The Competitiveness of Nations
in a Global Knowledge-Based Economy
H.H. Chartrand
April 2002
Warren J. Samuels
The Physiocratic Theory of Economic Policy
Quarterly Journal of Economics, 76(1)
Feb. 1962, pp. 145-162
Introduction, 145. —
Government and social change, 147.
— Government and economic development, 155. —
Government and economic stability,
159. —Conclusions, 160.
The conventionally accepted interpretation of the
Physiocratic theory of economic policy 1 is that of
laissez faire. While partial
dissents have been registered, the laissez faire view has persisted
substantially unchallenged. The
purpose of this article is to restate the theory of economic policy to which
Physiocratic doctrine can be meaningfully and operationally reduced, including a
delineation of the role of laissez faire.
In an earlier article, this writer has shown that the
Physiocratic theory of property-state relations encompassed an activist role of
the state in the utilitarian and continuing modification of property rights.
2 Developing the inference implicit therein, the author
will show here that laissez faire is an inadequate characterization of the
Physiocratic theory of economic policy. While the Physiocrats ostensibly
advocated the principle of nonintervention (thereby reflecting “...the spirit of
an age or the truth of an idea so great that it moved a generation”),
3 a valid statement of their theory of policy has to
depart significantly from such an interpretation. As one writer has put it, “Laissez-faire
was a leaf out of their book, but not enough to be the title of what they had to
say.” 4
The author will demonstrate that laissez faire has a
place only within the broader dimensions of the Physiocratic theory of economic
policy, the latter deriving its basic character from its activism as a theory
and program of social change and social control. These
1. Meaning thereby the “general body of principles of
government action or inaction — the agenda or non-agenda of the
state as Bentham called them -in regard to economic activity.” Lionel Robbins,
The Theory of Economic Policy in English Classical Political Economy
(London: Macmillan, 1953), p. 2.
2. Warren J. Samuels, “The Physiocratic Theory of
Property and State,” this Journal, LXXV (Feb. 1961),
90-111.
3. Henry Carter Adams, quoted in Introductory Essay by
Joseph Dorf man (ed.), in
4. D. H. MacGregor, Economic Thought and Policy
(New York: Oxford University Press, 1949), p. 66.
145
activist dimensions encompass programs of (a) social
reconstruction, (b) economic development, and (c) economic stability, and
comprise the fundamental economic functions of Physiocratic
government.
As with the Physiocratic theory of property and state,
the traditional interpretation finds support in certain of the Physiocrats’ own
statements. In his article
“Grains,” Quesnay argued: “...all commerce must be free.... It suffices in the
government. . . to not hinder the activity at all...” In the Maximes Genérales is found
the clearest and most frequently cited statement giving doctrinal credence to
the laissez faire view:
That there be maintained the complete freedom of
commerce; for THE POLICY OF INTERIOR
AND EXTERIOR COMMERCE THE MOST SURE, THE MOST EXACT, THE MOST PROFITABLE TO THE
NATION AND THE STATE, CONSISTS IN THE FULL FREEDOM OF COMPETITION.
5
Quesnay’s advice to the Dauphin is well known, as is
that of la Rivière to Catherine the Great. La Rivière also wrote
that:
The movements of society are spontaneous and not
artificial, and the desire for joy which manifests itself in all its activities
unwittingly drives it towards the realization of the ideal type of
State.
As Gide and Rist comment, “This is laissez-faire
pure and simple.” The view is
reflected in Baudeau’s declaration: “Remove all useless, unjust, contradictory,
and absurd laws, and there will not be much legislative machinery left after
that,” and in Turgot’s letter to Terray:
Whatever sophisms the self-interests of some commercial
classes may heap up, the truth is that all branches of commerce ought to
be free, equally free, entirely free;… 7
The Physiocrats also emphasized naturalism to denigrate
government and government policy: “Legislation, if conformable to nature, was
unnecessary, and if in violation of it, certain of defeat, for in the long run
nature was the strongest.” 8 Man did not make the laws of the natural order, he only
executed them; 9 and, what is more, attempts to direct the course of
nature were futile, for “...the result would only be to let things go precisely
as they would have gone of themselves... 1
5. Auguste Oncken (ed.), Oeuvres Economiques et
Philosophiques do F. Quesnay (Paris: Joseph Baer, 1888), pp. 240-41, 336;
see also pp. 359-77, 747-58.
6. Charles Gide and Charles Rist, A History of
Economic Doctrines (
7. W. Walker
Stephens (ed.), The Life and Writings of Turgot (New York: Longmans,
Green and Co., 1895), p. 252, see also pp. 293, 235, 249,
250.
8.0. F. Boucke, The Development of Economics (New
York: Macmillan, 1921), p. 67.
9. Oncken, op. cit., p.
802.
1. Turgot quoted in Stephens, op. cit., pp.
254-55.
146
Thus wrote the Physiocrats of nonintervention. While they did not use the term
themselves, 2 they often wrote, and perhaps largely •understood, in
the manner of the doctrine of laissez faire. It must be said then that the
Physiocrats, perhaps because of their preoccupations, did not fully appreciate
the significance of many of their own ideas. 2 Or perhaps they did, and for that reason
avoided the phrase. In either case,
their general statements are at odds with both broad and particular aspects of
their own scheme of policy, and neither exhaust nor characterize the
Physiocratic theory of economic policy.
For purposes of policy analysis the essence of
Physiocracy is its involvement in and proposal of change. Comprising a program for the
reconstitution of the fabric of society, and for the redirection of the path of
social development, Physiocracy is policy: for the proposal of change
is a matter of choice, which is in every respect (given the realm of
possibilities capable of being acted upon and their probable achievement) a
matter of policy. Fundamental, then, to the
Physiocratic theory of economic policy is the recognition of Physiocracy as a
system of social reconstruction and redirection, the substance of the
Physiocratic answer to the question of choice becoming the primary object of
policy.
Considered as a program for social change, it is evident
that the Physiocratic system was of considerable breadth, “a social philosophy
embracing what today would be included in economics, politics, sociology and
ethics,” 4 which,
however, “places economic considerations into the foreground.”5 It may be argued that recognition of the breadth of
Physiocratic thought is responsible for the inclusion of socio-economic change
as a dimension of Physiocratic policy and further that such is unnecessary or
undesirable. The
counter-
2 .See MacGregor, op. cit., pp. 54-67; Gide and
Riat, op. cit., p. 11; also Oncken, op. cit., p.
804.
3. Haney, for example, calls attention to “… the crisp,
sweeping exaggerations of the Physiocratic system…” (Lewis H. Haney, History
of Economic Thought (4th ed.; New York: Macmillan, 1949), p. 205.) A. P. Usher argues that, “The more
critical writers were, perhaps, not without some mental reservations, but in the
highly abstract generalizations with which they were primarily concerned, the
exceptions did not seem important.” (A. P. Usher, “Laissez Faire and the Rise of
Liberalism,” in Explorations in Economics: Notes and Essays Contributed in
Honor of F. W. Taussig (New York: McGraw-Hill, 1936), p. 406.) See also Gide and lUst, op. cit.,
p. 30.
4. Thomas P. Neil, “Quesnay and Physiocracy,” Journal
of the History of Ideas, IX (Jan. 1948), 164.
5. Joseph A. Schumpeter, Economic Doctrine and Method
(New York: Oxford University Press, 1954), p. 46.
147
argument may be advanced, however, that economic policy
for the Physiocrats did in fact comprise a program of change, and to
ignore such is to make sterile the scope of economic
policy.
The crucial matter, however, is not the breadth of
Physiocratic thought but its activism. 6 The Physiocrats were primarily concerned with the
question of how the economy should be organized and controlled, and this
preoccupation governed the nature of their theory. Physiocracy was not just a system of
theory, meaning by “theory” either the identification and explanation of assumed
pre-existent phenomena, or the systematic analysis of the employment of means
given an hierarchy of ends already extant. Rather than being Aristotelian in their
theory (i.e., theory as explanation: what is the phenomenon, and how and why did
it come about?), the Physiocrats were essentially proposing what should be
the case, and in their writings both justifying the rationale of their
system and describing how it would work. The Physiocrats were thus promulgators of
theory as a constructive proposal, ergo Platonic and normative. Since they did not accept the economic
status quo, their analysis involved an ends-means model reaching back to the
basic foundations of society, and their theory was accordingly activist rather
than predictive. As Myrdal has
pointed out, the radicalism of their ideas as to economic reorganization was
tempered by the conservatism of other facets of their thought, 7
but this does not vitiate the real
character of their economic policy, namely, a theory of how the economy should
be organized and controlled, and how such should be brought about. Moreover, their naturalism can be reduced
to the hypothesis and advocacy of a particular system in terms of the ethical
“ought,” the “ideal” becoming in their system the “natural,” the acceptance of
which was argued on both mandatory and utilitarian grounds. 8
6. Ibid., p. 61; see also Schumpeter, History
of Economic Analysis (NewYork: Oxford University Press, 1954), p.
230.
7. Gunnar Myrdal, The Political Element in the
Development of Economic Theory (Cambridge: Harvard University Press, 1955),
p. 31, “...the formulation of normative rules was for them one of
the central functions of theoretical analysis. This explains why they attempted no
demarcation of their science from rational politics.”
(p.6)
8. While “The philosophy of the natural order presumed
that the economic institutions essential to society existed from the beginning
as given data or developed spontaneously without the exertion of pressure by the
state,” Usher argues that this position “was due to concentration
of attention upon the ultimate fact of economic adjustment rather than to any
failure to recognize the magnitude of the obstacles encountered in the
development of the institutional mechanisms of social life.” “Thus liberal”
economists made substantial contributions to state policy designed to develop or
modify private institutions essential to economic activity.” (Op.
cit., p. 407) Hence”.. . their ordre naturel was no more than
a
[directive principle for the regulation of industry and
agriculture by a supposedly all-powerful and omniscient government. Quesnay’s Maximes were intended
to provide such a government with the viewpoints needed to translate into
practical policy the principles of the Tableau on the basis of
statistical data which he offered to have furnished periodically. The idea of a self-perpetuating system
of markets had never as much as entered his mind.” (Karl Polanyi, The Great
Transformation (New York: Rinehart, 1944), p. 135.)
For similar interpretations of the significance of
naturalism for the Physiocratic system see: Myrdal, op. cit., especially
pp. 28-29, 5-6, 115; Schumpeter, Economic Doctrine and Method, op. cit.,
pp. 47-59; MacGregor, op. cit., p. 66; 0. H. Taylor, Economics and
Liberalism (Cambridge: Harvard University Press, 1955), pp. 37-99, in
particular pp. 47, 51, 85-88, 98-99; John R. Commons, Legal Foundations of
Capitalism (New York: Macmillan, 1924), pp. 241-42, and Institutional
Economics (New York: Macmillan, 1934), pp. 136-37; Neffi, op. cit.,
pp. 162, 168-73, and “The Physiocrate’ Concept of Economics,” this
Journal, LXIII (Nov. 1949), in particular 551-53; James Bonar,
Philosophy and Political Economy (New York: Macmillan, 1909), p. 194;
John A. Mourant, “Mr. Neill and Physiocracy,” Journal of the History of Idea,
X (Jan. 1949), 113; and H. W. Peck, Economic Thought and its
Institutional Background (New York: Farrar and Rinehart, 1935), p. 65.] * HHC – [bracketed] section displayed on
p. 149 of the original.
148
Physiocracy
was not only Platonic in its theory of knowledge as applied to action and
change, but further would have directed the accomplishment of such change
through the agency of the political state. So far from calling for abstinence on
the part of the state, and a departure from
Colbertism, the Physiocrats would have used the state to accomplish their own
particular reorganization and redirection of the economy. It is one thing to denigrate the present
system, call for its cessation through voluntary abdication by government from
past policies and the abstinence from adopting any new state program save
abstinence itself, and at the same time seek the free, voluntary and
uncontrolled reorganization of the economy through a spontaneous emergence.
But it is quite something else to
call for the substitution of one system of activist policy for another, and
moreover, as will be seen, one also involving continuing supervision by the
state. What Physiocracy would have
accomplished was the substitution of their own program of agriculturalism
for that of Colbertism; i.e., of their aims, their policies and their
organization of the economy, for the aims, policies and organization of the
economy of the Ancien Régime. Smith, notwithstanding his praise,
also recognized that Physiocracy was a system no less than was
mercantiism, that Physiocracy simply would have changed the structure and
orientation of state policy rather than adopting the principle of having no
state policy of restraint and promotion, or what Smith called “the simple
and obvious system of natural liberty.” 9
9. Adam Smith, An Inquiry into the Nature and Causes
of the Wealth of Nations (New York: Modern Library, 1937), pp.
650-61.
149
The first function, then, of the Physiocratic theory of
economic policy is the enactment of the Physiocratic program of reconstruction
of an agricultural kingdom by the political state.
The Physiocratic theory of economic policy is thus
founded upon not only a theory of socio-economic change but also a theory of the
exercise of social control by the state. The Physiocrats recognized that the fact
of social existence, of society itself, required a system of social control;
that, further, the state is an instrument of social control; and that the
practice of social control by the state extends over the domain of the choice,
organization and control of the economy. Moreover, the Physiocrats recognized that
since the economy is or may be controlled by the state, the theory of economic
policy employed by the state governs the organization of the economy. Thus aware that to control the state is
to control economic policy, the Physiocrats’ aim was to secure adoption of their
particular theory of policy and program by the sovereign, to whom their program
of change was directed and through whom its realization was to be
effectuated.
The Physiocrats tacitly rejected what generally came to
be a central tenet of nineteenth century economic liberalism, namely, that the
state is an actual and potential nemesis to the individual, that economic policy
was to proceed from the maxim, “the least government the better.” On the contrary, the Physiocrats readily
envisioned the utilization of the political state for the accomplishment of
positive good, so that “From this point of view they would have rejected the
ridiculous paradox of Bastiat that the State does harm even when it does good;…”
1 The
Physiocrats saw that taxes were born out of their “very utility,” that the state
itself constituted an agent of production, 2 and that
since the state was axiomatically engaged in social control it was to be used as
an agency for the realization of the national economy deemed most naturally
essential and advantageous to political society. In thus regarding the state as a
necessary and useful institution, the Physiocrats were at one with both the
conservative Burke and later apostles of democratic
reformism.
The Construction of an
1.Henry Higgs, The Physiocrats (New York:
Langland Press, 1952), pp. 143-44.
2.Luigi
Einaudi, “The Physiocratic Theory of Taxation,” in Economic Essays in Honor
of Gustave Cassel (London: Allen and Unwin, 1933), pp. 129-42; discussed in
Samuels, op. cit., pp. 106-7.
150
crats. 3 Their argument can be reduced to a simple
syllogism, the phrases of which may be taken from Quesnay’s Maximes Générales
du Gouvernement Economique d’un Royaume Agricole, the title of which is
itself instructive. The reasoning
postulates:
That the sovereign and the nation never forget that the
land is the only source of wealth, and that it is agriculture which multiplies
it.... From this plentiful source
depends the success of all parts of
the government of the kingdom.
That the economic government occupy itself only in
favoring the productive outlays and the commerce of agricultural commodities,
and that it leave alone the sterile outlays.
Thus,
… the order of the government of an agricultural
kingdom... must unite all interests to a main object, to the prosperity of
agriculture, which is the source of all the wealth of the state and all its
citizens. 4
Since agriculture is assumed as the source of prosperity
(founded upon productivity), and since it is also assumed that the state is to
promote prosperity (concentrating logically upon productivity), it follows that
the state must promote agriculture and thus an agricultural
kingdom.
It perhaps needs to be made clear that it would be
erroneous to reduce Physiocratic policy to the simple formulation, “promote
agriculture,” though such was in fact required. What is involved is much broader, for the
reconstruction necessary to effectuate the agricultural kingdom would have
extended to the basic institutional foundations of the greater society itself.
But it does follow that to argue
the adoption of an agricultural society is to elevate the interests of the
agricultural classes (those deriving their income and status from agriculture
and land), which must mean, given the system advocated by Quesnay, the promotion
of the interests of the landowner, “for, in preference to all, THE KINGDOM MUST
BE WELL PEOPLED BY RICH FARMERS.” 5
The Reorganization and Redirection of the State:
The construction of the agricultural
kingdom through the agency of the state required, in the minds of the
Physiocrats, the reorganization and redirection of the state itself so as to
facilitate the realization of their objective. This alteration of state power involved a
reconstitution of the decision-making structure of the state and a change in the
focus and conduct of state affairs. In both respects the changes Physiocracy
would have wrought would have been a substantial departure
from
3. Except for Turgot, for whom the foundations of the
new order would have been broader based, as that of Quesnay might have become
had he the opportunity to formulate actual public policy.
4. Oncken, op. cit., pp. 330,
333.
5.Ibid., p.
333.
151
the hierarchy of policy criteria governing the
organization and conduct of such policy under the Ancien Régime. The specific changes are the
Physiocrats’ solutions to problems then contemporary in
The problems of contemporary France as perceived by the
Physiocrats included: (a) the practice of Colbertism, meaning Colbertism pur,
whereby agriculture was disadvantaged in the interests of the development of
national industry in the pursuit of favorable trade balances; two prostitutions
of Colbertism pur, namely, (b) the refocusing of national economic policy
from the objective of a favorable trade balance (and thereby economic
development and national strength) to the support of the treasury (i.e., the
profligate monarch’s imperial and courtly expenditures), and (c) the
exploitation and manipulation of government policy for the private pecuniary
advantage of those in and out of public office;’ (d) the internal protection
system, resulting from the dual policies of local governments to secure and
protect both the locally produced necessities for the local population and the
local market for locally produced goods and services; and (e) the social and
political division of the French nation, coupled with and manifest in the
juridical diversity of the several parts of the nation, and the resultant mutual
distrust and hostility.
To the Physiocrats, all of the foregoing was anathema,
and for each the Physiocrats had a solution. In the article “Grains,” Quesnay laid
down a basic principle of policy: “The government of the incomes of the nation
must not be abandoned to the discretion or authority of the minor administration
and private individuals.” Internal
protectionism and Colbertism, both pure and impure, were to be abrogated. Physiocratic economic policy would assume
the tasks of:
… suppressing the prohibition and prejudicial
impediments to the internal commerce and reciprocal external
commerce.
abolishing or moderating the excessive rights of rivers
and tolls which destroy the incomes of the distant provinces where the
commodities can be commercial only by long transports;...
It is no less necessary to abolish the special
privileges of the provinces, towns and communities for their particular
advantages.
6. Max Weber described as “political capitalism” or
“fiscal capitalism” the economy wherein profit opportunities accrue from the
exploitation of political prerogatives. From Max Weber: Essays in Sociology,
H. H. Gerth and C. Wright Mills, eds. (New York: Oxford University Press,
1946), pp. 66-87; see also Max Weber: The Theory of Social and Economic
Organization, ed. Talcott Parsons (New York: Oxford University Press, 1947),
pp. 278-80.
152
It is important also to facilitate everywhere the
communications and the transports of merchandise by repairing roads and
navigation of rivers.
It is moreover essential not to subjugate the commerce
of the commodities of the provinces in the prohibitions and permissions
shortlived and arbitrary which ruin the countryside under the heady pretext of
assuring the abundance in the towns...
One must not restrict at all the exportation of grains
to some particular provinces because they become exhausted before the other
provinces can regarnish them; and the inhabitants can be exposed, during many
months, to a scarcity which they attribute with reason to
exportation.
But when the freedom of exportation is general, the
raising of grains is not susceptible because the merchants draw from all parts
of the kingdom, above all from the provinces where the price of grain is
low.
The basic ideas are reiterated in the Maximes
Générales.
A second basic principle was placed at the beginning of
the Maximes Genérales:
That the sovereign authority be single and superior to
all the individuals of society and to all the unjust enterprises of special
interests; for the object of rule and obedience is the security of all and the
lawful interest of all. The system
of checks and balances (counterforces) in government is a harmful one which only
produces discord among the great and the oppression of the weak. The division of society into various
orders of citizens, whereof some exercise sovereign authority over others, is
detrimental to the general interest and introduces the dissention of special
interests among the various classes of citizens: this division reverses the
order of the government of an agricultural kingdom which must unite all
interests to a main object, to the prosperity of agriculture, which is the
source of all the wealth of the state and all its citizens. 7
In the words of Turgot, there should be “a paternal
government, based on a national constitution whereby the monarchy is raised
above all in order to assure the welfare of all;…” Thus, “The edicts were calculated partly
to restore the monarchy to the de facto head of the State, re-exalted the
hearts of the people, and made free the parasites which were fattening from its
already over-weakened vitality, and set forward to impartial government of all
the subjects.” 8 The “liberty of the king’s subjects,” as
Turgot put it, was not to be sacrificed “to the exactions and caprices of
private interests.” 9 Quesnay
thus devotes the final three Maximes to the subject of financial reform.
1
7. Oncken, op. cit., pp. 241-42, 331; see also
Mazimes XVI, XVII, XXV.
8. R. P.
Shepherd, Turgot and the Six Edicts (New York: Columbia University,
Series in History, Economics and Public Law, Vol. XVIII, No. 2, 1903), pp. 103,
61; see also pp. 138, 37-42, and Stephens, op. cit., pp. 267-68, 245-46,
240-41.
9.Stephens, op. cit.,
p. 45.
1.Oncken, op. cit., pp.
337-38.
153
These Physiocratic solutions in their entirety would
have reconstructed the political economy of
It is clear, then, that “The physiocrats… do not call
forth a contrast between state and society; they inquire into the reasons which
cause the flourishing or the decadence of both at the same time. The celebrated words of Dupont are the
most fitting that can be given of the physiocratic doctrine: ‘...Pauvres
paysans; pauvre royaume. Pauvre
royaume; pauvre souverain.’ 3 Like the Marxists of a century later the
Physiocrats were convinced of the validity of their ideas and program. What was necessary then was to secure an
efficient system of political economy capable of effectuating their
program. “Monarchy justified by
expedience” 4 served the purpose well. Yet, in a broader context, the
Physiocrats reflect the ascend-
2. Physiocratic
political theory incorporated several checks, or “guarantees,” upon the
sovereign power; see Mario Einaudi, The Physiocratic Doctrine of Judicial
Control (Cambridge: Harvard University Press, 1938).
3. Ibid., p. 25.
4. C. Northcote Parkinson, The Evolution of Political
Thought (Boston: Houghton Mifflin, 1958). See also Alexis de Tocqueville,
The Old Regime and the French Revolution (Garden City: Doubleday Anchor,
1955), pp. 164-65.
154
ancy of the nation-state as the dominant formal
institution for social control and social change.
GOVERNMENT
AND ECONOMIC DEVELOPMENT
As part of their general economic theory, the
Physiocrats had a systematic model of economic development the central focus of
which was the flow of adequate resources to agriculture. The securing of economic development
(defined in terms of agriculture) thus became the second major function of
government in the Physiocratic theory of economic policy.
The promotion or protection of adequate agricultural
resources may be defined in terms of the bon prix: “The principal
function of adequate trade consists in the encouragement of profitable
agricultural activity by providing a large salesmarket and a high and stable
price for its products.” 5 Or it may be thought of in terms of a
proper pattern of spending: “It is... upon the continuity of this circulation
and upon the pattern of national expenditure or consumption (i.e., distribution
of expenditures between the sterile and productive classes) that, in
physiocratic theory, economic health, prosperity, and progress depend.” “Consumption and expenditure must be
according to pattern... 6 In either case, the Physiocratic theory
of economic policy included as a basic proposition that:
The government’s efforts must be directed towards the
encouragement of all expenditures which tend to maintain the high price of
agricultural products and ensure a sufficient effective demand to cover the
supply of these goods.7
One has but to cite Maxime VIII and the validity
of the present function is clear:
That the economic government occupy itself only in
favoring the productive outlays and the commerce of agricultural commodities,
and that it leave alone the sterile outlays.
And two other Maximes deal with the same
principle. 8
The matter is even clearer when the negative side is
examined. If it is true that
“Prudent or ‘productive’ consumption is one of the major prescriptions for
policy…”, 9 then it is
also true that unproductive consumption is one of the major proscriptions of
policy. Witness, then, Maximes
IX and XXII:
5. Henry Woog, The Tableau Economique of Francois
Quesnay (Bern: A.Francke, 1950), p. 28; see also p.
86.
6. J. J. Spongier, “The Physiocrats and Say’s Law
of Markets,” I-II, Journal of Political Economy, LIII (Sept. and Dec.
1945), 204, 205.
7.
Woog,
op. cit., p. 89.
8. Oncken, op. cit.,
pp. 335, 336, Maximes XX and XXVII.
9. Harold G. Vatter, “The Physiocrats and the Growth of
Underdeveloped Economies,” Current Economic Comment, Vol. 18 (Nov. 1956),
p. 40.
155
That a nation which has a large territory to cultivate
and the facility of exercising a large commerce in agricultural commodities not
extend too much employment of money and men to manufactures and luxury commerce,
to the detriment of the work and outlays of agriculture; for, in preference to all, THE KINGDOM MUST BE WELL
PEOPLED BY RICH FARMERS.
That one not promote the luxury of ornamentation to the
detriment of the expenses of the exploitation and improvement of agriculture and
the expenses of consumption of subsistence, which maintains the good price and
the sale of local agricultural commodities and the reproduction of the nation’s
income. 1
But of all the facets of public policy
relating to the promotion and protection of economic development, “the strategic
one to Quesnay was the protection of the funds (in real terms) properly destined
for replacement and accumulation of fixed and working capital.”
2 To this matter Quesnay devoted no less than three
Maximes. 3
In the present age, when agricultural economic policy
has apparently reached its zenith (or nadir), the meaning of all this is quite
clear, notwithstanding the fact that the Physiocrats (save for Turgot) had no
opportunity in France to spell out the particulars of the various general policy
prescriptions. But it has long been
clear that Physiocratic proposals for tax and monetary reform had as one of
their objectives the reduction of burdens upon the advances and thus upon
productivity. And it is also true
that the purpose of interest rate regulation for several of the Physiocrats was
to facilitate the movement of capital to agriculture. Moreover, not only was government to
promote and protect the flow of capital to agriculture, but government was also
specifically to promote the grande culture. Thus the government should help
promote “That the children of wealthy farmers establish themselves in the
country for perpetuating the labor supply there,” but primarily because “it
is less men than wealth that one must attract into the country” to establish the
grande culture. While “One
ought not favor the monopoly of the cultivation of landed properties for it is
detrimental to the general income of the nation,” said Quesnay, it is
nonetheless incumbent upon government to provide “That the lands employed in
the cultivation of grains be combined, as much as possible into large farms
exploited by rich farmers...”
4
Government participation,
promotion and supervision
1. Oncken, op. cit., pp. 333, 335; see also
Vatter, ibid., pp. 39-40; Woog, op. cit., pp. 84 ff.; Spongier,
op. cit., pp. 208ff.; and Leo Rogin, The Meaning and Validity of
Economic Theory (New York: Harper, 1956), p. 32.
2. Vatter, op. cit., p. 39.
3. Oncken, op. cit., pp. 332, 333, Maximes
V, VI and XII. See also Woog,
op.cit., p. 92; and Spongier, op. cit.
4. Oncken, op. cit., pp. 333,
334.
156
was thus included by the Physiocrats in their theory of
economic development.
But it is here also that the principle of the freedom of
commercial intercourse belongs, though as a practical maxim postulating
substantial freedom to the particulars of economic life and not as dogma or
doctrine. As with Adam Smith, so
also with the Physiocrats: economic development - the maximization of the net
product - was in part contingent upon substantial economic
liberty.
That one not hinder at all the foreign commerce in local
commodities; for SUCH IS THE SALE, SUCH IS THE REPRODUCTION. 5
But what “substantial economic liberty” meant for the Physiocrats is
clearly no blanket prescription against any positive and activist role of
government in the economy, but rather freedom in the sundry particulars of
economic life, and these only given (a) the consonance thereof with the economic
development of the agricultural kingdom and (b) the exercise of government
authority promotive of the agricultural kingdom.
What
“substantial economic liberty” must be taken to mean, then, are the
down-to-earth particulars of (a) substantial freedom in the utilization of
privately owned resources, including the freedom of cultivation and the
employment of capital, “the easiness and choice of expenditure,”6 and
the freedom of occupations;7 and (b) substantial freedom in the
buying and selling and transport of commodities. These were the matters that were
impeded, prohibited or regulated by both Colbertism, pure and impure, and local
protectionism; these were the matters in which the Physiocrats generally would
have let spontaneity govern - and they involve substantial freedom for the
individual in his economic pursuits. It is laissez faire, laissez passer, meaning thereby freedom to do,
or freedom to make, and freedom to pass; or, as
Laissez faire did not imply that Government should abstain inertly
from constructive work: it meant simply that anyone who thought that he could
make anything with advantage, whether on old lines or by a new method, should be
at liberty to do so. Laissez
passer had its chief application to difficulties that did not exist in
5. Ibid., p. 334.
6. Ibid., pp. 240-41; see also Maxime XIII
(p. 333).
7. Shepherd,
op. cit., p. 119.
8. Alfred Marshall, Industry and Trade (3d ad.;
157
Such constructive work would take the form of the
several functions attributed to government as developed in these pages. Moreover, Quesnay’s twenty-fifth Maxime,
“That there be maintained the complete freedom of commerce;…” did not
preclude the principle that all behavior would have to be consonant with the
operation of the agricultural system. Thus the “complete freedom of commerce”
is modified by such Maximes as those which provide:
THAT A PART OF THE SUM OF INCOMES NOT PASS TO A FOREIGN
COUNTRY WITHOUT RETURNING, IN MONEY OR IN
MERCHANDISE.
THAT THEY PREVENT (EVITE) THE DESERTION OF HABITANTS WHO
WOULD CARRY THEIR WEALTH OUT OF THE KINGDOM.
and that there be no social loss in foreign trade.
9 The
exercise of private freedom was contingent upon the essentially collectivist
criterion of the effect upon the agricultural system. Private vices were not always public
virtues, nor were private virtues always public virtues.
Laissez faire, laissez passer thus had an important role in the Physiocratic theory of
economic policy: what the neoclassical economist calls resource allocation was
to be achieved substantially through the operation of substantial economic
liberty, given the caveats noted above, namely, the consonance thereof
with the agricultural system, and government policy demonstrably activist in
other respects. But laissez
faire, laissez passer is not the sum total of the Physiocratic theory of
economic policy; for clearly the Physiocratic concept of the role of government
in the economy was not one of sitting back and relaxing and letting the world
and the economy go by on its own. Individuals were to have greater latitude
of action than under the Ancien Régime, but they were still to operate.
within the social controls of a Royaume Agricole. Nor, as Smith himself pointed out, is
the Physiocratic theory of economy policy, interpreted as laissez faire, that of
Adam Smith. It is now well
recognized that Smith’s theory of economic policy has no insignificant place for
government, though such was not emphasized. In comparison therewith, however, the
position here is that in the Physiocratic theory of economic policy, (1)
government had a more thorough and activist role, being given specific positive
tasks and ends, and (2) laissez faire, as defined above, had a restricted
scope. Smith would rely largely
upon the free market for the direction and course of economic development;
the Physiocrats would have adopted some form of what now would be called target
planning (and balance planning - see the following section)
to
9. Oncken, op cit., 333, 336.
158
govern the form of economic organization and economic
behavior in general. The
Physiocrats would have influenced the allocation of resources directly, as they
deemed necessary; and, moreover, pervasively, by controlling the particular
institutional environment within which resource allocation takes place, to wit,
so as to direct resources to agriculture - neither of which is Smithian. The free market of Smith was relatively
spontaneous, autonomous and viable; that of the Physiocrats would not be the
opposite but it would be a manipulated economy. To Smith, government had positive tasks
but was to be relatively passive insofar as resource allocation and economic
development were concerned; to the Physiocrats, government was to supervise
actively the performance of the economy (thus antedating contemporary programs
of economic development).
GOVERNMENT AND ECONOMIC
STABILITY
Correlative to the. role of government in securing
economic development was a solicitude shared by several Physiocrats over the
stability of growth. These
writers were concerned over obstacles that might impede the process of expansion
once the agricultural system had already become a fait accompli. As Spengler put it, Quesnay
discovered “that economic relations are resolvable into a circular flow, whose
continuity is contingent upon the presence of certain conditions.”
1 Interruption might result from two types
of circumstances: first, the proper pattern of spending might not be achieved,
with an adverse effect upon the sale of agricultural commodities and
agricultural income and investment, the total volume of spending, ceteris
paribus, remaining unchanged; and second, the maximization of the net
product might not be realized due to an inadequate volume of spending per se,
with a similar contracting effect. 2
Since growth could be impeded whenever there did not
exist the required pattern or volume of expenditures, the Physiocratic theory of
economic policy therefore also was concerned with promoting and protecting those
necessary conditions. Since
“...they did infer, in consequence of their peculiar theory of production, that
an economy might be in equilibrium either at a prosperity or at a depression
level,” several Physiocrats contemplated the exercise of
1. Spengler, op. cit., p.
347.
2. Spengler, ibid.; see also Woog, op. cit.,
p. 83 if., and Ronald L. Meek, “The Interpretation of the Tableau
Economique”; Economica, N.S. XXVII (Nov. 1960),
336-47.
3. Spengler, ibid., p. 327; see also p.
326.
159
government policy (monetary, fiscal and trade) vis-à-vis
conditions of instability. While
once again the particulars of policy never had occasion to be fully developed,
and while there is some question as to how far several of the Physiocrats would
have gone, 4 there is
ample explicit evidence, as indicated in the author’s earlier article, to
indicate that Quesnay and several other Physiocrats would have clearly favored
governmental supervision of the performance of the economy in this respect as in
others.
The securing of the stability of economic development
thus becomes the third general function of government in the Physiocratic
system.
CONCLUSIONS
The reformulation of the Physiocratic theory of economic
policy that forms the thesis of this article cannot be proven: for all the
passages either esoteric or mundane extolling the glories of the abstinence of
civil government, of the pervasive existence of liberté, there are
equally strong exclamations in support of what the Physiocrats called
autorité tutelaire. The
positivist position has been taken here that what counts is what their policy
really amounted to, rather than the doctrinaire statements one way or the other.
But fundamentally the matter cannot
be settled with any great finality because no Physiocratic régime came to
pass in
Moreover, the supposed paradox of economic freedom and
political absolutism cannot be resolved by stating that, “What they wanted to
see was the minimum of legislation with a maximum of authority.” After all, the relevant index is not the
length or weight of the statute book but rather the character and extent of the
role of
4. Spengler, ibid., pp. 328-29; Samuels, op. cit.,
p. 104, note 4.
160
government, i.e., the realm and exercise of its
authority. The paradox is only a
paradox as long as the Physiocrats are defined as nineteenth century economic
liberals - which they were not, though laissez faire had a place in their theory
of economic policy. Nor can it be
argued that, “It was just the sovereignty of the ‘natural order’ - nothing
more.” 5 There
seems to be a choice of proffered natural orders, the selection and adoption of
which is a matter of discretion, i.e., of policy. The fact of the language of naturalism
does not preclude the foregoing analysis from being policy; in spite of
all their naturalism, the Physiocrats were essentially Platonic. The naturalist interpretation “. . .
fails to grasp the fundamentally reformist character of their teaching and does
injustice to their doctrine of economic policy.”
Whitehead has stated that, “The conduct of human affairs
is entirely dominated by our recognition of foresight determining purpose, and
purpose issuing in conduct. 7 The Physiocrats did not achieve the level
of “conduct”; but they had “purpose,” and their purpose may be crystallized in
terms of what they would have done had the opportunity for conduct arisen. That part of “what they would have done”
relevant to the organization and control of the economy becomes their theory of
economic policy. It is the
effective basis of this program for the realization of purpose that this article
has endeavored to delineate.
The Physiocratic theory of economic policy is
fundamentally related to a theory of property:state relations in which private
property is the dominant institutional form but wherein the public interest is
manifest in the continuing modification or reconstitution of the bundle of
rights that comprise private property at any given time.
The theory of economic policy operationally extant in
the writings and beliefs of the Physiocrats encompassed the three paramount
functions 8 of government defined above: (a) the conduct of
socio-
5. Gide and Rist, op. cit., pp. 34,
35.
6. George J. Malanoe, “The Evolution of
the General Theory,” unpublished Ph.D. thesis,
7. Alfred North Whitehead, The Function of Reason
(Boston: Beacon Press, 1958), p. 13.
8. Two other functions may also be identified, functions
mundane but hardly unimportant. These may be called the protective and
welfare functions. Both may be
clarified as derivative of the police power as conventionally understood. The protective function relates to the
securing of person and property against domestic and foreign sources of illegal
infringement. (See Samuels, op. cit., pp. 96-97.) While all Physiocratic theory and each
function of government relates to welfare, the welfare function narrowly defined
is basically remedial, as indicated by Turgot’s program for famine relief.
(Samuels, op. cit., pp. 101-2.)
161
economic change, i.e., the construction of the
institutions of an agricultural system; (b) the support of economic development
under the new system; and (c) the protection against obstacles to stability of
growth. The Physiocratic theory of
economic policy is thus far more complex than can be summarized by the term
laissez faire (or laissez faire, laissez passer). If the term be defined broadly - as
proscribing or minimizing government activity writ large - then it is patently
fallacious and invalid. If it be
defined narrowly - substantial freedom for resource allocation, involving wide
personal latitude in economic affairs - then it is an incomplete statement of
Physiocratic economic policy, for government had positive roles to play over and
above - though not independent of - private behavior. 9 As Randall put it, “This dual
demand for protection in fundamentals and freedom in all else is the controlling
principle in the development of the science of political economy.” 1
Doctrine should not obscure the
exercise of social control by the Physiocratic state, nor their coming to grips
with the problem of securing change in an orderly manner. Nor is it tenable that such social
control was of the “minimal” variety, meaning a real modicum of government
authority and activity; minimal “given the system” is logically correct, but
takes rather much for granted, begging the question of “the system.” To paraphrase J. M. Clark, “we must take
some pains to avoid the implication that economy exists first and is then
controlled. Control is rather an
integral part of economy, without which it could not be economy at all. The one implies the other, and the two
have grown together.” 2 Thus did the Physiocrats implicitly
recognize that the basic economic institutions (the organization of economy) are
legal in character; that law is an instrument for the attainment of economic
objectives and that economy is an object of legal control.
9. Thus if
one defines laissez faire “to embrace the arguments of those who accepted
government as a necessity but nevertheless wished to see its functions reduced
to the narrowest possible limits,” and of those who “recognized that government
must protect life and property and must provide a few common services, such as
education, but essentially... viewed the state in negative terms and were loath
to have it assume positive duties in the interest of the general welfare,” then
the Physiocrats would appear to belong more properly among “The theorists of the
general-welfare state,... (who) believed that the state could benefit society by
a positive exertion of its powers and that it should therefore act whenever its
interposition seemed likely to promote the common well-being.” Sidney Fine, Laissez Faire and the
General-Welfare State (Ann Arbor: The University of Michigan Press, 1956),
p. vii.
1. J. H. Randall, Jr., The Making of the Modern Mind
(Boston: Houghton Muffin, 1926), p. 322.
2. J. M. Clark, Social Control of Business (New York: McGraw-Hill, 1939), p. 12.
162