LECTURE No. 4. Physiocracy

1. General characteristics of physiocrats

The school of physiocrats (literally, the word "physiocrats" is translated as "the power of nature") is the first scientific school of economic thought. The Physiocrats believed that true wealth is the product that agriculture produces. They believed that the mercantilists were wrong in that gold is the most important thing, and the country is richer, the more gold it contains. The founders of this trend are considered to be the French - such as Francois Quesnay (1694-1774), Jacques (Anne) Turgot (1727-1781), Victor de Mirabeau (1715-1789), Dupont Neymour (1739-1817). The most popular physiocracy was among the French intelligentsia, although it developed in other countries of Western Europe. The physiocrats were convinced that the peasants were the main people in the state, since they were the only ones who produced the product. The rest are processed, such as merchants and industrialists, or consumed, such as the army and nobles. Citizens feed on exchange, but do not create a new product.

The Physiocrats believed that the policy of the state should be more liberal in relation to entrepreneurs, so as not to interfere with their work for the development of production. It was in this policy that they supported the mercantilists. Physiocracy itself was born as a desire to put up with the shortcomings of mercantilism.

In our time, the teachings of the physiocrats are presented in many mathematical models in production, and here their developments bring certain benefits.

2. Teachings of François Quesnay

Francois Quesnay - the court physician of King Louis XV of France, was born into a poor peasant family in the suburbs of Versailles (this is not far from Paris). In order to become a doctor, he left home at the age of 17. Getting older and increasing his wealth, he began to devote more and more time to philosophy, and then to economic theory. His students and followers are the elite of the French society of that time. Francois Quesnay is known as the author of the "Economic Table" (1758) and such articles as "Population" (1756), "Farms" (1757), "Grain" (1757), "Taxes" (1757). In the work "Economic Table" F. Quesnay showed that the circulation of cash flow and social product is constantly going on. This table is the very first experience of modeling economic processes. F. Quesnay was one of the first to try to understand what capital is in the economic sense of the word, and introduced such concepts as "fixed capital" and "circulating capital". Quesnay mentioned many times that in order to drive out monopoly and reduce costs, trade should be expanded and enterprising people should be given as much freedom as possible.

François Quesnay's "Economic Table" can be called the first attempt at macroeconomic research. Even now it is used in macroeconomic studies, although in a slightly improved form.

In his work, he divides all people into three groups, namely:

1) farmers - the main, in his opinion, people in the state;

2) the bourgeoisie and the nobility, owning the land (landlords);

3) craftsmen, workers and ordinary people who are not engaged in agriculture.

It is between these three classes that the circulation of both money and goods takes place, which constantly creates the need to start it anew. This cycle can be described as follows. The landlord will rent his land for money, with which he will subsequently purchase what has grown on his own land, and manufactured goods to satisfy his needs. The tenant will pay money for using the land to grow crops, and then sell his product to industrialists and landlords. The industrialist will buy the product from the farmer and sell his goods to both the farmer and the owner of the land.

In his writings, Quesnay most often condemned the mercantilists for their views on economic problems in general. He convinced that someone's sole (private) interest cannot exist separately from the interests of society as a whole, but this is possible only under the rule of freedom.

3. Activities of Jacques Turgot

Anne Robert Jacques Turgot (1721-1781) - nobleman, minister of finance in the early years of the reign of Louis XVI, one of the followers of François Quesnay, although he did not consider himself one of them and denied his belonging to the physiocrats. Almost all of his ancestors were in the service in Paris. According to tradition, he was supposed to become a clergyman, but after he graduated from the seminary, he changed his mind. Before he was appointed Minister of Finance, he served as Minister of Navy. Jacques Turgot was both a practitioner and a theorist. He is the author of the book "Reflections on the Creation and Distribution of Wealth" (1766) and the never completed work "Values ​​and Money" (1769). Even earlier, he showed the world his work entitled “Letter to the Abbé de Cisay on paper money” (1749). In his work, he refined the ideas of Francois Canet and put forward many completely new assumptions. He believed that if you constantly invest money and labor in a larger volume in one area, then at first this will cause an increase in profit on capital, and after a certain point of oversaturation there will be a recession and a sharp decrease in profit on invested capital. Indeed, due to bans limiting the import of grain, it was necessary to use poor soil, investing more money and effort into its cultivation. This led to an increase in grain prices. He proposed lifting the ban on the import of grain into France, as well as allowing duty-free export from the country. He explained how the wages of a simple worker in the market work out (it all depends on the number of competitors for the position, because they hire the one who agrees to work for less pay). Also, Jacques Turgot improved the "Economic Table" of Francois Canet.

As a minister, he tried to put the ideas of the physiocrats into practice. The first thing he did in his post was to reduce taxes for the peasants and set taxes for the nobility. His reforms did not please the French nobility, because they were accustomed to living in grand style at the expense of others. Some began to openly condemn him, while others started gossip. These gossip subsequently served as the reason for his voluntary resignation. The most surprising thing is that all the innovations he put into practice were immediately canceled with the light hand of the government. This was not slow to affect the French reality of that time.

Authors: Eliseeva E.L., Ronshina N.I.

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