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( physis , nature, kratein , rule)

A school of writers on political and economic subjects that flourished in France in the second half of the eighteenth century, and attacked the monopolies, exclusive corporations, vexatious taxes, and various other abuses which had grown up under the mercantile system. Statesmen of the mercantile school in France and elsewhere had adopted a system of tutelage which often gave an artificial growth to industry but which pressed hardly upon agriculture. The physiocrats proposed to advance the interests of agriculture by adopting a system of economic freedom. Laissez faire et laissez passer was their watchword. François Quesnay (1694-1774), physician to Mme de Pompadour and Louis XV, founded the school (1758). The term "physiocracy" was probably used by Quesnay to convey the idea that the new system provides for the reign of the natural law. Quesnay and his disciples were called économistes by their contemporaries; the term physiocrates was not used until the beginning of the nineteenth century.

Political Philosophy

In metaphysics Quesnay was a follower of Descartes and borrowed from him the mathematical method used in his "Tableau Economique". He accepted a modified form of the natural rights theory which pervades eighteenth-century literature and gave it an optimistic interpretation. He emphasizes the distinction between the natural order ( ordre naturel ) and the positive order ( ordre positif ). The first is founded upon the laws of nature which are the creation of God and which can be discovered by reason. The second is man-made; when its laws coincide with those of the natural order the world will be at its best. He objected to the natural rights philosophers of his day that they concerned themselves only with the positive order to the neglect of the natural. He held that primitive man upon entering society does not give up any of his natural rights, thus taking issue with Rousseau's theory of the social contract. From his optimistic doctrines concerning the laws of the natural order he deduces his doctrine of laissez faire . Economic evils arise from the monopolies and restrictions of the positive order; statesmen should aim to harmonize the positive order with the natural by abolishing these excrescences. The state should withdraw its support from the attempts of special interests to bolster up industry artificially. In the language of the physiocrats, "He governs best who governs least". Although ultimately their principles proved favourable to the Revolution, Quesnay and his disciples were in favour of an absolute monarchy subject only to the laws of the "natural order". They considered that it would be easier to persuade a prince than a nation and that the triumph of their principles would be sooner secured by the sovereign power of a single man.

Economic Doctrine

Quesnay divides the citizens of a nation into three classes: the productive, which cultivates the soil and pays a rent to the landed proprietors, the proprietors (Turgot's classe disponible ), who receive the rent or net product ( produit net ) of agriculture, and the barren ( classe stérile ), which comprises those engaged in other occupations than that of agriculture, and produces no surplus. For example, in a country producing five billions of agricultural wealth annually, two billions will go to the proprietors as rent. With this the proprietors will buy one billion's worth of agricultural products and one billion's worth of the manufactured products of the barren class. The productive class also will buy one billion's worth of the products of the barren class. The barren class will spend the two billions which it receives in buying one billion's worth of agricultural products upon which to subsist and one billion's worth of raw material to work up into its finished product. Thus the barren class receive two billions and spend two billions. The value of their product equals the cost of their subsistence plus the cost of the raw material. Thus industry and commerce are barren. Agriculture is productive, since it supports those who are engaged in it and produces in addition a surplus. The national welfare depends upon having this surplus production as large as possible. In other words, a nation will prosper not in proportion as it succeeds in getting foreign money in return for its manufactures, but in proportion to the amount of its net product. The mercantilists, therefore, made a mistake in encouraging manufactures and commerce at the expense of agriculture. The true policy is to encourage agriculture. Statesmen of the mercantile school thought it desirable to have cheap food so that the home industries could compete with the foreign and thus the nation might secure a favourable balance of trade which would bring money into the country. The physiocrats rejected the balance of trade argument and held that dear food was desirable because this meant the prosperity of agriculture and the swelling of the net product. Quesnay even held that under some circumstances it might be desirable to levy a duty on imported agricultural products or to grant an export bounty in order to keep up prices. Holding that the incomes received by the productive and sterile classes were just sufficient for their support, the physiocrats believed that any tax levied upon the members of either of these classes must be shifted until it finally fell upon the net product belonging to the proprietors. In the interest of economy of administration, therefore, they urged that a single tax be levied upon rent. This was their celebrated impôt unique . The proposal was somewhat similar to the more recent demands of Henry George for a single tax. The physiocrats sought to protect the landed proprietors, while George wished to expropriate them.

The School

Most of the ideas of the physiocratic school are found in earlier writings. The expression laissez faire is said to have been used by a French merchant, Legendre, in answering a question addressed by Colbert to a gathering of merchants concerning the needs of industry. The idea is developed in the writings of Bois-Guillebert (1712) and the policy was advocated by the Marquis d'Argenson in 1735. Gournay, a contemporary of Quesnay, seems to have originated the extended expression laissez faire et laissez passer . This formula called for freedom of internal commerce and manufacture. Some critics hold that Gournay is equally entitled with Quesnay to be called the founder of the physiocratic school on account of the currency which he gave to the doctrine of freedom of trade. Other sources are Hume's criticism of the balance of trade theory, and Cantillon, "Essai sur la Nature du Commerce en Général", in which the importance of agriculture is recognized and the doctrine of produit net developed. The elder Mirabeau was Quesnay's first disciple. His "Philosophie rurale" (1763) gained disciples. Dupont de Nemours, who later exerted considerable influence in the Constituent Assembly in the discussions on taxation, wrote several works in defence of the system. Other important writers were Baudeau, Mercier de la Rivière, and Letrosne. The most eminent of Quesnay's disciples was Turgot, who, as Intendant of Limoges and afterwards as minister of finance under Louis XVI, attempted to apply some of the physiocratic principles practically (Réflexions sur la formation et la distribution des richesses, 1766). Outside of France the school had not many disciples. The best known are the Swiss Iselin and the German Schlettwein. The latter was engaged by the Margrave Karl Friedrich of Baden, a friend of Mirabeau, to introduce the single tax in three villages of Baden. The experiment, made under unfavourable conditions, was soon abandoned. In Italy the physiocratic school had few followers. In England, on account of the advanced position of trade and industry, it had none.

Criticism

The principal service of the physiocrats to modern political economy was not the discovery of any one of their doctrines, but their attempt to formulate a science of society out of materials already at hand. It was from this system as a base that Adam Smith set out to give a new impetus to the study of economic phenomena. Another important contribution consisted in calling attention to the weaknesses of the mercantile system. Laissez faire was a good doctrine for the eighteenth century because there was need of a reaction, but it was a mistake to set it up as a universal principle applicable under all conditions, The chief weakness in the physiocratic teaching lay in its theory of value. While agriculture brings forth the raw material of production, commerce and manufactures are equally productive of wealth. In a sense, the physiocrats recognized this, but they held that in producing this wealth the manufacturing and commercial classes use up an equivalent amount of value. This is a gratuitous assumption, but even if true, the same thing could be said of the so-called productive class. Moreover, if wages were governed by the "iron law " both in agriculture and in manufactures and commerce, as the physiocrats assume, the "net product" would be made up of wealth created by the commercial and manufacturing classes as well as by the agricultural class. The theory of the impôt unique or single tax rested upon the assumption that all incomes, except those of the proprietors, were at the existence minimum. Since this is not true, it is also not true that all taxes levied upon the other classes will ultimately be paid by the proprietors.


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