Wednesday, March 27, 2013

A Painting of Cantillon?

This past weekend I attended the Mises Institute for the Austrian Economics Research Conference (formerly ASC).  First I should say that the Mises Institute has put together another great conference.  I believe that I have missed only one ASC since the beginning (and that was because I was at another Austrian Economics Conference in Prague). 

Of all the papers presented there, the most interesting (at least to me) was the one presented by Mark Thornton.  He has been attempting to solve an almost three centuries old mystery surrounding the most mysterious economist of all--Richard Cantillon.  Cantillon made his fortunate in John Law's bank during the South Seas Bubble and managed to get out just before the collapse, leaving him one of the wealthiest men in the world. 

After making his fortune he penned Essai sur la Natur du Commerce en Général.  We are not exactly sure when it was written, but estimates put in the late 1720s or early 1730s.  It is an important book not only because it is one of the few that Adam Smith actually cites, but it is actually a better explanation of basic economic principles than Smith's  Wealth of Nations.  (While some may argue that Smith is better, but Cantillon at doesn't lapse in a labor theory of value like Smith did.)

Now to add a twist, there is a mystery surrounding his death.  Was he murdered and the house burnt to cover up the crime?  Or did Cantillon fake his own death to live out the rest of his life in Bora-Bora or somewhere in South America?  We may never know.

Another mystery is what did Richard Cantillon look like?  How can there not be a painting of such a wealthy man?  It is at this point that Thornton's paper "A Man and his Family" jumps into the picture.  Thornton's paper is posted here, and the audio of the session is here as an mp3 audio.  Or you can follow this link.

Many scholars have been looking for such a painting with no luck.  It is at this point that Thornton picks up the detective story.  Thornton has been looking for a picture of Cantillon for the past 10-15 years.  The last time he was at the Louvre may prove to be the big break he (and all of us) have been hoping for.  He might have made the big discovery.  Thornton argues that the painter, Largillière, knew and painted Cantillon, his wife and daughter.  I freely admit that I am biased and have a low threshold of proof on this matter, nevertheless, I am cautiously optimistic.

Here is the painting that Thornton claims is Cantillon and his family.

Thornton claims that it was painted around 1730, which would be the correct time.  In fact, he also found a painting from 1720 also by Largillière, entitled "Portrait of a 'Gentleman.'"  And it is this...

It is clearly the same man.  He is younger and while wearing very expensive clothes, his shirt is undone.  It is a sign that he is a part of the "nouveau riche."  That could very well fit Cantillon and his rise in status during the up swing of the bubble.

Who knows for sure if this is Cantillon or someone else, but I'd like to think that it is him.  The next step is to compare the wife in the portrait above with a painting which positively identifies Mary Anne Cantillon.  So all we need to do is get some expensive facial recognition equipment, fly to Paris and ask very politely to test these paintings.  I'm sure that the French will have no problem with that!  ;-) 

Thursday, March 7, 2013

Solving Environmental Problems Through Economics

While my passion lies with Austrian Economics, I also find Environmental Economics fascinating.  (Of course, these two areas are not mutually exclusive and are often quite compatible,)  The reason why I like environmental economics so much is because it is so different from the normal use of economics.  It forces one to think (sometimes radically) out of one's comfort zone.

One of the major problems in environmental economics is non-point source pollution.  In other words, it is a type of pollution where the source is hard to identify.  A smoke stack or a drain pipe are examples of point-source pollution.  You can see the "point" where the pollution emanates from.  However, when it comes to some things such as agricultural spraying, determining which farm is causing the run-off pollution down-stream is much more difficult.

When I have been asked by my students how a market society would handle these problems without government regulation,  I would say that technology would find a way.  For example, when explosives are manufactured an inert identifier is added to the mix.  This way bomb residue experts can trace the manufacturer and lot number of the exploded material.  So why not employ similar technology to pesticides and other sprays?  That way, we can monitor down-stream and say that x% of the pollution is coming from Y's farm, and so on.

An unexpected development has arisen along these lines.  

Many people are worried about hydraulic fracturing or "fracking."  This is a process where shale is layered underground.  Between these many, tiny, thin layers is oil and natural gas.  The problem is how to extract the oil and natural gas because the layers are so thin that pumping from a single layer is inefficient.  The answer is to pump water into the area so that the layers are broken up and the oil  and natural gas can be profitably extracted.  The process mostly uses water to break up the shale layers, but an amount of hydraulic fluid is also used in the drilling process.  The worry is that this fluid along with the oil and gas might leach into the ground water.  While the science shows that this possibility has low risk, the fear is real.

And now the market solution.

A company, BaseTrace--which is based in the Research Triangle Park, NC, has developed an inert material that can be added to the hydraulic fluid so that if any leaching into the water table occurs, we can trace it back to the specific well.  That means that if there is a problem, we can identify where the problem is occurring and who is responsible.  For this to work, the amount of tracer needed is about a thimble full.  Amazing.

And possibly the most remarkable thing about this company is that it is run by 2 full-time and 3 part-time employees, all in their 20's.  I am encouraged that theories that could only imagine happening are being developed and employed by recent college graduates.