Physiocrat Economic Throught

1.0 INTRODUCTION

Physiocracy is the earliest theoretical system of bourgeois political economy. The physiocrats appeared in France from 50-70 years of the 18th century and toward the end of the mercantilist epoch. Physiocracy is a school of through founded by François Quesnay (1694-1774), other representation of Physiocrats beside Quesnay is Anne Robert Jacques Turgot (1727-1781). The school began in 1756 when Quesnay published his first article on economics in Grande Encyclopedia. The ending of this school can be dated at 1776 because Turgot lost high position in the French government and Smith published his Wealth of Nations. They system illustrates the basic view of French classical political economy, especially on the viewpoint on the development of the capitalist agricultural economy.

Physiocracy is derived from the Greek phýsis (nature) and kràtos (power) for “Government of Nature”. According to “The Wealth of Nations” by Adam Smith, the physiocrats believed that land production or land agriculture work as the main source of national income and wealth and named this as “Agriculture System”. Physiocrats stated that manufacturing balanced inputs with outputs, resulting in a zero-income. Therefore, the Physiocrats argued that manufacturing should not be protected by tariffs, the granting of monopolies or any government intervention on behalf of the manufacturing industry. They strongly believed that the best economic system came from laissez-faire. The physiocrats also had some thoughts in common with other Enlightenment thinkers and trusted that only agriculture produced a true surplus.

2.0 THE PHYSIOCRACY OF HISTORICAL CONDITIONS

From the aspects of economy:

In the middle of 18th Century, the French business has been considerable development, the number of workers is increasing rapidly, but the feudal relations of production are in the dominating position. In rural, the feudal lords exorbitant tax levies, depredation of farmers, as well as at the expense of farmers and the development of industry and commerce of the mercantilist policies. It is a serious damage to the interests of farmers. The agriculture in extreme fading the rundown situation and the decline of agriculture have also the development of industry and commerce.

From the aspects of politics:

French is in the period of preparation for bourgeois revolution. There have a very sharp of class conflicts and the storm of revolution be triggered at any moment. The bourgeois, workers, farmers increasingly fierce struggle against the feudal. All this is brewing the anti-feudal revolutionary storm.

From the aspects of thought:

At the moment, French enlightenment thinkers mercilessly criticized the feudal system, their theory especially the “natural order” thought that they proposed. It is the philosophical basis of Physiocracy.

From the aspects of economic theory and policy:

Started by Boisguilbert, French classical political economics with the mercantilist struggle does not end, the mercantilist still dominated the French economic policy. At the meantime, the French rulers accepted John∙Romanis’s economic thoughts and policies.

The economy became the most serious problems in French society and also the intellectual hub of the discussion. Some thinkers, even Quesnay as court physician, also attached importance to the research of the problem of economy. Quesnay inherited Boisguilbert’s thought, to find a way out from agriculture, therefore resulted the physiocratic doctrine in French. The purpose of this doctrine is an attempt to solve the French feudal economic difficulties, in facts, adapted to the requirements of the French bourgeoisie capitalist production. Physiocracy is produce when the feudal system is perishing and the mercantilist declared bankruptcy ruins.

3.0 THE FOUNDER OF PHYSIOCRACY

François Quesnay (1694-1744) , the founder and leader of the physiocratic school. He was born into a family of land proprietor from Méré, near Versailles, and he had many siblings so he only received little formal education. Quesnay trained to be a physician, he made a fortune through his skill in medicine and surgery. His speciality on the circulation of blood in human body, and he wrote treatises on bleeding and gangrene, his contributions on medical theory had make him won many of admirers.

By the time, Quesnay turned to economics when he was in his 60s. He had gained his reputation in his career to help him to won a valuable protection, finally Quesnay became the court physician of Louis XV and Madame de Pompadour, who was keen to cover him from the machinations of the court. At there, the career of Quesnay as an agriculturalist and economist was began. In 1750, he met Gournay which he is a conscientious inquirers in the economic field and soon Quesnay became more interested in economics than medicine. Quesnay and his cohorts hoped to transform the king into an “enlightened despot” as the instrument of peaceful reform. In 1756, Quesnay was published two articles which is “Fermiers” and “Grains” in the encyclopedia of Diderot and D’Alembert and noted that small farms were incapable in productive methods; he favoured large farms managed by “entrepreneurs”, thereby anticipating the large agricultural enterprises that have emerged in our time.

Quesnay believed the society wan analogous to the physical organism. The circulation of wealth and goods in economy was like a circulation of blood in the body. Both conformed to the natural order, and both could be understood though thoughtful analysis. In 1758, Quesnay published his famous Tableau Economique , it provided the ideological foundation of the Physiocrats, which constructed for the king of France. This was the 1st systematic analysis of the flow of wealth in economy. Some economists like Smith, Marx, and Keynes, who also described economic activities in terms of large aggregates, praised Quesnay for originating this approach.

Beside focusing on the money circulation, equally remarkable, the Physiocratic system based on a clear analysis of the structure of French society.

4.0 The main components of Physiocracy

4.1 Concept of the “Natural order”

The physiocrats introduced the idea of natural order to economic thinking. The term of physiocrat itself means “rule of nature”. According to this idea, the social and economic world is governed by natural laws. The natural order is created by God. All human activities therefore should be brought into harmony with these natural laws. In the economic field, the law of nature conferred to individuals the natural right to enjoy the fruits of their own labour, the right to acquire property through labour, the right to survival and etc. These law will ensure the happiness of mankind if we followed.

4.2 Concept of “Net product”

The doctrine of the Net product is the core and cornerstone of the Quesnay economic theory system. In the order of nature, even though under the free trade conditions, only something with the equal value to each other in order to exchange. According the reaction to the mercantilistic, mercantilists concluded that the wealth is created by the process of exchange (International exchange) , but the physiocrats figure out that the origin of wealth only can be found in the field of production or agriculture. In the process of agriculture, the value of product in addition to compensation for the cost of various elements using in the process of productions like seed, worker, machinery, and the annual harvest will provided an excess, a surplus was generated. The physiocrats called this surplus as “Net product” or “Natural product”. The value of new agricultural products has been able to exceed the production of the product, this is due to the role play of natural forces or land in agriculture.

According the agriculture process, the value of goods can pay for the costs for all factors of production, except land. This is because land is productive in physiocratic meaning of term, it produce surplus over the cost of their use. Only land is productive factor in agriculture and only agriculture is the productive sector in economy. Other sectors such as trade and manufacturing are consider as Sterile, which are not productive. They (others factors of agriculture and other sectors in economy) are necessary for other objectives in economy, they are important in economy, but they are not the source to bring wealth to economy field. Where manufacturing covers up all the costs of inputs but does not produce a surplus (Sterile). Again, the physiocrats called that the surplus created by the production of land as net product. Which other non-agricultural economic activities (manufacturing or trade) were considered as sterile, because they were non-productive and created no net product.

4.3 The analysis contained in the Tableau Economique

Quesnay Tableau Economique is an analytical “model” of the economy. The tableau set out 3 social classes, which are landowner, farmers and artisans. It assumes that only agriculture can used to produces a surplus and artisans are sterile which cannot produces a surplus. The concepts of agriculture and sterile expenditure flows were used by this tableau. In addition, the tableau shows the circulation of moneys and goods in the economy, the interdependence of three social classes and the important roles of agricultural activities.

4.4 Policy Implications and The Proposals

According to the concepts of the physiocratic school, the physiocrats believed that the best economy system is laissez-faire, which is a system that allowed the economy grows freely without government interference. This interference included the convee, octrois, monopolies and others. The physiocrats also believed that farmers cannot sell their produce to the highest bidder without the exist of laissez-faire. The physiocrats thought that industry were useful but sterile which cannot produced a surplus, only agriculture produced a surplus. For example, the physiocrats believed that the landowner received in the form of rent, so only the landowner should be taxed. All taxes imposed on others would be passed on to the landowner anyway.

When land has been established as the origin of net product, the physiocrats believe that the wealth of society is measured by the land rent, which is the rent derived from land.

There are a relationship between agriculture and net product, which explained by Quesnay main economic work, Tableau Economique.

5.0 QUESNAY’S TABLEAU ECONOMIQUE

Tableau Economique is constructed by Quesnay for the king of France in 1758 and revised in 1766. Quesnay has been created a table which is different with others called “Formula of the Tableau Economique” published in his Analyse du Tableau Economique. To differentiate with others, it is abbreviation as Tableau Abrégé (abridged table).

The Tableau Abrégé describes the circulation between classes as a whole while the others tables describe the circulation between individuals belonging to each of the classes. The abridged table shows all of the circulation during a year of production accordance with the particular functions in the national economy.

Quesnay shown a quite complicated diagram of net product in the economy but after simplify it, the unnecessary is remove and the needed is still held on. Quesnay’s Tableau Abrégé in Analyse du Tableau Economique is shown in the diagram below:

The diagram shows the three sectors of society which are farmers, landowners and artisans. There is no others sector in the artisans such as foreign sector, government sector and manufacturing sector therefore the model is very abstract and simple. The circulation of capital in the farmers’ column is shown as the number 2 so that every year of the net product is 2 million pounds while the annual production is 5 million pounds and the costs of production is 3 million pounds.

The net product from the farmers is paid to the landowners as rent. So, the 2 million pounds go to the landowners’ column which is shown in the middle column. The artisans which are the sterile class have one million pounds circulation capital. It is shown as number 1 in the artisans’ column.

Start from the top middle of Quesnay’s economic table. The landowners had spent the last year’s net product of 2 million pounds to buy agricultural goods (food) from farmers and luxury goods from artisans for another 1 million pounds. In the diagram has shown that the line A and B are represented the landowner column toward to the column of farmers and artisans. Then, artisans buy food from the farmers for 1 million pounds which is represented by line C in the diagram.

Farmers reorganize their capital to buy manufactured goods from artisans for 1 million pounds which represented by line D. At last, artisans had spent the 1 million pounds which received from the farmers to reorganize their circulation of capital which shown as line E. As conclusion, the landowners had spent all the money that it received to buy food and luxury goods from the artisans.

This is the nature of the tableau economic of Quesnay which had shown how the natural product is generated in the economy and how goods and money circulate between the 3 different sectors in the economy.

6.0 RELATIONSHIP OF QUESNAY’S TABLEAU ECONOMIQUE AND PHYSIOCRATS ECONOMIC THROUGHT

In economics is still its infancy, France is attach important to mercantilism compare physiocrat. Quesnay’s economic table can be regarded as a creative and excellent attempt, this gives economists a chance to explore on capitalist macroeconomic analysis. Marx was mentioned Physiocrats and Quesnay in his works, and give a high rating on Quesnay’s Economic table. Marx detailed analysis on the circulation between the tenant farmer and landowners, the circulation between capitalists and workers and the circulation between the tenant farmer and industrialists by using Quesnay’s economic table.

In Physiocracy, the physiocrats believe Quesnay’s economic table can be their main theoretical results. Quesnay’s Tableau is crude, easy but made clear on two main things. Firstly, the table is represents the liquidity of monetary incomes between different fields of the economy. Secondly, it shows the establishment and annual flow of net products in the entire of economic.

Quesnay’s Tableau Economique can be considered as the first and easier macroeconomic model of the economic in history of thought. It is a remarkable attempt that using abstraction to analyse the economic reality and an important advanced methods in the development of economics. The physiocrats using the table as an abstract model to analyse the relationship between different sectors of the economy, they also attempts to quantify the sensitivity of various changes to the economic system. According Quesnay’s example, if a tax of 25000 pounds were imposed on both sectors (farmers and artisans),this will resulting the annual product in agriculture decreasing from 2 million to 1.95 million. A decline of 50000 pounds of net product due to the effect of taxes of 25000 pounds. This will cause a recession of economic on the following year because of less output would be produced.

Moreover, Quesnay’s proved that a fall in productivity due to government intervention would reducing the output. Therefore, the physiocrats were tried to quantify the effects of various changes in economic system on the wealth and the output of country.

The physiocrats believed that the free competition in the market will led the best price and it will be conducive to the community. In addition, they thought that agriculture is the best source of a net product and the tax burden would ultimately depend on the land. For instance, the labour taxes will be transferred to the land due to competition has been to ensure that the pay of labour was at a lowest possible level of subsistence.

The physiocrats also believed that the presence of the natural order is better than any possible human design, they envision economy is greatly self-regulating and denied the mercantilist system control.

The appropriate role of the government to follow the policy of laissez-faire, which means ” let people do as they please without government interference.” Government should never extend their interference in economic affairs beyond the minimum absolutely essential to protect life and property and to maintain freedom of contract.

According Adam Smith and classical economists says, laissez-faire is an extremely important policy in shaping the ideological of Western civilization. Which physiocratic economic policy insisted that the main barriers to economic growth proceeded from the mercantilist policies of local and foreign trade regulations. They opposed especially to the mercantilists tax system and proposition that a unitary tax imposed on land. They also advocated to abolish all other taxes and fees.

But , In 18th century, the agricultural sector begins to lose its central role in the European Economic due to the impact of the Industrial Revolution. Thus, manufacturing and industry sectors replace the role of agriculture and become the most important sectors of the economy.

7.0 SUMMARY

Nevertheless, the physiocrats made several lasting contributions to economics.

The core of the theoretical model include the following ideas: Agriculture was the only productive sector; the concept of net product, its circulation through the Tableau Economique and, accordingly the defence of a single tax and of free trade. But on the way, the physiocrats proposed a theory of value and advanced important economic concepts such as capital and economic interdependence. At the same time, the economic policy they proposed can be seen as an alternative to the policies of the mercantile republics, or to those of the manufacturing nations(such as England) which they saw as nations of trade.

Physiocracy is one of the first attempts to build economic science, and as such is one of the ancestors of present day economics. Both the complete theory and some of the tools its advocates used can be interpreted in terms of modern economic theory, and some of the ideas they developed likes the economic interdependence of the sectors, the idea of a circular flow of income and the concept of the capital remain with us today.