Physiocrats

Physiocrats

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Physiocracy 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
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...

" or "land development." Their theories originated in France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...

 and were most popular during the second half of the 18th century. Physiocracy is perhaps the first well-developed theory of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

.

The movement was particularly dominated by François Quesnay
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

 (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781). It immediately preceded the first modern school, classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....

, which began with the publication of Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...

's The Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...

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
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...

, which often focused on the ruler's wealth, accumulation of gold, or the balance of trade
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports of output in an economy over a certain period. It is the relationship between a nation's imports and exports...

. A chief weakness from the viewpoint of modern economics is that the theory 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
David B. Danbom
David B. Danbom is a historian, author, columnist, and retired professor of agricultural history at North Dakota State University. Danbom spent nine years on the Fargo Historic Preservation Commission...

 explains, "The Physiocrats damned cities for their artificiality and praised more natural styles of living. They celebrated farmers." They called themselves économistes
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

, but are generally referred to as physiocrats in order to distinguish them from the many schools of economic thought that followed them.

Precursors


Physiocracy is an agrarianist
Agrarianism
Agrarianism has two common meanings. The first meaning refers to a social philosophy or political philosophy which values rural society as superior to urban society, the independent farmer as superior to the paid worker, and sees farming as a way of life that can shape the ideal social values...

 philosophy which may trace its origins to various sources. During the latter period of the Roman Republic
Roman Republic
The Roman Republic was the period of the ancient Roman civilization where the government operated as a republic. It began with the overthrow of the Roman monarchy, traditionally dated around 508 BC, and its replacement by a government headed by two consuls, elected annually by the citizens and...

, the dominant senatorial class
Roman Senate
The Senate of the Roman Republic was a political institution in the ancient Roman Republic, however, it was not an elected body, but one whose members were appointed by the consuls, and later by the censors. After a magistrate served his term in office, it usually was followed with automatic...

 was not allowed to engage in banking or commerce but relied on their latifundia
Latifundia
Latifundia are pieces of property covering very large land areas. The latifundia of Roman history were great landed estates, specializing in agriculture destined for export: grain, olive oil, or wine...

, large plantations, for income. They circumvented this rule through freedmen proxies who sold surplus agricultural goods.

After the decline of the Roman Empire
Decline of the Roman Empire
The decline of the Roman Empire refers to the gradual societal collapse of the Western Roman Empire. Many theories of causality prevail, but most concern the disintegration of political, economic, military, and other social institutions, in tandem with foreign invasions and usurpers from within the...

, de-urbanization led to commerce and trade ceasing to exist throughout most of western Europe. Economies became centered around agricultural manors
Manorialism
Manorialism, an essential element of feudal society, was the organizing principle of rural economy that originated in the villa system of the Late Roman Empire, was widely practiced in medieval western and parts of central Europe, and was slowly replaced by the advent of a money-based market...

 where warrior-landlords, the Medieval nobility
Nobility
Nobility is a social class which possesses more acknowledged privileges or eminence than members of most other classes in a society, membership therein typically being hereditary. The privileges associated with nobility may constitute substantial advantages over or relative to non-nobles, or may be...

, collected rent from their serfs in the form of their produce. This was the dominant economic system until trade began to return in the Late Middle Ages
Late Middle Ages
The Late Middle Ages was the period of European history generally comprising the 14th to the 16th century . The Late Middle Ages followed the High Middle Ages and preceded the onset of the early modern era ....

 leading to the rise of the merchant class.

Another inspiration came from China's economic system, then the largest in the world. Most Chinese were divided into four occupations
Four occupations
The four occupations or "four categories of the people" was a hierarchic social class structure developed in ancient China by either Confucian or Legalist scholars as far back as the late Zhou Dynasty and is considered a central part of the Fengjian social structure...

 with scholar-bureaucrats
Scholar-bureaucrats
Scholar-officials or Scholar-bureaucrats were civil servants appointed by the emperor of China to perform day-to-day governance from the Sui Dynasty to the end of the Qing Dynasty in 1912, China's last imperial dynasty. These officials mostly came from the well-educated men known as the...

, who were also agrarian landlords
Gentry (China)
As used for imperial China, landed gentry does not correspond to any term in Chinese. One standard work remarks that under the Ming dynasty, called shenshi or shenjin, meaning variously degree-holders, literati, scholar-bureaucrats or officials, they are loosely known in English as the Chinese...

, on top and merchants on the bottom because they did not produce but only distribute goods made by others. Leading physiocrats like François Quesnay
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

 were avid Confucianists
Confucianism
Confucianism is a Chinese ethical and philosophical system developed from the teachings of the Chinese philosopher Confucius . Confucianism originated as an "ethical-sociopolitical teaching" during the Spring and Autumn Period, but later developed metaphysical and cosmological elements in the Han...

 that advocated China's agrarian policies.

History


Pierre Le Pesant, sieur de Boisguilbert
Pierre Le Pesant, sieur de Boisguilbert
Pierre le Pesant, sieur de Boisguilbert or Boisguillebert was a French economist and a Jansenist, one of the inventors of the notion of an economical market....

 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
Homo economicus
Homo economicus, or Economic human, is the concept in some economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends...

 and markets are connected by money flows (i.e. 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
Vauban
Sébastien Le Prestre, Seigneur de Vauban and later Marquis de Vauban , commonly referred to as Vauban, was a Marshal of France and the foremost military engineer of his age, famed for his skill in both designing fortifications and breaking through them...

 proposed a system known as La dîme royale which suggested major simplification of the French tax code through switching to a relatively flat tax
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...

 on property and trade. Vauban's use of statistics marked a noted increase on empirical methods in economics from previous times.

During the periods around the Seven Years' War
Seven Years' War
The Seven Years' War was a global military war between 1756 and 1763, involving most of the great powers of the time and affecting Europe, North America, Central America, the West African coast, India, and the Philippines...

 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
Agronomy
Agronomy is the science and technology of producing and using plants for food, fuel, feed, fiber, and reclamation. Agronomy encompasses work in the areas of plant genetics, plant physiology, meteorology, and soil science. Agronomy is the application of a combination of sciences like biology,...

 and rational husbandry and the Journal du commerce (1759–1762), which was heavily influenced by the Irishman Richard Cantillon
Richard Cantillon
Richard Cantillon was an Irish-French economist and author of Essai sur la Nature du Commerce en Général , a book considered by William Stanley Jevons to be the "cradle of political economy". Although little information exists on Cantillon's life, it is known that he became a successful banker and...

 (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, de Gournay
Jean Claude Marie Vincent de Gournay
Jean Claude Marie Vincent de Gournay was a French economist and intendant of commerce, one of the creators of the laissez faire, laissez passer economic philosophy...

 (1712–1759) (who was the Intendant du commerce
Intendant
The title of intendant has been used in several countries through history. Traditionally, it refers to the holder of a public administrative office...

) 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
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

 (1694–1774), was among those publishing heavily in the journals that were appearing at the time.

Tableau économique


The Tableau économique
Tableau économique
The Tableau économique or Economic Table is an economic model first described in François Quesnay in 1759, which lay the foundation of the Physiocrats’ economic theories....

or Economic Table is an economic model first described by François Quesnay
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

 in 1759, which laid the foundation of the Physiocrats’ economic theories.

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.

Natural Order


The Physiocrats thought there was a "Natural order" that allowed human beings to live together. Men did not come together via a somewhat arbitrary "social contract
Social contract
The social contract is an intellectual device intended to explain the appropriate relationship between individuals and their governments. Social contract arguments assert that individuals unite into political societies by a process of mutual consent, agreeing to abide by common rules and accept...

". Rather, we have to discover the laws of the natural order that will allow individuals to live in society without losing significant freedoms.

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.” 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
Anne Robert Jacques Turgot, Baron de Laune
Anne-Robert-Jacques Turgot, Baron de Laune , often referred to as Turgot, was a French economist and statesman. Turgot was a student of Francois Quesnay and as such belonged to the Physiocratic school of economic thought...

 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.”

Overpopulation concern



The Physiocrats predicted that mankind would outgrow its resources: given the finite amount of land, it would not be able to support an endlessly increasing population.

People


  • Richard Cantillon
    Richard Cantillon
    Richard Cantillon was an Irish-French economist and author of Essai sur la Nature du Commerce en Général , a book considered by William Stanley Jevons to be the "cradle of political economy". Although little information exists on Cantillon's life, it is known that he became a successful banker and...

  • François Quesnay
    François Quesnay
    François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

  • Anne Robert Jacques Turgot
    Anne Robert Jacques Turgot, Baron de Laune
    Anne-Robert-Jacques Turgot, Baron de Laune , often referred to as Turgot, was a French economist and statesman. Turgot was a student of Francois Quesnay and as such belonged to the Physiocratic school of economic thought...

  • Jean Claude Marie Vincent de Gournay
    Jean Claude Marie Vincent de Gournay
    Jean Claude Marie Vincent de Gournay was a French economist and intendant of commerce, one of the creators of the laissez faire, laissez passer economic philosophy...

  • Victor de Riqueti, marquis de Mirabeau
    Victor de Riqueti, marquis de Mirabeau
    Victor de Riquetti, marquis de Mirabeau was a French economist of the Physiocratic school. He was the father of great Honoré, Comte de Mirabeau and is, in distinction, often referred to as the elder Mirabeau....

  • Honoré Gabriel Riqueti, comte de Mirabeau
    Honoré Gabriel Riqueti, comte de Mirabeau
    Honoré Gabriel Riqueti, comte de Mirabeau was a French revolutionary, as well as a writer, diplomat, freemason, journalist and French politician at the same time. He was a popular orator and statesman. During the French Revolution, he was a moderate, favoring a constitutional monarchy built on...

  • Pierre Samuel du Pont de Nemours
    Pierre Samuel du Pont de Nemours
    Pierre Samuel du Pont de Nemours was a French nobleman, writer, economist, and government official, who was the father of Eleuthère Irénée du Pont, the founder of E.I...

  • Pierre-Paul Le Mercier de La Rivière
  • Nicolas Baudeau
    Nicolas Baudeau
    Nicolas Baudeau was a Catholic cleric, theologian and economist, who was born in Amboise, France, on 25 April 1730. In 1765 he founded the first economics periodical to be published in France, Éphémérides du citoyen, and was at first an opponent of the physiocrats. Later on however he became a...