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Physicocracy

The Physiocrats, a group of 18th-century French economists, are often


credited with founding Western political economy the study of laws
governing the production and distribution of wealth.
The word law is not used in a legal sense. Rather it refers to a principle or
governing rule, much as one might speak of the laws of physics. The Greek
word physiocracy, from which the Physiocrats derive their name, means
government of nature. They believed that natural laws governed human
interaction in the same manner they governed every other aspect of reality;
they wanted legislation to reflect those natural laws. In short, the
Physiocrats advocated the natural rights of man and focused on applying
them to the realm of economics. In doing so, they constructed an integrated
system of economic theory.
Politically, the Physiocrats held that every person possessed identical
natural rights. Although individual capacities varied widely, every person
best knew his own self-interest and how to best use his own capacities.
Society or a nation consisted of the individual persons within it, and the
social union was the agreement or contract between those persons, which
had the goal of restraining violations of natural right. Government was a
necessary evil for the purpose of securing the rights of contract and private
property. The essence of the Physiocrats theory of government was
expressed in the phrase laissez-faire, laissez-passer (let us alone, get
out of the way), which has been attributed to the Physiocrat Jean C.M.V.
de Gournay.
The French statesman and political economist Frdric Bastiat wrote of the
Physiocrats, The basis of their whole economic system may be truly said
to lie in the principle of self-interest. The only function of government
according to this doctrine is to protect life, liberty, and property.
The emphasis on individual persons, free trade, limited government, and a
social contract made the Physiocrats a significant voice for change. Owing
partly to their dry and dogmatic style, however, they never enjoyed
grassroots popularity. Instead, their influence was exerted on fellow
intellectuals of the day, including the philosopher and mathematician the
Marquis de Condorcet and the Marquis de Mirabeau (Mirabeau the elder).
Even that influence was fleeting, lasting only a few decades, roughly from
the mid to late 1700s, after which it was swept away by the French
Revolution (1789).
The schools most important legacy was to be a forerunner to classical
liberalism, especially through its personal impact on Adam Smith. The
schools rise closely preceded the publication of Smiths magnum opus, An
Inquiry into the Nature and Causes of the Wealth of Nations (1776), from
which the more modern school of classical economics springs.
Indeed, Smith was so influenced by the Physiocrats that he had intended to
dedicate The Wealth of Nations to Franois Quesnay, the leading figure of
the school; perhaps his several significant disagreements with Quesnay
dissuaded him. The Physiocrats also exerted a deep impact on early
American agrarian thought through admirers such as Thomas Jefferson
and Benjamin Franklin. Through the 19th-century libertarian Henry George
and the ongoing single-tax or Georgist movement, the Physiocrats vision
remains a subtheme within modern libertarianism.
Some of the Physiocrats theories sound antiquated and flatly false to
modern ears. One belief, for example, was that all wealth has its origins in
agriculture; the production of goods and services is merely the
consumption or remixing of agricultural surplus. (Not all Physiocrats agreed
on that point; for example, Anne Robert Jacques Turgot differed.) In
exploring their theories, however, it is important to remember their historical
context and the competing theories against which they argued.
The context of the Physiocrats
Under Louis XV (17101774) and Louis XVI (17541793), France was
plagued by ruinously expensive warfare along with economic instability. A
huge schism existed between the elite with wealth and status and the vast
majority of people without either. The elite consisted of the nobility and the
clergy, both of whom were exempt from taxes; they lived off the sweat of
average people in the private sector, most of whom were peasants.
The foundation of the private sector was agriculture, even though very few
citizens owned land. The nobility and clergy (some 600,000 in a population
of roughly 25 million) held most of the property. For example, the Church
owned about one-fifth of the total land in France; in some provinces, it
owned up to two-thirds. Moreover, the Church had feudal privileges that
had continued from the Middle Ages and bound approximately one million
people to the land as serfs.
France was a comparatively wealthy nation, but the peasants existed at
near-starvation level because they were so burdened by taxes in their
myriad forms. A direct tax ate as much as 50 percent of the earnings of the
nonelite. The collection process was also brutal because tax collectors
were entrepreneurs who paid the king a flat amount for the privilege of
collecting taxes; anything over that amount became profit, so there was
great incentive to be aggressive and overcollect.
There were a slew of other taxes as well, some of them quite creative.
For example, a salt monopoly tax required almost everyone except young
children to purchase several pounds of highly inferior government salt
every year. The law also prescribed how the salt could be used and
imposed heavy fines for misuse, such as the preservation of meat.
Presumably, the salt was so inferior that its use was not difficult to detect.
Many other commodities had their own separate taxes. Daily life itself was
monitored for purposes of taxes and fines. Fees were levied at every stage
of manufacture, upon transportation, at the time of sale to retailers and,
then, at the sale to customers. The list of taxes could scroll on and on,
including many customs duties that were imposed not merely on goods
passing into and out of France but often on goods traveling between
different provinces within the nation. It is estimated that those taxes literally
doubled the cost of goods.
And, of course, there was the constant bribery, unofficial theft by
authorities, et cetera, for which France was notorious. Unfortunately, it is
impossible to estimate how much the corruption cost the average person.
Even without that factor, however, the nobility (including the king) and the
Church took an estimated 75 percent of the wealth produced by peasants
many of whom lived on the margin to begin with. Overtaxed, often
homeless, unemployed, hungry, and with no hope of justice from the
system, the vast majority of French citizens were nevertheless not blind.
They saw the starvation of their own children and the riches lavished on the
velvet-clad children of the elite riches that had been stolen from them.
Against this backdrop, the Physiocrats consistently called for a more
reasonable and just system of taxes and the elimination of tariffs.
Their advocacy was not merely intellectual. In August 1761, Turgot became
a tax collector for the Limoges region and began to apply the insights of his
mentor Quesnay. For example, he surveyed land to obtain a more just
assessment of the value upon which it was taxed.
The economic ideas of the Physiocrats rose to prominence in pre-
Revolutionary France. Part of the reason was the prominence of the
Physiocrats themselves: some were members of the nobility; others served
as ministers to the king. Another reason was the period in which they
wrote, a time in which France stumbled under its economic system and
practical alternatives received serious consideration, at least in intellectual
circles. When the famous Encyclopedie (17511772), a 35-volume
manifesto of the French Enlightenment edited by Denis Diderot and Jean le
Rond dAlembert, featured the Physiocrats it was no more than an
acknowledgement that their ideas had become an integral part of the
Enlightenment.
In 1789, the French Revolution erupted. Early in the revolution, the National
Constituent Assembly was established and moved quickly to abolish both
feudalism and special privileges for the nobility and clergy. A Declaration
of the Rights of Man and of the Citizen was issued, modeled on Americas
Declaration of Independence.
The impact of Physiocratic theory on the ongoing French Revolution can be
understood by tracking the experiences of Physiocrat Pierre Samuel du
Pont de Nemours, who was elected to the Assembly in 1789 and served on
about a dozen economic committees. A moderate, Du Pont wanted to
preserve the monarchy (later abolished in 1792) and to institute
Physiocratic economic policies. He came into increasing conflict with more
radical revolutionaries who were rising in power. In 1791 the National
Constituent Assembly dissolved and was replaced by the Legislative
Assembly. Under what was called the Self-Denying Ordinance, no
member of the first Assembly was allowed to sit on the second one; the
measure virtually ensured that elder or experienced statesmen did not have
a legislative voice. In 1791, Du Pont retired temporarily from public life.
The Legislative Assembly lasted one year, leaving France in economic
chaos and social turmoil. Left-wing revolutionaries known as Jacobins
came to dominate. Ultimately, under the Jacobin leadership of Maximilien
Robespierre and Louis de Saint-Just, the Reign of Terror (17931794) was
unleashed. During that period, the deceptively named Committee of Public
Safety directed the widespread execution of those considered to be
enemies of the state. It was during the Reign of Terror that Louis XVI and
his queen, Marie Antoinette, were guillotined as counterrevolutionaries.
In 1795, Du Pont was chosen to sit on the Council of Elders, the upper
house of the legislature of France. Again, his moderate policies caused
conflict and he was proscribed in 1797. France was no longer a safe
home for moderates.
The fate of Du Pont was the fate of the Physiocrats. They inspired a
revolution for which they became increasingly unsuited and, finally, they
were viewed as obstructive. The Physiocrats legacy lay elsewhere.
The legacy within Adam Smith
In the mid 1760s, professor of moral philosophy Adam Smith toured Europe
at the behest of the wealthy Duke of Buccleuch who greatly admired
Smiths recently published Theory of Moral Sentiments. It was during that
period that Smith met Quesnay and commenced writing The Wealth of
Nations. Quesnay was not merely the leading Physiocrat but also the court
physician to Louis XV, who called him my thinker. Respected in Parisian
intellectual circles, Quesnay became famous for his Tableau economiques
or Economic Table (1758) an economic model that formed a basis for
Physiocratic theory. Smith also became well acquainted with other
prominent Physiocrats, including Turgot, who later became minister of
finance and authored Reflections on the Formation and Distribution of
Wealth. Smith was deeply impressed by the Physiocrats unrelenting and
integrated attack on the prevailing economic theory in Europe:
mercantilism.
The 20th-century Austrian economist Murray Rothbard defined the term:
Mercantilism is the name given by late 19th-century historians to the
politico-economic system of the absolute state. Intimately linked with the
rise of the nation-state, mercantilism held that a nation should export more
than it imported, the resulting surplus wealth being held in a currency,
usually gold, by the ruler or government. To become wealthy, therefore, a
nation needed to tightly regulate trade through an elaborate system of
tariffs and taxes; it sought to establish colonies that became both a source
of raw materials for the mother country and a captive export market for the
finished products. Since the wealth of the world was considered to be finite,
one nations wealth was deemed to impoverish others. Thus, mercantilism
contributed to constant European warfare over resources and trade.
By contrast, the Physiocrats believed the wealth of a nation derived from
the productive labor of individuals. It consisted of the surplus of agriculture
products, including metal; that is, the wealth of a nation consisted of the
excess of product over the cost of production. The Physiocrats dismissed
manufacturing and other forms of nonagricultural production as merely a
way to change the wealth that came from the earth. Thus, manufacturing
was deemed useful but sterile in that it created no value. Adam Smith
and the classical economists later corrected that error (among others) even
as they built on the Physiocrats strengths.
In the fourth book of The Wealth of Nations entitled Of Systems of
Political Economy Smith details his several disagreements with the
Physiocrats and then concludes that with all its imperfections, [the
Physiocratic system] is perhaps the nearest approximation to the truth that
has yet been published upon the subject of political economy.
The legacy within American agrarian thought
Agrarianism as expressed by foundational American thinkers such as
Thomas Jefferson, James Madison, John Taylor of Caroline, and George
Logan idealizes the rural life, considering it to be morally superior to city
life. In a letter (1785) to John Jay, Jefferson wrote, Cultivators of the earth
are the most valuable citizens. They are the most vigorous, the most
independent, the most virtuous, & they are tied to their country & wedded to
its liberty & interests by the most lasting bonds.
Several Founding Fathers, including Benjamin Franklin, traveled to France
where they personally met the Physiocrats. Franklin first visited Paris in
1767 and, at that point, formed close bonds of friendship with the French
economists with whom he shared many beliefs, including free trade,
agrarianism, and natural law. Upon his return to America, he maintained
active contact with them through correspondence. In one letter, Du Pont
enclosed his work Physiocratie. Declaring himself perfectly charmed by
the work, Franklin claimed to have received a great deal of instruction from
it.
The American agrarians were clearly influenced by the Physiocrats,
although the depth of that influence varied from person to person and is
sometimes a matter of debate. George Logan defined one extreme. His
work Letters Addressed to the Yeomanry of the United States: Shewing
the Necessity of Confining the Public Revenue to a Fixed Proportion of the
Net Produce of the Land; and the Bad Policy and Injustice of Every Species
of Indirect Taxation and Commercial Regulations (1791), written under the
pen name a Farmer, was an Americanization of Physiocratic ideas.
Other agrarians, such as Jefferson, seemed to incorporate whatever
Physiocratic ideas they found valuable. The Physiocratic influence upon
Jefferson may have deepened when Du Pont emigrated to America (1799)
and the two men become personal friends. Arguably, Jeffersons land
policies that were key to 19th-century Western settlement derived their tone
from the Physiocrats. (Du Pont went on to establish the Du Pont firm, which
became the financial basis of one of Americas most famous family-
business dynasties.)
The legacy within libertarianism
Henry George was one of the most prominent figures in late 19th-century
libertarianism. Today he is remembered for the single-tax movement that
he championed. George believed land to be the common property of
mankind and, so, argued for financing government through a single tax on
those who used this common property. The tax would be on the
unimproved value of the land; that is, on the land in its natural state without
crops, homes, or other contributions of labor.
Although several economists, including David Ricardo, had espoused a
similar idea, George drew directly on the Physiocrats advocacy of an
impt unique. This was a tax on unimproved land that landowners would
pay to the king as a means to finance all expenses and so eliminate the
need for other taxation. In his best-known book, Progress and Poverty
(1879), Henry George wrote,
[There] has been a school of economists who plainly perceived, what is
clear to the natural perceptions of men when uninfluenced by habit, that the
revenues of the common property, land, ought to be appropriated to the
common service. The French economists of the last century, headed by
Quesnay and Turgot, proposed just what I have proposed, that all taxation
should be abolished save a tax upon the value of land.
In dedicating his later work, Protection or Free Trade (1886), George wrote,
To the memory of those illustrious Frenchmen of a Century ago Quesnay,
Turgot, Mirabeau, Condorcet, Dupont and their fellows who in the night of
despotism foresaw the glories of the coming day.
Currently, Georgism is considered a fringe aspect of modern
libertarianism, but its voice is a direct link back to the Physiocrats.
Conclusion
Within their historical context, the Physiocrats represented a huge leap
forward toward individualism and economic freedom. Although their ideas
were overwhelmed by the violent forces they helped to release, the
Physiocrats made an indelible contribution to the literature and progress of
human liberty. In the larger picture, they may have been a small step
toward freedom but they were one of the first steps and in the right
direction.