2. Physiocracy is the collective name of those economic principles and
policies which developed in France in the middle of the 18th century.
Physiocracy is also known as the โAgricultural Systemโ. Economic
thinkers who contributed to the growth and development of
physiocracy have been called as physiocrats.
The Physiocrats have been regarded as the founders of economic science
because they were the first to grasp the general principles under-lying
the economic phenomena and to evolve a theoretical system.
Physiocracy is also remarked as the first school of economic thought.
The term physiocracy means โRule of Natureโ.
3. In 1750, France provided a favorable climate for the emergence of physiocratic ideas.
There were many economic, political and social factors that were responsible for the
rise of physiocracy. Firstly, physiocracy was essentially a revolt of the French against
Mercantilism. Under Colbert the famous Finance Minister of France, Mercantilism was
carried to an extreme degree. And the tax system of France was corrupt, inefficient and
unjust. The nobles and the clergymen, who owned nearly 2/3rd of the lands, were
exempted from direct taxation. On the other hand, the burden of taxation on the poor
was very heavy. The poor were affected by taxes like salt tax, poll tax, etc.
4. โ
Physiocracy was the revolt of the French
people against Mercantilism. While the
mercantilists were occupied with gold,
the physiocrats emphasized โReal wealthโ
in the form of raw produce.
5. The most representative person of
this school of thought was Franรงois
Quesnay, the court physician of
Louis XV. He developed the first
graphical representation of an
economic circuit which is called
Tableau รconomique (1759),
comparing its dynamics to the flow
of blood in the human body. Some
other representatives are Marquis de
Mirabeau, Mercier de la Riviรจre,
Dupont de Nemours, Le Trosne, the
Abbรฉ Baudeau and a handful of
others. To contemporaries, they
were often referred to simply as
les รฉconomistes.
6. 6
The cornerstone of the Physiocratic doctrine was Franรงois Quesnay's (1759) axiom that only agriculture
yielded a surplus - what he called a produit net (net product). Manufacturing and commerce, the
Physiocrats argued, took up as much value as inputs into production as it created in output, and
consequently created no net product. Like many Enlightenment thinkers, and contrary to the
Mercantilists, the Physiocrats believed that the wealth of a nation lay not in its stocks of gold and silver,
but rather in the size of its net product. But it was the identification of that net product solely with
agriculture that the Physiocrats were distinct.
7. French agriculture at the time was still trapped in
Medieval regulations which shackled enterprising
farmers. Latter-day feudal obligations - such as
the corvรฉe, the yearly labor farmers owed to the
state - were still in force. The monopoly power of
the merchant guilds in towns did not permit
farmers to sell their output to the highest bidder
and buy their inputs from cheapest source. An even
bigger obstacle were the internal tariffs on the
movement of grains between regions, which
seriously hampered agricultural commerce. Public
works essential for the agricultural sector, such as
roads and drainage, remained in a deplorable state.
Restrictions on the migration of agricultural
laborers meant that a nation-wide labor market
could not take shape. Farmers in productive areas
of the country faced labor shortages and inflated
wage costs, thus forcing them to scale down their
activities. In unproductive areas, in contrast,
masses of unemployed workers wallowing in
penury kept wages too low and thus local farmers
were not encouraged to implement any more
productive agricultural techniques.
8. Laissez-Faire is a doctrine opposing governmental
interference in economic affairs beyond the minimum
necessary for the maintenance of peace and property
rights.
The Physiocrats famously pushed for their "single tax" on land rents - l'impรดt unique.
The Physiocrats argued that as land is the only source of wealth, then the burden of all
taxes ultimately bears down on the landowner. So instead of levying a complicated
collection of scattered taxes which are difficult to administer and can cause temporary
distortions, it is most efficient to just go to the root and tax land rents directly.
9. Ordre Naturel
were the laws of nature,
which were God-given and
unalterable by human
construct. The believed that
the only choice humans had
was either to structure their
polity, economy and society in
conformity with the ordre
naturel or to go against it.
Ordre Positif
was wholly about man-made
conventions, about how
society should be organized to
conform to some human-constructed
ideal.
10. The Physiocrats identified three classes of the economy:
โ The "productive" class: agricultural laborers and
farmers
โ The "sterile" class: industrial laborers, artisans
and merchants
โ The "proprietor" class: who appropriated the net
product as rents
11. In the Tableau, Quesnay brought to light that
there are real flows (the circulation of goods)
and financial flows (the circulation of money):
flows of real goods only come from the land,
and economic growth is possible only if the
agricultural product obtained is greater than
that necessary to reconstruct the means of
production and ensure the subsistence of the
populace. The excess product, or surplus, made
it possible to incrementally increase the use of
factors of production so as to obtain an even
greater production in the future. Since land
alone produced wealth, the physiocrats posited
land as the basis of the wealth of a nation.
Incomes flowed from sector to sector, and thus
class to class. A "natural state" of the economy
emerged when these income flows were in a
state of "balance", i.e. where no sector
expanded and none contracted.
12.
13. They earned much opposition from the
Neo-Colbertistes of the age, who felt
France must continue to endeavor to
become a commercial and industrial
power, like the Netherlands or England.
Because Quesnay was the private
physician to Madame de Pomapadour,
the lover of Louis XV, the Physiocratic
clique enjoyed a good degree of protection
in the French court. After Pompadour's
death in 1764, the Physiocrats influence
diminished somewhat at Court. However,
it was precisely around this time that the
Physiocrats decided to expand their
influence and take their message to the
population at large.
14. In 1765-7, the Physiocrats were
publishing furiously in the
Journal d'agricultures, du
commerce et des finances,
which DuPont was then editing
with a dogmatic zeal. Some of
Quesnay's own early economic
writing were barred from
publication by DuPont for not
being "Physiocratic" enough.
After DuPont was removed in
1767, the Physiocrats switched to
the Ephรฉmรฉrides du Citoyen
run by the Abbรฉ Baudeau. In
1767, DuPont de Nemours
published his Physiocratie, the
definitive statement of the
school doctrine.
15. Their dogmatism, their
pompousness, their mysticism
about the ordre naturel, their
"rituals" at Mirabeau's Tuesday
dinners, the affected, flowery
way in which they wrote their
tracts, their unrestrained
adulation and worship of
Quesnay -whom they referred
to as the "Confucius of Europe",
the "modern Socratesโ- irked
just about everybody around
them.
16. "Turgotian" sect.
There are modifications introduced by
Jacques Turgot and his followers. They moved
away from Physiocratic dogmatism by arguing
that industry, and not only agriculture, could
also produce a net product. The high-water
mark of their influence was Jacques Turgot's
brief tenure as contrรดleur general of France
from 1774 to 1776. Under Turgot, many of the
Physiocratic policy propositions - e.g. the
lifting of internal tariffs, the abolition of
the corvรฉe, the single tax - were instituted. But
with the fall of Turgot in 1776, his reforms were
reversed and the Physiocratsโs influence
started to decrease.
17. The Main Contributions of Physiocrats:
๏ถ They put economics on a scientific basis by applying scientific methods.
๏ถ Economic development was a major concern of the Physiocrats. They realized the
importance of agriculture which give surplus for capital formation.
๏ถ The physiocrats were the first school of economists to analyze capital and capital
formation.
๏ถ The physiocrats realized the interdependence of different classes in the economy.
๏ถ The physiocrats insisted that the government should restrict its functions.
๏ถ They advocated direct taxes rather than indirect taxes.
๏ถ They prepared the ground for French Revolution.