French Contributionsto the Birth of Economics

Boisguilbert and Cantillon

History of Economic ThoughtBoise State University

Fall 2015Prof. D. Allen Dalton

Background: 17th Century France• Descartes

– deductive natural law rationalism • Louis XIV

– Franco-Dutch War, War of League of Augsburg, War of Spanish Succession, War of Devolution, and War of Reunions

• political, military, cultural dominance• economic stagnation

• Colbert– systematic regulation of the economy

Background: Colbertism• Jean Baptiste Colbert

(1619-1683)– finance minister (1665-1683)

under Louis XIV (r. 1643/1661-1715)

– mercantilist export-import policy; monopoly privileges, regulation of manufactures and labor; extensive support of guild system

• Turgot’s observations in eulogy In Praise of Gournay

– Multiplicity of taxes; tax-exemption of aristocracy and church

Sébastien Vauban (1633-1707) • Marshal of France• foremost military engineer

of the 17th century• military advisor to Louis XIV

– Condemned repeal of Edict of Nantes

• Dîme Royale (1707)– repeal of all taxes and

imposition of single tax of 10% on net produce of agriculture

Pierre de Boisguilbert (1646-1714)• born in Rouen of noble lineage• educated at Petites Écoles of Port-Royal,

center of Jansenism• trained as lawyer, wrote successful

historical novels and after marriage became magistrate in Normandy

• Caretsian influence• exiled in 1707 (6 months), along with

Vauban, for attack on tax system

Major Works• Le détail de la France, 1695. • Dissertation de la nature des richesses…

1704. • Traité de la nature, culture, commerce et

intérêt des grains, 1704.• Factum de France, 1707. • Causes de la rareté de l'argent, 1707.

Pierre de Boisguilbert (1646-1714)Le Détail de la France (1695)– Detailed ruinous economic status of

France caused by Colbert’s policies– Argued that wealth consisted of what a

country produces and exchanges, not in the possession of bullion

– Equalization of taxes would aid consumption of poor, encourage production and increase general wealth.

– Argued for 10% tax on revenue of property

– Argued for end to internal customs duties and greater freedom of trade

Pierre de Boisguilbert (1646-1714)

– Accounts for social division of labor– Wealth is enjoyment of the necessities and

superfluities of life– All economic activity interrelated; harm to

one impairs the orderly system of exchanges– An orderly system of exchanges occurs at

appropriate prices, in proportion to one another and in proportion to the expenses occurred in the production of commodities

– Sources of crises• excessive taxation• excessive gain at expense of trading partners• excessive expenditure on luxury goods

Dissertation de la nature des richesses (1704)

Pierre de Boisguilbert (1646-1714)Traité de la nature, culture, commerce

et intérêt des grains (1707)• Laid foundations of laissez-faire

– Critique of mercantilism (money idolatry)

– Critique of taxation (impoverishes nation by reducing consumption)

– Notion of natural equilibrium arising from conflict of interests

• role of Jansenism/Providence– Superiority of natural order to

regulated economy

Further Reading• General History

– Will and Ariel Durant, The Age of Reason Begins, 1961.

– Will and Ariel Durant, The Age of Louis XIV, 1963.• General Economics

– Hazel Roberts, Boisguilbert: Economist of the Reign of Louis XIV, 1935.

– Gilbert Faccarello, Studies in the History of French Political Economy, 1998.

– Gilbert Faccarello, The Foundations of Laissez-faire: The economics of Pierre de Boisguilbert, 1999.

Richard CantillonThe First Modern Economist

Richard Cantillon (1680?-1734?)• Early Life

– born southwest Ireland to Catholic landlords dispossessed by Cromwell

– assistant to British paymaster during War of Spanish Succession, travels Europe

– Matthew Decker (British East India Company - helps his start in banking)

– Emigrates to France to take over banking business of cousin (1714)

– Lord Bolingbroke (Jacobite leader in exile - introduces Cantillon to leading thinkers, including Montesquieu, Voltaire, Mirabeau)

Richard Cantillon (1680?-1734?)• Association with John Law

– Mississippi Bubble (France: 1716-1720)• Left France due to threats on life

– South Seas Bubble (England: 1720)

• Mid-life in London– lawsuits from both Bubbles– accused of attempted murder; imprisoned twice

• The strange case of Cantillon’s death– murdered by valet and house burned, or– faked death to escape lawsuits

• individual turns up in Surinam (S. America) with some of Cantillon’s papers

The Writing of the Essai• Essai sur la Nature du Commerce en General

(1755)– French publication of “English translation”

• Published as part of Gournay’s program for economic liberalism

• Mirabeau possessed copy of Essai for several years and allowed copies to be made

– the butchered English retranslation– the “original” English?

• Malachy Postlethwayt’s Great Britain’s True System and The Universal Dictionary of Trade and Commerce (1757)

– Jevon’s “rediscovery" circa 1880– Higgs’ translation (1931)

Views of Cantillon and the Essai• “a systematic and connected treatise,

going over in concise manner nearly the whole of economics…It is thus the first treatise on economics.”– Wm. Stanley Jevons, “Richard Cantillon and

the Nationality of Political Economy”• “...the first systematic penetration of the

field of economics.”– Joseph Schumpeter, Epochen der Dogmen-

und Methodengeschichte, Grundiz der Sozialökonomik

Views of Cantillon and the Essai• “superior to anything that the physiocrats

produced… bears a comparison to The Wealth of Nations... one of the most extraordinary documents in our subject. The look of it is something which has not appeared before.”– Lord Robbins, A History of Economic Thought: The

LSE Lectures• “…the founding father of modern economics.”

– Murray N. Rothbard, Economic Thought Before Adam Smith

Cantillon’s System• The Three Parts of the Essai

– Part One• General analysis of the real economy

– Part Two• Discussion of the monetary economy,

monetary theory and the theory of interest– Part Three

• Foreign trade, exchange rates, and banking

Part One of the Essai• Chapter 1: “Of Wealth”• Chapters 2-6

– Economic sociology, explanation of formation of human society and the economic causes and consequences of the establishment of villages to capital cities

• Chapters 7-9– explanation of differences in labor values and

apportionment of labor to demand

Part One of the Essai• Chapters 10-11

– discussion of “intrinsic value”• land theory of value• long-run competitive equilibrium price• groping for “opportunity cost” concept?

– the par relation between land value and labor value

• Chapter 12– anticipation of Physiocratic doctrine (or

common-sense view of subsistence)

Part One of the Essai• Chapter 13

– discussion of entrepreneurial production and supply (risk)

• Chapter 14– command economy “equilibrium” model

followed by market “equilibrium” model– role of market prices v. intrinsic value

• Chapter 15– population theory based upon demand for

goods; “standard of living” model

Part One of the Essai• Chapter 16

– wealth of nation is labor and land– mercantilist sentiments (or not?)

• Chapter 17: “Of Metals and Money, and especially of Gold and Silver”– reasons for choice of gold and silver as money– characteristics and market value of money

Part Two of the Essai• Chapter 1: “Of Barter”

– impossibility of fixing intrinsic values and necessity for finding common measure of value

– Locke on market prices; errors and correctness

• Chapter 2: “Of Market Prices”– the method of fixing market prices– influence of other markets

Part Two of the Essai• Chapters 3-5

– determinants of the circulation of money and its rapidity in exchange

– class considerations for rapidity– influence of credit and bank notes on speed of

circulation– effect of spatial inequality of “hard money” on

prices and resource use

Part Two of the Essai• Chapters 6-8

– effects of change in quantity of “hard money”– critique of simple quantity theory (Locke)– “Cantillon” effects and nonneutral effects of money

supply changes on prices– specie-flow mechanism and cyclical activity

• Chapters 9-10– loanable funds theory; the origin of interest– interest, profit and causes of changes in interest– changes in the quantity of money and the interest rate– interest rate regulation

Part Three of the Essai• Chapter 1: “Of Foreign Trade”

– extended defense of balance-of-trade doctrine• Chapter 2

– the function and operation of domestic exchange

– exchange at par and discount (premium)– equivalence of foreign exchange

• Chapter 3– reasons for variation in exchange rate from

balance of trade– counter-productive effects of exchange controls

Part Three of the Essai• Chapter 4

– cause of variations in monetary value in bimetallic systems

– how to and not to maintain bimetallic systems• Chapter 5

– debasement and augmentation of coinage and the effects

• Chapters 6-7– the operations of banks (credit expansion)– the advantages and disadvantages of banks– the operation, advantages and disadvantages of a

National Bank