Money, Banks and Finance in Economic Thought

The concluding three chapters of Cantillon’s Essai: an account of the banking system in XVIIIth century Europe.

Menegatti Matteo, Independent Scholar

Three chapters are exclusively dedicated by Cantillon in his Essai (2015 [1755]) to banks and their functioning. More specifically, its last three chapters, for a total of 13 pages (from page 161 to page 173 in its INED 1997 edition), comprising, roughly speaking, 7.5% of the total text. Clearly a rather succinct sketch one might believe, worthy of study in its own right maybe only given Cantillon’s proven record of successful investor and speculator, but otherwise to be left to historians for their research purposes. And although Cantillon’s account of the functioning of the banking system is definitely outdated, his sharp analysis coupled with his first hand exemplifications renders chapters VI to VIII of part III of the Essai due some attention more than just out of a mere antiquarian interest. In particular two perspectives appear to be worthy exploring: on the one hand, by ending the Essai, these three chapters somehow summarize and crown the whole preceding discussion. In other words Cantillon’s theory of production, distribution and trade finds its functioning (re)sketched to explicitly include the effects of the banking sector. On the other hand, as often remarked by other commentators, these three chapters can be read as a more or less veiled critique to the (then) recent rise and burst of John Law’s system in France. And an analysis of this dichotomy of visions about the function and possible effects of the banking sector on the economy of a country, on the background of one of the first well documented speculative bubble of modern Europe, allows a reader of the Essai to fully appreciate Cantillon’s economic theorizing. This paper is devoted to this double task and will thus be structured as follows: in Section 1, a summary of chapters VI to VIII of part III of the Essai will be given; in Section 2, the effects of the banking system on the Cantillon’s theory of production, distribution and international trade will be addressed. In Part 3, a comparison of the main differences between Law’s and Cantillon’s views of the function of banking and money in an economy will be attempted. Lastly, in the conclusions an overall assessment of Cantillon’s economics will be given.

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Keywords: Cantillon; Banking;