WEBVTT NOTE Cantillon, Economic Policy, and the Entrepreneur 1 00:00:00.000 --> 00:00:03.160 We've presented a paper on Richard Cantillon. 2 00:00:03.160 --> 00:00:05.920 This will be the third straight year that we've done this. 3 00:00:05.920 --> 00:00:09.320 And we found some, I think, very interesting things 4 00:00:09.320 --> 00:00:10.200 about Cantillon. 5 00:00:10.200 --> 00:00:13.960 And Chris has got his PhD in entrepreneurship. 6 00:00:13.960 --> 00:00:16.040 And of course, mine is in economics. 7 00:00:16.040 --> 00:00:19.600 And so we're using each other's knowledge base 8 00:00:19.600 --> 00:00:22.360 to try to wring out some more information, 9 00:00:22.360 --> 00:00:26.840 some more knowledge about Cantillon and entrepreneurship. 10 00:00:26.840 --> 00:00:29.800 And Cantillon has always been linked with entrepreneurship 11 00:00:29.800 --> 00:00:35.000 because he was the first person really to use it extensively in his writings. 12 00:00:35.000 --> 00:00:42.560 The first paper, it turns out, however, we showed that Cantillon actually created the 13 00:00:42.560 --> 00:00:44.480 word entrepreneurship. 14 00:00:44.480 --> 00:00:53.180 He gave it its current modern meaning in 1730, and we showed that as of 1729, the entrepreneur 15 00:00:53.180 --> 00:01:02.940 actually referred to government contractors, people who got a fixed price in the future 16 00:01:02.940 --> 00:01:08.260 and then had variable prices of their inputs going in and of course the modern definition 17 00:01:08.260 --> 00:01:16.020 is somebody who buys inputs at fixed prices only to sell them much later at an uncertain 18 00:01:16.020 --> 00:01:17.020 price. 19 00:01:17.020 --> 00:01:20.940 So the entrepreneur is the uncertainty bearer in the economy. 20 00:01:20.940 --> 00:01:26.500 So that was an interesting paper, sort of a historical paper where we showed that people 21 00:01:26.500 --> 00:01:29.860 started picking up his meaning. 22 00:01:29.860 --> 00:01:38.160 The second paper, I think was last year, that we show that Cantillon actually not only created 23 00:01:38.160 --> 00:01:44.760 entrepreneurship theory, but he actually used entrepreneurship theory to create all of his 24 00:01:44.760 --> 00:01:50.780 economic theories, supply and demand, circular flow, price species mechanism, labor market 25 00:01:50.780 --> 00:01:56.860 Analysis, on and on and on. Everybody's always wondering, you know, how did Cantillon discover 26 00:01:56.860 --> 00:02:05.660 all basics of economic analysis, including money, interest, business cycle, what he wasn't 27 00:02:05.660 --> 00:02:10.540 trained in economics. And we showed, well, he had this great entrepreneurship theory 28 00:02:10.540 --> 00:02:17.260 that he was then able to use as a fundamental tool for creating all of these other theories. 29 00:02:17.260 --> 00:02:23.220 In another paper, which is the subject of today's lecture, we always wanted to go back 30 00:02:23.220 --> 00:02:30.940 and look at Cantillon's views on economic policy and how those policy recommendations 31 00:02:30.940 --> 00:02:36.180 affected entrepreneurs, job creation, economic growth, and so forth. 32 00:02:36.180 --> 00:02:43.020 I guess the topic of job creation and the role of the entrepreneur in the economy has 33 00:02:43.020 --> 00:02:47.660 come under more focus during this crisis, so we thought about, well, I think now is 34 00:02:47.660 --> 00:02:50.940 the time to do that. 35 00:02:50.940 --> 00:02:56.980 Cantillon has long been known as a mercantilist in economic policy thought, where he had some 36 00:02:56.980 --> 00:03:02.940 free market views, and then he had some sort of pro-government interventionist views, and 37 00:03:02.940 --> 00:03:10.380 he was kind of a mishmash of public policy views, and that's the standard sort of view 38 00:03:10.380 --> 00:03:18.380 of Cantillon that we wanted to seek to address. Now 1730, what's going on then? This is very 39 00:03:18.380 --> 00:03:23.580 important for getting the correct meaning on Cantillon is understanding what's going 40 00:03:23.580 --> 00:03:29.120 on in his world because he doesn't talk a lot about that. First, England and France 41 00:03:29.120 --> 00:03:37.540 are in basically a constant state of war. So they're basically battling for global dominance, 42 00:03:37.540 --> 00:03:43.500 not just between the two countries but for the rest of Europe and all the colonial empires. 43 00:03:43.500 --> 00:03:50.080 The second thing, Cantillon is living in France and France is under the strict mercantilist 44 00:03:50.080 --> 00:03:56.660 regime of Colbert. In other words, the French economy is highly regimented through Colbert's 45 00:03:56.660 --> 00:04:01.940 mercantilism and the guild system, which is an early form of unions. 46 00:04:01.940 --> 00:04:09.660 The third thing that was going on in Cantillon's world were the Mississippi and South Sea bubbles. 47 00:04:09.660 --> 00:04:17.200 So for the first time, really, the world went on an uncontrolled frenzy of investment and 48 00:04:17.200 --> 00:04:20.140 then crisis and crash. 49 00:04:20.140 --> 00:04:27.260 And those three things don't really get much explicit coverage in Cantillon's work, but 50 00:04:27.260 --> 00:04:28.380 they're there. 51 00:04:28.380 --> 00:04:48.380 The first policy we looked at was job training programs, which is, of course, a standard mercantilist idea where people don't have jobs, so let's train them for jobs, and Cantillon has sort of an unusual take on this, he says, with regard to shipping and sailing, whether to train people to be engaged in this or not, and so on. 52 00:04:48.380 --> 00:04:55.380 Kenton has sort of an unusual take on this. He says, with regard to shipping and sailing, 53 00:04:55.380 --> 00:05:03.580 whether to train people to be engaged in shipping, Kenton says, no, we don't want to train people 54 00:05:03.580 --> 00:05:12.140 in sailing, quote, it would be of no use if no more ships were sent to sea. However, so 55 00:05:12.140 --> 00:05:17.700 he's against the idea of training people for sailing and transportation, a topic near and 56 00:05:17.700 --> 00:05:23.580 to his heart, but in terms of training for manufacturing he thought that was a 57 00:05:23.580 --> 00:05:30.700 good idea. So he says, quote, it is true that it would be a great advantage for a 58 00:05:30.700 --> 00:05:34.540 state to teach its subjects to produce the manufactured goods that are 59 00:05:34.540 --> 00:05:39.300 customarily drawn from abroad and all the other articles brought there, but I 60 00:05:39.300 --> 00:05:44.500 am at present only considering the state in relationship to itself. So he thinks 61 00:05:44.500 --> 00:05:55.500 The idea is that, yeah, we'll train people to manufacture goods here so we don't have to import goods, which is a standard mercantilist sort of idea. 62 00:05:55.500 --> 00:06:03.500 When he talks about job training, job skills and that sort of stuff, he discusses this at great length in his book. 63 00:06:03.500 --> 00:06:07.500 And basically, through most of the analysis, it's something that the market can do. 64 00:06:07.500 --> 00:06:15.500 It's a market-determined process where people have to look at the cost and the benefits of having a higher-skilled job. 65 00:06:15.500 --> 00:06:24.500 So he tells us, no, we don't want to train people to sail, but we do want to train them to manufacture. 66 00:06:24.500 --> 00:06:30.500 Well, why would he have that sort of contrary view? 67 00:06:30.500 --> 00:06:36.500 Well, Cantillon was actually involved in shipping. His bank helped finance the shipment of goods. 68 00:06:36.500 --> 00:06:49.500 One of the things that he knew that isn't discussed in detail in the book was that France at the time had an artificial disadvantage in shipping. 69 00:06:49.500 --> 00:06:54.500 In other words, there wasn't much of an industry in France for shipping goods. 70 00:06:54.500 --> 00:07:04.500 He said that Holland had the natural advantage in shipping, but that Britain had an artificial advantage in shipping. 71 00:07:04.500 --> 00:07:12.660 And that was the British Navigation Acts. Starting in 1651, the British Navigation Acts required 72 00:07:12.660 --> 00:07:17.780 that all goods being shipped in or out of England had to go on English ships with English 73 00:07:17.780 --> 00:07:24.360 sailors and any goods shipped out of their colonies had to be shipped to England and 74 00:07:24.360 --> 00:07:30.260 therefore also had to be shipped on English ships with English sailors. So basically anybody 75 00:07:30.260 --> 00:07:36.720 Somebody who is doing shipping would be more or less out of luck unless they used English 76 00:07:36.720 --> 00:07:40.240 ships and English sailors. 77 00:07:40.240 --> 00:07:47.220 And so another thing that comes into play here that we don't really know is with regard 78 00:07:47.220 --> 00:07:53.300 to this artificial advantage that Britain has and the artificial disadvantage that France 79 00:07:53.300 --> 00:08:01.420 Hans has is that a merchant marine or shipping industry is the basis of modern navies. So 80 00:08:01.420 --> 00:08:07.700 that in times of war, a nation with a large number of merchant marine ships can turn those 81 00:08:07.700 --> 00:08:14.320 ships into warships, can turn those sailors into people in their navy, working their boats, 82 00:08:14.320 --> 00:08:21.980 and also the ships can be turned into commerce raiders to steal your enemy's ships. So that 83 00:08:21.980 --> 00:08:30.080 But the reason Cantio was basically thought we had to have this government regulation 84 00:08:30.080 --> 00:08:35.200 was not because he was for government regulation. This is the only time that he explicitly calls 85 00:08:35.200 --> 00:08:41.040 for government regulation. It had nothing to do with the economy per se, but had to 86 00:08:41.040 --> 00:08:49.060 do with military disadvantage that France had. He says, quote, just as it is disadvantageous 87 00:08:49.060 --> 00:08:55.740 for a State to Encourage Foreign Manufacturers, so it is also to encourage foreign navigation. 88 00:08:55.740 --> 00:09:01.240 When a state sends its articles and goods abroad, it can obtain the full advantage if 89 00:09:01.240 --> 00:09:05.820 it sends them on its own ships. This way, the trade supports a large number of sailors 90 00:09:05.820 --> 00:09:11.100 who are useful to a state as workers. If it leaves ocean transportation to foreign vessels, 91 00:09:11.100 --> 00:09:15.660 it strengthens foreign navies and weakens its own. I will simply say that in countries where 92 00:09:15.660 --> 00:09:27.660 Notice that the trade does not support a large number of ships and sailors. It is almost impossible for the prince or the government to maintain a flourishing navy without ruining the state treasure with large expenditures. 93 00:09:27.660 --> 00:09:38.660 So in other words, it would require onerous taxes in order to maintain a flourishing navy unless you have a large shipping business. 94 00:09:38.660 --> 00:09:48.660 Notice that that quote begins with the statement just as a disadvantage for a state to encourage foreign manufacturers. 95 00:09:48.660 --> 00:09:53.660 He actually wants to have people taught how to manufacture goods. 96 00:09:53.660 --> 00:10:04.660 This is kind of a little bizarre because he's had several chapters where he's shown that the market can handle job training. 97 00:10:04.660 --> 00:10:09.300 So it certainly seems like as if it would be another example of mercantilism. 98 00:10:10.340 --> 00:10:17.300 And then later in the book he actually calls for setting up factories in remote places to alleviate poverty. 99 00:10:18.420 --> 00:10:25.540 Quote, therefore, whenever possible, factories for cloth, linen, lace, etc. ought to be set up in remote provinces and factories to make 100 00:10:26.180 --> 00:10:29.780 tools of iron, tin, copper, etc. It should be located in neighborhoods 101 00:10:29.780 --> 00:10:48.780 In this way, finished manufactured goods can be sent to the capital with much lower transportation costs than by sending the raw materials to be manufactured in the capital, as well as the subsistence of the artisans who manufacture them. 102 00:10:48.780 --> 00:10:54.780 And then he goes on to say why that's more economical to have these factories in remote areas. 103 00:10:54.780 --> 00:11:05.180 Well, golly, that sounds pretty mercantilist on the face of it. How can we explain that? 104 00:11:05.180 --> 00:11:10.940 How can we explain this call for training in manufacturing and also placing factories 105 00:11:10.940 --> 00:11:18.560 in remote areas? This would certainly seem like a call for government policies to subsidize 106 00:11:18.560 --> 00:11:23.920 subsidized the training to subsidize these factories. But again, that's not the case 107 00:11:23.920 --> 00:11:29.600 because those statements are basically taking out of the historical context that I referred 108 00:11:29.600 --> 00:11:37.600 to earlier. France, in the time that this book was written, in 1730, was really suffering 109 00:11:37.600 --> 00:11:46.800 on, suffering under a rigid regime of mercantilism or government control, regulation, taxing 110 00:11:46.800 --> 00:11:54.860 Banking and Monopolization of French Industry. The French government suppressed factories. 111 00:11:54.860 --> 00:12:03.500 The French government prevented people from going into manufacturing jobs. They had strict 112 00:12:03.500 --> 00:12:11.500 quotas and other forms of limitation which prevented people from becoming skilled artisans 113 00:12:11.500 --> 00:12:19.340 to make clothing, metal tools and so forth, and they also suppressed the building of factories 114 00:12:19.340 --> 00:12:25.620 in remote areas. They wanted all of the factories to be brought into the large cities so that 115 00:12:25.620 --> 00:12:31.160 they could be regulated, because the regulators couldn't go out all over France and to make 116 00:12:31.160 --> 00:12:36.720 sure that people weren't producing manufactured goods, and so everything had to be brought 117 00:12:36.720 --> 00:13:06.720 and so forth. And so it was really the government policy, longstanding, of well over a century that had basically limited French industry at a time when other countries, of course, were enjoying the Industrial Revolution, such as England. So, when Cantillon was in power, it was a time when all the factories had to go out into the city and all of the factories had to label their products with who manufactured them so that the government could rigidly regulate them, tax them, and so forth. And so it was really the government policy, longstanding, of well over a century that had basically limited French industry at a time when other countries, of course, 118 00:13:06.720 --> 00:13:12.200 He was calling for this training in manufacturing and factory in remote places, he's not calling 119 00:13:12.200 --> 00:13:19.360 for government intervention, he's simply calling for an elimination of government restrictions. 120 00:13:19.360 --> 00:13:26.840 Later on he also refers to the decay of France, that there was a period from the mid-seventeenth 121 00:13:26.840 --> 00:13:33.160 century to the late seventeenth century when France was really doing extremely well in 122 00:13:33.160 --> 00:13:40.680 In terms of manufacturing, and that all came to an end after 1685, refers to the decay 123 00:13:40.680 --> 00:13:47.640 of France. What actually was going on there, you can find out by actually reading history, 124 00:13:47.640 --> 00:13:53.480 is that at that point the French government expelled the Huguenots from the country. The 125 00:13:53.480 --> 00:14:00.640 Huguenots were Protestants who were involved in the manufacture of textiles, cotton textiles, 126 00:14:00.640 --> 00:14:08.640 Cotton Textiles, which was often viewed historically as a religious matter, but it was more strictly 127 00:14:08.640 --> 00:14:16.080 speaking an economic matter to suppress French manufacturing. 128 00:14:16.080 --> 00:14:24.480 So the examples that we've seen in Cantillon, which seem like they were calls for mercantilism, 129 00:14:24.480 --> 00:14:31.800 We're actually not, except for the call for the British Navigation Act, which Cantillon 130 00:14:31.800 --> 00:14:39.640 felt was necessary to both defend France against England and to prevent onerous taxation to 131 00:14:39.640 --> 00:14:42.880 maintain the French Navy. 132 00:14:42.880 --> 00:14:48.440 Throughout the book, we find that mercantilism basically is bad for entrepreneurship, it's 133 00:14:48.440 --> 00:14:57.960 It's bad for job creation, and that the only example we can find of sort of a non-free 134 00:14:57.960 --> 00:15:05.360 market policy is the Navigation Acts, which Cantillon argued would keep taxes lower. 135 00:15:05.360 --> 00:15:11.780 We can look at other things that also that Cantillon showed that usury was a good thing 136 00:15:11.780 --> 00:15:17.060 and that usury laws were a bad thing, that manipulating the value of money caused a boom 137 00:15:17.060 --> 00:15:24.140 and the boom and bust cycle, that national banks or central banks cause booms and bubbles, 138 00:15:24.140 --> 00:15:28.660 and that all of those things when the government gets involved is bad for entrepreneurs, bad 139 00:15:28.660 --> 00:15:32.340 for job formation and bad for the overall economy. 140 00:15:32.340 --> 00:15:32.980 Thank you very much.