34:56.320 --> 00:35:02.720 and loanable funds. The second reason, which is kind of a novel reason for increasing the 321 00:35:02.720 --> 00:35:17.720 and the supply of money is that he wanted the king essentially to accumulate a large stockpile of gold in the public treasury as a precaution or even a possible preventative against war. 322 00:35:17.720 --> 00:35:23.720 He also thought that France's large national debt would bring it to ruin, as it did. 323 00:35:23.720 --> 00:35:34.720 However, with a large cash hoard, the prince could purchase all the provisions of war from overseas and thus not impoverish his subjects should war come to pass. 324 00:35:34.720 --> 00:35:39.720 Therefore, a sufficiently large cash hoard would discourage invasions. 325 00:35:39.720 --> 00:35:47.720 Jacob Weiner found that this type of argument for holding and hoarding gold was rare amongst mercantilists. 326 00:35:47.720 --> 00:35:54.720 Cantillon, who was omitted from the survey, gave it as his most important reason. 327 00:35:54.720 --> 00:36:10.720 So in retrospect, Cantillon offered very good reasons for having a large supply of money in the economy that did not violate any of the mistakes of the mercantilists. 328 00:36:10.720 --> 00:36:15.720 Finally, I want to turn to the curious case of David Hume. 329 00:36:15.720 --> 00:36:27.720 When writing about Cantillon's influence on economics, Rothbard noted that the essay was certainly read and echoed by the eminent Scottish philosopher, David Hume. 330 00:36:27.720 --> 00:36:37.720 This has been a hot topic in the history of economic thought. Mark Blau twice accused Hume of plagiarizing from Cantillon. 331 00:36:37.720 --> 00:36:47.720 And when I read that, I wrote Blau and asked him, and he recanted when I challenged him, that he hadn't actually seen any evidence to that effect. 332 00:36:47.720 --> 00:37:03.720 But what Blau did see, correctly, was a very clear connection between Cantillon and Hume's economics, based on the fact that all three of Hume's major contributions to economic sciences 333 00:37:03.720 --> 00:37:07.720 are all anticipated in Cantillon's essay. 334 00:37:07.720 --> 00:37:13.720 Hume's answer to the mercantilist, the species flow mechanism, is clearly in Cantillon, 335 00:37:13.720 --> 00:37:16.720 as is the difference between normative and positive economics. 336 00:37:16.720 --> 00:37:24.720 The third contribution is the idea that of the short-run effect of increases in the supply of money 337 00:37:24.720 --> 00:37:27.720 in providing extra output and employment. 338 00:37:27.720 --> 00:37:36.720 And this is especially telling in connecting Hume to Cantillon because they stand virtually alone during this period in recognizing this point. 339 00:37:36.720 --> 00:37:44.720 Hayek too believed, based on the evidence, that the impression was inescapable, that Hume must have in fact known Cantillon. 340 00:37:44.720 --> 00:37:55.720 Murphy and others, however, have rejected this connection because they find Cantillon's presentation of the model, of the species flow model, 341 00:37:55.720 --> 00:38:00.720 to be so superior to Hume's that he could have not possibly have seen it. 342 00:38:02.720 --> 00:38:06.720 So I looked into this question of did Hume read Cantillon? 343 00:38:07.720 --> 00:38:15.720 Prior to his visit to France in 1734, Hume was an unaccomplished student without a degree. 344 00:38:16.720 --> 00:38:24.720 In a letter to a medical doctor, he described his own incurable distemper that had left him unable to study 345 00:38:24.720 --> 00:38:30.200 and for which he had taken many types of drugs and cures and seen numerous doctors without 346 00:38:30.200 --> 00:38:36.880 any effect. His description and self-diagnosis is certainly indicative of hypochondria and 347 00:38:36.880 --> 00:38:43.560 perhaps depression, resulting from his lack of success in his studies and his possible 348 00:38:43.560 --> 00:38:49.580 involvement in the Galbraith affair, a case of fornication and bastardry in which Hume 349 00:38:49.580 --> 00:38:57.340 In a letter to a friend, he wrote of his self-diagnosed cure. After he'd gone to all these doctors, 350 00:38:57.340 --> 00:39:05.980 he decided that what would cure him was to become a merchant. He went to Bristol, England, 351 00:39:05.980 --> 00:39:11.660 to work at a merchant house, but despite his self-described diligence and best efforts 352 00:39:11.660 --> 00:39:20.300 to fit into his new circumstances and he even changed his name from H-O-M-E to H-U-M-E 353 00:39:20.300 --> 00:39:27.100 to fit in with English pronunciation and spelling. He soon found himself unsuited to the merchant 354 00:39:27.100 --> 00:39:33.780 trade business and he left Bristol in the summer of 1734, almost the exact time that 355 00:39:33.780 --> 00:39:41.240 Cantillon was murdered to go to France and Hume's visit to France is critical in his 356 00:39:41.240 --> 00:39:48.420 life because while he was promising and ambitious he was still very much an unaccomplished student 357 00:39:48.420 --> 00:39:55.640 but on his return to England he embarked on a publishing career that was unbelievable and 358 00:39:55.640 --> 00:40:02.520 that would see him become a very prolific, path-breaking philosopher and historian and 359 00:40:02.520 --> 00:40:07.240 and one of the greatest and most celebrated minds of his age. 360 00:40:07.240 --> 00:40:14.320 Now basically a friend of his set him up with a visit to his cousin in France who was interested 361 00:40:14.320 --> 00:40:16.320 in philosophy and religion. 362 00:40:16.320 --> 00:40:23.240 This guy Ramsey was a convert to Roman Catholicism, the tutor of the two sons of the pretender, 363 00:40:23.240 --> 00:40:29.280 Prince Charles Edward Stuart and his brother Harry and most importantly he was a key disciple 364 00:40:29.280 --> 00:40:34.440 of Fennelon, one of the original architects of anti-mercantilism. 365 00:40:34.440 --> 00:40:41.200 As Rothbard observed, Fennelon led a powerful Kabbalit court who were deeply opposed to 366 00:40:41.200 --> 00:40:46.360 the absolutist and mercantilist policies of the king and determined to reform them in 367 00:40:46.360 --> 00:40:52.120 the direction of free trade, limited government and laissez-faire. 368 00:40:52.120 --> 00:41:01.020 Now basically I've got lots of details here of all of the people that Hume met, a lot 369 00:41:01.020 --> 00:41:08.220 of the important people in France of the underground intellectual circles, but I can't pronounce 370 00:41:08.220 --> 00:41:14.220 any of their names so I'm just going to skip over all that section. 371 00:41:14.220 --> 00:41:21.340 One of the philosophers, however, that he was involved with and studying with was actually 372 00:41:21.340 --> 00:41:26.620 Lord Bolingbroke's tutor in philosophy. 373 00:41:26.620 --> 00:41:32.100 This relationship is very important because it brings together Bolingbroke, Cantillon 374 00:41:32.100 --> 00:41:40.600 and Hume as basically within the same intellectual circles at basically the same period of time. 375 00:41:40.600 --> 00:41:46.360 The only difference is that Cantillon dies and then Hume almost directly afterward goes 376 00:41:46.360 --> 00:41:55.000 to France, but all the same players are there in Paris and in Reims during Hume's stay 377 00:41:55.000 --> 00:42:02.200 there and there's a lot of different connections that are developed which shows basically that 378 00:42:02.200 --> 00:42:10.880 Hume was essentially in the same intellectual circles as Bolingbroke and as Cantillon had 379 00:42:10.880 --> 00:42:26.880 The Marquis d'Argonne was the first person to use the phrase laissez-faire, laissez-passer. 380 00:42:26.880 --> 00:42:32.880 Montesquieu was actually a friend of Cantillon and a friend of Cantillon's wife. 381 00:42:32.880 --> 00:42:42.880 He met Voltaire. He met Sir Isaac Newton. The list of people that he was involved in was actually quite incredible. 382 00:42:42.880 --> 00:42:57.880 Just about anybody who was anybody was involved in these intellectual circles and it was very much against the French monarchy as well as in many cases the Protestant rule in England. 383 00:42:57.880 --> 00:43:11.880 and Against Mercantilism is really the beginning of anti-mercantilism and the beginning of the liberal tradition is setting up shop underground in Paris at this time. 384 00:43:11.880 --> 00:43:25.200 Okay, all these connections and many others established that Hume was most certainly connected 385 00:43:25.200 --> 00:43:28.040 with many of the same people who Cantillon knew. 386 00:43:28.040 --> 00:43:32.160 The Cantillon-Bowenbrook-Hume connection is particularly strong and noteworthy because 387 00:43:32.160 --> 00:43:35.280 all three were anti-mercantilist theorists. 388 00:43:35.280 --> 00:43:40.740 I believe that this evidence establishes that Hume hadivid opportunity but does not establish 389 00:43:40.740 --> 00:43:50.740 Hume certainly was interested in the economy and trade having just spent time in the merchant trade business. 390 00:43:50.740 --> 00:43:57.740 He was always worried about money, always complaining that he didn't have enough money, always asking friends and relatives to send him money. 391 00:43:57.740 --> 00:44:09.740 So the idea of this book by the world's wealthiest man who was in the banking business and in the merchant trade business would certainly have been something that was of interest to Hume. 392 00:44:09.740 --> 00:44:21.740 This is basically exactly what Hume was looking for. His analytic interest in trade, combined with his interest in improving his own economic circumstances, would have given Hume a powerful motive to seek out the essay. 393 00:44:21.740 --> 00:44:33.740 Of course, interest alone does also not imply access. And if there was only one copy of the manuscript, it would be hard to believe that Hume had actually gotten his hands on it. 394 00:44:33.740 --> 00:45:03.740 but at this time in these underground intellectual circles what people would do is hand copy the manuscript so that you would give it to a friend and in reading the manuscript they would write out a new copy and then you would get your copy back and your friend would hand it off to the next person who would then recopy it and so as a matter of fact Cantillon employed clerks at his bank whose job it was was to copy and prepare documents 395 00:45:03.740 --> 00:45:09.520 So when Hume arrived in France, there were probably several copies of the document, including 396 00:45:09.520 --> 00:45:17.220 in the hands of Bowenbrook and some of the other leading intellectuals of the time. 397 00:45:17.220 --> 00:45:22.460 But here's the clincher, you know, you've got the motive, you've got the opportunity, 398 00:45:22.460 --> 00:45:27.540 but is there any real evidence that he saw the essay? 399 00:45:27.540 --> 00:45:29.340 And here's the clincher. 400 00:45:29.340 --> 00:45:37.180 Some of Hume's early notes did survive and were subsequently published in 1948. 401 00:45:37.180 --> 00:45:43.020 Some of these notes, as indicated by the evidence, were written during Hume's time in France. 402 00:45:43.020 --> 00:45:48.700 Mosner labeled the third section of these notes general based on the fact that the title 403 00:45:48.700 --> 00:45:51.060 page of this section had been lost. 404 00:45:51.060 --> 00:45:57.980 However, it could also be the case, and I think it is, that more than one page was missing. 405 00:45:57.980 --> 00:46:02.340 Hume used the notes frequently in his writings, and once a note had been used, he crossed 406 00:46:02.340 --> 00:46:08.820 it out. If a page or pages had all been used up and crossed out, it is not unlikely that 407 00:46:08.820 --> 00:46:15.300 such pages were removed, set aside, lost or destroyed. What is clear from the notes in 408 00:46:15.300 --> 00:46:21.340 the general section is that Hume read very widely amongst both the mercantilist and the 409 00:46:21.340 --> 00:46:26.740 anti-mercantilist. So really, this was a section about economics. 410 00:46:26.740 --> 00:46:34.780 In the first two surviving notes of this section of notes, the third section is the most interesting. 411 00:46:34.780 --> 00:46:39.620 They don't refer to any specific writer, which most of the other notes do. 412 00:46:39.620 --> 00:46:44.900 The first note, which is entirely crossed out, concerned the practice of infanticide 413 00:46:44.900 --> 00:46:46.700 in China. 414 00:46:46.700 --> 00:46:52.820 Cantillon wrote about China in several places in the essay, including on the topic of population 415 00:46:52.820 --> 00:46:53.820 and infanticide. 416 00:46:53.820 --> 00:47:00.580 It is clear that Hume's note could have been based on Cantillon's essay and it is unlikely 417 00:47:00.580 --> 00:47:05.220 that Hume would have had any other source to draw from on the specific nature of the 418 00:47:05.220 --> 00:47:11.740 note because most writers on China or who studied the Chinese culture were trying to 419 00:47:11.740 --> 00:47:19.340 emphasize the similarities of all people across the planet, not their differences. 420 00:47:19.340 --> 00:47:43.900 The second surviving comment in the third section of notes represents a radical change, a radical 421 00:47:43.900 --> 00:47:48.900 So that anybody would say that you'd have to assume that they came from different books. 422 00:47:48.900 --> 00:47:55.900 However, Hume generally wrote several notes together on a single book. 423 00:47:55.900 --> 00:48:01.900 And here he was commenting on the productivity of labor and manufacturing. 424 00:48:01.900 --> 00:48:03.900 And this is from Hume. 425 00:48:03.900 --> 00:48:15.900 And this is from Hume, quote, a pound of steel when manufactured may become 10,000 pounds, British pounds, value. 426 00:48:15.900 --> 00:48:22.900 So what he's saying here is manufacturing can turn a little bit of steel into a whole lot of money. 427 00:48:22.900 --> 00:48:28.900 And this to me was very suspiciously similar to Cantillon's statement in the essay, quote, 428 00:48:28.900 --> 00:48:44.900 A fine steel spring, which regulates an English watch, is generally sold at a price which makes the proportion of material to labor, or of steel to spring, one to one million. 429 00:48:44.900 --> 00:48:54.900 So that in this case, labor makes up nearly all the value of the spring. See my calculation in the supplement. 430 00:48:54.900 --> 00:49:01.900 So here you've got Hume saying a pound of steel can become 10,000 British pounds of value 431 00:49:01.900 --> 00:49:12.900 and you've got Cantillon saying that the value of steel to the price of the spring can increase by a million times. 432 00:49:12.900 --> 00:49:17.900 So what I did was I looked at these observations from Cantillon and Hume 433 00:49:17.900 --> 00:49:29.900 and I tried to draw a connection as to what would the price of steel have to be for both of those calculations to be based on the same information 434 00:49:29.900 --> 00:49:42.900 and what I came up with is that the price of steel would have had to have been 2.4 pence per pound or 22.4 British pounds per ton 435 00:49:42.900 --> 00:49:51.900 So that was the ratio, and so then the next thing I had to do was find out what was the price of steel in the 1720s. 436 00:49:51.900 --> 00:50:07.900 And it turns out the data from a historian, Baraklaw, was that in the mid-1920s, that the price of steel was in the range of the mid to lower 20 pounds per ton. 437 00:50:07.900 --> 00:50:14.900 So the data, you know, from the data it seems reasonable to link those two quotes via the price of steel. 438 00:50:14.900 --> 00:50:20.900 Of course, Hume never talked about watches in his calculation. 439 00:50:20.900 --> 00:50:29.900 But this linkage clearly indicates that Hume was relying on Cantillon's essay and possibly even the supplement, which has long been missing. 440 00:50:29.900 --> 00:50:52.900 The use of steel in manufacturing did produce high levels of added value, but this was especially so in the watchmaking business because watches were a very expensive luxury good and the use of improved steel mechanisms was a key issue in watchmaking technology just prior to 1730. 441 00:50:52.900 --> 00:51:05.900 Watch springs would have been one of the very few items on the entire planet that would have produced the necessary one to one million ratio between the cost of steel and the value of output. 442 00:51:05.900 --> 00:51:24.900 It would not have been surprising if the very wealthy Cantillon owned such a watch at this time and that he acquired his own data about the watch springs either in acquiring a watch or more likely in replacing a broken watch spring. 443 00:51:24.900 --> 00:51:32.420 Hume, on the other hand, had a rather modest income during this time period when he made 444 00:51:32.420 --> 00:51:33.900 the notation. 445 00:51:33.900 --> 00:51:40.140 This would have precluded him having a watch until long after his publishing successes. 446 00:51:40.140 --> 00:51:45.260 In addition, I have found no other alternative source from which Hume could have derived 447 00:51:45.260 --> 00:51:51.820 his calculations and on this evidence that I have seen has convinced me that Hume actually 448 00:51:51.820 --> 00:51:54.740 read Cantillon. 449 00:51:54.740 --> 00:51:58.340 Now connecting Hume and Cantillon closes the circle. 450 00:51:58.340 --> 00:52:04.060 Cantillon was the primary inspiration for all the first economists, including Adam Smith 451 00:52:04.060 --> 00:52:10.100 and David Hume in Scotland and the physiocrats in Turgot in France. 452 00:52:10.100 --> 00:52:17.860 Tracing this connection also finds Cantillon in the middle of a hotbed of dissident intellectual 453 00:52:17.860 --> 00:52:31.820 In conclusion, we now know that in addition to inventing economic method and theory, Cantillon 454 00:52:31.820 --> 00:52:39.140 was a positive influence on Adam Smith and the source of Adam Smith's invisible hand. 455 00:52:39.140 --> 00:52:47.020 Cantillon discovered our core concept of opportunity cost and he was also a thorough going anti-mercantilist 456 00:52:47.020 --> 00:52:53.540 supporter of laissez-faire economic policy, and that he was the inspiration of David Hume's 457 00:52:53.540 --> 00:52:59.100 economic contribution and the real teacher of all the early economists, including, as 458 00:52:59.100 --> 00:53:05.420 I mentioned, the physiocrats in Turgo. Like I said at the beginning, the greatest economist 459 00:53:05.420 --> 00:53:06.020 of all time.