Chapter Thirteen The Circulation and Exchange of Goods and Merchandise, as well as their Production, are Carried On in Europe by Entrepreneurs, and at a Risk

Abstract: Here Cantillon introduces, for the first time, the theory of entrepreneurship. Entrepreneurs are the prime directors of resources. Their occupations come with risks due to uncertainty, especially from competition and changing tastes. As a result, their income can be very large, but they also face the prospect of bankruptcy. The property owner is independent in having a large income (rent) from the land, and the capitalist, or large money owner, also can live independently on interest. Everyone else is ultimately dependent on the expenditures of property owners for their livelihoods.

THE FARMER IS AN ENTREPRENEUR who promises to pay the property owner, for his farm or land, a fixed sum of money (generally assumed to be equal in value to a third of the production) without assurance of the profit he will derive from this enterprise. He employs part of the land to feed herds, produce grain, wine, hay, etc., according to his judgment, without being able to foresee which of these will pay the best price. The price of these products will depend partly on the weather, partly on the demand; if wheat is abundant compared to consumption, it will sell at a cheap price, if there is scarcity, it will be expensive. Who can predict the number of births or deaths that will occur during the current year? Who can foresee the increase or reduction in expenditures that can occur in families? And yet the price of the farmer’s product naturally depends upon these unforeseen circumstances, and consequently, he conducts the enterprise of his farm with uncertainty.

The city consumes more than half of the farmer’s products. He carries it to the market or sells it in the market of the nearest town, or perhaps to entrepreneurs who provide the transport. They obligate themselves to pay the farmer a fixed price for his products—the market price of the day—to receive an uncertain price in the city, which should nonetheless defray the cost of transport and leave them a profit. However, the daily variation in the price of products in the city, though not considerable, makes their profit uncertain.

The entrepreneur or merchant, who transports the products of the countryside to the city, cannot stay there to sell them at retail until the products are consumed. No family in a city will burden itself with the purchase at one time of the products it may need over time because each family is susceptible to increase or decrease in size and consumption, or at least to variation in the choice of products it will consume. Wine is almost the only article of consumption stocked by families. In any case, the majority of citizens live from day to day, and even the largest consumers will not be able to stock away products from the countryside.

For this reason, many people set up as merchants or entrepreneurs in the city, to buy the country products from those who bring it or to have it brought on their account. They pay a fixed price for them at the place where they are purchased, to resell wholesale or retail at an uncertain price.

Such entrepreneurs are the wholesalers of wool and grain, and the bakers, butchers, manufacturers and merchants of all kinds, who buy country production and materials to work them up and resell them gradually as the inhabitants require them for consumption.

These entrepreneurs never know how great the demand will be in their city, nor how long their customers will buy from them since their rivals will try, by all sorts of means, to attract their customers. All this causes so much uncertainty among these entrepreneurs that every day one sees some of them go bankrupt.

The manufacturer, who has bought wool from the merchant or directly from the farmer, cannot know the profit he will make in selling his cloths and fabrics to the tailor. If the latter does not have reasonable sales, he will not burden himself with the cloths and fabrics of the manufacturer, especially if those fabrics have gone out of fashion.

The draper or clothier is an entrepreneur who buys cloths and fabrics from the manufacturer at a certain price in order to sell them again at an uncertain price, because he cannot foresee the extent of the demand. He can, of course, fix a price and abstain from selling unless he gets it. However, if his customers leave him to buy cheaper from another, he will be consumed by expenses while waiting to sell at the price he demands, and that will ruin him as soon, or sooner, than if he sold without profit.

Shopkeepers and retailers of every kind are entrepreneurs who buy at a certain price and sell in their shops or the markets at an uncertain price. What encourages and maintains these entrepreneurs in a state is the fact that the consumers, who are their customers, prefer paying a little more to get what they want promptly and in small quantities, rather than having to stock up. In addition, most of them do not have the means to stock up by buying from wholesalers.

All these entrepreneurs become consumers and customers of each other, the draper of the wine merchant, and vice versa. In a state, they proportion themselves to the customers or their consumption. If there are too many hat makers in a city or on a street for the number of people who buy hats, the least patronized must go bankrupt. On the other hand, if there are too few, it will be a profitable business, which will encourage new hat makers to open shops and in this manner, entrepreneurs of all kinds adjust themselves to risks in a state.

All the other entrepreneurs, like those who take charge of mines, theaters, buildings, the traders by sea and land, restaurateurs, pastry cooks, innkeepers, etc., as well as the entrepreneurs of their own labor who need no capital to establish themselves, like journeymen artisans, coppersmiths, seamstresses, chimney sweeps, water transporters, live with uncertainty and proportion themselves to their customers. Master craftsmen like shoemakers, tailors, carpenters, wigmakers, etc., who employ journeymen according to the work they have, live with the same uncertainty since their customers may leave them any day. The entrepreneurs of their own labor in art and science, like painters, physicians, lawyers, etc., live in the same uncertainty. If one attorney or lawyer earns 5,000 livres sterling per year in the service of his clients or in his practice, and another earns only 500, their income is just as uncertain as those that employ them.

It may perhaps be urged that entrepreneurs seek to snatch all they can in their calling and to get the better of their customers, but this is outside my subject.³²

By all these inductions, and an infinity of others that could be made to extend this matter to the entire population of the state, it may be established that, except for the prince and the property owners, all the inhabitants of a state are dependent. They can be divided into two classes, entrepreneurs and hired workers. The entrepreneurs are on unfixed wages while the others are on fixed wages as long as there is work, although their functions and ranks may be very unequal. The general who has his pay, the courtier³³ his pension and the domestic servant who has wages, all fall into this last class. All the others are entrepreneurs, whether they are set up with capital to conduct their enterprise, or are entrepreneurs of their own labor without capital, and they may be regarded as living under uncertainty; even the beggars and the robbers are entrepreneurs of this class. Finally all the inhabitants of a state derive their living and their advantages from the property of the landowners and are dependent.

It is true, however, that if some person on high wages or some large entrepreneur has saved capital or wealth (that is, if he has reserves of wheat, wool, copper, gold, silver or some commodity or merchandise in constant use or circulation in a state having an intrinsic or a real value) he may be justly considered independent as long as the capital lasts. He may exchange it to acquire a mortgage, and receive income from the land and from public loans secured upon the land. He may even live better than the small landowners and buy property from some of them.

But commodities and merchandise, even gold and silver, are much more subject to accident and loss than the ownership of land. And however one may have earned or saved them, they are always derived from the land of actual owners, either by wages or by the saving of wages destined for one’s subsistence.

The number of money owners³⁴ in a large state is often quite considerable. Though the value of all the money that circulates in the state barely exceeds the ninth or tenth part of the value of the production drawn from the soil, because the proprietors of money lend considerable amounts for which they receive interest either by a mortgage on land or the commodities and merchandise of the state, the sums due to them usually exceed all the money in the state. They often become so powerful a body that they could, in certain cases, rival the property owners if the owners were not often also money owners, and if the owners of large sums of money did not also seek to become property owners themselves.

Nevertheless, it is always true that all the sums earned or saved have been drawn from the land of the current owners. However, because so many property owners in a state ruin themselves daily, and those who acquire the property take their place, the independence given by the ownership of land applies only to those who keep possession of it. As all land always has a master or current owner, it is from their property that all the inhabitants of the state derive their living and all their wealth. If these owners confined themselves to living within their rental income, this would be beyond question, and in that case, it would be much more difficult for the other inhabitants to grow rich at their expense.

I will therefore establish as a principle that the property owners alone are naturally independent in a state; all the other classes are dependent, whether entrepreneurs or hired, and that all the exchange and circulation of the state is conducted by the actions of these entrepreneurs.

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³² Here Cantillon avoids the normative and subjective issue of which person gains more in exchange, the buyer or seller.

³³ Someone from the royal family, royal court, or royal appointment.

³⁴ The term “capitalist” had not been coined when Cantillon wrote the Essai.