WEBVTT NOTE Turning the World Upside Down: Cantillon and the Meaning of Entrepreneurship 1 00:00:00.000 --> 00:00:04.420 Good morning, everyone. My name is Chris Brown. I appreciate you coming here, and I'm glad 2 00:00:04.420 --> 00:00:08.960 that I'm able to wear a suit today. My luggage got here just a couple of days ago. I flew 3 00:00:08.960 --> 00:00:12.880 Air New Zealand, and it was a wonderful flight. They had great movies, great entertainment. 4 00:00:12.880 --> 00:00:17.560 I'd always flown here from Australia on United, because it's always the cheapest, and that's 5 00:00:17.560 --> 00:00:23.080 because they only have the one movie screen. So it was great to have my own personal screen. 6 00:00:23.080 --> 00:00:28.420 The only thing missing from the flight was my luggage. So that's the excuse for my casual 7 00:00:28.420 --> 00:00:37.420 I'm from the Australian Graduate School of Entrepreneurship at Swinburne University, which is near Melbourne, Australia. 8 00:00:37.420 --> 00:00:43.420 I teach and lecture in entrepreneurship and just sometimes in economics. 9 00:00:43.420 --> 00:00:54.420 I incorporate actually a lot of Cantillon into my entrepreneurship classes, and I think he's a good foundation for economics and especially for entrepreneurship. 10 00:00:54.420 --> 00:01:03.420 and Entrepreneurship. And it's a very fruitful area, not only in economics, I think, but especially in entrepreneurship, because people usually know what you're talking about when you talk about Kant-John. 11 00:01:03.420 --> 00:01:15.420 So, an overview of our presentation, and I should just let you know that Mark will be presenting as well. I sort of feel like a bad warm-up act to the main event, because Mark's the expert. 12 00:01:15.420 --> 00:01:23.020 He mentioned here that he oversaw the translation of the new essay on economic theory by Cantillon. 13 00:01:23.020 --> 00:01:28.820 So, overview of the presentation. I'm going to go over the French term entrepreneur, 14 00:01:28.820 --> 00:01:36.020 and I won't try and butcher the language, but I'll go over the term and how it was used starting in the 12th century, 15 00:01:36.020 --> 00:01:42.820 and then how Cantillon used the term and changed its meaning, or as we say, turned it upside down, he flipped its meaning. 16 00:01:42.820 --> 00:02:06.820 And then Mark's going to go over some reasons why this might be the case in terms of looking at Cantillon's three career phases in his life and how his career, how the change in meaning of the term entrepreneur can be reflected by his career and the way he used the term significantly impacted those of the school of the physiocrats and then how we sort of understand the term today. 17 00:02:06.820 --> 00:02:12.100 all right so looking at the term there we've got the 12th century where it's 18 00:02:12.100 --> 00:02:16.660 very general which is to do something which it's okay being general because 19 00:02:16.660 --> 00:02:21.740 Mises also uses the term very generally in a way that we're all entrepreneurs 20 00:02:21.740 --> 00:02:26.500 acting under conditions of uncertainty and this is what it meant in the 12th 21 00:02:26.500 --> 00:02:31.660 century later on sort of the same thing and the 14th person who assumed some 22 00:02:31.660 --> 00:02:34.980 task and what this really means during the Middle Ages was someone who built 23 00:02:34.980 --> 00:02:40.880 Religious buildings such as cathedrals or abbeys, which I found pretty interesting. 24 00:02:40.880 --> 00:02:44.580 We don't usually think of the entrepreneur in that sense, but even more interesting might 25 00:02:44.580 --> 00:02:48.660 be on the 16th, we've got violent war-like action. 26 00:02:48.660 --> 00:02:54.140 So some of the Trojan warriors, for example, in the French literature were referred to 27 00:02:54.140 --> 00:02:58.800 as entrepreneurs, and others during the 16th century would say that these entrepreneurs 28 00:02:58.800 --> 00:03:05.260 Entrepreneurs are hardy, usurping, and intent to risk their lives and fortunes. 29 00:03:05.260 --> 00:03:10.760 And then we've got also, now in the 17th century, we've got the French terms there, which I 30 00:03:10.760 --> 00:03:17.040 won't pronounce, but we've got that first one, which also means one who undertakes something, 31 00:03:17.040 --> 00:03:20.520 but then the next one is someone who works as a contractor, and we get into this notion 32 00:03:20.520 --> 00:03:22.600 of the entrepreneur as a contractor. 33 00:03:22.600 --> 00:03:35.600 And of course we get from that term, redemptor, however you pronounce it, redeemer, and that has a Christian meaning of someone who enters into a contract, for example, or a covenant. 34 00:03:35.600 --> 00:03:45.600 So, later on in the 17th century, we've got undertaker of a construction project which is this idea of contracting with the government, right? 35 00:03:45.600 --> 00:04:00.600 So an entrepreneur was someone who engaged in a construction project, contracted with the government, which is significant because the price of the contract was fixed, so the costs are what was uncertain. 36 00:04:00.600 --> 00:04:13.600 So costs were uncertain, price was fixed, therefore the entrepreneur had to minimize those costs as much as possible to obtain a profit, and if not they would make a loss. 37 00:04:13.600 --> 00:04:18.600 Whereas we'll see later that Cantillon flipped this or reversed this. 38 00:04:18.600 --> 00:04:26.600 Okay, this was also in the French legal and economic literature, you can read this, that it was mainly a government contractor. 39 00:04:26.600 --> 00:04:34.600 But then later on in the 18th century, keeping in mind that Cantillon's essay was published in 1755, 40 00:04:34.600 --> 00:04:38.600 we've got not only a contractor but someone who undertakes substantial projects. 41 00:04:38.600 --> 00:04:46.200 Projects. By that I mean public works mainly, so buildings, roads, canals, bridges, these 42 00:04:46.200 --> 00:04:54.320 sorts of things. It's really interesting because at this time as well, the division of labor 43 00:04:54.320 --> 00:05:01.700 becomes more obvious, or greater, or more recognized in France. And there's the creation 44 00:05:01.700 --> 00:05:10.380 of the Academy of Architecture, which you might think of as sort of the modern day Academy 45 00:05:10.380 --> 00:05:15.460 of, what is it, the AMA, Medical Association, right? 46 00:05:15.460 --> 00:05:18.360 So let me read you this from Hosselitz. 47 00:05:18.360 --> 00:05:23.640 This is his classic 1951 article, which is very difficult to find, but may I point out 48 00:05:23.640 --> 00:05:27.240 that it's on Peter Klein's website, and that's the only place I could find it. 49 00:05:27.240 --> 00:05:35.160 So, he says, the architects, let me point out before I read you the quote, at the time 50 00:05:35.160 --> 00:05:38.560 the entrepreneurs did everything, they were pretty much the architects, they were those 51 00:05:38.560 --> 00:05:43.120 who oversaw the labor and the construction of the projects and what not, Toselit says, 52 00:05:43.120 --> 00:05:47.640 the architects especially felt that their services were of a higher quality than those 53 00:05:47.640 --> 00:05:51.080 of ordinary master masons or contractors. 54 00:05:51.080 --> 00:05:55.840 This sentiment was enhanced in France by the formation of an academy of architecture and 55 00:05:55.840 --> 00:06:03.240 And in 1676, entrepreneurs, master masons in the building trade were prohibited from 56 00:06:03.240 --> 00:06:09.080 adopting the designation architect of the king, or king's architects, an appellation 57 00:06:09.080 --> 00:06:13.760 which was reserved to those men whom the king had chosen to compose this academy of architecture 58 00:06:13.760 --> 00:06:17.560 to which only outstanding artists were admitted. 59 00:06:17.560 --> 00:06:35.560 Okay, so then later it becomes more of this, again, sort of this mythology of the entrepreneur becoming, you know, bold and daring and dashing and sort of Richard Branson or Bill Gates-ish. 60 00:06:35.560 --> 00:06:39.560 Okay, or maybe the Schumpeter notion of the entrepreneur. 61 00:06:39.560 --> 00:06:48.560 And then we also have now Undertaker of a Business Project, so it's starting to become different, and obviously now we're after Cantillon's essay. 62 00:06:48.560 --> 00:06:56.560 In this 1872 version of the French Dictionary, it references Condiac and Jean-Baptiste Say. 63 00:06:56.560 --> 00:07:03.560 And we know that at least Condiac was heavily influenced by Cantillon, and in his work he wrote, 64 00:07:03.560 --> 00:07:10.060 I have drawn the basis of this chapter from Cantillon's essay and several observations of which I have made in other chapters. 65 00:07:10.060 --> 00:07:13.060 It is one of the best works I know on this subject. 66 00:07:13.060 --> 00:07:20.560 Schumpeter later wrote that nobody before Cantillon had formulated it so fully, referring to the theory of entrepreneurship. 67 00:07:20.560 --> 00:07:26.560 Okay, so let's now take a look at the way Cantillon formulated his theory. 68 00:07:26.560 --> 00:07:31.560 So let me just give an example. He mentions the entrepreneur over a hundred times in his essay. 69 00:07:31.560 --> 00:07:34.760 And there's three main economic actors in the essay. 70 00:07:34.760 --> 00:07:46.260 You've got landowners, where demand comes from, so all entrepreneurs are trying to meet the wishes and tastes and needs of the landowners, 71 00:07:46.260 --> 00:07:49.260 and then you've got the entrepreneurs, and then you've got wage laborers. 72 00:07:49.260 --> 00:07:57.260 And the difference between the entrepreneurs and the laborers are that the laborer is on a fixed wage and the entrepreneurs are on an unfixed wage. 73 00:07:57.260 --> 00:08:09.260 And to me, this seemingly simple or small detail is quite significant in terms of entrepreneurship education, which I'll get to in a minute in the conclusions. 74 00:08:09.260 --> 00:08:13.260 Okay, so Cantillon gives the example of the farmer-entrepreneur. 75 00:08:13.260 --> 00:08:25.260 This farmer-entrepreneur coordinates with the manufacturer-entrepreneur, and there's uncertainty between the present and future. 76 00:08:25.260 --> 00:08:42.260 And for the farmer entrepreneur, Cantillon lists not only is there uncertainty and risk in terms of if a sale will even take place, but obviously in the future the prices are uncertain and this is now flipping the government contractor where the prices were fixed. 77 00:08:42.260 --> 00:08:53.260 So there's no guarantee of profit or loss because of this uncertain future between the two and we see entrepreneurs all along the supply chain. 78 00:08:53.260 --> 00:09:07.260 The same thing occurs with the manufacturer-entrepreneur, the middleman-entrepreneur, profit and loss, uncertainty between present and future, and Cantillon really mentions two main types of risks, right, barring any government bailouts, you would have bankruptcy or starvation. 79 00:09:07.260 --> 00:09:20.260 Okay, later economists of the physiocrat school were influenced by Cantillon, especially Canet, who uses this term three times in his work. 80 00:09:20.260 --> 00:09:29.260 He talks about the operator of a large farm or a businessman or one who supervises labor but does not participate in the labor process. 81 00:09:29.260 --> 00:09:35.260 So with that, let me turn the time over to Mark to talk about Cantillon's three career phases. 82 00:09:39.260 --> 00:09:41.260 Thank you, Chris. Hi, everyone. 83 00:09:41.260 --> 00:10:05.260 What we're basically arguing is that the term entrepreneur changes dramatically from one of a government contractor to the modern term of entrepreneurship, which is someone who is working at risk, who's buying inputs, putting them together in some way, and selling them at an uncertain price in the near future. 84 00:10:05.260 --> 00:10:15.760 And one of the things that we suggest is that his career was influential in this changing of the term. 85 00:10:15.760 --> 00:10:22.260 Cantillon was a banker. He was born an Irish Catholic in Ireland. 86 00:10:22.260 --> 00:10:28.760 His family estates, the ownership of his family's estates were taken by Cromwell. 87 00:10:28.760 --> 00:10:39.760 And so when he reached the age of majority, young adult, there was not much to do in Ireland because they had lost their land. 88 00:10:39.760 --> 00:10:47.760 And so he moved with his brother Bernard to Paris and he started working in his older cousin's bank. 89 00:10:47.760 --> 00:10:54.760 And he was given the account of the British Paymaster General for the War Department. 90 00:10:54.760 --> 00:11:04.760 So, why do you think the British Paymaster General would have their account in an Irish Catholic bank? 91 00:11:08.760 --> 00:11:16.760 Well, apparently he was very successful at what he did, and he was soon approached by the British Paymaster General 92 00:11:16.760 --> 00:11:22.760 and given a job as a clerk in the British Paymaster General's office in Madrid, Spain. 93 00:11:22.760 --> 00:11:26.600 And what had been going on is the War of Spanish Succession. 94 00:11:26.600 --> 00:11:29.680 So Britain, France, Spain, Austria, the Netherlands 95 00:11:29.680 --> 00:11:31.120 were all at war. 96 00:11:31.120 --> 00:11:33.760 British troops were in Spain. 97 00:11:33.760 --> 00:11:35.520 British prisoners were in Spain. 98 00:11:35.520 --> 00:11:39.480 And they had to be paid for by the British War Department. 99 00:11:39.480 --> 00:11:44.560 Money had to be sent to Madrid. 100 00:11:44.560 --> 00:11:49.360 Goods and services had to be bought for the troops 101 00:11:49.360 --> 00:11:52.440 to provision those troops. 102 00:11:52.440 --> 00:12:14.440 So what essentially is going on is that the British Paymaster General is getting money for the British government, sending it to a bank in Madrid, who is then giving the money to the Assistant Paymaster General in Spain, and then food, clothing and so forth, the pay of the soldiers is then doled out. 103 00:12:14.440 --> 00:12:19.840 He's working, the British Paymaster General at the time was James Bridges, who was known 104 00:12:19.840 --> 00:12:26.840 in history as the most successful war privateer of the age, and essentially what was going 105 00:12:26.840 --> 00:12:34.400 on is all of these guys were on the take, the regiments, the officers, the whole process 106 00:12:34.400 --> 00:12:42.200 was one of graft and corruption, and Cantillon was a very successful employee of this operation. 107 00:12:42.200 --> 00:12:47.780 He came up with the idea of two sets of books, where the money would come into the Paymaster 108 00:12:47.780 --> 00:12:53.820 General's office, into the Paymaster General's account. 109 00:12:53.820 --> 00:13:00.780 Then they would be used to buy goods and services for the troops by a shadow company who would 110 00:13:00.780 --> 00:13:08.400 then sell those provisions to the army at marked up prices. 111 00:13:08.400 --> 00:13:16.080 So it's very similar to today where Halliburton buys a gallon of gasoline in the United States, 112 00:13:16.080 --> 00:13:25.200 ships it over to Afghanistan, and it goes from $3 a gallon to $500 a gallon. 113 00:13:25.200 --> 00:13:29.960 So it's very much a very corrupt affair. 114 00:13:29.960 --> 00:13:38.240 After the war, he's greatly rewarded by Bridges for his services, the two sets of books idea, 115 00:13:38.240 --> 00:13:45.440 and his silence, because the British government was after bridges for graft and corruption, 116 00:13:45.440 --> 00:13:50.960 but Cantillon was able to cover the whole thing up. 117 00:13:50.960 --> 00:13:55.640 So he takes that money and goes into banking in Paris. 118 00:13:55.640 --> 00:14:02.640 He's very successful working, lending money, cashing bills of exchange for people. 119 00:14:02.640 --> 00:14:08.600 As was the main business of, you get a bill of exchange from a London bank, take it with 120 00:14:08.600 --> 00:14:14.120 you to a Paris bank and then cash it in for silver coins whenever you needed it. 121 00:14:14.120 --> 00:14:20.760 And so that was the main role of banking, but the banks also lent money to businesses 122 00:14:20.760 --> 00:14:26.760 and Cantino talks about that process and the various types of businesses that he was familiar 123 00:14:26.760 --> 00:14:33.240 with Making Loans II. 124 00:14:33.240 --> 00:14:38.720 And this is where he sort of understood the idea that, you know, you were always at risk. 125 00:14:38.720 --> 00:14:40.480 You were at risk lending money. 126 00:14:40.480 --> 00:14:44.720 You were at risk changing bills of exchange. 127 00:14:44.720 --> 00:14:48.000 The businesses themselves were at risk. 128 00:14:48.000 --> 00:14:54.320 All of this is used, all of this analysis is used in his analysis of usury laws, which 129 00:14:54.320 --> 00:15:00.320 which he sees as only harmful to the economy. 130 00:15:00.320 --> 00:15:05.960 And then finally, Cantillon was involved 131 00:15:05.960 --> 00:15:08.800 in John Law's Mississippi Company and the Mississippi 132 00:15:08.800 --> 00:15:10.920 Bubble. 133 00:15:10.920 --> 00:15:12.920 He was an integral part. 134 00:15:12.920 --> 00:15:15.160 He was hired by John Law. 135 00:15:15.160 --> 00:15:18.800 He set up with Bernard an expedition to Louisiana 136 00:15:18.800 --> 00:15:23.440 to actually try to exploit the Mississippi Company. 137 00:15:23.440 --> 00:15:29.860 He made tons of money on the way up, selling short on the way down, and making another 138 00:15:29.860 --> 00:15:33.420 fortune in foreign exchange. 139 00:15:33.420 --> 00:15:40.260 So he understood the whole thing, and he understood it basically as a government racket, as something 140 00:15:40.260 --> 00:15:42.440 that was completely contrived. 141 00:15:42.440 --> 00:15:48.640 The Mississippi Company actually was the tax collector, the central bank, and the owner 142 00:15:48.640 --> 00:15:52.540 of all the colonial overseas properties of France. 143 00:15:52.540 --> 00:15:58.660 So he has these three career moves, one as a government contractor, then as a banker, 144 00:15:58.660 --> 00:16:04.860 and then finally as sort of a government contractor working within this combination of central 145 00:16:04.860 --> 00:16:08.860 bank, IRS, and overseas empire. 146 00:16:08.860 --> 00:16:17.060 And I think what we find is that as the government contractor in Spain, the government contractor 147 00:16:17.060 --> 00:16:23.900 in the Mississippi bubble were very corrupt practices, they didn't necessarily have to 148 00:16:23.900 --> 00:16:32.360 exist and they weren't a part of the normal, well-regulated function in the economy, whereas 149 00:16:32.360 --> 00:16:41.020 a typical bank was different. It was an entrepreneurial venture, everything was truly at risk, just 150 00:16:41.020 --> 00:16:49.100 This is the general entrepreneurial category of people buying fixed prices for their cost 151 00:16:49.100 --> 00:16:56.940 of production and selling at risk uncertain prices in the marketplace. 152 00:16:56.940 --> 00:17:03.940 So that's basically our conclusions is that we think that Cantillon's career experiences 153 00:17:03.940 --> 00:17:08.940 influenced his understanding of what the entrepreneur was and what it wasn't. 154 00:17:08.940 --> 00:17:17.940 Chris, do you have any things to finish up with? 155 00:17:17.940 --> 00:17:27.940 Sure, I guess I would just say coming from the entrepreneurship perspective in terms of teaching entrepreneurship, 156 00:17:27.940 --> 00:17:38.940 I would say that this has quite an impact on entrepreneurship education in terms of how we think about the entrepreneur and what we teach. 157 00:17:38.940 --> 00:17:54.940 So for me, my PhD work looks at entrepreneurship education and I argue that to understand what should be taught, we have to understand what the entrepreneur actually does or what the function or role of the entrepreneur is. 158 00:17:54.940 --> 00:18:01.900 And if it's sort of as ubiquitous as Cantillon points out that it's anyone on an unfixed wage, 159 00:18:01.900 --> 00:18:09.100 then that's not just someone who engages in bold business behavior or makes decisions, 160 00:18:09.100 --> 00:18:15.420 but a whole host of activities from finance to marketing to creativity to innovation to ideas, 161 00:18:15.420 --> 00:18:17.980 whether ideas or opportunities and whatnot. 162 00:18:17.980 --> 00:18:24.340 I also think we talk about in the paper the danger of public-private partnerships 163 00:18:24.340 --> 00:18:28.660 where these contracts are entered into when the price is fixed 164 00:18:28.660 --> 00:18:31.460 in the future or if it's cost plus pricing even worse 165 00:18:31.460 --> 00:18:36.460 where there's a guaranteed profit margin and how this causes 166 00:18:36.460 --> 00:18:39.260 inefficiencies and things like that. 167 00:18:39.260 --> 00:18:42.260 Thank you very much. 168 00:18:42.260 --> 00:18:44.260 Thank you very much.