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Physiocracy (; from the Greek language for "government of nature") is an economic theory developed by a group of 18th-century Age of Enlightenment French economists. They believed that the wealth of nations derived solely from the value of "land agriculture" or "land development" and that agricultural products should be highly priced. Their theories originated in France and were most popular during the second half of the 18th century. Physiocracy became one of the first well-developed theories of economics.
François Quesnay (1694–1774), the marquis de Mirabeau (1715–1789) and Anne-Robert-Jacques Turgot (1727–1781) dominated the movement,Steiner (2003), pp. 61–62 which immediately preceded the first modern school, classical economics, which began with the publication of Adam Smith's The Wealth of Nations in 1776.
The physiocrats made a significant contribution in their emphasis on productive work as the source of national wealth. This contrasted with earlier schools, in particular mercantilism, which often focused on the ruler's wealth, accumulation of gold, or the balance of trade. Whereas the mercantilist school of economics held that value in the products of society was created at the point of sale, by the seller exchanging his products for more money than the products had "previously" been worth, the physiocratic school of economics was the first to see manual labor as the sole source of value. However, for the physiocrats, only agricultural labor created this value in the products of society.Karl Marx and Frederick Engels (1988), pp. 348, 355, 358. All "industrial" and non-agricultural labors were "unproductive appendages" to agricultural labor.
Quesnay was likely influenced by his medical training, particularly by the work of William Harvey who explained how blood flow and the circulatory system is vital to the human body; Quesnay held that the circulation of wealth was vital to the economy. Societies at the time were also overwhelmingly agrarian. This may be why they viewed agriculture as the primary source of a nation's wealth. This is an idea which Quesnay purported to demonstrate with data, comparing a workshop to a farm. He analyzed "how money flowed between the three classes of farmers, proprietors, and artisans, in the same mechanical way that blood flows between different organs" and claimed only the farm produced a surplus that added to the nation's wealth. Physiocrats viewed the production of goods and services as equivalent to the consumption of the agricultural surplus, since human or animal muscle provided the main source of power and all energy derived from the surplus from agricultural production. Profit in capitalist production was really only the Economic Rent obtained by the owner of the land on which the agricultural production took place.
"The physiocrats damned cities for their artificiality and praised more natural styles of living. They celebrated farmers." Why Americans Value Rural Life by David B. Danbom They called themselves Economist, but are generally referred to as "physiocrats" to distinguish their beliefs from the many schools of economic thought that followed. The Penguin Dictionary of Economics, George Bannock, R. E. Baxter and Evan Davis. 5th Edition. Penguin Books 1992 p. 329.
Other inspiration came from China's economic system, then the largest in the world. Chinese society broadly distinguished four occupations, with scholar-bureaucrats (who were also agrarian landlords) at the top and merchants at the bottom (because they did not produce but only distributed goods made by others). Leading physiocrats like François Quesnay were avid Confucianism who advocated China's agrarian policies.Derk Bodde (2005), Chinese Ideas in the West p.6, Reprinted with permission in China: A Teaching Workbook, Asia for Educators, Columbia University Some scholars have advocated connections with the school of agriculturalism, which promoted utopian communalism.Maverick, Lewis A. (1938). "Chinese Influences Upon the Physiocrats". Economic History 3. One of the integral parts of physiocracy, laissez-faire, was adopted from Quesnay's writings on China, being a translation of the Chinese Taoism term wu wei. The concept natural order of physiocracy originated from "Way of Nature" of Chinese Taoism.
Pierre Le Pesant, sieur de Boisguilbert served as a member of Louis XIV's local administration of Paris, and wrote pamphlets and booklets on subjects related to his work: taxation, grain trade, and money. Le Pesant asserted that wealth came from homo economicus and markets were connected by money flows (i.e. an expense for the buyer is revenue for the producer). Thus he realized that lowering prices in times of shortage – common at the time – was dangerous economically as it acted as a disincentive to production. Generally, Le Pesant advocated less government interference in the grain market, as any such interference would generate "anticipations" which would prevent the policy from working.Steiner (2003), p. 61
For instance, if the government bought corn abroad, some people would speculate that there was likely to be a shortage and would buy more corn, leading to higher prices and more of a shortage. This was an early example of advocacy of free trade. In anonymously published tracts, Vauban proposed a system known as La dîme royale: this involved major simplification of the French tax code by switching to a relatively flat tax on property and trade. Vauban's use of statistics contrasted with earlier empirical methods in economics.
The event that led Mirabeau to devote himself to political economy was undoubtedly his work on a manuscript of Richard Cantillon's Essai sur la nature du commerce en général, which he had in his possession as early as 1740. He elaborated a commentary of this text that gradually became his Ami des hommes.
Around the time of the Seven Years' War between France and England (1756–63), the physiocracy movement grew. Several journals appeared, signaling an increasing audience in France for new economic ideas. Among the most important were the Journal Œconomique (1721–72), which promoted agronomy and rational husbandry and the Journal du commerce (1759–62), which was heavily influenced by the Irishman Richard Cantillon (1680–1734), both dominated by physiocrats; the Journal de l'agriculture, du commerce et des finances (1765–74) and the Ephémérides du citoyen (1767–72 and 1774–76).
Also, Vincent de Gournay (1712–1759), the Intendant, brought together a group of young researchers including François Véron Duverger de Forbonnais (1722–1800) and one of the two most famous physiocrats, Anne-Robert-Jacques Turgot (1727–1781). The other, François Quesnay (1694–1774), was among those writing prolifically in contemporaneous journals.
The model Quesnay created consisted of three economic agents: the "proprietary" class consisted only of landowners; the "productive" class consisted of agricultural laborers; the "sterile" class was made up of artisans and merchants. The flow of production and cash between the three classes originated with the proprietary class because they owned the land and bought from both of the other classes.
The New Physiocratic League is a current Georgist political movement which seeks to revive elements of physiocracy.
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