A Historical Perspective on Entrepreneurship

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Does entrepreneurial endeavour always provide the best outcome for society? The easy and correct answer is yes. Historically though before the centralised processes of modern day banking, the entrepreneur could be a somewhat dangerous, mercurial individual. Dangerous to both themselves and society, with the fate of both often entwined. Entrepreneurs not only contributed to the construction of economic institutions and theory, they could also destroy them through the trial and error necessary during less developed periods of history.

The entrepreneur was first detailed by Irish-French economist Richard Cantillon during the eighteenth century in his essay Essai sur la Nature du Commerce en Général. In which he described the entrepreneur as someone who bought at one price and sold at another uncertain price, in doing so managing risk. Cantillon’s essay and lone surviving work, took economic theory away from the domain of the philosopher and religious thinker, offering a counter point to the economics of the merchant trader. His work introduced individual agency during the beginning of the eighteenth century. During the seventh century market forces such as inflation had become more pronounced with the influx of Spanish gold from the New World and the Price Revolution. Individual agency or the ‘entrepreneur’ sat between poles, in a century in which entire populations began to be defined by the mechanistic processes of the first Industrial Revolution and the ideals of the French Revolution.

Cantillon’s counterpoint or nemesis was the gambling banker John Law, a man said by some to have a claim toward being the father of modern centralised banking. Law killed a man in a duel and was sentenced to death in England, the Scot fled into exile and travelled extensively for nearly twenty years until he was pardoned by George the 1st. During his travels Law attempted to create a central bank of France, mirroring in some respects the creation of a central English bank in 1694. Law began his General Bank of France during 1716, after many years of struggling to influence the French monarchy. His bank was to be a bank dominated by one man more so than any other legitimate bank in history.

Law believed he could repair a French economy which was defaulting on its loans. His bank issued notes which could be converted into corresponding amounts of gold. A wide circulation of notes was established within the first year of operation, as time went on people in French provinces far from the capitol were using his currency. Law built on his early success and began to hold titles of favour with the French monarchy. As Law built upon his successes he become part of the ‘Mississippi Bubble’ a speculative bubble and investor frenzy, a bubble which would lead to market collapse both in the French and some international markets. The General Bank of France acquired the exclusive rights to develop French territories in North America. The bank soon had a monopoly over the tobacco and slave industries through Law’s creation of a second business the ‘Company of the West’. Within a few short years Law had completely corned all of France’s colonial trade, taken over the collection of taxes and the minting of new French monies. The situation from the benefit of hindsight was a hair trigger away from collapse.

Having gained control of both France’s trade and finances, Law stood to benefit from the profit of his companies and the speculative investment of the French people. Demand for his companies’ shares was so large that the price quickly ran ahead of any relation to earnings. Law merged his two companies and began a plan to repair deficits France had incurred during the reign of Louis XIV. This involved selling shares in the company to the public in return for state issued public securities. Shares in the Company of the West became widely popular both in France and across Europe.  The French government began printing more money, the state’s creditors accepted the new money as legal tender since it too could be used to purchase shares in Law’s company. Of course inflation was rampant by this point and both the value of print monies and public securities plummeted. Against this hyperinflation the expected profits of Company of the West never completely appeared, leading to crashes in both French and European markets. Law was exiled from France; following a brief period in which he was removed as head of the company and reinstated shortly after, only to be removed once more and allowed to leave France.

Law pioneered centralised banking whilst simultaneously becoming one of its early pariahs. Of course it is anachronistic to operate under the benefit of hindsight and project modern working economic conventions onto Law. He does though stand as cautionary tale on the limits of power invested in one man and the need for one man’s, or one entrepreneur’s efforts to be regulated against monopoly.

Cantillon gave us the first working model of an entrepreneur and in the same work, one of the first formal warnings regarding the dangers of inflation. He positioned himself at odds with Law and in his Essai sur la Nature du Commerce en Général warned of the complicity of running state operations in line with one man’s will.

It is then undoubted that a Bank with the complicity of a Minister is able to raise and support the price of public stock and to lower the rate of interest in the State at the pleasure of this Minister when the steps are taken discreetly, and thus payoff the State debt. But these refinements which open the door to making large fortunes are rarely carried out for the sole advantage of the State, and those who take part in them are generally corrupted. The excess banknotes, made and issued on these occasions, do not upset the circulation, because being used for the buying and selling of stock they do not serve for household expenses and are not changed into silver. But if some panic or unforeseen crisis drove the holders to demand silver from the Bank the bomb would burst and it would be seen that these are dangerous operations.

Cantillon would die mysteriously in his forties and Law following his banishment from France, died within a decade, an impoverished man.

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