Richard Cantillon & The P hysiocrats

1. Richard Cantillon & The Physiocrats By: Cherie-Lynn Dingman, Jenna Hochstetler, John Idso, & Zach Krause

2. Time Line • 1680 Born in Ireland • Son of landowner • Irish-French economist • 1700 Moved to France and attained citizenship • 1711 Employed by British Paymaster General James Brydges, in Spain, where he organised payments to British prisoners of war during the War of Spanish Succession.

3. Time Line: War of Spanish Succession • (1701–1714) • Fought over the possible unification of the Kingdoms of Spain and France • Supporting the unification: “Two Crowns” • Spanish loyal to Philip V, France • Electorate of Bavaria • Opposing unification: “Grand Alliance” • Spanish loyal to Archduke Charles • Holy Roman Empire • Great Britain • Dutch Republic • Portugal • Duchy of Savoy Concluded by the treaties of Utrecht (1713) and Rastatt (1714)

4. Time Line • 1714 Returned to France to work for his cousin in the Banking Industry • 1716 With financial backing by James Brydges, he bought out his cousin part of their business. • 1716 Law founded the BanqueGénérale(developed use of paper money) & virtual monopoly over the right to develop French territories in North America, named the “Mississippi Company”

5. Time Line: Richard cantillon & john law • Involved with British mercantilist John Law through the Mississippi Company • “Increases in the money supply would lead to the employment of unused land and labor, leading to higher productivity” • Richard Cantillon accumulated great fortune from his speculation, buying Mississippi Company shares early and selling them at inflated prices • Wild speculation led to “Mississippi Bubble”

6. Time Line: Cantillon & Law cont’d • Cantillon's financial success and growing influence caused friction in his relationship with John Law • 1718: Law, Cantillon, and wealthy speculator Joseph Gage formed a private company centered on financing further speculation in North American real estate.

7. Time Line • 1720: Briefly returns to Paris. Cantillon had outlying debt repaid to him in London and Amsterdam. • With the collapse of the "Mississippi bubble", he was able to collect on debt accruing high rates of interest. • Most debtors had suffered financial damage in the bubble collapse and blamed him until his death

8. Time Line: • 1722 He married Mary Mahoney, daughter of Count Daniel O’Mahoney • 1730 WritesEssai Sur La Nature Du Commerce En Général • 1734 (May) His residence in London was burned to the ground, and it is generally assumed that Cantillon died in the fire. • 1755 Essai is published • 1932 Essaiis translated by HeneryHiggs.

9. The Physiocrats

10. Physiocrats & Physiocracy • Physiocracy, “Government of Nature” • Natural Order • School of Economic thought • Considered first fully developed theory of economics • Francois Quesnay

11. Physiocrats & Physiocracy • Land-centric • Raw goods production • Closely preceded Adam Smith, Classical School

12. Physiocracy • Tableau Economique • Three classes • Productive • Works in agriculture; produces net gain • Proprietary • Owns land, buys from the other classes • Unproductive/Sterile • Only adds value to raw materials • Laissez-Faire • Land Privatization • Minimize regulation • Minimize taxes on productive classes

13. Influences for Physiocracy • 80% of French wealth was in agriculture • Historical importance of agriculture in economy • France did not have manufacturing colonies • Cast aside mercantilism • Gain wealth in real terms

14. Contributions

15. The Physiocrats’ Contributions • Production as a source of national wealth • One of the first anti-mercantilist movements • Self-Interest • Turgot and Diminishing Returns

16. Essay on the Nature of Commerce • Written c. 1730 • Cantillon’s only surviving work • Not published until 1755 • Influenced the development of the physiocrat and classical schools of thought • Considered the first complete treatise on economics

17. Methodology • There is a cause and effect relationship between economic actions and phenomena • Cantillon was one of the first to isolate economic phenomena with simple models • Introducing successive complications leads to discoveries about the economy in the real world.

18. Value, Price, and Monetary Theory • Market prices are not determined by intrinsic value but by supply and demand. • Uniformity-of-profit principle: changes in market price lead to changes in supply • Inflation and the Cantillon Effect • Changes in the money supply have an effect on prices and interest rates • Velocity and quantity of money

19. Entrepreneurs • The term was first introduced in Essay • Society is divided into two principal classes: fixed income wage earners and non-fixed income earners • Entrepreneurs are non-fixed income earners who are risk-bearers • Entrepreneurs perform an equilibrating function

20. Spatial Economics • Analysis of distance and area and how these affect a market through transportation costs and geographical limitations • Transportation costs influence the location of factories, markets, and population centers • Transportation costs vary by transportation type • Larger goods that are more difficult to transport will always be cheaper closer to their area of production • Explains why markets occupy a certain geographical area, and why costs vary across different markets

21. References • http://en.wikipedia.org/wiki/War_of_Spanish_Succession • http://en.wikipedia.org/wiki/Richard_Cantillon#cite_ref-29 • http://mises.org/store/Assets/ProductImages/SS548.jpg • http://the-freeman.org/Richard%20Cantillon.html • http://en.wikipedia.org/wiki/War_of_Spanish_Succession • http://www.marxists.org/archive/kuruma/politicaleconomy-physiocracy.htm • http://mises.org/daily/4814 • http://www.boisestate.edu/econ/lreynol/web/pdf_het/physiocratsoutline.pdf