Physiocracy
Physiocracy (from the Greek for "Government of Nature") is an economic theory developed by the Physiocrats, a group of economists who believed that the wealth of nations was derived solely from the value of land agriculture or land development. Their theories originated in France and were most popular during the second half of the 18th century. Physiocracy is perhaps the first well-developed theory of economics.
The movement was particularly dominated by Anne-Robert-Jacques Turgot (1727–1781) and François Quesnay (1694–1774).[1] It immediately preceded the first modern school, classical economics, which began with the publication of Adam Smith's The Wealth of Nations in 1776.
The most significant contribution of the physiocrats was their emphasis on productive work as the source of national wealth. This is in contrast to earlier schools, in particular mercantilism, which often focused on the ruler's wealth, accumulation of gold or the balance of trade. A chief weakness from the viewpoint of modern economics is that they only considered agricultural labor to be valuable. Physiocrats viewed the production of goods and services as consumption of the agricultural surplus, while modern economists consider these to be productive activities which add to national income.
Historian David B. Danbom explains, "The Physiocrats damned cities for their artificiality and praised more natural styles of living. They celebrated farmers."[2] They called themselves économistes, but are generally referred to as physiocrats in order to distinguish them from the many schools of economic thought that followed them.
History
Pierre Le Pesant, sieur de Boisguilbert served as a member of Louis XIV's local administration of Paris, and wrote pamphlets and booklets on subjects related to his work; taxation, grain trade, and money. Boisguilbert asserted that wealth came from self-interest and markets are connected by money flows (ie. an expense for the buyer is revenue for the producer). Thus he realized that lowering prices in times of shortage – common at the time – was dangerous economically as it served as a disincentive to production. Generally, Boisguilbert advocated less government interference in the grain market, as any activity by the government would give birth to "anticipations" which would prevent the policy from working. An example would be that if the government bought corn abroad, there would be people who realize that there is a likely shortage and would increase their demand, so that prices may rise and a shortage might result. This idea was an early example of advocation for free trade. In anonymously published tracts, Vauban proposed a system known as La dîme royale which suggested major simplification of the French tax code through switching to a relatively flat tax on property and trade. Vauban's use of statistics marked a noted increase on empirical methods in economics from previous times.[3]
During the periods around the Seven Years' War between France and England, the physiocracy movement began to grow. For one, several journals appeared, signaling an increasing audience in France to new economic ideas. Among the most important were the Journal Œconomique (1721–1772), which promoted agronomy and rational husbandry and the Journal du commerce (1759–1762), which was heavily influenced by the Irishman Richard Cantillon (1680–1734), and two dominated by physiocrats; the Journal de l'agriculture, du commerce et des finances (1765–1774) and the Ephémérides du citoyen (1767–1772 and 1774–1776). Also, Jacques Vincent de Gournay (1712–1759) (who was the Intendant du commerce) brought together a group of young researchers including François Véron Duverger de Forbonnais (1722–1800) and one of the two most famous physicrats, Anne-Robert-Jacques Turgot (1727–81). The second in the pair, François Quesnay (1694–1774), was among those publishing heavily in the journals that were appearing at the time.[1]
Tableau économique
The Tableau économique or Economic Table is an economic model first described by François Quesnay in 1759, which laid the foundation of the Physiocrats’ economic theories.[4]
The model Quesnay created consisted of three economic movers. The "Proprietary" class consisted of only landowners. The "Productive" class consisted of all agricultural laborers. The "Sterile" class is made up of artisans and merchants. The flow of production and/or cash between the three classes started with the Proprietary class because they own the land and they buy from both of the other classes. The process has these steps, see figure.
Characteristics
Individualism and laissez faire
The Physiocrats, especially Turgot, believed that self-interest was the motivating reason for each segment of the economy to play its role. Each individual was best suited to determine what goods he wanted and what work would provide him with what he wanted out of life. While a person might labor for the benefit of others, he will work harder for the benefit of himself; however, each person’s needs are being supplied by many other people. The system works best when there is a complementary relationship between one person’s needs and another person’s desires, and trade restrictions place an unnatural barrier to achieving one’s goals.
Private property
None of the theories concerning the value of land could work without strong legal support for the ownership of private property. Combined with the strong sense of individualism, private property becomes a critical component of the Tableau's functioning.
Diminishing returns
Turgot was one of the first to recognize that “successive applications of the variable input will cause the product to grow, first at an increasing rate, later at a diminishing rate until it reaches a maximum.”[5] This was a recognition that the productivity gains required to increase national wealth had an ultimate limit, and, therefore, wealth was not infinite.
Investment capital
Both Quesnay and Anne Robert Jacques Turgot, Baron de Laune recognized that capital was needed by farmers to start the production process, and both were proponents of using some of each year’s profits to increase productivity. Capital was also needed to sustain the laborers while they produced their product. Turgot recognizes that there is opportunity cost and risk involved in using capital for something other than land ownership, and he promotes interest as serving a “strategic function in the economy.”[6]
See also
People
Notes
References
- Henry William Spiegel (1983) The Growth of Economic Thought, Revised and Expanded Edition, Duke University Press
- Yves Charbit; Arundhati Virmani (2002) The Political Failure of an Economic Theory: Physiocracy, Population, Vol. 57, No. 6. (Nov. - Dec., 2002), pp. 855-883.
- A. L. Muller (1978) Quesnay's Theory of Growth: A Comment, Oxford Economic Papers, New Series, Vol. 30, No. 1., pp. 150-156.
- Steiner, Phillippe (2003) Physiocracy and French Pre-Classical Political Economy in eds. Biddle, Jeff E, Davis, Jon B, & Samuels, Warren J. A Companion to the History of Economic Thought. Blackwell Publishing, 2003.
- The History of Economic Thought Website, The New School of Social Research. 6 Feb. 2006
- Tableau Économique - Modern view