Did a Conman Invent Economics? - A Short Essay by Richard Van Den Berg

Richard Van Den Berg, author of Richard Cantillon's Essay on the Nature of Trade in General: A Variorum Edition, gives an excellent background to Richard Cantillon's place in the pantheon of Economic thought.

Did a conman invent economics? This may sound a strange question. Did not Adam Smith (1723-1790) invent economics? And was he not a prudent Scottish professor of moral philosophy? Well, alternative histories are possible and the question does not appear so strange if one considers the career of Richard Cantillon (1687?-1734?).

The two outstanding facts from the life of this Irish/French merchant and banker are the following. One, he amassed an immense fortune during the Mississippi and South Sea bubbles of 1719 and 1720. Two, in the aftermath he wrote an Essay on the Nature of Trade in General, a work that has been described as ‘the most systematic, the most lucid, and at the same time the most original of all statements of economic principles before the Wealth of Nations’.

These two shining achievements sticking out from an otherwise often-obscure life story give rise to the question ‘Did a conman invent economics?’ Of course these are really two questions: ‘Was Cantillon a conman?’ and ‘Did he invent economics?’

As so often, answers depend on definitions. What do you mean conman? Isn’t one person’s crook, trading on the credulity and deficiency in knowledge of his clients, another person’s expert trader? Well, yes, to some extent. Of course there’s the little matter of what side of the law one operates on, and then there is such a thing as moral character.

With regards to the former, the laws in early 18th century Europe regarding the sophisticated financial practices that Cantillon got embroiled in were less settled than they are today. In any case, he was never convicted of anything in a court of law.

With regards to moral character, what is it that one looks for in a conman? First, one looks for a certain lack of scruples. Here Cantillon fits the bill: his first known job, for instance, saw him, an Irish catholic, working for the British during the War of Spanish Succession, using his expert accounting skills to hide from view the exorbitant war profits made by his employer, the later Duke of Chandos. He, no doubt got handsomely rewarded too.

Second, one looks for good person skills, especially an easy way with gaining people’s trust. Well, an early description of Cantillon is ‘that of a genteel young Man, who talks very plausibly of Matters of Trade’. That description, mind you, is part of a public notice warning against this rascal who, buying horses upon false credit ‘had imposed upon several People, who have taken his Bills’.

Third, one looks for an uncanny ability not to get caught. Tick! During his career Cantillon made off at various moments when he found himself in tight spots, escaping countries and jails, and perhaps even staging his death in 1734 to escape further litigation.

It would nevertheless be unkind to ascribe his amazing money making abilities merely to deceits and slights of hand. Cantillon clearly possessed an uncanny ability to read the market. This was a great skill to have in a time of extraordinary fluctuations in paper wealth and currencies created during John Law’s notorious System in Paris and similar bubbles in London and Amsterdam.

While one can say that these bubbles were themselves confidence tricks on a grand scale, Cantillon did not create them and made most of his fortune -hundreds of millions of dollars in today’s values- by ‘merely’ playing the market. Still, the conman qualities described above at least complemented his speculative activities.

In the last three centuries or so, there have of course been many other men who achieved extreme wealth playing the stock markets. But there are only very few for whom the next career-move was to turn their attention from financial speculation to intellectual speculation. In the area of economics one can perhaps find only two rich speculators, David Ricardo (1772-1823) and John Maynard Keynes (1883-1946), who reinvented economics as thoroughly as Richard Cantillon did. In fact, one may argue that Cantillon, being the first of this trio, did not reinvent but actually invented economics.

Surely, one may object, people wrote about economic matters before the 1730s. Were there not earlier authors who made important contributions to the nascent intellectual discipline of political economy? Say a William Petty in England or a Pierre de Boisguilbert in France? Yes, but if you understand by economics a theory of the functioning of an economy as a whole (preferably a market economy), which is systematically developed and which comes complete with such methodological tools as ‘ceteris paribus’, ‘let’s first assume a simple economy’, and ‘in the long run’, then Cantillon is your man.

Indeed his Essay on the Nature of Trade in General was a first in a new genre that did at first not have too many enduring classics. Precisely for this reason W Stanley Jevons, a later admirer of Cantillon, went so far as to call the Essay ‘the cradle of political economy’.

A most intriguing question is what made a man, who had first applied his considerable intelligence to the practical and dark art of making money, turn to the enlightened political art of making sense of the money economy? Perhaps, as has sometimes been argued, the Essay started as an attempt to help his lawyer prepare his defence against litigants.

Perhaps. But Cantillon’s treatisegoes well beyond an explanation of the functioning of the financial markets of his day and of some tricks of the trade. What is more, the Essay, at least the advanced versions we know today, does not really read as a defence of the kind of activities that allowed him to make his fortune. On the contrary, in the larger scheme of things outlined by Cantillon, those activities are at best non-essential and at worst harmful to what an economy fundamentally is: a complex network of on-going processes of production and exchange by which the large majority of citizens get their ‘eating, drinking, cloathing and the other conveniences of life’.

Thus in his conception of the economy Cantillon placed the activities that made him rich distinctly at the margin. Was this because he was uneasy about his wealth? Or did he aspire to becoming a respected enlightened author? Or did he have yet other motivations? We do not know

But to the question ‘did a conman invent economics’ the answer is yes. Well, sort of. But are you prepared to trust me on this?

Richard Cantillon's Essay on the Nature of Trade in General: A Variorum Edition