The Development of Economics

CHAPTER IV

THE PHYSIOCRATIC SYSTEM

A. The Origin of the Physiocratic School

The founders of the physiocratic school were the Marquis de Mirabeau and Francois Quesnay. The writers and the events which we have discussed in the preceding pages prepared the way for these men, and the former, especially Cantillon, anticipated some of their fundamental doctrines.

I. Mirabeau.

Mirabeau’s life (October 4, 1715 to July 13, 1789) bridged the gap between the death of Louis XIV and the outbreak of the Revolution. After some service in the Army, in 1734 he succeeded to his father’s title and estates and to the social prestige and influence which these involved. He early “cherished the ambition of becoming a great philosophical statesman,” and to this end gave a large amount of his attention and energy to public matters. He possessed considerable literary and oratorical ability and a personality magnetic in an unusual degree. He had great family and social pride and remarkable courage and sincerity. With tact he was not so well equipped.

This book was exceedingly popular and attracted the attention of François Quesnay, then physician to Madame de Pompadour, who solicited with its author the interview which resulted in the founding of the physiocratic school.

2. François Quesnay.

Quesnay came from peasant stock and lived on a farm during the first seventeen years of his life. He was then apprenticed to an engraver in Paris, where he subsequently studied and practised medicine, in which profession he attained sufficient rank and reputation to enable him to receive the appointment of court physician at first to Madame de Pompadour and later to the king. He was not fitted for or interested in the life of the court, however, where he was regarded “as a harmless eccentric with a mania for agriculture,” and the duties of his position occupied little of his time. He therefore had abundant leisure for reading, study and reflection. His interest in agriculture persisted in spite of his immediate environment and occupation and his mind appears to have been occupied more and more with that subject.

The records of his thinking are too meager to enable one to determine the precise evolution of the ideas for which he became famous. Two articles, entitled respectively “Fermiers” and “Grains,” which he contributed to the Encyclopédie of Diderot and D’Alembert in 1756 do not suggest or foreshadow them, but they indicate that his thinking on economic subjects was in process of change and that he was familiar with the economic writings of his time, including Cantillon’s essay.

It seems probable that the doctrines developed gradually during a long period of time and that their formulation was stimulated by the perusal of l’Ami des hommes and the discussion which began with the above-mentioned interview with its author. Their publication in a monograph entitled Tableau économique was doubtless occasioned by the situation in which the government found itself at the end of the year 1758.

In the Tableau économique Quesnay presents in the form of a table followed by explanations and comments his idea of the way in which wealth circulates among the different classes of society. He takes the hypothetical case of a society in which 600 livres are annually expended in raising products from the soil. He calls this sum the annual advances to agriculture. Then he adds the following five hypotheses: (1) that the expenditure of these 600 livres will result in a product of 1,200 livres, that is, that this expenditure will reproduce itself with a profit of 100 per cent; (2) that the 600 livres of profit will go to the proprietors of the land and will be expended one half in purchases from the cultivators and one half in purchases from the industrial class; (3) that that part of the net profits, or 300 livres, which passes through the hands of the industrial class will be expended by them without producing any profits, that is, that its expenditure results in 300 livres of produce and no more; (4) that the industrial class expends one half of what it receives on itself and the other half in purchases from the cultivator class; and (5) that the cultivator class expends one half of what it receives on itself and one half on the industrial class. On the basis of these hypotheses the following table was constructed:

Production expenditures	Expenditures of revenue or profits	Sterile expenditures
Annual advances of 600 livres produce net revenue of	600 livres
300 livres reproduce net	300 livres	300 livres
150 livres reproduce net	150 livres	150 livres
75 livres reproduce net and so on until a total of	75 livres	75 livres
600 livres reproduce	600 livres	600 livres

In this manner Quesnay aimed to show that a capital of 600 livres used in the manner indicated would reproduce double itself and that this process of expenditure could be repeated indefinitely with the same results. Change these figures, however, and the results would be very different. For example, if the proprietors and the industrials should expend upon agriculture less than one half of what they receive, the annual advances to agriculture would not be completely replaced, and it would necessarily decline, the income of the proprietors would progressively decrease, and there would be less to expend upon the industrial class. On the other hand, if the proprietors and the members of the industrial class should expend upon the cultivator class more than one half of their receipts, more than the annual advances to agriculture would be returned to the cultivator class, the income of the proprietor class would increase, and there would be more to expend upon the industrial class. Under the former conditions there would be a progressive decrease in the wealth of society and under the latter, a progressive increase. The proper adjustment of these expenditures, therefore, is of primary importance to the well-being of a nation.

At the close of his explanations he names eight causes of maladjustments of these expenditures and hence of the decadence of nations. They are the following:

1. Bad forms of taxes which make inroads upon the advances of the cultivators. The motto here should be Noli me tangere.

2. Excessive costs for the collection of taxes.

3. Excessive expenditures for decoration.

4. Excessive expenditures for litigation.

5. Defective foreign commerce in the products of the soil.

6. Lack of liberty of domestic commerce in the products of the soil.

7. Personal vexations inflicted on the inhabitants of a country.

8. Failure to return the net annual product to agriculture.

Appended to the Tableau are twenty-three short numbered sections following the heading Extrait des Oeconomies Royales de M. de Sully. This title is a misnomer, since these paragraphs are in no sense extracts from anything written by Sully. They are comments suggested by the Tableau regarding what should and should not be done. In them the author recommends freedom of commerce both internal and external, on the ground that interference will increase the price of non-agricultural at the expense of agricultural products and thus decrease the amount available for reproduction. He warns against the danger of interpreting large mercantile profits and a favorable balance of trade as necessarily indicating profitable commerce to a nation. He recommends that taxes be levied directly on the income of proprietors and not on products, on the ground that thus the expenses of collection will be at the minimum, the productive funds of the country will be left intact, and commerce will be left unimpeded. He urges that expenditures on commodities that directly increase the demand for raw produce be encouraged by the government and expenditures on what he calls decoration be discouraged. He warns against the encouragement of what he calls “money fortunes” made in any other fields than agriculture and manufactures, on the ground that their overdoing is sure to interfere with the proper circulation of the nation’s wealth to the injury of agriculture. He urges that the interests of the common people need the attention of royalty and that their ease and comfort should never be infringed.

By the Physiocrats themselves the Tableau was regarded as a wonderful production and its author as a great genius. Mirabeau lauded it to the skies. Upon outsiders, however, it did not make a great impression. Elaboration and explanation were needed in order to reveal its real significance. It contained the germs of many doctrines which it did not clearly state and which it did not even suggest to many people. These were fully developed later on by the author himself and by other members of the school. To the end, however, it remained the bible of physiocracy, and some things were doubtless read into it which did not occur to the author when he wrote it.

B. Development of the School

Quesnay and Mirabeau strove valiantly to convert to the new doctrines as many people as possible, especially influential ones, and to this end, after they had succeeded in a considerable number of instances, conducted a periodical and a school and near the close of the year 1767 formed themselves into a society which regularly held weekly meetings at Mirabeau’s house. The most prominent and active members of the group were: Dupont de Nemours, a neighbor of Mirabeau and an author of some note; Abeille, Secretary of the Agricultural Society of Brittany; Mercier de la Riviere, a councilor of one of the departments of the Parliament of Paris and one time Governor of Martinique; Baudeau, editor of a journal modeled after Addison’s Spectator, called Ephémérides du citoyen; and Le Trosne, a lawyer of some note. Turgot, who filled at different times high positions in the government service, including that of Minister of Finance, was not, strictly speaking, a member of the school since he did not take part in the activities of the group, but he adhered to their doctrines and so far as possible was guided by them in his public activities.

They also tried to extend their influence throughout the world. To this end they used agricultural and other societies in the provinces and sent letters and representatives to Catherine II of Russia, Carl Friederich of Baden, Gustavus III of Sweden, Leopold II of Tuscany (afterwards Emperor of Austria), Charles III of Spain, the Emperor Joseph II, and Ferdinand of Naples. They also corresponded with authors, scientists, and other intellectuals and with the brilliant and influential women of the time.

C. Doctrines of the School

After the publication of the Philosophie rurale, in which the doctrines of the school were expounded in a systematic, formal, and extended manner, several other important books and a large number of less important writings appeared. Of the books Mercier de la Rivière’s l’Ordre naturel et essential des sociétés and Dupont’s Physiocratie, both published in 1767, and Turgot’s Réflexions, published in 1769, are the most noteworthy. Most of the lesser writings appeared in the Journal de l’agriculture du commerce et des finances and the Ephémérides du citoyen, periodicals conducted at different times by the school and edited by Dupont and the Abbé Baudeau.

In these writings was developed an organized body of doctrines which marks the beginning of the science of economics. It may be briefly summarized as follows:

There is a natural order for the economic affairs of men which, if observed and conformed to, will secure their well-being. This order is obvious to intelligent people but must nevertheless be discovered, and when discovered, will be spontaneously followed for the reason that people will see its advantages and self-interest will prevent its violation. God, who has ordained this order, has endowed the human race with land which possesses the peculiar property of being able to produce more than is expended in the process of its cultivation. The excess, called the produit net, is the fund from which all classes of society except cultivators must live, since in no department of economic activity except agriculture is there a similar surplus. Manufacturing simply mixes and combines already existing materials, and commerce transports them from place to place and passes them from hand to hand without adding anything to them. The change in price or value which takes place during these processes is exactly offset by what is consumed during them. All classes except landlords and cultivators, who conduct the operations of agriculture, are therefore sterile.

Revenues for the support of government must come from this produit net, since there is no other source from which they can come. If taxes were levied upon the cultivator class, either their advances would not be returned to them, and the succeeding product would be correspondingly diminished to the impoverishment of all, or they would pay correspondingly less to the proprietors, whose income is the produit net; if levied upon the sterile classes, either they would needs buy less from the cultivators with the same result in the diminution of their annual advances as has just been indicated, or they would needs raise the price of their products to such an extent as to shift the payment ultimately to the proprietors.

Since, therefore, the support of the state must be borne by the produit net, taxes should be levied directly on and paid directly by the proprietor class to whose hands that fund flows directly from the soil where it is produced. Another reason assigned for requiring the proprietors to pay all the taxes is the coproprietorship in the land which belongs to the sovereign. That he is a coproprietor was not only a tradition handed down from feudal days but was a consequence of the fact that the state really contributes to the avances primitives, the advances made by proprietors in originally preparing the soil for cultivation and in maintaining and improving its fertility. It does this through the construction and maintenance of roads, bridges, canals, and other public works essential to the prosperity of agriculture.

While they declared both commerce and manufactures to be unproductive, they nevertheless regarded them as advantageous if kept within proper limits. As phases of the division of labor they enabled cultivators to concentrate their efforts upon the raising of crops and therefore were useful and worthy, though not necessary, occupations. Only the direct commerce between merchants and cultivators and proprietors, however, was desirable in their eyes. Buying in order to sell again, or traffic, as they called it, was harmful because it results in the absorption of an unnecessary amount of wealth by the mercantile class. They also held that commerce should be entirely free and untrammeled by obstructions of any kind on the ground that free competition between merchants is essential to the maintenance of proper prices. This principle should apply to international as well as domestic commerce, since the natural order knows no distinction of frontiers and implies freedom for each one to buy or sell as he pleases regardless of whether he is trading within or without the country.

The only exception to this principle of freedom of trade—if loaning money be classed as trade—is the prohibition of interest, in all cases except that of loans for use in agriculture, recommended by most of the Physiocrats on the ground that all other loans are unproductive. To this exception, however, Turgot did not agree, on the ground that to prohibit interest is to prohibit loans, since the owners of capital, being always able to purchase profit-yielding land with it, would never loan to others without an equivalent remuneration.

The Physiocrats also assigned important functions to the state, which they believed should be represented and controlled by an absolute monarch. While they held that the natural order imposes itself upon all who understand it by virtue of its own inherent superiority and that intelligent people recognize this superiority and conform themselves to it as soon as they understand it, all people are not intelligent, and even intelligent people need to be educated. The Physiocrats, therefore, assigned to the state the duty of furnishing the instruction necessary to the comprehension of the natural order and the spreading of information concerning it and of guarding it against the machinations of the ignorant. This order also requires the construction and maintenance of public works, such as roads, bridges, harbors, etc., which all persons need and use and which the state, who represents and acts for all, should supply.

D. Decline of the School

Fate and fortune seemed also to be against it. Almost immediately after the issue of the edict of 1766 establishing freedom of commerce in grain with foreign countries, the price of corn rose to such an extent that people began to complain and in some places to riot. This rise was attributed to the edict rather than to the poor crops of the year, and the Physiocrats were held responsible for the edict.

From the year 1767 on there was an anti-physiocratic party which grew steadily stronger and stronger. It debated doctrinal points with the Physiocrats and contended with them for influence with the government regarding especially the matter of corn duties. It succeeded in 1770 in securing a repeal of the edict of 1766. With the accession of Turgot to the cabinet in 1774 the pendulum swung in the other direction for a time, but only to return in 1776 with sufficient force to sweep Turgot from office as well as to secure the repeal of the edict for freedom of importation of corn which he issued in 1774.

The publication of The Wealth of Nations in 1776 dealt the finishing blow to the influence of the school. On both the doctrinal and the practical side this book was superior to anything the Physiocrats had written, and this fact speedily obtained public recognition. It was destined to serve as the textbook of Europe in political economy for at least a generation, and though the physiocratic school did not formally disband for many years, its importance and influence rapidly declined.

Footnotes

1 Georges Weulersse, Le mouvement physiocratique en France (Paris, 1910), I, 34.

2 Ibid., I, 54.

3 l’Ami des hommes, ed. of 1758, p. 13.

4 The history of this little book, including the various forms in which it subsequently appeared, is given by Higgs in The Physiocrats, pp. 42 and 43. See also Weulersse, op. cit., I, 69 and 70.

5 See Weulersse, op. cit., I, 27 and 28, 47 and 59.

6 Ibid., I, 85.

7 See Charles Gide and Charles Rist, A History of Economic Doctrines, translated by William Smart and R. Richards (Boston: D. C. Heath & Co., 1915), pp. 22 et seq.

8 See Ibid., pp. 40 and 41.

9 Weulersse, op. cit., I, 148-154.

• 1Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 2Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 3The industrial organization of the towns was also gradually weakened by conflicts of interest between townsmen themselves and the oppression of the weaker trades by the stronger, and by the growth of domestic industries. Increasing interference of the central government in town affairs was invited by these conditions, and the power of resistance to it was weakened. The growth of a merchant class in London and some of the other large towns also contributed to the same result. The interests of this class extended beyond the boundaries of the town in which they lived and were promoted by the breaking-down of local trade barriers. The power of this class grew rapidly in and after the sixteenth century.
• 4By the seventeenth century a national commercial and industrial organization had developed, the chief organs of which were middlemen who intervened between producers and consumers and between different classes of producers. Among those of chief importance were the wool-staplers, the clothiers, the drapers, and the foreign trading companies. The wool-staplers purchased the farmers’ wool, their most important staple, and sold it to manufacturers or foreign merchants. The clothiers acted as middlemen between the carders, spinners, weavers, and other handicraftsmen engaged in transforming the wool into cloth. They purchased the wool from the staplers, delivered it to the carders and spinners, distributed the yarn among the weavers to be woven into cloth, and then placed the cloth in the hands of the “fuller,” “walker,” or “tucker” to be fulled and cleansed. The spinners, carders, weavers, and fullers were scattered throughout the hamlets and villages as well as the cities of the country, in many, perhaps most cases, doing agricultural work as a main or a side occupation. The drapers purchased the cloth and sold it to consumers or to foreign merchants; some of them were themselves connected with one of the trading companies. Foreign commerce was chiefly carried on by these latter organizations, to each of which a charter had been granted conferring the exclusive right to trade in a specified part of the world. The Eastland Company, for example, had the exclusive right to trade with Scandinavia and the Baltic region; the Russian Company, with Russia; the Merchant Adventurers, with the Netherlands; the Levant Company, with the Mediterranean region; the Guinea or African Company, with Africa; the East India Company, with the countries of Asia; and several other companies with portions of the American field. At the beginning of the seventeenth century France, Spain, and Portugal were the only countries with which trade could be carried on by an Englishman not a member of one of the companies.
• 5The literary remains of Colbert are of the same general character as those of Sully in that they consist of letters, instructions, and memoirs. They differ from Sully’s, however, in the extent to which they reflect mercantile doctrines. Colbert was the chief executor of the mercantile policy of France, and among his letters, instructions, and other papers may be found expositions and defense of nearly every feature of it. Much more completely than the English writers he reflected the doctrines of nationalism and of the entrepreneur relation of the state to industry. To a greater extent than in any other country these doctrines were realized in the practices of France during the reign of Louis XIV, and for this fact Colbert was largely responsible. Louis XIV aspired to be not only absolute sovereign in France but the dictator of Europe, and he fully realized that foreign commerce and command of the world’s supply of the precious metals would assist in the accomplishment of his purposes.
• 6Becher was at one time a court physician and professor of medicine in Mainz, whence he went to Wurzburg, and later to Vienna. At the two latter places, he was connected with the carneræ of the reigning sovereigns. He wrote on natural science as well as Kameralwissenschaft, his chief work in the latter field appearing at Frankfurt in 1668 under the title Politische Discurs von den eigentlichen Ursachen des Auf- und Abnehmens der Städte, Lander und Republiken, in specie, wie ein Land Volkreich und Nahrhaft zu machen und in rechte Societaten civilen zu bringen. In this book he defines a city as eine volkreiche, nahrhafte Gemeine and defends the following fundamental propositions: The more populous a city, the more powerful it is; but in order to be populous, it must be supplied with an abundance of nourishment; the membership of a community consists of (a) those who serve it and are supported by it, for example, government officers, clergy, learned men, physicians, apothecaries, soldiers, etc.; and (b) those who really constitute it, namely, peasants, handicraftsmen, and merchants. These three classes are essential each to the other. In explaining their mutual relations, however, he makes the following argument: “Consumption is the soul of the three classes, the only bond which holds them together and enables them to live by each other. It is on account of consumption that the merchant class is so necessary in a community, however large the peasant class may be. . . . Since the nourishing of a community can only be accomplished through the trading [Verhandlung] and turning into money [Versilberung] of goods . . . everything which hinders these operations hinders and weakens the populousness which results from it.”
• 7Wilhelm Freiherr von Schroder was in the service of Austria as conductor of a factory according to plans outlined by Becher. He wrote several books, the most noteworthy of which was entitled Fürst-liche Schatz und Rentkammer, which was published in 1686. He was a strong advocate of absolute monarchy and admirably set forth the mercantilistic view of the relation of a sovereign to his people, in the following passage: “A Prince is like a housefather. Now a housefather must fertilize and plough his fields if he would reap a harvest therefrom. He must well stock his pond if he would have fish. He must feed his cattle if he would slaughter them, and well fodder his cows if he desires them to give much milk. Thus a Prince must first help his subjects to a good living, if he wishes to take anything from them.”
• 8In the Détail he gives a discussion of the relation between money and wealth in which he says: “As gold and silver are not and never have been wealth in themselves and are valued only in relation to other things necessary to life,—to which things they serve only as a guarantee and a measure of value,—it is a matter of indifference whether we have much or little of them, provided the same results are produced.” That the same results are produced by much or little he attempts to prove by the following: “Thus we learn from the old accounts that in 1250 a laborer in Paris, who to-day earns 40 or 50 sous a day, earned only 4 pennies a day, 12 one-hundredths part of what he earns now. Nevertheless he then lived with as much comfort as now because all things were in proportion. He satisfied his wants with his four pennies as well as one of the same trade now does with his 50 sous. It follows that a man who at that time had a thousand livres of rent was as rich as one who at present has one hundred thousand.”
• 9In other connections he says: “It is very certain that it [money] is not a good in itself and that the quantity of it does nothing for the opulence of a country in general provided there is enough of it to sustain the prices of the goods necessary to life.”