Physiocracy

Physiocracy (French: Physiocratie; from the Greek for "government of nature") is an economic theory developed by a group of 18th-century Enlightenment French economists who believed that the wealth of nations was derived solely from the value of "land agriculture" or "land development" and that agricultural products should be highly priced.[1] Their theories originated in France and were most popular during the second half of the 18th century. Physiocracy is one of the first well-developed theories of economics.

The movement was particularly dominated by François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).[2] 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. Whereas the mercantilist school of economics said that value in the products of society was created at the point of sale,[3] by the seller exchanging his products for more money than the products had "previously" been worth, the physiocratic school of economics was the first to see labor as the sole source of value. However, for the physiocrats, only agricultural labor created this value in the products of society.[3] All "industrial" and non-agricultural labors were "unproductive appendages" to agricultural labor.[3]

At the time the physiocrats were formulating their ideas, economies were almost entirely agrarian. That is presumably why the theory considered only agricultural labor to be valuable. Physiocrats viewed the production of goods and services as equivalent to the consumption of the agricultural surplus, since the main source of power was from human or animal muscle and all energy was derived from the surplus from agricultural production. Profit in capitalist production was really only the "rent" obtained by the owner of the land on which the agricultural production was taking place.[3]

"The physiocrats damned cities for their artificiality and praised more natural styles of living. They celebrated farmers."[4] They called themselves Les Économistes, but are generally referred to as physiocrats to distinguish them from the many schools of economic thought that followed them.[5]

Quesnay Portrait
François Quesnay, considered the founding father of Physiocracy. Published the "Tableau économique" (Economic Table) in 1758.
Pierre Samuel du Pont de Nemours (1739-1817)
Pierre Samuel du Pont de Nemours, a prominent physiocrat. In his book la Physiocratie, du Pont advocated low tariffs and free trade.

Precursors

Physiocracy is an agrarianist philosophy which developed in the context of the prevalent European rural society of the time. In the late Roman Republic, the dominant senatorial class was not allowed to engage in banking or commerce[6] but relied on their latifundia, large plantations, for income. They circumvented this rule through freedmen proxies who sold surplus agricultural goods.

Other inspiration came from China's economic system, then the largest in the world. Chinese society broadly distinguished four occupations, with scholar-bureaucrats (who were also agrarian landlords) at the top and merchants at the bottom (because they did not produce but only distributed goods made by others). Leading physiocrats like François Quesnay were avid Confucianists who advocated China's agrarian policies.[7] Some scholars have advocated connections with the school of agriculturalism, which promoted utopian communalism.[8] One of the integral parts of physiocracy, laissez faire, was adopted from Quesnay's writings on China,[9] being a translation of the Chinese term wu wei.[10] The concept natural order of physiocracy originated from "Way of Nature" of Chinese Taoism.[7]

History

The growing power of the centralized state control in the era of enlightened absolutism necessitated centralized systematic information on the nation. A major renovation was the collection, use and interpretation of numerical and statistical data, ranging from trade statistics, harvest reports, and death notices to population censuses. Starting in the 1760s, officials in France and Germany began increasingly to rely on quantitative data for systematic planning, especially regarding long-term economic growth. It combined the utilitarian agenda of "enlightened absolutism" with the new ideas being developed in economics. In Germany the trend was especially strong in Cameralism while in France it was an important theme in physiocracy. [11]

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. Le Pesant asserted that wealth came from self-interest and markets were 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 acted as a disincentive to production. Generally, Le Pesant advocated less government interference in the grain market, as any such interference would generate "anticipations" which would prevent the policy from working.[12]

For instance, if the government bought corn abroad, some people would speculate that there was likely to be a shortage and would buy more corn, leading to higher prices and more of a shortage. This was an early example of advocacy of free trade. In anonymously published tracts, Vauban proposed a system known as La dîme royale: this involved major simplification of the French tax code by switching to a relatively flat tax on property and trade. Vauban's use of statistics contrasted with earlier empirical methods in economics.[2]

Around the time of the Seven Years' War between France and England (1756–63), the physiocracy movement grew. Several journals appeared, signaling an increasing audience in France for new economic ideas. Among the most important were the Journal Œconomique (1721–72), which promoted agronomy and rational husbandry and the Journal du commerce (1759–62), which was heavily influenced by the Irishman Richard Cantillon (1680–1734), both dominated by physiocrats; the Journal de l'agriculture, du commerce et des finances (1765–74) and the Ephémérides du citoyen (1767–72 and 1774–76).[2]

Also, Vincent de Gournay (1712–1759), 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 physiocrats, Anne-Robert-Jacques Turgot (1727–1781). The other, François Quesnay (1694–1774), was among those writing prolifically in contemporaneous journals.[2]

In the 19th century Henry George in the United States advocated the collection of land rent as the primary if not the sole source of public revenue.

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.[13] It also contains the origins of modern ideas on the circulation of wealth and the nature of interrelationships in the economy.[5]

The model Quesnay created consisted of three economic agents: the "proprietary" class consisted only of landowners; the "productive" class consisted of agricultural laborers; the "sterile" class was made up of artisans and merchants. The flow of production and cash between the three classes originated with the proprietary class because they owned the land and bought from both of the other classes.

Characteristics

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". Rather, they had to discover the laws of the natural order that would allow individuals to live in society without losing significant freedoms.[14] This concept of natural order had originated in China. The Chinese had believed that there can be good government only when a perfect harmony exists between the "Way of Man" (governmental institutions) and the "Way of Nature" (Quesnay's natural order).[7]

Individualism and laissez-faire

The physiocrats, especially Turgot, believed that self-interest was the motivation for each segment of the economy to play its role. Each individual is best suited to determine what goods they want and what work would provide them with what they want out of life. While a person might labor for the benefit of others, they will work harder for their own benefit; 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 so trade restrictions place an unnatural barrier to achieving one's goals. Laissez-faire was popularized by physiocrat Vincent de Gournay who is said to have adopted the term from François Quesnay's writings on China.[9]

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. The physiocrats believed in the institution of private property. They saw property as a tree and its branches, as social institutions. They actually stated that landlords must enjoy 2/5 on the land surpluses. They also advocated that landlords should be given dues, otherwise they would take the land away from the cultivators.

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."[13] This was a recognition that the productivity gains required to increase national wealth had an ultimate limit, and, therefore, wealth could not be 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".[13]

Subsequent developments

The ideas of the Physiocrats had an influence on Adam Smith, David Ricardo, John Stuart Mill, and above all Henry George, who appears at first to have come to similar beliefs independently. George was the driving force behind what became known as the Single Tax movement (not to be confused with Flat Tax). The Single Tax is a proposal for the use of the annual rental value of land (land value taxation) as the principal or sole source of public revenue.

The New Physiocrats

The New Physiocratic League, also known as the New Physiocrats, is the most recent development in physiocratic ideology. It introduced a comprehensive platform rooted in the original physiocratic philosophy, and expanded and updated it to be adopted by modern political platforms. The New Physiocrats advocate for an implementation of a variant of the land value tax, which they refer to as the "unified location tax," as a main source of government revenues, while returning all income taxes back to the labour market as an income supplement.[15]

See also

People

Notes

  1. ^ "physiocrat". Oxford Dictionaries. Oxford University Press. Retrieved 27 October 2013.
  2. ^ a b c d Steiner (2003), pp. 61–62
  3. ^ a b c d Karl Marx and Frederick Engels (1988), pp. 348, 355, 358.
  4. ^ Why Americans Value Rural Life by David B. Danbom
  5. ^ a b 'The Penguin Dictionary of Economics' George Bannock, R. E. Baxter and Evan Davis. 5th Edition. Penguin Books 1992 p. 329.
  6. ^ Byrd (1995), 34
  7. ^ a b c Derk Bodde (2005), Chinese Ideas in the West p.6, Reprinted with permission in China: A Teaching Workbook, Asia for Educators, Columbia University
  8. ^ Maverick, Lewis A. (1938). "Chinese Influences Upon the Physiocrats". Economic History 3.
  9. ^ a b Baghdiantz McCabe, Ina (2008). Orientalism in Early Modern France: Eurasian Trade Exoticism and the Ancien Regime. Berg Publishers. pp. 271–72. ISBN 978-1-84520-374-0.
  10. ^ Clarke, J.J. (1997). Oriental Enlightenment: The Encounter Between Asian and Western Thought. Routledge. p. 50. ISBN 978-0415133760.
  11. ^ Lars Behrisch, "Statistics and Politics in the 18th Century." Historical Social Research/Historische Sozialforschung (2016) 41#2: 238-257. online
  12. ^ Steiner (2003), p. 61
  13. ^ a b c Henry William Spiegel (1983) The Growth of Economic Thought, Revised and Expanded Edition, Duke University Press. pp. 189, 195–96
  14. ^ Rist, Charles; Gide, Charles (1915). A history of economic doctrines from the time of the physiocrats to the present day. D.C. Heath and Company.
  15. ^ "Economic Reform Platform | New Physiocrats". New Physiocrats. Retrieved 2018-03-05.

References

External Links

Businessperson

A businessperson (also businessman or businesswoman) is a person involved in the business sector – in particular someone undertaking activities (commercial or industrial) for the purpose of generating cash flow, sales, and revenue utilizing a combination of human, financial, intellectual and physical capital with a view to fuelling economic development and growth.

An entrepreneur is a person who sets up a business or businesses. He or she is also referred to as a promoter in the entertainment industry.

The term "businessperson" may refer to a founder, owner, or majority shareholder of a commercial enterprise; or it can characterize a high-level executive who does the everyday running and management of a company even if that executive is not the owner.

The term may sometimes refer to someone who is involved in an upper-level management role in a corporation, company, enterprise, firm, organization, or agency.

Club de l'Entresol

The Club de l'Entresol (French pronunciation: ​[klœb də lɑ̃tʁəsɔl], Mezzanine Club) was a think-tank, club and discussion group founded in 1724 by Pierre-Joseph Alary and Charles-Irénée Castel de Saint-Pierre on the English model for free discussion of political and economic questions. It met every Saturday, between 5:00 and 7:00 p.m., at the home of président Hénault, in place Vendôme in Paris, and was named after the mezzanine there where Alary had an apartment.

It was frequented by 20 of the finest forerunners of the Age of Enlightenment, with regular attendees including Montesquieu, Helvétius, the marquis d'Argenson, Andrew Michael Ramsay, Horace Walpole and Viscount Bolingbroke. It was exclusively male, though other unofficial attendees include Madame du Deffand and the future Madame de Pompadour.

Having got wind of the club's possibly dangerous doctrines, particularly its opposition to mercantilism and Physiocracy, Louis XV shut it down in 1731. Its closure was also due to pressure from Cardinal Fleury, who had considered its conversion into an academy but finally decided on its closure since it was too critical of his administration.

Corporate capitalism

Corporate capitalism is a term used in social science and economics to describe a capitalist marketplace characterized by the dominance of hierarchical and bureaucratic corporations.

Culture of capitalism

The culture of capitalism or capitalist culture is the set of social practices, social norms, values and patterns of behavior that are attributed to the capitalist economic system in a capitalist society. Capitalist culture promotes the accumulation of capital and the sale of commodities, where individuals are primarily defined by their relationship to business and the market. The culture is composed of people who, behaving according to a set of learned rules, act as they must act in order to survive in capitalist societies.Elements of capitalist culture include the mindset of business and corporate culture, consumerism and working class culture.

Development economics

Development economics is a branch of economics which deals with economic aspects of the development process in low income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but also on improving the potential for the mass of the population, for example, through health, education and workplace conditions, whether through public or private channels.Development economics involves the creation of theories and methods that aid in the determination of policies and practices and can be implemented at either the domestic or international level. This may involve restructuring market incentives or using mathematical methods such as intertemporal optimization for project analysis, or it may involve a mixture of quantitative and qualitative methods.Unlike in many other fields of economics, approaches in development economics may incorporate social and political factors to devise particular plans. Also unlike many other fields of economics, there is no consensus on what students should know. Different approaches may consider the factors that contribute to economic convergence or non-convergence across households, regions, and countries.

Economic cost

Economic cost is the combination losses of any goods that have a value attached to them by any one individual. Economic cost is used mainly by economists as means to compare the prudence of one course of action with that of another. The goods to be taken into consideration are e.g. money, time and resources.

The comparison includes the gains and losses precluded by taking a course of action, as those of the course taken itself. Economic cost differs from accounting cost because it includes opportunity cost.

Factors of production

In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services. The utilized amounts of the various inputs determine the quantity of output according to the relationship called the production function. There are three basic resources or factors of production: land, labor, and capital. The factors are also frequently labeled "producer goods or services" to distinguish them from the goods or services purchased by consumers, which are frequently labeled "consumer goods".

There are two types of factors: primary and secondary. The previously mentioned primary factors are land, labor, and capital goods.

Materials and energy are considered secondary factors in classical economics because they are obtained from land, labor, and capital. The primary factors facilitate production but neither becomes part of the product (as with raw materials) nor becomes significantly transformed by the production process (as with fuel used to power machinery). Land includes not only the site of production but also natural resources above or below the soil. Recent usage has distinguished human capital (the stock of knowledge in the labor force) from labor. Entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology is described as a factor of production. The number and definition of factors vary, depending on theoretical purpose, empirical emphasis, or school of economics.

Goods and services

Goods are items that are usually (but not always) tangible, such as pens, salt, apples, and hats. Services are activities provided by other people, who include doctors, lawn care workers, dentists, barbers, waiters, or online servers, a book, a digital videogame or a digital movie. Taken together, it is the production, distribution, and consumption of goods and services which underpins all economic activity and trade. According to economic theory, consumption of goods and services is assumed to provide utility (satisfaction) to the consumer or end-user, although businesses also consume goods and services in the course of producing other goods and services.

Jean-François Melon

Jean-François Melon (French: [məlɔ̃]; 1675–1738) was a French political economist, considered one of the precursors of the Physiocracy movement. According to István Hont, his Political Essay upon Commerce was the most widely available defense of luxury in France in the early 18th century.

Microfoundations

In economics, the microfoundations are the microeconomic behavior of individual agents, such as households or firms, that underpins a macroeconomic theory.Most early macroeconomic models, including early Keynesian models, were based on hypotheses about relationships between aggregate quantities, such as aggregate output, employment, consumption, and investment. Critics and proponents of these models disagreed as to whether these aggregate relationships were consistent with the principles of microeconomics. Therefore, in recent decades macroeconomists have attempted to combine microeconomic models of household and firm behavior to derive the relationships between macroeconomic variables. Today, many macroeconomic models, representing different theoretical points of view, are derived by aggregating microeconomic models allowing economists to test them both with macroeconomic and microeconomic data.

Pierre-Paul Lemercier de La Rivière de Saint-Médard

Pierre-Paul Le Mercier de La Rivière (10 March 1719 – 27 November1801) was a French colonial administrator and physiocrat economist. Mercier was a councilor at the Parliament of Paris, intendant at Martinique in the West Indies (1759-1764), and noted advocate of Physiocracy. In 1774, Mercier wrote a letter to Benjamin Franklin proposing to purchase 5,000 tons of Philadelphia flour.He was born at Saumur, (Maine-et-Loire) and died in 1801 in Grigny, Essonne

Price level

The general price level is a hypothetical daily measure of overall prices for some set of goods and services (the consumer basket), in an economy or monetary union during a given interval (generally one day), normalized relative to some base set. Typically, the general price level is approximated with a daily price index, normally the Daily CPI. The general price level can change more than once per day during hyperinflation.

Rate of profit

In economics and finance, the profit rate is the relative profitability of an investment project, a capitalist enterprise or a whole capitalist economy. It is similar to the concept of rate of return on investment.

Regulatory capitalism

The term regulatory capitalism suggests that the operation maintenance and development of the global political economy increasingly depends on administrative rules outside the legislatures and the courts.

The general trend despite and beyond the process of liberalization is that of growth rather than decline of regulation. Deregulation may represent trends in some industries (notably finance), but more regulation is the general trend beyond that characterize modern and post-modern capitalism alike. Regulation in this interpretation is an instrument of organizations—states, business, civil and hybrid and is carried at all political arenas and levels.

The concept of regulatory capitalism serves as an alternative to concepts like financial capitalism, welfare capitalism, casino capitalism, developmental capitalism, risk capitalism, state capitalism and crony capitalism in an attempt to shed more light on capitalism as a polymorphous order.

Steven Pressman (economist)

Steven Pressman (born February 23, 1952 in Brooklyn, New York) is an American economist. He is a former Professor of Economics and Finance at Monmouth University in West Long Branch, NJ. He has taught at the University of New Hampshire and Trinity College in Hartford, Connecticut.He has served as co-editor of the Review of Political Economy since 1995, as Associate Editor and Book Review Editor of the Eastern Economic Journal since 1989, and a member of the Editorial Advisory Board of the journal Basic Income Studies since 2005.He has been on the Board of Directors of the Eastern Economic Association from 1994 to the present, and since 1996 he has served as Treasurer of the group. In addition he has been a regular book reviewer for "Dollars and Sense" since 2010.

Supply shock

A supply shock is an event that suddenly increases or decreases the supply of a commodity or service, or of commodities and services in general. This sudden change affects the equilibrium price of the good or service or the economy's general price level.

In the short run, an economy-wide negative supply shock will shift the aggregate supply curve leftward, decreasing the output and increasing the price level. For example, the imposition of an embargo on trade in oil would cause an adverse supply shock, since oil is a key factor of production for a wide variety of goods. A supply shock can cause stagflation due to a combination of rising prices and falling output.

In the short run, an economy-wide positive supply shock will shift the aggregate supply curve rightward, increasing output and decreasing the price level. A positive supply shock could be an advance in technology (a technology shock) which makes production more efficient, thus increasing output.

Tableau économique

The Tableau économique (French pronunciation: ​[tablo ekɔnɔmik]) or Economic Table is an economic model first described by French economist François Quesnay in 1758, which laid the foundation of the Physiocratic school of economics.Quesnay believed that trade and industry were not sources of wealth, and instead in his 1758 manuscript Tableau économique (Economic Table) argued that agricultural surpluses, by flowing through the economy in the form of rent, wages, and purchases were the real economic movers.

Value (economics)

Economic value is a measure of the benefit provided by a good or service to an economic agent. It is generally measured relative to units of currency, and the interpretation is therefore "what is the maximum amount of money a specific actor is willing and able to pay for the good or service"?

Among the competing schools of economic theory there are differing theories of value.

Economic value is not the same as market price, nor is economic value the same thing as market value. If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus". It is easy to see situations where the actual value is considerably larger than the market price: purchase of drinking water is one example.

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