Principles of Physiocratic School of Economic Thought

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Introduction

It is the second doctrine after mercantilism that had influenced public policy very strongly during the 18th century. Before the classical work of Adam Smith in 1776, there were only two doctrines or schools of thought that had significant and dominant domination over politics and economic policies of that time. Here we will discuss on Principles of Physiocratic School of Economic Thought

Physiocracy is an economic thought or economic theory developed by an organized group of French economists in the 18th century. This school of thought was led by Francois Quesnay (1694-1774). Francois Quesnay was a French economist and chief architect of the Physiocratic school of economic thought. He published the ‘Tablue Economics’ in 1758 and provided the foundations of the ideas on the Physiocratic school of economic thought.

The Physiocratic school of economic thought is considered as the founder of economic science as they were the initiator to grab the principles including economic phenomena and to develop a theoretical system. In such a sense, the Physiocratic school is known as the initial school of economic thought.

Background/ Circumstances in France

The historical, economical, and political background plays a vital role in the emergence of any thoughts and principles. So here is the short discussion on the overall scenario of France during the emergence of the Physiocratic doctrine.

  • Roughly the Physiocratic school was evolved around the 1750s.
  • The background was started from the tenure of Louis-XIV
  • Louis-XIV ruled between 1643 to 1715. King was known as an absolute despot. Louis-XIV had tried the centralization of all the powers in his ruling period.  France won many big wars in the leadership of Luis-XIV but France also involved in different unnecessary wars and at the end that had created a huge burden of economic debt on France.
  • It was the time during which there were massive progress and development in art, culture, painting, and music, etc. but at the same time economy of France was facing so many problems.
  • The agriculture sector of France was almost devastated and there was an increasing amount of public debt due to several unnecessary wars in which France involved.
  • Under the rule of Louis-XIV J.B. Colbert was the Controller General of Finance and he was a strong supporter of mercantilism. Thus mercantilism was also called Colbertism in France.
  • Colbert had neglected the agriculture sector and focused public policies in the manufacturing sector to raise international trade and to develop France as a strong nation-state.
  • Under Colbert, mercantilism was carried to an excessive scale. On the other hand, Louis-XIV involved in different wars with other European countries that were unnecessary to be involved, and at the end of the story, the economy of France had turned worse from the bad.
  • He also promoted Catholic Christianity as the official religion by replacing the Protestants. He centralized all the powers and exempted all the nobilities or officials and churches from tax burdens.
  • After such, all the burden of tax rested on the farmers where the policy of Colbert had entirely ignored the agriculture sector and formulated all the public policy in favor of mercantilists’ philosophies.
  • This made farmers living more worst and almost all farmers suffered famine types of problems. Thus the economy was ruined, agriculture was entirely devastated and all the economy was in an unrest state.
  • Tenure of Louis-XV
  • Louis-XV ruled from 1715 to 1774. This was the time in which the Physiocratic school of economic thought emerged.
  • During the time of Louis XV, France was again involved in the wars and one of them was 7 years war with England.
  • France was defeated by England in such war and as a result economy of France had gone into more harsh conditions.
  • Public debt was increasing more. And on the other hand, King Louis-XV was not a good administrator and was not able to handle economic affairs in better ways. Conditions in France were becoming difficult day by day.

Social Classes in France

ClassFirst Class/EstateSecond Estate/ClassThird Estate/Class
Status/involvedClergy (Church, father)NobilityFarmers, Merchants, Artisans, Factory workers, Lawyers, Public  Officials
Population1lakh4lakh2.7 crore(95% of total population)
Possession of Land10% of the land25% of the land 
Tax burdenNo TaxNo TaxHeavy taxation
Living standardLavishLavishVery poor

Francois Quesnay (1694-1774)-Introduction

He was a French economist and intellectual leader of the Physiocratic school of economic thought. Quesnay professionally engaged as the consulting physician to King Louis XV at Versailles. He published his first book on the political economy in his 60s.

Quesnay was born into a decent family of the labor class. He cultured the behavior of reading from a household medical companion and quickly acquired a voracious appetite for additional books and additional learning.

Through his quick self-education and skills, he steadily climbed up and finally entered into the service of local aristocrats.  He finally became a vital part of enlightenment thinkers and was popularly known as the leader of physiocrats and economists. 

He wrote the book ‘Circulation of Blood’. This book was purely a medical book. He gained popularity among thinkers and elites through his book, honesty, and professional ethics. But he is more popular with his economic contribution and his famous work ‘Tablue Economics’-1958.

It is said that his interest in economics arose only in 1957. Because of his knowledge-provoking books, writings, and popularity in his profession he got a connection to the royal and elite estate of Versailles.

After getting a connection with the elite class of Versailles, he was able to buy a huge amount of land and became the landlord. After becoming a landlord he started to advocate for the agriculture sector and farmers and created the foundation of the Physiocratic school of economic thought.

Gradually Quesnay came with his famous economic ideas and theories. His entire contribution to the political economy was supped by his Tablue Economics (1758). Through Tablue Economics he presented the relationship between the different economic classes and sectors of the French society and the flow of payments between them. Like a circular flow model, he had presented such a type of relationship for the first time. He developed the concept the economic equilibrium.

This concept of Quesnay is considered an ancestor of the multi-sectoral input-output systems of Marx, Sraffa, and Leontief and modern general equilibrium theory.  

Philosophy or Principles of Physiocratic School

The Physiocratic school of economic thought is based on the principle of the natural order. If we consider the background in which Physiocracy had emerged then we can say that Physicracy was developed as the criticism or response of excessive exercise of mercantilism.

The physiocrats supposed that the mercantile policies have created damages to the economy and nations instead of doing making them strong. So they advocated their policies just opposite to the policies of mercantilism. 

Around the time when physiocracy was starting to appear, agriculture was a so neglected sector under mercantilism as it was considered incapable to generate surplus capital. Mercantilism collectively was against the overall agriculture.

On the other hand, agriculture was unstable, going from bad to worse conditions and in danger due to the bad administration and heavy taxation on third-class people of society including farmers by king Louis-XV. So the entire agriculture and farmer class were so unhappy, they were facing famine and having very bad living conditions. So we can refer that Physiocracy was developed as against an alternative to mercantilism.

Reasons or Factors Behind the Emergence of Physiocracy

Physiocracy was an organized and systematized group of thinkers in the 18th century led by Quesnay. Many economic, political, and social factors were there to provoke and guide the emergence and rise of physiocracy. Major causes or factors are pointed as below;

  • Excessive exercise of mercantilism and in the name of mercantilism there was fuller ignorance of the massive agriculture sector. J.B. Colbert the Controller General of Finance and a strong supporter of mercantilism, the Mercantilism in France had brought to an extreme degree. More than 90 percent of the people were in the agriculture sector but they were neglected and regulated through strong government policies. So these all factor-stimulated people like Quesnay and invented alternative economic theory to prove that the mercantile policies were not constructive for the development and prosperity of a nation. By giving the theoretical assault to mercantilism they developed the Physiocratic school of economic thought.
  • The taxation provisions adopted by King Louis XV were so unfair, corrupt, inefficient, and unjust. The clergy, nobles, and elites of the society were fully exempted from the tax burden. But the tax burden on the farmers and other common people was so high. These taxation policies of the government had the people unpleasant and horrid. So they all were looking for a new way of life and new thought of the political economy.
  • The economy of France was ruined during that period.  Louis XIV and XV involved many unnecessary wars, and as a result, the government was facing a debt trap and ultimately bankruptcy. It was also another reason behind the emergence of Physiocracy.
  • There was enlarging and ongoing exploitation of lower-class people by upper elites. For example, French farmers were oppressed and demoralized by the nobles and landlords in different ways. Farmers used to harvest and grow food and crops on the land of landlords and the majority of production was taken by landlords. Farmers were unable to even fulfill their hunger and at the same time government was imposing different sorts of taxation upon them. Due to mercantilism, there was no proper market for agricultural production as well.
  • Agriculture was taken as an important productive sector in England. They had mentioned that to develop trade in the ignorance of the agriculture sector was the wrong policy so that the agricultural revolution was starting in Britain. But in France, the overall economic condition was becoming worse from bad and their economy was so unbalanced. So they were also in a kind of compulsion to think about trade, manufacturing at the expense of the agriculture sector.  
  • Enlightenment, renaissance, and other thoughts of philosophers also provoked the significance of humanism, social norms, and values over a mere collection of billions. People like Dante, Voltaire, John Locke, and Immanuel Kant, and so on with the development of science and philosophy focused on rational thinking, humanism, people’s sovereignty, separation of church and state, freedom of speech and expressions, and so on. These all had stimulated new economic thought.   
  • Rising population (increased by 30 percent from 1700 to 1789) but there was no scientific advancement in the agricultural sector. At the same time, there was increasing government debt and the government was spending half of its budget on debt repayment.

Policy Implications of Physiocrats

The Physiocratic school of economic thought is considered the first organized doctrine of economic science. Physiocracy was also considered the revolution of people (common people and thinkers) against Mercantilism. 

  • According to Physiocrats the natural law and order should be adopted everywhere and natural order should be the base of functioning. This term means that they advocated for the removal of government intervention from the order of nature or god. In economic language, we can call it lassies fair or no government intervention of the government in economic affairs.
  • They considered agriculture as the productive sector and also said that real wealth would come from agriculture. All the sectors other than agriculture are sterile sectors for them. They considered foreign trade was a necessary evil.  
  • Physiocrats measured labors engaged in agriculture only are productive factors. Net product or real wealth was only generated from the agriculture sector and not from the manufacturing sector. According to them, agriculture was the only source of wealth or net product.
  • They generated tools and mechanisms of organization of economic activities and economic classes or economic sectors.
  • They advocated a single tax system and tax should be imposed on net product only.

Why it is Called First Organized Economic Thought

  • Physiocrats talked about economic relations and behavior for the first time in scientific methods.
  • They considered agriculture as the major source of wealth generation. Economic development was their main concern and for such agriculture was the only productive sector to assist.
  • They analyzed for the first time capital and capital formation. The generation of net output was concerned with capital formation.
  • They had shown and analyzed the interconnection between different social classes with the help of an economics table.
  • Physiocrat initiated for releasing the role of government from economic affairs.
  • They advocated only one tax system as a direct tax upon net output.

Criticisms of the Physiocratic School of Economic Thought

The physiocrats policy prescriptions were criticized on the following grounds;

  • Physiocracy considered agriculture only as the productive occupation and source of wealth generation. It was their wrong assumption. Trade and industry are equally important and productive but they ignored the role of trade and commerce.
  • They referred to manufacture as unproductive although it creates utility and agriculture only as of the productive source of net output. That was also their wrong idea.
  • Physiocrats divided labor into productive and unproductive.  According to them, labor engaged in agriculture was considered productive and others were unproductive.
  • They advocated for natural law and the law of God. It means they advocated complete freedom of economic activities. Absolute freedom is not favorable.
  • Complete ignorance of manufacturing and commerce was another drawback of Physiocrats.
  • This school of thought advocated for single taxation and tax should be imposed on the production of net products. This was somehow considered against the interest of agricultural society.

Conclusion

Thus Physiocracy was an organized group of economic thinkers belonging to France. This group was led by Quesnay. They believed in natural law and order. Physiocrats considered agriculture as the main productive occupation to generate the real wealth of nations and said that trade is a necessary evil. Their thought advocated for laissez-faire and non-intervention of government in economic affairs.

They gave different tools of analysis relating to wealth generation, social classes, and distribution of the generated wealth. In 1776 with the classical influencing work of Adam Smith the philosophies of Physiocracy got replaced. However, this school of thought was considered the first scientific economic thought and it had created the never forgetting pace in the history of economic thought.  

References

Samia Rekhi. Physiocracy: Meaning, Factors, and Critical Estimate. Retrieved from https://www.economicsdiscussion.net/physiocracy/physiocracy-meaning-factors-and-critical-estimate/20982

E.Z Classes. Mercantilism. Retrieved from https://www.youtube.com/watch?v=rimtFx-1Zvo&t=123s

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