histofthought1

350 Economic thought before Adam Smithfancies of men and on their consumption'. Thus the value of products isimparted by consumer valuation: a crucial proto-Austrian insight derivedfrom medieval and late Spanish scholastics. For centuries, in fact, the scholasticand post-scholastic position had been that the value of goods is determinedby 'utility' and 'scarcity', by subjective valuation of a given supply.The more utility the higher the value, and the more abundant the supply thelower the value and price of any good on the market. Cantillon's is a sophisticatedand elaborated development of the scholastic approach.While Cantillon considers the 'intrinsic value of a thing' 'the measure ofthe Land and Labour which enter into its Production', he concedes immediatelythat subjective valuation by consumers rather than 'intrinsic value'determines price. 6Going into detail on intrinsic value, Cantillon refers to the hypotheticalcase of an American who travels to Europe to sell beaver skins for hats, but isthen 'rightly astonished to learn that woollen hats are as serviceable as thosemade of beaver, and that all the difference, which causes so long a seajourney, is in the fancy of those who think beaver hats lighter and moreagreeable to the eye and the touch'. In short: the entire cost of production, allthe labour and effort that went into the production and transport of beaverskins, means nothing unless the product satisfies the consumer enough to payfor the costs, and to enable the product to compete with another commoditymade more cheaply at home. It is consumer demand that determines sales aswell as price.O'Mahony goes on to point out that Cantillon's monopoly estate modelclearly shows that demand (in this case that of the world monopoly landowner)and not cost of production determines price. Cantillon, then, did notforeshadow the classical equilibrium theory that cost of production constitutedthe long-run, and presumably therefore the most important, determinantof market price. On the contrary, for Cantillon, cost of production had a verydifferent function: deciding whether a business could make profits or elsehave to suffer losses and go out of business. If consumer value and thereforethe selling price of a product is high enough to more than cover costs, thefirm makes a profit; if not high enough, it suffers losses and eventually has togo out of business. This is an important part of the Austrian view of the roleof costs. Thus Cantillon discusses costs and prices in the manufacture ofBrussels lace:If the price which the Ladies pay for the Lace does not cover all the costs andprofits there will be no encouragement for this Manufacture, and the undertakerwill cease to carry it on or become bankrupt; but as we have supposed thisManufacture is continued, it is necessary that all costs be covered by the pricespaid by the Ladies of Paris....