Luxury and economics in eighteenth-century Britain and France:

The cases of George Berkeley and Richard Cantillon

Scott Breuninger (Concordia College, Moorhead, USA)

(breuning@gloria.cord.edu)

Supervisor: Professor Maxine Berg

            One of the central dilemmas facing economic theorists of the early eighteenth century centered on the question of ‘luxury’.  As they were experiencing the growing pains of commercialization, thinkers in both Britain and France wrestled with this issue and sought to devise techniques that would enable the state to strike a balance between private and public interests.  By decoupling their economic analysis of wealth from traditional ethical critiques, some thinkers defended luxury’s role in encouraging commercial growth, innovation, and production.  This process of ‘rehabilitating’ luxury was particularly contentious prior to 1721, when the heady euphoria associated with the South Sea Bubble and the Mississippi Plan encouraged wide-spread financial speculation and popular defenses of lavish spending.[1]  

            Despite the appeal of these arguments, other thinkers sought to adapt earlier moralistic critiques of luxury to the economic realities of the emerging commercial system.[2]  After considering contemporary and historical examples, these theorists concluded that economic cycles governed the course of nations—that the very causes of a peoples’ success held within it the seeds of its downfall.  While there was a long moralistic tradition in this vein, the commercial environment of the early eighteenth century inspired new ways of articulating this argument in an economic key. 

            Two figures who played important roles in explicating how the ‘vice’ of luxury could lead to economic ruin were George Berkeley and Richard Cantillon.  Although today the former is primarily remembered as a philosopher and the latter is rarely mentioned at all, their writings represent an important innovation in the economic response to luxury.  Both Berkeley’s Essay toward Preventing the Ruin of Great Britain (1721) and Cantillon’s Essai sur la nature du commerce en général (1728-30) sought to explain how national economies developed, thrived, and inevitably faced decline.  At the heart of this movement was a sophisticated interpretation of money that considered issues such as the circulation of currency and the effects of the supply of specie on the economy.  In each case, the uses of wealth were seen as the prime determinants of a nation’s health: while luxury could be considered a vice, the true danger was inappropriate expenditures. 

            In this paper, I will explicate the use of this economic argument by both Berkeley and Cantillon.  In Berkeley’s analysis we can see the first, transitional step between a moral and an economic interpretation of national cycles, a process that was completed by Cantillon.  In the process of outlining the arguments of these two émigré Irishmen, I will highlight important similarities between their economic position and the traditional, moralistic critiques of luxury. 

Berkeley’s Essay: Luxury, and the ‘Mediocrity of Money’ Thesis

            When George Berkeley returned from a tour of the continent in 1721, he found himself immersed in a culture reeling from the effects of the South Sea Bubble.  Berkeley’s response to this affair advanced an important critique of contemporary society, grounded upon an appreciation for the deleterious effects of luxury.  While this work has often seen as a moralistic jeremiad, it is important to note that his ethical proscriptions for Britain also contained an economic argument concerning the role and function of wealth in a commercial nation.[3]  In particular, Berkeley’s analysis considered the effects of luxury upon both individuals and the nation, highlighting his belief that states needed a minimum amount of wealth in order to prosper, but also stressing the dangers of having too much money in circulation.[4]

Echoing Sallust, Berkeley warned that attempts to ‘patch up our affairs … will be to no purpose’ unless they were part of a larger program of moral reform.[5]  Accordingly, at the heart of Berkeley’s plan was a need to encourage ‘simplicity’ and ‘frugality’ of manners.[6]  Condemning luxury as the most dangerous of vices, Berkeley suggested that it ‘draweth after it a train of evils which cruelly infest the public; faction, ambition, envy, [and] avarice’.[7]  On a moral level luxury eroded public virtue and liberty by placing private interest above that of the public.  Unable to sacrifice for the greater good, Berkeley observed that a nation dominated by luxury was doomed to ruin.[8]  By remaking the virtue of frugality, Berkeley suggested that a nation may stave off luxury and thus prevent a decline initiated by ‘natural causes’.[9]

Berkeley understood the pernicious effects of luxury according to the Roman model, suggesting a cyclic pattern of rise and fall.  He questioned ‘whether it be in the order of things that civil States should have, like natural products, their several periods of growth, perfection, and decay’.[10]  If this were the case, there would appear to be no possibility for saving Britain, but Berkeley continued by suggesting that national decline may be ‘an effect, as seems more probable, of human folly that, as industry produces wealth, so wealth should produce vice, and vice ruin’.[11]  Once it fell away from this ideal, decline was inevitable unless a remoralization of society counteracted the effects of ‘human folly’.[12]  Hence Berkeley argued that it was essential to the well-being of Britain to re-instill virtue and eschew corruption.  In this case the cycle of decline could be stopped, if not reversed.  Rather than ‘naturally’ heading towards ruin, judicious tactics could help Britain regain its former glory. 

            Berkeley observed that ‘men are apt to measure national prosperity by riches’.[13]  While this would seem to place him squarely in the camp of the mercantilists, Berkeley introduced a moralizing element to his argument.  Moving away from the valorization of money, Berkeley claimed that it would be ‘righter to measure it [national prosperity] by the use that is made of them [riches] ’.[14]  For Berkeley national wealth was not to be measured by money, but rather by the practical applications towards which it was used.[15]  Although necessary to improve the nation, money must be used only to spur industry and ‘honest’ labor.  By circulating throughout the nation, riches facilitated commerce and ensured ‘the slow moderate gains that are to be made by an honest industry’.[16]

            Berkeley argued that national prosperity was based upon ‘industry’.  He opined that ‘industry is the natural sure way to wealth.  This is so true that it is impossible an industrious free people should want the necessaries and comforts of life or an idle enjoy them under any form of government’.[17]  Money and credit were both useful for this process only insofar as each ‘promoteth industry’.  Berkeley further stressed the association between industry and the public good, claiming that ‘money or credit circulating through a nation from hand to hand without producing labour and industry in the inhabitants, is direct gaming’.[18]  In this mention of ‘gaming’ we can begin to see the basis of Berkeley’s economic indictment of the South Sea Bubble; namely that ‘it is an evident folly for any people, instead of prosecuting the old honest methods of industry and frugality, to sit down to a public gaming table and play off their money one to another’.[19]  This type of action, as evidenced by the results of the stock-jobbing associated with the South Sea Company, could only result in ruin.  The rapid exchange of fortunes inherent in this type of system could, on the one hand, lead to ‘abandoned luxury and wantoness, or, on the other, but extreme madness and despair’.[20] 

            Faced with these problems in 1721, Berkeley proposed a number of economic plans for the revitalization of Britain.  These prescriptions took two forms.  First, Berkeley outlined a series of internal ‘projects’ that could encourage both domestic industry and foreign commerce.  These reforms were aimed at economic production and ensuring an adequate supply of money for the state.[21]  At the same time, Berkeley also suggested techniques Britain could use to curb the influence of luxury, thereby preventing the nation from having too much money.  In this case Berkeley’s tactics focused on the need to govern consumption, calling for ‘sumptuary laws judiciously framed, not to damage our trade, but [to] retrench our luxury’.[22]  Taken together, Berkeley believed that these innovations could help to alleviate the ‘human folly’ fueling the cycle of ruin, and could produce a stable mediocrity of money policy.

            In framing his economic proposals for Britain, Berkeley hoped that the cycle of ‘human folly’ could be broken and the nation revitalized.  Domestic manufactures and commerce would proceed unencumbered by the corruption of luxury.  Using both moral and economic language to support his argument, Berkeley tried to turn Britain from the path leading towards ruin and face the future with new-found purpose and direction. 

Richard Cantillon’s Essai and Economic Cycles

            Since its publication in 1755, Richard Cantillon’s Essai sur la nature du commerce en général has been relegated to the status of a perennial footnote in the history of political economy.[23]  Despite the fact that it has often been cited for its advanced ideas, rarely has it been the subject of deeper engagement.  Thus, rather than assuming a permanent position within the pantheon of ‘classic’ works, the history of the Essai has been one of ‘rediscovery’.  However, the ambiguity surrounding this text may be somewhat appropriate considering what is (un)known about Cantillon’s personal life.[24]

            Writing in the wake of the Mississippi Scheme and the South Sea Bubble, Cantillon (like Berkeley) was deeply concerned with questions of luxury.  Cantillon’s position on luxury was generally critical, although he did make some gestures towards its benefits.  While he did not argue that luxury would have deleterious effects on the individuals of a nation, he suggested that excessive luxuries could be harmful for the nation as a whole.  In the most direct passage of the Essai addressing this subject, he contended that so long as the bulk of the population was employed in trades that were ‘useful and profitable to the state’, it was acceptable for others to work in more luxurious industries.[25]  Thus, while it would be perhaps more useful to the state for individuals to produce other goods, it is not necessary.  At least, it was not considered harmful, so long as the other members of society were producing the goods necessary for the subsistence of the nation.  Nonetheless, luxury did come to play an important part in Cantillon’s understanding of economic cycles, particularly as a harbinger of the onset of economic decline. 

            Cantillon’s system was based on the idea that economic processes are self-regulating mechanisms that operate in a cyclic manner, thus being both predictable and unavoidable.  Thus, while these cycles could be influenced by the actions of the government, it was impossible for a nation avoid the cycle altogether.  This led Cantillon to suggest a number of possible policies that he believed would minimize the trauma of these cycles upon the nation’s health. 

            Cantillon thought that a favorable balance of trade was necessary for a nation to grow, but was also concerned with the nature of the material traded and its long term effects.[26]  He argued that if a nation were to attain a balance of trade that ensured a constant influx of money, then it would be ‘reasonable to suppose that this abundance [would] not arrive without many wealthy individuals springing up who will plunge into luxury…This will gradually impoverish the state and cause it to pass from great power into great weakness’.[27]  The cycle that Cantillon described was based on an association between high prices, excessive luxury expenditures, and decline.  He thought that as a nation obtained more money, there was a ‘corresponding increase of consumption which gradually [brought] about increased prices’.[28]  It was this internal increase in prices that Cantillon saw as key to the eventual decline of the nation.  As prices rose, he argued that exports would decline as foreigners found substitutes for these goods.  Therefore, Cantillon contended that ‘the wealth acquired by a State through Trade, Labour and Oeconomy will plunge it gradually into luxury.  States who rise by trade do not fail to sink afterwards’.[29]           

            In general, Cantillon suggested that the state was faced with an economic choice.  Should the nation seek to increase its wealth through trade, its early successes would only increase the probability of future decay.  The economic mechanisms that enabled the state to prosper were the same ones that would lead to its eventual decline.  Thus, it was impossible to escape the cycle that ran from growth, to luxury, to decay.[30]  While this did not lead to great stability in the long run, it was really the only option.  Without trade a nation was forced to rely on its internal resources, which limited expansion.  For Cantillon, the problem came to be how to best navigate the state during this cycle.

            For Cantillion, the best scenario that a state could attain would be to institute policies that could ‘accelerate the upswing and retard the downswing’ of the cycle; however, Cantillon was not very optimistic concerning the probability of this occurring.[31]  The difficulty resided in determining the proper time for intervention.  According to the Essai, this should occur at the moment when money became too abundant in the state, at which point governments should constrict the supply of money in circulation.[32]  While this seems to imply that it was possible for a state to avoid falling into decay, Cantillon was convinced that choosing the proper instant to initiate action was nigh impossible, since most legislators ‘do not concern themselves much with this sort of knowledge’.[33]  Cantillon was also careful to note that there was only a small window of opportunity during which this type of corrective action could take place, as within a few years poverty could overcome the strongest nation.[34]

            In general, Cantillon understood the economy to be a self-regulating system that followed predictable cycles.  While these cycles could not be avoided, there was the possibility that a wise ruler could hasten periods of decline and lengthen those of prosperity.  Still, Cantillon’s model suggested that few nations were blessed with leaders who could discern the proper moment and type of action needed.  Thus, success at international trade led to a situation in which luxury became ensconced in the population.  While luxury was deemed acceptable on the individual level, when moved to the national scale it lost its ‘harmless’ nature.  According to Cantillon it acted to sap the strength of domestic manufactures and with this industrial loss there was a corresponding decline in employment. 

Conclusion

            Taken together, the responses of Berkeley and Cantillon to the excesses of the early 1720s may be seen to update the traditional moralistic rejection of luxury in terms of the new economic realities associated with the emerging commercial society.  By highlighting the connections between questions of national health and wealth, couched in terms of irreversible economic cycles of national prosperity, these thinkers articulated a vision of growth predicated upon a ‘mediocrity of money’ policy that allowed for both economic expansion and retrenchment against luxury.  By framing their analyses in terms of these ‘practical’ issues, Berkeley and Cantillon showed that it was not necessary to completely decouple moral concerns from financial problems, thus stressing two factors contributing to ‘national greatness’ during the early eighteenth century.

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