An Essay on Economic Theory
By Richard Cantillon
Synopsis: This book is a recent English translation of Richard Cantillon’s Essai Sur La Nature du Commerce en Général. Cantillon’s work, written circa 1735, circulated privately and finally published in 1755, earns him the designation of “the founding father of modern economics.” It represents the first systematic treatment of economics.
Strong Points: Cantillon’s understanding is impressive, and he was far ahead of his time in economic thought. He had a detailed understanding of supply and demand, entrepreneurship, saving and investment, money, fractional reserve banking, international trade, etc. Helpful footnotes from the editor and abstracts at the beginning of each chapter help guide the reader through. It is astonishing to see just how current Cantillon was at every turn. While some statements did seem rather mercantilist, footnotes from the editor helped the reader to interpret them properly in their context, showing that Cantillon was a true champion of the free market. This treatise is the brilliant work of a true intellectual giant.
Weak Points: The book, being old, alludes to many circumstances for which the readers will be unfamiliar. The footnotes by the editor help with that, though. Since the book represents the cradle of economics, many concepts for which we are familiar are spoken of in unfamiliar ways, or are not mentioned at all. The approach to economics was unfamiliar, with a lot of emphasis being placed upon land and labor at the beginning chapters, and building from there. The book could also be somewhat hard to follow; it was a good thing that the abstracts at the beginning of each chapter helped orient the reader. Little is to be gained for a modern student of economics from reading the book, other than satisfying curiosity and becoming more well-read in the discipline. Also, of all of the economics books I have read, this one ranks near the bottom for retaining reader interest.
Interesting: 2/5
Must Read: 2/5
Overall: 2.5/5
Pages: 251
Selected Quote: “We have seen that the metals such as gold, silver, iron, etc., serve several purposes and have a value proportional to the land and labor that enter into their production. In the second part of this essay, we will see that because of trade men had to use a common measure in order to find the proportion and the value of the commodities and merchandise they wished to exchange. The only question is what commodity or merchandise would be most suitable for this common measure, and whether it was necessity, rather than choice, which has given this preference to gold, silver and copper, which are generally in use today for this purpose.
“Ordinary products like grain, wine, meat, etc. have a real value and serve the needs of life, but they are all perishable and difficult to transport, and therefore are hardly suitable to serve as a common measure.
“Goods such as cloth, linen, leather, etc., are also perishable and cannot be subdivided without in some way changing their value for the service of men. Like raw produce, they cost a good deal to transport and they even are expensive to store. Consequently, they are unsuitable as a common measure.
“Diamonds and other precious stones, even if they had no intrinsic value and were demanded only by taste, would be suitable for a common measure if they were not susceptible to imitation and if they could be divided without loss. With these defects, and that of being unserviceable in use, they cannot serve as a common measure.
“Iron, which is always useful and fairly durable, would not serve badly in absence of anything better. It is consumed by fire, and is too bulky in large quantities. It was used from the time of Lycurgus [in Sparta] till the Peloponnesian War; but as its value was necessarily based intrinsically, or in proportion to the land and labor that entered into its production, a great quantity of it was needed for a small value. It is curious that they spoiled the quality of the iron coins with vinegar to make them unfit for other uses other than exchange. Thus, it could only serve the austere Spartans, and they themselves could not continue after they extended their interaction with other countries. To ruin the Spartans, one needed only to find rich iron mines, to make money like theirs, and use it to buy their commodities and merchandise, while they couldn’t get anything from abroad for their spoiled iron. At that time, they did not concern themselves with any foreign trade, but only with war.
“Lead and tin have the same disadvantage of bulk as iron and are consumable by fire, but in case of necessity, they would not do badly for exchange if copper was not more suitable and durable.
“Copper alone served as money to the Romans until 484 years after the founding of Rome, and in Sweden it is still used even for large payments. However, it is too bulky for very considerable payments, and the Swedes themselves prefer payment in gold or silver, rather than in copper.
“In the American colonies, tobacco, sugar, and cocoa have been used as money, but these commodities are too bulky, perishable, and of unequal quality. Therefore, they are hardly suitable to serve as money or as a common measure of value.
“Gold and silver are of small volume, equal quality, easily transported, divisible without loss, convenient to keep, beautiful and brilliant articles are made from them, and they are almost eternally durable. Everyone who has used other articles for money returns to them as soon as they can get enough for exchange. It is only in the smallest purchases that gold and silver are unsuitable. Gold or even silver coins of the value of a liard or a denier would be too small to be handled easily. It is said that the Chinese, in small transactions, cut off little pieces with scissors from their plates of silver, and weigh the pieces. But since their trade with Europe, they have begun to sue copper for such occasions.
“It is not surprising that all countries managed to use gold and silver as money or a common measure of value, and copper for small payments. Utility and need decided for them, and not taste or consent.” (p. 107-109).