Imperfect, Yet Significant: Physiocracy’s Contributions to Development of Economic Thought

The currently practiced science of economics is the outcome of the incremental development of economic thought over time. The first strictly scientific based system of economics established by humans was and still is known as Physiocracy (C.W., 2013). Although much of Physiocratic economic theories are rather useless due to the close-mindedness and faultiness of previous analyses, basic Physiocratic approaches to the study of economics have had many invaluable contributions to the field as well (C.W., 2013). This article aims to prove the significance of Physiocratic ideologies that have allowed the field of economics to advance.

Mercantilism, as an economic point of view preceding Physiocracy, only focused on trade and gold accumulation. As a result, economic efficiency and a systematic analysis of the economy were not considered (C.W., 2013). The birth of Physiocracy allowed for study of economic rationalization, a revolutionary approach to economics. However, it must be noted that the reason why many do not know about the Physiocratic system of economics is that their policies were flawed; thus, the system was vulnerable to criticisms. As the result, Physiocracy was not accepted as a practicable system over time. For example, most economies were almost entirely agrarian when French Physiocrats were emerging (W&G, 1997). Thus, Physiocracy only considered farming labor and other agricultural factors to be of any importance. Physiocratic ideologies were biased and Physiocrats did not consider other means that could allow for economic growth. Nevertheless, the one sidedness of their approaches had benefits to the field of economics as well. For instance, the significance of soil as a production factor was successfully illustrated in their analysis (C.W., 2013). They showed that life is dependent on land productivity and the ability of the natural environment regeneration. The aforementioned hints towards Physiocracy still being of value to economic historians. Phsyiocratic thoughts show the roots to many of currently existing wealth creation theories, as well as explaining advancements in economic model creation.

It is believed that the most compelling contribution of Physiocracy was the emphasis of Physiocrats on productive work as the origin for wealth of nations (C.W., 2013). Physiocracy, as a theory of wealth creation and growth, falsely focuses on agriculture (C.W., 2013). To show that farms were the only source of revenue and surplus for a nation, Quesnay – the father of Physiocracy – introduced the “Tableau Economique” (W&G, 1997). The Tableau Economique shows in a single page how an entire economy functions (W&G, 1997). Although creation of wealth from land alone appears to be faulty, Quesnay’s contribution to the field allows current economists to see past the outlined wealth creation models. In his analysis, Quesnay introduces the world to the fact that economics as a social science could be thoroughly analysed and thus, become well documented afterwards. Such insights from Quesnay had a partial influence on Adam Smith and other classical theorists, allowing them to document their thoughts, leading economics to become a field on its own.

Physiocrats introduced the concepts of production, reproduction, maintenance and constant economic growth. Eventually, their ideas led the world towards coming up with a more detailed economic growth analysis in the future. It must be noted that when analyzing growth, Physiocrats only focused on the details of generation, extraction and allocation of agricultural land surpluses (Heilbroner, 1997). Accounting for land surpluses was done in such a way that a farm’s output should have covered the subsistence of people dependent on the farm. Yet the produce should also have had to be enough for exchange in order for a nation to be fed. Farmers also needed to account for enough seeds so their next harvest could take place (Heilbroner, 1997). Quesnay noted that an enormous growth in surplus could result in greater general economic growth for the nation, since the extra produce could mean extra wealth in exchange or extra food in the future (Heilbroner, 1997). Consequently, this is how the first systematic study of capitalist accumulation was introduced, allowing for spread of capitalism worldwide. The Physiocrats were also the ones whom introduced the concept of the division of labour to economists. Allocation of surplus output, combined with division of labour allowed for further formation of fully quantitative general equilibrium models of the classical type (W&G, 1997). Such models affected reproduction theories of the years to come.

Physiocrats also recognized that in order to start the production process in a period, cultivators required capital (W&G, 1997). Capital was also a necessity for maintenance of laborers while they worked (W&G, 1997). Since agriculture depended on capital, Physiocratic analysis eventually triggered Adam Smith and others to think that agriculture alone could not have been the only reason behind wealth creation and growth. Turgot, a Physiocrat, also recognized that there is an opportunity cost and risk involved in using capital for something other than land ownership (Heilbroner, 1997). Hence, Turgot promoted revenues from interest as another means for people to accumulate riches (Heilbroner, 1997). Thus, as mentioned, for the first time in history, Turgot successfully introduced capitalist organization of production not simply in agriculture (W&G, 1997). As seen, Physiocratic methods of growth analysis has led economists to seek better solutions for the future.

Many other current beliefs of economists are again based on simple Physiocratic ideas. For example, Physiocrats expected that there should always be a godly given natural order for creatures to exist jointly (C.W., 2013). Since they believed in the natural order of the surrounding habitat, it is believed that Physiocrats were against government interventions (C.W., 2013). Some Physiocrats like Turgot also formulated an idea in which self-interest acted as a major factor towards motivating each segment of the economy to play its role (C.W., 2013). Thus, while one labors for the benefit of the society, the same person works even harder towards personal gains. Such a system would only function if one person’s needs could satisfy another person’s desires and vise versa. Thus, as seen, Physiocrats were the original establishers of laissez-faire ideologies (C.W., 2013). However, it should be noted that influences of Physiocracy on Adam Smith’s thoughts expands beyond this mere point of everything running on a given system of self-interestedness.

Another contribution that Physiocrats like Turgot had was to recognize that as inputs increase, agricultural production tends to grow at an increased rate. However, if capital is maintained at a constant level, output will eventually grow at a falling rate until it reaches the ultimate maximum. Previously mentioned acknowledgement shows that productivity gains have a limit, and therefore, wealth creation from land is not infinite (Heilbroner, 1997). Such ideologies led to future diminishing return theories of the future.

As described above, although Physiocrats had many false assumptions in their theories – such that without an agricultural surplus no economic development would be possible – their contributions to the field of economics could not be easily ignored. Their contributions on allocation theories and growth have resulted into coming of age of classical theories, which eventually labeled economics as the science it is today.

Source by Soroush Nazari

Leave a Reply