Read Ebook: A History of Economic Doctrines from the time of the physiocrats to the present day by Gide Charles Rist Charles Richards R Robert Translator Smart William Translator

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Ebook has 2311 lines and 330659 words, and 47 pages

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BOOK I: THE FOUNDERS

THE LAW OF POPULATION 121

BOOK II: THE ANTAGONISTS

BOOK IV: THE DISSENTERS

BOOK V: RECENT DOCTRINES

CONCLUSION 643

INDEX 649

BOOK I: THE FOUNDERS

But the counsels given and the recipes offered for attaining the desired end were as diverse as they were uncertain. One school, known as the Mercantilist, believed that a State, like an individual, must secure the maximum of silver and gold before it could become wealthy. Happy indeed was a country like Spain that had discovered a Peru, or Holland, which, in default of mines, could procure gold from the foreigner in exchange for its spices. Foreign trade really seemed a quite inexhaustible mine. Other writers, who were socialists in fact though not in name--for that term is of later invention--thought that happiness could only be found in a more equal distribution of wealth, in the abolition or limitation of the rights of private property, or in the creation of a new society on the basis of a new social contract--in short, in the foundation of the Utopian commonwealth.

It was at this juncture that Quesnay appeared. Quesnay was a doctor by profession, who now, when on the verge of old age, had turned his attention to the study of "rural economy"--the problem of the land and the means of subsistence. Boldly declaring that the solution of the problem had always lain ready to hand, needing neither inventing nor discovering, he further maintained that all social relations into which men enter, far from being haphazard, are, on the contrary, admirably regulated and controlled. To those who took the trouble to think, the laws governing human associations seemed almost self-evident, and the difficulties they involved no greater than the difficulties presented by the laws of geometry. So admirable were these laws in every respect that once they were thoroughly known they were certain to command allegiance. Dupont de Nemours cannot be said to have exaggerated when, in referring to this doctrine, he spoke of it as "very novel indeed."

The Physiocrats must also be credited with the foundation of the earliest "school" of economists in the fullest sense of the term. The entrance of this small group of men into the arena of history is a most touching and significant spectacle. So complete was the unanimity of doctrine among them that their very names and even their personal characteristics are for ever enshrouded by the anonymity of a collective name.

Their publications follow each other pretty closely for a period of twenty years, from 1756 to 1778.

An examination of the doctrine, or the essential principles as they called them, must precede a consideration of the system or the proposed application of those principles.

I: THE NATURAL ORDER

What are we to understand by these terms?

It is hardly necessary to say that the term "natural order" is meant to emphasise the contrast between it and the artificial social order voluntarily created upon the basis of a social contract. But a purely negative definition is open to many different interpretations.

In the first place, this "natural order" may be conceived as a state of nature in opposition to a civilised state regarded as an artificial creation. To discover what such a "natural order" really was like man must have recourse to his origins.

In the second place, the term "natural order" might be taken to mean that human societies are subject to natural laws such as govern the physical world or exercise sway over animal or organic life. From this standpoint the Physiocrats must be regarded as the forerunners of the organic sociologists. Such interpretation seems highly probable because Dr. Quesnay through his study of "animal economy" and the circulation of the blood was already familiar with these ideas. Social and animal economy, both, might well have appeared to him in much the same light as branches of physiology. From physiology to Physiocracy was not a very great step. At any rate, the Physiocrats succeeded in giving prominence to the idea of the interdependence of all social classes and of their final dependence upon nature. And this we might almost say was a change tantamount to a transformation from a moral to a natural science.

Even this explanation seems to us insufficient. Dupont, in the words which we have quoted in the footnote below, seems to imply that the laws of the beehive and the ant-hill are imposed by common consent and for mutual benefit. Animal society, so it seemed to him, was founded upon social contract. But such a conception of "law" is very far removed from the one usually adopted by the natural sciences, by physicians and biologists, say. And, as a matter of fact, the Physiocrats were anything but determinists. They neither believed that the "natural order" imposed itself like gravitation nor imagined that it could ever be realised in human society as it is in the hive or the ant-hill. They saw that the latter were well-ordered communities, while human society at its present stage is disordered, because man is free whereas the animal is not.

What are we to make of this "natural order" then? The "natural order," so the Physiocrats maintained, is the order which God has ordained for the happiness of mankind. It is the providential order. To understand it is our first duty--to bring our lives into conformity with it is our next.

To sum up, we may say that the "natural order" was that order which seemed obviously the best, not to any individual whomsoever, but to rational, cultured, liberal-minded men like the Physiocrats. It was not the product of the observation of external facts; it was the revelation of a principle within. And this is one reason why the Physiocrats showed such respect for property and authority. It seemed to them that these formed the very basis of the "natural order."

It looked as if this dogmatic optimism would dominate the whole Classical school, especially the French writers, and that natural law would usurp the functions of Providence. To-day it is everywhere discredited, but when it first loomed above the horizon its splendour dazzled all eyes. Hence the many laudatory remarks, which to us seem hyperbolical, if not actually ridiculous. But it was no small thing to found a new science, to set up a new aim and a fresh ideal, to lay down the framework which others were to fill in.

Knowledge of the "natural order" was not sufficient. Daily life must also conform to the knowledge. Nothing could be easier than this, for "if the order really were the most advantageous" every man could be trusted to find out for himself the best way of attaining it without coercion of any kind.

II: THE NET PRODUCT

Every social fact had a place within the "natural order" of the Physiocrats. Such a wide generalisation would have entitled them to be regarded as the founders of sociology rather than of economics. But there was included one purely economic phenomenon which attracted their attention at an early stage, and so completely captivated their imaginations as to lead them on a false quest. This was the predominant position which land occupied as an agent of production--the most erroneous and at the same time the most characteristic doctrine in the whole Physiocratic system.

Every productive undertaking of necessity involves certain outgoings--a certain loss. In other words, some amount of wealth is destroyed in the production of new wealth--an amount that ought to be subtracted from the amount of new wealth produced. This difference, measuring as it does the excess of the one over the other, constitutes the net increase of wealth, known since the time of the Physiocrats as the "net product."

The Physiocrats believed that this "net product" was confined to one class of production only, namely, agriculture. Here alone, so it seemed to them, the wealth produced was greater than the wealth consumed. Barring accidents, the labourer reaped more than he consumed, even if we included in his consumption his maintenance throughout a whole year, and not merely during the seasons of harvest and tilth. It was because agricultural production had this unique and marvellous power of yielding a "net product" that economy was possible and civilisation a fact. It was not true of any other class of production, either of commerce or of transport, where it was very evident that man's labour produced nothing, but merely replaced or transferred the products already produced. Neither was it true of manufacture, where the artisan simply combined or otherwise modified the raw material.

It is true that such transfer or accretion of matter may increase the value of the product, but only in proportion to the amount of wealth which had to be consumed in order to produce it; because the price of manual labour is always equal to the cost of the necessaries consumed by the worker. All that we have in this case, however, is a collection of superimposed values with some raw material thrown into the bargain. But, as Mercier de la Rivi?re put it, "addition is not multiplication."

Consequently, industry was voted sterile. This implied no contempt for industry and commerce. "Far from being useless, these are the arts that supply the luxuries as well as the necessaries of life, and upon these mankind is dependent both for its preservation and for its well-being." They are unproductive in the sense that they produce no "extra" wealth.

It may be pointed out, on the other hand, that the "gains," both in industry and commerce, are far in excess of those of agriculture. All this was immaterial to the Physiocrats, for "they were gained, not produced." Such gains simply represented wealth transferred from the agricultural to the industrial classes. The agricultural classes furnished the artisans not only with raw material, but also with the necessaries of life. The artisans were simply the domestic servants, or, to use Turgot's phrase, the hirelings of the agriculturists. Strictly speaking, the latter could keep the whole net product to themselves, but finding it more convenient they entrust the making of their clothes, the erection of their houses, and the production of their implements to the artisans, giving them a portion of the net product as remuneration. It is possible, of course, that, like many servants in fine houses, the latter manage to make a very good living at their masters' expense.

The "sterile classes" in Physiocratic parlance simply signifies those who draw their incomes second-hand. The Physiocrats had the good sense to try to give an explanation of this unfortunate term, which threatened to discredit their system altogether, and which it seemed unfair to apply to a whole class that had done more than any other towards enriching the nation.

It is a debatable point whether the Physiocrats attributed this virtue of furnishing a net product solely to agriculture or whether they intended it to apply to extractive industries, such as mining and fishing. They seem to apply it in a general way to mines, but the references are rare and not infrequently contradictory. We can understand their hesitating, for, on the one hand, mines undoubtedly give us new wealth in the form of raw materials, just as the land or sea does; on the other hand, the fruits of the earth and the treasures of the deep are not so easily exhausted as mines. Turgot put it excellently when he said, "The land produces fruit annually, but a mine produces no fruit. The mine itself is the garnered fruit," and he concludes that mines, like industrial undertakings, give no net product, that if any one had any claim to that product it would be the owner of the soil, but that in any case the surplus would be almost insignificant.

This essential difference which the Physiocrats sought to establish between agricultural and industrial production was at bottom theological. The fruits of the earth are given by God, while the products of the arts are wrought by man, who is powerless to create. The reply is obvious. God would still be creator if He decreed to give us our clothes instead of our daily bread. And, although man cannot create matter, but simply transform it, it is important to remember that the cultivation of the soil, like the fashioning of iron or wood, is merely a process of transformation. They failed to grasp the truth which Lavoisier was to demonstrate so clearly, namely, that in nature nothing is ever created and nothing lost. A grain of corn sown in a field obtains the materials for the ear from the soil and atmosphere, transmuting them to suit its own purpose, just as the baker, out of that same corn, combined with water, salt, and yeast, will make bread.

But they were sufficiently clear-sighted to see that all natural products, including even corn, were influenced by the varying condition of the markets, and that if prices fell very low the net product disappeared altogether. In view of such facts can it still be said that the earth produces real value or that its produce differs in any essential respects from the products of industry?

The net product was just an illusion. The essence of production is not the creation of matter, but simply the accretion of value. But it is not difficult to appreciate the nature of the illusion if we recall the circumstances, and try to visualise the kind of society with which the Physiocrats were acquainted. One section of the community, consisting solely of nobility and clergy, lived upon the rents which the land yielded. Their luxurious lives would have been impossible if the earth did not yield something over and above the amount consumed by the peasant. It is curious that the Physiocrats, while they regarded the artisans as nothing better than servants who depended for their very existence upon the agriculturists, failed to recognise the equally complete dependence of the worthless proprietor upon his tenants. If there had existed instead a class of business men living in ease and luxury, and drawing their dividends, it is quite possible that the Physiocrats would have concluded that there was a net product in industrial enterprise.

As to the epithet "sterile," which was applied to every kind of work other than agriculture, we shall find that it has been superseded, and that the attribute "productive" has been successively applied to every class of work--first to industry, then to commerce, and finally to the liberal professions. Even if it were true that industrial undertakings only yield the equivalent of the value consumed, that is not enough to justify the epithet "sterile," unless, as Adam Smith wittily remarks, we are by analogy to consider every marriage sterile which does not result in the birth of more than two children. To invoke the distinction between addition and multiplication is useless, because arithmetic teaches us that multiplication is simply an abridged method of adding.

It seems very curious that that kind of wealth which appeared to the Physiocrats to be the most legitimate and the most superior kind should be just the one that owed nothing to labour, and which later on, under the name of rent, seems the most difficult to justify.

But we must not conclude that the Physiocratic theory of the net product possessed no scientific value.

It was a challenge to the economic doctrines of the time, especially Mercantilism. The Mercantilists thought that the only way to increase wealth was to exploit neighbours and colonists, but they failed to see that commerce and agriculture afforded equally satisfactory methods. Nor must we forget the Physiocrats' influence upon practical politics. Sully, the French minister, betrays evidence of their influence when he remarks that the only two sources of national wealth are land and labour. Let us also remember that, despite some glaring mistakes, agriculture has never lost the pre-eminence which they gave it, and that the recent revival of agricultural Protection is directly traceable to their influence. They were always staunch Free Traders themselves, but we can hardly blame them for not being sufficiently sanguine to expect such whole-hearted acceptance of their views as to anticipate some of the more curious developments of their doctrines. It is almost certain that if they were living to-day they would not be found supporting the Protectionist movement. At least this is the opinion of M. Oncken, the economist, who has made the most thorough study of their ideas.

Although the Physiocratic distinction between agriculture and industry was largely imaginary, it is nevertheless true that agriculture does possess certain special features, such as the power of engendering the forces of life, whether vegetable or animal. This mysterious force, which under the term "nature" was only very dimly understood by the Physiocrats, and still is too often confused with the physico-chemical forces, does really possess some characteristics which help us to differentiate between agriculture and industry. At some moments agriculture seems inferior because its returns are limited by the exigencies of time and place; but more often superior because agriculture alone can produce the necessaries of life. This is no insignificant fact; but we are trenching on the difficult problems connected with the name of Malthus.

The Physiocrats were the first to attempt a synthesis of distribution. They were anxious to know--and it was surely a praiseworthy ambition--how wealth passed from one class in society to another, why it always followed the same routes, whose meanderings they were successful in unravelling, and how this continual circulation, as Turgot said, "constituted the very life of the body politic, just as the circulation of the blood did of the physical."

We know by this time that this circulation is much more complicated than the Physiocrats believed, but it is still worth while to give an outline of their conception.

Quesnay distinguishes three social classes:

The first class, being the only productive class, must supply all that flow of wealth whose course we are now to follow. Let us suppose, then--the figures are Quesnay's and seem sufficiently near the facts--that the value of the total wealth produced equals 5 milliard francs. Of this 5 milliards 2 milliards are necessary for the upkeep of the members of this class and its oxen during harvest and sowing. This portion does not circulate. It simply remains where it was produced. The produce representing the remaining 3 milliards is sold. But agricultural products alone do not suffice for the upkeep of Class 1. Manufactured goods, clothes, and boots also are required, and these are got from the industrial classes, for which a milliard francs is given.

Let us pass on to consider the propertied class. It manages to live upon the 2 milliards which it receives by way of rents, and it lives well. Its food it must obtain from the agricultural class , and for this it possibly pays a milliard francs. It also requires manufactured goods, which it must get from the sterile class, and for which it pays another milliard francs. This completes their account.

As to the sterile class, it produces nothing, and so, unlike the preceding class, it can only get its necessaries second-hand from the productive class. These may be got in two ways: a milliard from the agricultural class in payment for manufactured goods and another milliard from the landed proprietors. The latter milliard being one of the two which the landed proprietors got from the agriculturists, has in this way described the complete circle.

The 2 milliards obtained as salaries by the sterile class are employed in buying the necessaries of life and the raw material of industry. And since it is only the productive class that can procure these necessaries and raw materials, this 2 milliards passes into the hands of the agriculturists. The 2 milliards, in short, return to their starting-point. Adding the milliard already paid by the landed proprietors to the 2 milliards' worth of products unsold, the total of 5 milliards is replaced in the hands of the productive class, and so the process goes on indefinitely.

The most interesting thing in the Physiocratic scheme of distribution is not the particular demonstration which they gave of it, but the emphasis which they laid upon the fact of the circulation of wealth taking place in accordance with certain laws, and the way in which the revenue of each class was determined by this circulation.

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