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Abstract
The article clarifies some aspects of the Cantillonian notions of intrinsic value and of market prices. Furthermore, the major flaws of the ‘Austrian’ interpretations put forward in recent years by Rothbard and Thornton are highlighted. This criticism provides an additional dimension to the view already expressed by Groenewegen against the new edition of Cantillon's Essai by Thornton. Finally, the connection between the Essai and mature classical economics is highlighted and the proposed ‘Austrian’ interpretation of Cantillon is strongly rejected.
Acknowledgements
I am greatly indebted to Tony Aspromourgos, Heinz Dieter Kurz, Richard Van Den Berg and to two anonymous referees for their useful comments on previous drafts of the article, without thereby implicating them in the final product.
Notes
1 In a very recent contribution, Van den Berg Citation(2012) questions the received view of the Essai (in its Higgs edition) as the only reliable text for a study of Cantillon. In fact, without denying its importance in terms of influence on later authors, Van den Berg advances the view for which several drafts of the Essai in different stages of completion were in circulation in the 1750s. This suggestion relies on ‘a paragraph-by paragraph comparison between three versions of Cantillon's writings, namely the French Essai of 1755, fragments of Postlethwayt's Universal Dictionary (1752–1754) and Philip Cantillon's Analysis of Trade (1759)’ (Van den Berg Citation2012: 907). His proposal of a ‘synoptic’ reading could not be undertaken in this occasion.
2 Hayek (Cantillon Citation1931b: XXXIII) suggests that the supplement was not published because not finished, by inference from the fact that references to it come up only in the first part of the Essai.
3 Indeed Thornton Citation(2007a: 97) dedicates the article to ‘the late Murray Rothbard, who first pointed me to the problem of Cantillon's use of intrinsic value and the traditional interpretations of it’.
4 Certain aspects of Rothbard's interpretation are anticipated by Hébert Citation(1985), who contends that Cantillon's discussion of the market system, of the entrepreneur and of the effects of money on prices and production ‘do not make [him]… a pedigreed member of the Austrian sect, but they establish him as an important fellow-traveler of an earlier age’ (1985: 277). The views expressed by Rothbard are taken over also by Hülsmann Citation(2001), but without major additions (see in particular 2001: 696–7) and, therefore, will not be addressed in detail in this paper. I thank Richard Van Den Berg for bringing Hébert´s and Hülsmann´s papers to my attention.
5 As a matter of fact, contrary to Rothbard's view ‘of an American who travels to Europe’, there is no mention of any travel for the seller himself. Although irrelevant for the purposes of the argument, this fact should signal the very superficial reading provided by Rothbard, which even distorts textual evidence.
6 The Duchy of Brabant, established in 1183, nowadays belongs partly to the Netherlands and partly to Belgium (see Groenewegen's complaints about the footnoting in Thornton's new edition of Cantillon's Essai, 2012: 85–6).
7 ‘If the muid of wine sells at Brussels for 60 ounces for silver and if we suppose one acre of vine land produces four muids, there must be sent to Brussels the produce of 4166 ½ acres of land to correspond to 100,000 ounces of silver, and about 2,000 acres of pasture and arable for the hay and oats consumed by the cart horses if they are solely employed on this work all the year round. Therefore, there will be about 6,000 acres of land abstracted from the maintenance of Frenchmen and that of the people of Brabant increased by over 4,000 acres of produce, since the Champagne wine which they drink saves more than 4,000 acres, which they would probably use to produce beer for their drink if they did not drink wine. However the lace with which all that is paid for costs the people of Brabant only one quarter of an acre of flax. Thus with one acre of produce allied to their Labour, the people of Brabant pay for more than 16,000 acres to the French, their conjoined labour being less. They obtain an increase of subsistence and give only an article of luxury, which brings no real advantage to France, since the lace is worn and consumed there and cannot then be exchanged for anything useful. Following the rule of intrinsic values, the land used in Champagne for the production of the wine, the maintenance of the Vineyard keepers, the Coopers, the Cartwrights, Farriers, Carters, Carthorses, etc., ought to be equal to the Land used in Brabant for the production of the Flax, the support of the spinners and lace makers, and all those who have taken part in the Manufacture of this lace’. (1755: 231)
8 The ‘Paradox of Value’ is discussed by Smith Citation(1976: 44–5): ‘The word VALUE … has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods, which the possession of that objects conveys. The one may be called ‘value in use;’ the other, ‘value in exchange’’, before restricting his study to ‘the principles which regulate the exchangeable value of commodities’ (1976: 46), thus leaving aside any consideration of what regulates the ‘value in use’. See Ricardo (Citation1951, I: 11): ‘Utility then is not the measure of exchangeable value, although it is absolutely essential to it. If a commodity were in no way useful – in other words, if it could in no way contribute to our gratification – it would be destitute of exchangeable value, however scarce it might be, or whatever quantity of labour might be necessary to procure it’. On this issue cf. Einaudi's comment (Cantillon Citation[1955] 1974: XVI–XVII) on the opening words of the Essai.
9 Thornton Citation(2009: 29) ascribes to this model the origin of the Smithian notion of the invisible hand, but an in-depth discussion of this issue goes beyond the purpose of this article.
10 References to Petty will indicate the original publication date and page number as in the 1899 edition of Petty's work by Hull.
11 ‘… the Labour of 25 grown persons suffices to provide 100 others, also grown up, with all the necessaries of life according to the European standard …’ (1755: 87).
12 Cantillon writes ‘principally’ as in fact changes in demand and in the patterns of consumption are initiated by the higher classes and followed by others: ‘… Farmers, Master Craftmen or other Undertakers … always take as their model the Lords and Owners of the Land. They imitate them in their Clothing, Meals, and mode of life. If the Landowners please to wear fine linen, silk, or lace, the demand for these merchandises will be greater than that of the Proprietors for themselves’ (1755: 63).
13 The same terminology as in Petty, see ([1662] 1899: 31) and ([1691a] 1899: 181).
14 Cantillon describes the dynamics of production change as follows: ‘For if some of the Farmers sowed more corn than usual they must feed fewer Sheep, and have less Wool and Mutton to sell. Then there will be too much corn and too little Wool for the consumption of the inhabitants. Woll will therefore be dear, which will force the inhabitants to wear their clothes longes than usual, and there will be too much Corn and a surplus for next year…[so] the Farmers who have too much Corn and too litle Wool, will not be able to pay him his Rent. If he excuses them they will take care the next year to have less corn and more Wool, for Farmers always take care to use their land for the production of those things which they think will fetch the best price at Market’ (1755:61, emphasis added).
15 The same terminology is also used in another example depicted by Cantillon in which the consumption patterns of the Landlord change over time, i.e. ‘[w]hen a Landowner has dismissed a great number of Domestic Servants, and increased the number of his Horses, there will be too much Corn for the needs of the Inhabitants, and so the Corn will be cheap and the Hay dear. In consequence the Farmers will increase their grass land and diminish their Corn to proportion it to the demand’ (1755:65, emphasis added).
16 The views expressed by Thornton in the Citation2007a article are a more articulated version of the interpretations put forward in chapter II of a book by Holcombe Citation(1999: 13–28). See for instance: ‘Price and value are related to Cantillon's term “intrinsic value”, and are used to describe the opportunity cost of resources used to produce the particular good in question, the specific land and labour that were sacrificed to produce the good’ (1999: 20).
17 It should be further noted that Thornton supports his argument by claiming that: ‘the word intrinsic had very different meanings when Cantillon wrote the Essai than it did for Adam Smith and modern readers. Rather than referring to the nature of a thing, the older meaning of the word intrinsic is completely compatible with our understanding of opportunity cost’ (Thorton Citation2007a: 117). In this regard, we deem unnecessary to add anything to the exhaustive criticism by Groenewegen Citation(2012), whose words should have already warned enough any reader about Thornton's reputation as a historian of economics and thus placed in the right light Thornton's ‘linguistic’ claim (see Thornton Citation2007a 111–3). Possibly in a very auto critical manner, Thornton is aware of the difficulties involved in his claim: ‘It would seem that the often-learned and often-forgotten warning about reading the ancients writers ‘in their own time’ is as valuable as it is difficult to hold onto’ (Thornton, Citation2007a: 117).
18 Thornton Citation(2007a: 117) states that intrinsic value can be seen also as ‘a ‘measure’ of opportunity cost’.
19 Although Thornton does not make any reference to the relevant literature, the discussion about the notion of profits in Cantillon, it should be noted, revolves around the main positions of Aspromourgos Citation(1989: 365): Cantillonian profits as a mere remuneration for risk-bearing connected with entrepreneurial activities; Marx (Citation1967: III 783–4), who comments on the point by saying that for ‘Petty, Cantillon, and in general those writers who are closer to feudal times … profit … is still amorphously combined with wages’ and finally Prendergast (Citation1991) who argues for Cantillon having a conception of profit partly connected to the amount of capital utilised in the production process.
20 The French ‘a l'usage’, translated by Higgs as ‘used’, it should be emphasised, could be translated, maybe more precisely, with ‘at disposal of’ or ‘at possible use of’. Cf. Hella Hayek's German translation (Cantillon Citation1931b: 74, emphasis added) of this sentence is in line with my suggestion: ‘der wirkliche Wert aller für den Gebrauch der Menschen bestimmten Dingen … (the real value of everything for the use of man…). My translation is in brackets. The reader should compare it also to the French text edited by Tsuda, in Cantillon Citation(1979: 144) edited by Tsuda: ‘…la valleur Reelle de toutes Lés Choses a lusage ou Commodité dés Hommes…’. Cf. the text in INED (1997: 65).
21 Cfr. Petty's first version of the Par in A Treatise of Taxes and Contributions ([1662] 1899: 44–5): ‘we should be glad to finde out a natural Par between Land and Labour, so as we might express the value by either of them alone as well or better then by both…’. For the second Par see Petty's Political Anatomy of Ireland ([1691a] 1899: 180–3).
22 For the computation of bachelors and married workers see 1755: 35–9.
23 See also the examples (the suit of coarse and fine cloth, the refined steel spring watch and the jug of water from the Seine River) in Chapter X entitled ‘The Price and Intrinsic Value of a Thing, in General, is the Measurement of the Land and Labour, which enter into its Production’, where different ratios of labour to raw material costs (it could be said ‘organic composition of capital’) are discussed by Cantillon in order to explain the costs entering the computation of the intrinsic value.
24 Einaudi observes that the ‘Spanish origins are inferable only by the name’ (in Cantillon Citation1974 [1955]: XII).
25 Clearly the absence of monetary exchange renders agriculture, to some extent, a subsystem, but it should be noted that in the agricultural sector, most likely in the France of Luis XV as well as in general in Europe shortly before the industrial revolution, numerous examples could be found of vertical integrated systems (cf. on this Petty's Treatise of Taxes [1662] 1899: 63 and The political Anatomy of Ireland [1691a] 1899: 188). I thank an anonymous referee for suggesting me to highlight this issue.
26 The fact that Cantillon states that ‘there is never a variation in intrinsic values’ (1755: 29) is a clear expression of the pre-industrial revolution period he lived in, where technological progress still did not evidently affect the production process.
27 Cf. for instance Smith Citation(1976: 72–3): ‘… for though in common language what is called the prime cost of any commodity does not comprehend the profit of the person who is to sell it again, yet if he sells it at a price which does not allow him the ordinary rate of profit in his neighbourhood, he is evidently a loser by the trade; since by employing his stock in some other way he might have made that profit’.
28 Meek Citation(1958: 28) is very explicit in stating this point: ‘…Cantillon is saying little more than that market prices often tend to equal costs. He says nothing … about the mechanism by which the market price is made equal to the ‘intrinsic value’ … In other places, however, Cantillon come rather closer to the Classical idea of a ‘natural’ equilibrium price…’. On the contrary Murphy Citation(2009: 81) affirms that ‘Adam Smith … borrowed, without acknowledgment, Cantillon's theory of allocation of resources’, with the only difference that Cantillon ‘identified the key role for the entrepreneur in this allocation process’.