A Tale of Four Cities

Today there is a sense that society is drifting toward chaos. The question is often asked, "How did we get into this mess?" A Tale of Four Cities makes the case that the causes of this malaise are not recent, that they can be traced back three centuries to two different conceptions of the growth of wealth and human flourishing. The first set of ideas is attributable to a little-known Irish banker, Richard Cantillon, who recognized the catalyzing role played by the entrepreneur in creating wealth. Cantillon may have been the most successful private banker of his time, having shorted the fiat money Mississippi Scheme in France in 1720. The folly of government printing paper money is a constant theme throughout A Tale of Four Cities. Cantillon also made it clear that entrepreneurship was not an economic class, and that it was open to all. His more recognized successor, Adam Smith, had a different view in 1776 with the publication of The Wealth of Nations, that wealth resulted from the division of labor. Smith was aware of Cantillon, and of ARJ Turgot, the French minister of finance, who had expanded on Cantillon's thoughts to include the concept of capitalist-entrepreneurs. Smith chose to ignore both economists, excluding the role of the entrepreneur, and the legitimate economic payment to the entrepreneur, profit. Smith's economic model was based upon three factors of production and their associated economic payments (land/rent, labor/wages and capital/interest. Cantillon and Turgot's economic model added entrepreneurship/profit. The three-factor model leads to conflict and chaos in society, whereas the four-factor model leads to social cooperation and healthy competition. Karl Marx and Friedrich Engels gave credit to Adam Smith in the 1848-published A Manifesto of the Communist Party, shifting Smith's three-factor system to two-factors, inherently at war with each other, capitalists and proletarians. A Tale of Four Cities then shifts to the French Revolution and the Reign of Terror. Eighty years previously the blow-up of the Mississippi Scheme should have cautioned the French against government money printing. Suffering from war-related over-spending, however, the temptation was too great. At first the money printing seemed reasonable, but quickly got out-of-hand. Prices soared faster than wages, leading Parisian laundresses to sack stores. The Reign of Terror soon followed. After years of chaos, Napoleon emerged as the leader of France, and his foreign conquests ultimately led to the overrunning of German territories, which in turn encouraged the unification of Germany under Otto von Bismarck. Bismarck sought to weld the people to the state by the introduction of the first social security net. American Ph. D. candidates in Germany were admirers of Bismarck's warfare/welfare state, becoming the leaders of the Progressive Movement in the United States. A Tale of Four Cities continues with a description of two western European collectivisms – Italy's fascism and Germany's national socialism. It then describes how John Maynard Keynes economic theories conflict with those of Richard Cantillon. This provides the foundation for understanding government economic policy in the United States and elsewhere, with catastrophic government policies such as bank bailouts, Covid-19 shutdowns, and stimulus payments based upon government running the money printing press. A Tale of Four Cities describes how events and ideas are related over time, and that major consequences may arise beyond the actions originally intended. Only by knowing how to relate the parts of economic history can we benefit from the lessons they convey.