The physiocracy or physiocratic school was an economic theory developed by French economists in the mid-18th century that stated that the rules of the economy were given by the laws of nature, and that land was the only source of wealth by which a country could develop. For this reason, the physiocratic school defended a development of France through the exploitation of agriculture.
This school is known as the precursor of economic sciences, since they were the first to generate a theory from observing economic phenomena, which until now had only been discussed in a purely philosophical way.
Origin of the physiocratic school
The physiocratic school originated in France during the 18th century, as a response to the interventionist theory of mercantilism. It was founded by the French physicist François Quesnay, who together with his followers —the so-called physiocrats— affirmed that the intervention of mercantile policies in the economy had done nothing but harm nations.
Therefore, they rebelled against them, defending that economic laws should be aligned with human laws.
This current of thought derived from the Enlightenment era, and its characteristics defended the order of nature, laissez faire , private property, diminishing returns and capital investment, among other aspects.
Characteristics of Physiocracy
A reaction against mercantilism
Physiocracy was a reaction against mercantilism and its principles. The defenders of the physiocracy thought that mercantilism, and therefore the intervention of the State in the economy, was detrimental to the development of nations.
Against foreign trade and in favor of liberty and industry
While the mercantilists were in favor of increasing exports and reducing imports, the physiocrats were against foreign trade.
On the other hand, the mercantilists sought the regulation of industry and commerce, while the physiocrats supported freedom of industry and commerce.
Development of agriculture and land as wealth
The Physiocrats aimed at the development of agriculture and saw the land as the only source of wealth.
Productive work as a source of wealth
For the physiocrats, productive labor is the source of a nation’s wealth. On the contrary, mercantilism focused on the accumulation of gold and the balance of trade.
Physiocrats believed that there was a “natural order” that allowed humans to live together without losing their freedoms. The term originated in China, a country that Quesnay knew and in which he was enormously interested; he even went on to write several books on Chinese society and politics.
The Chinese believed that there could only be good government if there was perfect harmony between “the way of man” and the “way of nature.” Therefore, the great Chinese influence that this economic theory had is clearly appreciated.
Individualism and laissez-faire
The physiocratic school, and especially Turgot, believed that the motivation for all the component parts of an economy to function was self-interest.
Each individual decided what goals he pursued in life and what job would provide them. Although there are people who would work for the benefit of others, they will work harder if it is for their own benefit.
The term laissez-faire was popularized by Vincent de Gournay, who claimed to have adopted it from Quesnay’s writings on China.
None of the above assumptions would work if there were not a strong legal framework favorable to private property. The physiocrats saw this as a fundamental part along with the individualism they advocated.
Turgot was the first to recognize that if a product grows, it will do so first at an increasing rate, and then at a decreasing rate until it reaches its maximum.
This meant that productive gains for the purpose of growing nations were limited, and therefore wealth was not infinite.
Quesnay and Turgot recognized that farmers needed capital to start the production process, and both proposed using part of the profits each year to increase productivity.
Flaws of Physiocracy
- Consider agriculture as the only productive activity. (Commerce and industry are also productive and important to the economy.)
- Absence of any reference to the value.
- They supported complete freedom in industry and commerce, although this is not advisable.
Contributions to the economy of the physiocracy
Despite their flaws, the Physiocrats made important contributions to economic thought:
- Give importance to economic development and see agriculture as important for capital formation.
- They were the first economic school to analyze capital and its formation.
- They applied scientific methods to economics.
Francois Quesnay (1694-1774)
Quesnay was a French economist and physicist, founder of the Physiocratic school through his Tableau économique , published in 1758.
This book was one of the first attempts, if not the first, to try to describe how the economy works analytically.
That is why it is one of the first important contributions to economic thought, which would later be continued by classical theorists such as Adam Smith and David Ricardo.
Anne Robert Jacques Turgot (1727-1781)
French politician and economist, Turgot is known as one of the first defenders of economic liberalism. Furthermore, he was the first to formulate the law of diminishing marginal returns in agriculture.
His best known work was Réflexions sur la formation et la distribution des richesses . It was published in 1766 and in this work Turgot developed Quesnay’s theory that land is the only source of wealth.
Turgot also divided society into three classes: the farming or producing class, the wage-earning ( stipendiée ) or artisan class, and the land-owning ( disposable ) class. In addition, he developed a remarkable theory of interest.
Pierre Samuel du Pont de Nemours (1739–1817)
Another well-known physiocrat was Pierre du Pont, a French economist, government official, and writer.
A faithful follower of Quesnay, he maintained a very close relationship with him. Pierre du Pont wrote several literature of the 15th century . Some of his features are present in chivalric books, such as The Physiocracy . He also published his memoirs in 1767 under the name Physiocracy or Natural Constitution of the Most Advantageous Government for Mankind .
He also maintained a close relationship with Turgot – thanks to whom he obtained important positions as an economist – and was one of the drafters of the Treaty of Versailles.
Jacques Claude Marie Vincent de Gournay (1712-1759)
Vincent de Gournay was a French economist and mayor of commerce to whom the phrase “ laissez faire, laissez passer ” is attributed , a declaration of intent from the physiocratic school.
He was Turgot’s professor of economics , and one of the leaders of the physiocracy along with Quesnay.
Pierre-Paul Mercier de la Rivière (1720 – 1793)
De la Rivière was a French administrator closely attached to Quesnay’s physiocratic ideology. His best known work is The Natural and Essential Order of Political Societies (1767), considered by many to be one of the most complete works on physiocracy.
Supervised by Quesnay, the treatise addresses the economic and political aspects of the physiocratic school. In addition, it postulates that social order is achieved through the creation of three powers: the law and the judiciary, the power of an institution such as the government, and public institutions.
Nicholas Baudeau (1730-1792)
Baudeau was a French priest and economist who initially opposed the ideas of the Physiocratic school, later to be a standard bearer of them.
He was the founder of the weekly Éphemerides, which he directed until 1768; from that year it passed into the hands of Du Pont. Quesnay, Du Pont, Baudeau himself and Turgot, among others, published in this weekly. Baudeau is credited with creating the name “physiocracy.”