Essai sur la Nature du Commerce in Général (Essay on the Nature of Trade in General)
By Richard Cantillon
Intrigue, murder, posthumous plagiarism, citations by Adam Smith, rediscovery by William Stanley Jevons a century later, and a stunning work on entrepreneurial risk, money, foreign exchange, and banking from the 1700s–what more could one ask for from an 18th century economist? Richard Cantillon offers fascination for historians and economists as much in death as he did in life.Richard Cantillon, Irish born but living in Paris as a young man, from circumstances became a banker/broker there, and moved in influential, educated social circles. Enriched but embarrassed by speculation in John Law’s scheme, he removed to London (perhaps in flight or to protect his assets). Somewhere along the line he wrote this influential work,
Essai sur la Nature du Commerce in Général (
Essay on the Nature of Trade in General). Probably first written between 1730 and 1734, the first surviving copies are in French, from 1755-56. Whether it was first drafted or circulated in English or in French is unclear; also unclear is what Smith may have seen of it. That Smith was familiar with Cantillon in some form is documented in Smith’s own rare citations. Other contemporary economists were also familiar with the work, even to the point of plagiarizing from the unpublished version.Despite the multiple plagiarizations and the disappearance of early originals, there is general agreement now that Richard Cantillon did indeed write the work; and it did indeed influence Smith and many other contemporaneous economists–the very same the French and English economists whose work became the basis of modern economic thought. Beyond that, though, all we have are the extant 1755-56 French versions and a few translations, of which Higgs’s translation is the only thorough edition. Econlib is pleased to present the full translation of this remarkable work. We also bring you Higgs’s side-by-side French/English edition for download as a pdf file, as well as our formatted searchable online edition.Higgs’s book also contains these other recommended readings:1. William Stanley Jevons’s famous 1881 essay rediscovering Cantillon’s work,
“Richard Cantillon and the Nationality of Political Economy,” an article rich with warranted enthusiasm and detailed research. It also contains a heartwarming surprise ending–a final paragraph that will make you smile.
2. Higgs’s annotated bibliography
“The Life and Work of Richard Cantillon” at the end of the book, an excellent survey of developments following Jevons’s rediscovery.Additional recommendations and summaries:3. We’ve left Higgs’s translation intact; but note that his arcane translations of some words like “Undertaker” for “entrepreneur” obscured Cantillon’s apparent coining of the word “entrepreneur”–see Mark Casson’s article,
Entrepreneurship, in the
Concise Encyclopedia of Economics for more on this.
4. Friedrich A. Hayek,
“Richard Cantillon,” 1931; translated by Micheál Ó Súilleabháin for the
Journal of Libertarian Studies, vol. 7, no. 2, Fall 1985 (republished on Econlib with permission). Other interesting essays in that conference volume on Cantillon include those by Hebert (a discussion of economic ground held in common between Cantillon and the Austrians) and Liggio (a brief history of France and England before and during the period Cantillon was writing). The conference volume is available online in pdf format through the Mises Institute.
5. Joseph Spengler, “Richard Cantillon: First of the Moderns,”
Journal of Political Economy, LXII, August-October 1954.Lauren F. Landsburg
Editor, Library of Economics and Liberty
May, 2002
Translator/Editor
Henry Higgs, ed. and trans.
First Pub. Date
1730
Publisher
London: Frank Cass and Co., Ltd.
Pub. Date
1959
Comments
First extant partial edition is in French: 1755. Includes "Richard Cantillon and the Nationality of Political Economy," by W. Stanley Jevons (1881).
Copyright
The text of this edition is copyright ©: 1959, Frank Cass and Co. Republished with permission. Originally published 1931 by Macmillan & Co., Ltd. For the Royal Economic Society.
- Introduction, by Henry Higgs
- Previous Editions, by Henry Higgs
- I.I Of Wealth
- I.II Of Human Societies
- I.III Of Villages
- I.IV Of Market Towns
- I.V Of Cities
- I.VI Of Capital Cities
- I.VII The Labour of the Husbandman is of less Value than that of the Handicrafts-Man
- I.VIII Some Handicrafts-Men earn more, others less, according to the different Cases and Circumstances
- I.IX The Number of Labourers, Handicraftsmen and others, who work in a State is naturally proportioned to the Demand for them
- I.X The Price and Intrinsic Value of a Thing in general is the measure of the Land and Labour which enter into its Production
- I.XI Of the Par or Relation between the Value of Land and Labour
- I.XII All Classes and Individuals in a State subsist or are enriched at the Expense of the Proprietors of Land
- I.XIII The circulation and exchange of goods and merchandise as well as their production are carried on in Europe by Undertakers, and at a risk
- I.XIV The Fancies, the Fashions, and the Modes of Living of the Prince, and especially of the Landowners, determine the use to which Land is put
- I.XV The Increase and Decrease of the Number of People in a State chiefly depend on the taste, the fashions, and the modes of living of the proprietors of land
- I.XVI The more Labour there is in a State the more naturally rich the State is esteemed
- I.XVII Of Metals and Money, and especially of Gold and Silver
- II.I Of Barter
- II.II Of Market Prices
- II.III Of the Circulation of Money
- II.IV Further Reflection on the Rapidity or Slowness of the Circulation of Money in Exchange
- II.V Of the inequality of the circulation of hard money in a State
- II.VI Of the increase and decrease in the quantity of hard money in a State
- II.VII Continuation of the same subject
- II.VIII Further Reflection on the same subject
- II.IX Of the Interest of Money and its Causes
- II.X Of the Causes of the Increase and Decrease of the Interest of Money in a State
- III.I Of Foreign Trade
- III.II Of the Exchanges and their Nature
- III.III Further explanations of the nature of the Exchanges
- III.IV Of the variations in the proportion of values with regard to the Metals which serve as Money
- III.V Of the augmentation and diminution of coin in denomination
- III.VI Of Banks and their Credit
- III.VII Further explanations and enquiries as to the utility of a National Bank
- III.VIII Of the Refinements of Credit of General Banks
- Richard Cantillon and the Nationality of Political Economy, by W. Stanley Jevons
- Life and Work of Richard Cantillon, by Henry Higgs
- Appendix A
- Appendix B, Bibliography
Part II, Chapter X
Of the Causes of the Increase and Decrease of the Interest of Money in a State
It is a common idea, received of all those who have written on Trade, that the increased quantity of currency in a State brings down the price of Interest there, because when Money is plentiful it is more easy to find some to borrow. This idea is not always true or accurate. For proof it needs only to be recalled that in 1720, nearly all the money in England was brought to London and over and above this the number of notes put out accelerated the movement of money extraordinarily. Yet this abundance of money and currency instead of lowering the current rate of interest which was before at 5 per cent. and under, served only to increase the rate which was carried up to 50 and 60 per cent. It is easy to account for this increased rate of interest by the principles and the causes of Interest laid down in the previous Chapter. The reason is that everybody had become an Undertaker in the South Sea scheme and wanted to borrow money to buy Shares, expecting to make an immense profit out which it would be easy to pay this high rate of Interest.
If the abundance of money in the State comes from the hands of money-lenders it will doubtless bring down the current rate of interest by increasing the number of money-lenders: but if it comes from the intervention of spenders it will have just the opposite effect and will raise the rate of interest by increasing the number of Undertakers who will have employment from this increased expense, and will need to borrow to equip their business in all classes of interest.
Plenty or Scarcity of Money in a State always raises or lowers the price of everything in bargaining without any necessary connection with the rate of interest, which may very well be high in States where there is plenty of money and low in those where money is scarcer: high where everything is dear, and low where everything is cheap: high in London, low in Genoa.
The rate of interest rises and falls every day upon mere rumours which tend to diminish or increase the security of Lenders, without the prices of things in exchange being affected thereby.
The most regular cause of a high rate of interest in a State is the great expense of Nobles and Landowners or other rich people. Undertakers and Master-Craftsmen are in the custom of supplying the great Houses in all their branches of expenditure. These Undertakers have nearly always need to borrow money in order to supply them: and when the Nobility consume their revenues in advance and borrow money they contribute doubly to raise the rate of interest.
On the contrary when the Nobility of the State live oeconomically and buy at first hand so far as they can, they get through their servants many things without their passing through the hands of Dealers, they diminish the profits and numbers of the Undertakers in the State and therefore of Borrowers as well as the rate of interest, because this class of Undertakers working on their own capital borrow the least they can, and contenting themselves with small profits prevent those who have no capital from embarking in these enterprises on borrowed money. Such is today the position of the Republics of Genoa and Holland, where interest is sometimes at 2 per cent. or under in the highest class, whilst in Germany, Poland, France, Spain, England and other countries the easiness and expense of Noblemen and Landowners always keep the Undertakers and Master Craftsmen of the country accustomed to large profits enabling them to pay a high rate of interest, which is higher still when they import everything from abroad with attendant risk.
When the Prince or the State incurs heavy expense, such as making war, the rate of interest is raised for two reasons: the first is that this multiplies the number of Undertakers by several new large enterprises for war supplies, and so increases borrowing. The second is because of the greater risk which war always involves.
On the contrary when the War is over risk diminishes, the number of Undertakers is lessened and War-contractors ceasing to be so retrench their expenses and become Lenders of the money they have gained. If now the Prince or State offer to repay part of the debt it will considerably reduce the rate of interest, and this will have a more assured result if part of the debt can be really paid off without borrowing elsewhere, because the repayments increase the number of lenders in the highest class of interest which will affect all the other classes.
When the plentifulness of money in the State is due to a continuous Balance of Trade, this money first passes through the hands of Undertakers, and although it increases consumption it does not fail to bring down the rate of interest, because most of the Undertakers then acquire enough Capital to carry on their business without money, and even become lenders of the sums they have gained beyond what they need to carry on their trade. If there are not in the State a great number of Noblemen and rich people who spend heavily then the abundance of money will certainly bring down the rate of interest, while increasing the price of goods and merchandise in exchange. This is what usually happens in Republics which have neither much Capital nor considerable landed property and grow rich merely by foreign trade. But in States which have a large Capital and great Landowners the money brought in by foreign trade increases their Rents, and enables them to incur heavy expenditure which maintains several Undertakers and Mechanicks besides those who trade with the foreigner. This always keeps interest at a high rate in spite of the abundance of money.
When the Nobility and Landowners ruin themselves by extravagances, the Money lenders who have mortgages on their lands often acquire the absolute ownership of them, and it may well arrive in the State that the lenders are creditors for much more money than there is circulating there, in which case one may consider them as subaltern Owners of the land and goods mortgaged for their security. If not their capital will be lost by bankruptcies.
In the same way one may consider the owners of shares and public funds as subaltern Owners of the revenues of the State devoted to payment of their interest. But if the Legislature were compelled by the necessities of the State to employ these revenues for other purposes, the shareholders or Owners of public funds would lose everything without the money circulating in the State being diminished on that account by a single liard.
If the Prince or Administrators of the State wish to regulate the current rate of interest by law, the regulation must be fixed on the basis of the current market rate in the highest class, or thereabout. Otherwise the law will be futile, because the Contracting parties, obedient to the force of competition or the current price settled by the proportion of Lenders to Borrowers, will make secret bargains, and this legal constraint will only embarrass trade and raise the rate of interest instead of settling it. The Romans of old after several laws to restrict interest passed one to forbid altogether the lending of money. This law had no more success than its predecessors. The law of Justinian to restrain patricians from taking more than 4 per cent., those of a lower order 6 per cent., and traders 8 per cent. was equally amusing and unjust, whilst it was not forbidden to make 50 and 100 per cent. profit in all sorts of business.
If it is allowable and respectable for a Landlord to let a Farm to a poor Farmer at a high Rental, risking the loss of the Rent of a whole year, it seems that it should be permissible to a Lender to advance his money to a needy Borrower, at the risk of losing not only his Interest or Profit but also his Capital, and to stipulate for so much interest as the Borrower will freely consent to pay him. It is true that Loans of this character make more people wretched. Making away with both capital and interest they are more impotent to recover themselves than the Farmer who does not carry off the Land. But the Bankruptcy laws being favourable enough to Debtors to allow them to start again it seems that Usury laws should always be adjusted to market rates, as in Holland.
The current rate of Interest in a State seems to serve as a basis and measure for the purchase price of Land. If the current interest is 5 per cent. or one-twentieth part the price of Land should be the same. But as the ownership of Land gives a standing and a certain jurisdiction in the State it happens that when interest is one-twentieth part, the price of Land is at 1/24 or 1/25, though mortgages on the same Land hardly pass the current rate of interest.
After all, the price of Land, like all other prices, naturally settles itself by the proportion of Sellers to Buyers, etc.; and as there will be many more Buyers in London, for example, than in the Provinces, and as these Buyers who live in the Capital will prefer to buy land in their locality rather than in distant Provinces, they will rather buy land in the vicinity at 1/30 or 1/35 than land at a distance at 1/25 or 1/22. There are often other reasons of expediency affecting the price of Land, unnecessary to mention here, since they do not invalidate our explanations of the nature of Interest.