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Source: Conclusion to Higg's The Physiocrats: Six Lectures on the French Economistes of the 18th Century (London: Macmillan and Co., 1897).
VI. The Influence of the School
We have so far considered the Physiocrats descriptively,—their rise and history, the members, the doctrines, the practical activities, and the opponents of the school. We come now to ask ourselves the question, What is the conclusion of the whole matter? They were the first scientific school of Political Economy, but which of the principles they enunciated have survived the storm and stress of criticism, and been incorporated in the progress of science into the wisdom of to-day? If they took the first step, how far did that step go? In other words, what is the produit net of their teaching, and their place in the history of economic theory?
It would, indeed, be distressing if a comparison between the most recent economic writings—the volume e.g. of Professor Marshall's Principles of Economics—and the speculations of the Physiocrats presented no striking variation. Viewed in the light of a century and a half of scientific progress the Physiocrats seem even to have had but an imperfect appreciation of the central terms and radical concepts of the science itself. Their fundamental errors were the identification of Wealth with material objects, and of Value with Cost of Production; their opinion that this Cost of Production was represented by the sum of the material embodied in a commodity, and of the cost of subsistence of those who were occupied in fashioning the raw material; and their conviction that the shifting and incidence of taxation were unimpeded by any effective friction. Given these propositions, most of their conclusions follow by inexorable logic. But it is now a commonplace of economics that the catalogue of Wealth embracing commodities, personal qualities, and services which directly or indirectly satisfy human wants, far transcends the narrow bounds of material goods; that Value depends, not merely on the cost of supply, but also on the intensity of demand, varying with the utility or power which a certain supply of wealth possesses to satisfy the wants of man; that the cost of production, so far as labour is concerned, is not identical with the mere subsistence of the labourers of all kinds who cooperate in production; and that the geometrical elegance of the argument that all taxes fall ultimately on the land is founded upon an unreal hypothesis. It would be absurd to maintain that a sculptor who exercises a divine gift of art upon a block of marble adds to it only the equivalent of his subsistence during the time he is at work; or, in other words, that the value of the statue is equal merely to the value of the stone and of his maintenance during the period for which he is engaged. But the progress which we owe to Adam Smith, to Ricardo, to Mill, to Jevons, and many others, must not blind us to the services of the early French writers. The establishment of a clear and cogent Theory of Value,—the kernel of economic science,— has come, indeed, only in the present generation. The originality of the Physiocrats will, perhaps, be most clearly seen by considering what Adam Smith says of them in the Wealth of Nations.
His Fourth Book, it will be remembered, is entitled “Of Systems of Political Economy.” “The different progress of opulence,” he remarks, “in different ages and nations has given occasion to two different systems of political economy, with regard to enriching the people.” He calls one “The Commercial or Mercantile System,” which he says “is the modern system, and is best understood in our own country and in our own times.” This is the system of State-regulation, followed by Colbert. The other is the system of the Physiocrats, which Adam Smith examines briefly because he thought it Utopian, as he considered Free Trade to be also. But he discusses it with care because of its theoretical importance. Its “ingenuity” is frequently praised, and the author is in entire sympathy with its spirit of “allowing,” as he says, “every man to pursue his own interest his own way, upon the liberal plan of equality, liberty, and justice.” After a succinct description of this “liberal and generous system,” he observes that its “capital error... seems to lie in its representing the class of artificers, manufacturers, and merchants as altogether barren and unproductive,” and upon this capital error he offers five considerations. First, he says, granting that this sterile class reproduces annually, as the Physiocrats assert, “the value of its own annual consumption, and continues at least the existence of the stock or capital which maintains and employs it... the denomination of barren or unproductive should seem to be very improperly applied to it. We should not call a marriage barren or unproductive, though it produced only a son and a daughter, to replace the father and mother, and though it did not increase the number of the human species, but only continued it as it was before.... As a marriage which affords three children is certainly more productive than one which affords only two, so the labour of farmers and country labourers is certainly more productive than that of merchants, artificers, and manufacturers. The superior produce of the one class, however, does not render the other barren or unproductive.” This criticism indicates an important influence of the Physiocrats over Adam Smith, for no competent economist would defend the thesis to-day that agriculture is “more productive” of wealth than manufacture.
Secondly, he says, it is “altogether improper to consider artificers, manufacturers, and merchants in the same light as menial servants.” For the work of the first, unlike that of the second, fixes and realises itself in some vendible commodity which can replace the value of wages and maintenance. The work of menial servants consists “in services which perish generally in the very instant of their performance,” and these truly belong to the barren or unproductive class. Here again Adam Smith is very near to the doctrines of the Physiocrats, for it is now seen that all labour productive of utility is free from the reproach of being barren. It is, indeed, remarkable that in his unpublished article Hommes, Quesnay himself admits domestic servants to be indirectly productive, so far as their services liberate the energies of the agricultural classes; and it is not a little curious that the great apostle of the advantages of Division of Labour should uphold the position that the specialisation of domestic service is an economic loss.
Thirdly, the consumption of artificers, etc., is not lost, for even if they produce a value equal only to what they consume, yet their product remains, and is so much more added to the stock of the country than if the consumption had been by a menial or a soldier. He hints, moreover, that the manufacturing class may save something out of the fund allotted to them for subsistence, and these savings increase the wealth of society. This had already been suggested by Turgot in his Réflexions.
Fourthly, “Farmers and country labourers can no more augment, without parsimony, the real revenue, the annual produce of the land and labour of their society, than artificers, manufacturers, and merchants.” Indeed as division of labour, which increases production, is susceptible of further extension in manufacture than in agriculture, and as manufacturers, etc., “are, as this system seems to suppose, naturally more inclined to parsimony and saving than proprietors and cultivators, they are, so far, more likely to augment the quantity of useful labour employed within their society, and consequently to increase its real revenue.”
Fifthly and lastly, even though. the wealth of a nation consisted altogether in the quantity of subsistence which its industry could procure to it, yet “the revenue of a trading and manufacturing country must, other things being equal, always be much greater than that of one without trade or manufactures.... A small quantity of manufactured produce purchases a great quantity of rude produce.” And as a town draws to itself such a quantity of raw produce as supplies not only the materials of work but also the means of subsistence, so a trading country like Holland “draws a great part of its subsistence from other countries—live cattle from Holstein and Jutland, and corn from almost all the different countries of Europe.”
After these criticisms comes a generous tribute to the system which, “with all its imperfections, is perhaps the nearest approximation to the truth that has yet been published upon the subject of political economy.... Though in representing the labour which is employed upon land as the only productive labour, the notions which it inculcates are perhaps too narrow and confined; yet in representing the wealth of nations as consisting, not in the uncon-sumable riches of money, but in the consumable goods annually reproduced by the labour of the society, and in representing perfect liberty as the only effectual expedient for rendering this annual reproduction the greatest possible, its doctrine seems to be in every respect as just as it is generous and liberal. Its followers are very numerous, and as men are fond of paradoxes, and of appearing to understand what surpasses the comprehension of ordinary people, the paradox which it maintains, concerning the unproductive nature of manufacturing labour, has not perhaps contributed a little to increase the number of its admirers.... Their works have certainly been of some service to their country, not only by bringing into general discussion many subjects which had never been well examined before, but by influencing in some measure the public administration in favour of agriculture. It has been in consequence of their representations, accordingly, that the agriculture of France has been delivered from several of the oppressions which it laboured under.... The ancient provincial restraints upon the transportation of corn from one province of the kingdom to another have been entirely taken away, and the liberty of exporting it to all foreign countries has been established as the common law of the kingdom in all ordinary cases.” It must be remembered that all this was written before the fall of Turgot in 1776.
In his Fifth Book, dealing with Taxation, Adam Smith refers to the impfa unique, “recommended by that sect of men of letters in France who call themselves the economists, as the most equitable of all taxes. All taxes, they pretend, fall ultimately upon the rent of land, and ought therefore to be imposed equally upon the fund which must finally pay them. That all taxes ought to fall as equally as possible upon the fund which must finally pay them is certainly true. But without entering into the disagreeable discussion of the metaphysical arguments by which they support their very ingenious theory,” he proceeds to show “what are the taxes which fall finally upon the rent of the land and what are those which fall finally upon some other fund.” The chief objection which he saw to the impit unique, a percentage of the produit net varying of course in its total yield with the state of the harvests, was “the discouragement which it might... give to the improvement of land.... The landlord would certainly be less disposed to improve when the sovereign, who contributed nothing to the expense, was to share in the profit of the improvement” The Physiocrats urged that their plan drew the attention of the sovereign towards the improvement of the land, from a regard to the increase of his own revenue. But Adam Smith thought no such incitement to the attention of the sovereign “can ever counterbalance the smallest discouragement to that of the landlord. The attention of the sovereign can be at best but a very general and vague consideration of what is likely to contribute to the better cultivation of the greater part of his dominions. The attention of the landlord is a particular and minute consideration of what is likely to be the most advantageous application of every inch of ground upon his estate.” “The principal attention of the sovereign ought,” he says, “to be to encourage, by every means in his power, the attention both of the landlord and of the farmer, by allowing both to pursue their own interest in their own way, and according to their own judgment, by giving to both the most perfect security that they shall enjoy the full recompense of their own industry, and by procuring to both the most extensive market for every part of their produce,” by promoting internal communications, “as well as the most unbounded freedom of exportation to the dominions of all other princes.”
Professor Oncken has stated that even to-day the physiocratic system awaits its scientific refutation. This is the language of an enthusiast, justified only in part even if we confine our attention to the criticisms of Adam Smith. The Earl of Lauderdale (1752–1839), a conscientious and sympathetic student of the French economists, quotes and translates numerous passages from their writings, the Tableau Oeconomique, the Physiocratie, the Philo-sophie Rurale, the Éphémérides, and from Turgot and Morellet; but he attacks their view that “even the labour of the artificer and the manufacturer is totally unproductive.” Adam Smith, he points out, was far from consistent. In Book II. chap. i. of the Wealth of Nations he had stated that “lands, mines, and fisheries, require all both a fixed and circulating capital to cultivate them; and their produce replaces with a profit not only those capitals but all the others in the society,” while the Physiocrats had not “with all their ingenuity done so much to support this doctrine [the sterility of non-extractive labour] as the author of the Wealth of Nations, by the manner he has attempted to refute it.” In Lauder-dale's view “wealth can alone be increased by the means by which it is produced”; and to this end land, labour, and capital co-operate, and each of them, in greater or less measure, becomes productive. George Purves, who had published under his real name in 1815 The Happiness of States, by Simon Gray, expresses opinions similar to Lauderdale's in All Classes Productive of National Wealth, or the Theories of M. Quesnai, Dr. Adam Smith, and Mr. Gray, concerning the various classes of men as to the production of Wealth to the Community, London, 1817, but he emphasises the importance of intelligence and enterprise as a factor in production. Simon Gray's theory—the “productive” theory—was, he says, the true one, not the “unproductive” theories of Quesnay and Smith, who merely drew the line higher up than Quesnay without perceiving that the landed interest derives its income from other classes quite as much as they depend upon the landed interest. Air, heat, and water are as necessary and useful to man as the soil. Heat is even as extensively so. But how false and absurd would it be to say because heat was absolutely necessary to man, directly or indirectly, in all his operations in producing wealth, that heat is the sole source of wealth! What the economist affirms of the soil is indeed true of human reason (pp. 15–18).
In a shallow criticism of Adam Smith, M'Culloch has stated that, unaware of the later Ricardian theory of rent, “his refutation of the system of the Economists is far from satisfactory,” because when none but the most fertile soils are cultivated there is no rent at all. The produit net is therefore by no means a natural and necessary phenomenon in agriculture. The impSt unique, which had possibly been suggested to Quesnay by a statement of Locke that all taxes fall ultimately upon the land, is sufficiently condemned by various arguments mentioned in the course of these lectures. It may be added that there are further and fatal objections of a practical character. The metayer or the peasant proprietor who produces for his own consumption, and has but a small surplus with which to satisfy his few and simple requirements— in other words, the agriculturist who is practically self-supporting—would find himself afflicted with an intolerable and disproportionate burden not to be shifted off, as the Physiocrats supposed, by raising the price of his produce, for this virtually never finds its way into the market at all, but is consumed on the farm where it is produced. Moreover, in modern States, no financier would venture to leave the equilibrium of public income and expenditure at the mercy of the seasons, with a single source of revenue fluctuating according to the vicissitudes of the weather, neither to be predicted nor controlled. Finally, the enormous budgets of to-day, so far from being balanced by a quarter or a third of the produit net, would, in many States, present a yawning deficit even after appropriating the whole agricultural rent of the country. Proudhon invoked the name of the Physiocrats in support of his proposal to tax rents 100 per cent, and to impose additional taxes also, to each of which suggestions the school of Quesnay would have offered strenuous resistance, the first violating the sacred right of property by arbitrary confiscation, the second a departure from the impdt unique. Mr. Henry George has, in his Progress and Poverty, made a similar mistaken appeal to the Physiocrats, though he has the candour to state that he has not read their original writings. But it is in the main on principles like theirs (see p. 72, supra) that Mill proposed the taxation of the unearned increment of land, and that philosophers like Professor Sidgwick regard unearned increment of every kind as a preeminently suitable object of taxation provided it can be attained. It cannot, of course, be any longer successfully maintained that all taxes ultimately fall on the land, or that either in theory or practice the land is a suitable object to bear, in the first instance, the whole burden of taxes.
Malthus (1766–1834) shows in his writings an affinity with the Physiocrats, which must undoubtedly be traced to their direct influence. Quesnay and Mirabeau had laid down propositions which contain the germ of his theory of population, though his views on this subject were probably arrived at independently. But he is in close correspondence with the ideas of the school in the importance which he attaches to the disposable surplus produce of the country as its real fund of wealth; and he seems, like them, to emphasise the essential importance of a maximum production of the means of subsistence. On the other hand, he differs entirely from the rigorously deductive and absolute frame of mind which is one of their main characteristics, and refuses to give an unqualified adherence to their arguments for Free Trade. Dugald Stewart, the friend and biographer of Adam Smith, held the balance carefully between Smith and the Physiocrats, and concluded that the French economists were more nearly right than their great critic. Sometimes, he admits, Adam Smith, though substantially in agreement, gains a verbal victory over them. At other times, as in his views upon productive and unproductive labour, he is less consistent than they. Generally speaking, the Physiocrats are more precise and definite in their language, and more scientific in their principles, which are founded on a more accurate metaphysical analysis. Yet the doctrines of the Wealth of Nations are, “with a very few exceptions, of greater practical utility” to statesmen and men of business. Among minor economic writers we find Paley making the following statement in his Moral Philosophy: “Let it be remembered, then, that agriculture is the immediate source of human provision, that trade conduces to the production of provision only as it promotes agriculture; that the whole system of commerce, vast and various as it is, hath no other public importance than its subserviency to this end” (p. 476). But the chief follower of the Physiocrats in England was William Spence, the antagonist of James Mill. Spence's Britain Independent of Commerce, 808, and his Agriculture the Source of the Wealth of Britain, 1808, were published, together with two others, on the Corn Bill and the East India Trade under the title of Tracts on PoliticalEconomy, 1822. Spence endeavoured to show that even if Napoleon succeeded in ruining the foreign trade of the country we might still maintain our prosperity unimpaired. He examines the doctrines of the Physiocrats with some skill. Their “grand axiom” that agriculture is the great source of national wealth he declares to be “undoubtedly founded in truth.” But he urges against them that in Britain the influence of manufactures has been the cause of thriving agriculture. “Agriculture and manufactures are the two chief wheels in the machine which creates national wealth”; but in Europe “it is the latter which communicates motion to the former” (p. 27). Owing to the monopoly of the soil, the mainspring of the machine upon which the motion of these wheels depends is the class of land proprietors. He urges that all taxes are finally paid out of the neat produce of the soil. Adam Smith has, he says, virtually admitted this by laying down that all revenue must be derived from rent, profits, or wages, for he allows that taxes on profits are always shifted on to the consumer, and that “taxes on wages cannot finally fall upon wages, since the wages of the labourer increase in proportion as the price of the articles he consumes is augmented by taxation. On what, then, can taxes fall, but upon the rent of land?” (p. 37). Yet, says Spence, though all taxes are ultimately paid out of rent, it by no means follows “that no tax except a land-tax should ever be levied.”
To Britain Independent of Commerce James Mill replied in his well-known Commerce Defended, 1808, and Torrens in The Economists Refuted, the same year, the latter combating the Physiocrats with the arms of Lauderdale. If Spence admitted the axiom of the Economists he must, Mill says, admit the whole of their system which is built upon it “with logical and unquestionable exactness.” But Spence resists this conclusion. Adam Smith, he says, did not embrace their system. Yet he adopted their axiom, for in Book II. chap, i par. 28 of the Wealth of Nations he has the passage already quoted (pp. 132, 133, above). The truth is, nothing would be easier than to select sentences in which Adam Smith exhibits the influence of the Physiocrats, notably in his arguments that capital is more productively employed in agriculture than in manufacture, still more than in commerce, and that internal commerce is more productive of national wealth than foreign trade. He was in Paris in 1766 when Turgot was composing his Rt-flezions. He was acquainted with the Physiocrats and their writings, and proposed to dedicate the Wealth of Nations to Quesnay, for whom and for whose system he expressed the highest respect. But in the long retreat at Kirkcaldy he carefully sifted their doctrines, and definitely rejected some of them. An “agricultural system” seems, as it were, to spring from the soil in a mainly agricultural country at an early stage of economic reflection. It is to be found in Spain even earlier than in France; Adam Smith has illustrated it by comparisons with Egypt and India; and Mr. Garret Droppers tells us that it had an independent birth in Japan; while the analogy of China so forcibly impressed the Physiocrats that they were seized with an enthusiasm even for the Celestial government, derided by de Tocqueville as imbecile et barbare In countries like Holland or England the theory was too sharply in contrast with the facts of commercial activity to find a favourable soil. Most of the teaching of the Physiocrats has come down to us through Adam Smith, and even some portions of it which he accepted have since been discarded. But much remains. The younger Mill's chapter on Unproductive Labour in which he classes as “unproductive” certain kinds of labour and consumption admittedly useful to society as a whole, and his chapter on Circulating and Fixed Capital in the same book (Book I. Principles of Pol. Econ.) show us how long-lived much of the analysis of the Physiocrats has been. Their rudimentary analysis of capital into avarices foncieres, primitives, and annuelles according as it was sunk in the soil, laid out for movable stock and plant at the outset, or expended for annual maintenance and renewal, marks the discriminating and systematic frame of mind with which they commenced to reduce economic phenomena to organised science. And their other scientific contributions of temper and method almost evade special recognition so closely are they identified with, and incorporated in, current doctrine. It is their spirit working through Say and Gamier which animated Bastiat, and still inspires the optimism of the French classical school, not always to its advantage. Biology has shown us “the struggle for existence,” “the survival of the fittest,” in animated nature, which rudely shakes the foundation of their assumption that to let things alone will produce social peace and harmony. Their followers, advocates of liberty, sometimes seem to have surrendered the greatest of all freedom, the unfettered play of the intellect Content to reason in a dogmatic, unhistorical spirit from a few general principles, they pay insufficient attention to modifying facts in social phenomena, become unreal, and fall into scientific stagnation. The founders of the school were, in one sense, deeply influenced by their environment. Finding, like Malthus, the bow bent too much in one direction, they bent it too much in the other in the effort to make it straight The miserable state of the nation seemed to demand a volte face. Taxes were many and indirect. Let them be single and direct. Liberty of enterprise was shackled. Let it be free. State-regulation was excessive. Laissez faire! Their economic plea for liberty is buttressed by an appeal to Nature, greater than kings or ministers, and by an assertion of the natural, inherent rights of man to be unimpeded in his freedom except so far as he infringes upon that of others. Unlike Locke and Montesquieu and Rousseau they refuse to admit that man's natural rights are modified by any form of social contract. To these rights even the State must bow; and the Declaration of Rights which precedes the Constitution of 1791 borrows from them its second article—that liberty, property, and security are inalienable and imprescriptible rights. Fanciful as it may seem that they proposed to limit the royal power within the vague circle of what was “advantageous to the nation” or consonant with reason (fordre naturef), under pain of forfeiting all claim to obedience, such a limitation is not far removed in principle from the constitutional check of the Supreme Court on legislation in the United States, while the economic history of England shows us objections to royal charters to companies engaged in foreign trade, on the ground that monopolies were in derogation of “a right natural and human.” To illustrate the social utility of the sanctity of contract Montesquieu had devised the fable of the Troglodytes, a simple folk who lived in virtue and happiness, until there spread among them a disregard for the fulfilment of engagements, rapidly followed by mutual distrust and social anarchy. In like manner the ethical and the economic system of the Physiocrats appeared to be but different sides of the same object. They propound, before Bentham, the principle of enlightened self-interest In diametrical opposition to Mandeville's Private Vices Public Benefits they consider that every vice is a public injury. To maximise the produit net was, in their view, to promote the best interests of society, and vice versd. An action was in fact good or bad according as it increased or decreased, directly or indirectly, the welfare of society; and they contended that every anti-social action could be shown to diminish the net wealth of society, every laudable action to increase it From this point of view they would have rejected the ridiculous paradox of Bastiat that the State does harm even when it does good; but they seem, like Adam Smith, to go sometimes dangerously near the doctrine that self-interest is identical with the interest of society as a whole. Cossa's view that they dealt a last and decisive blow at the theory of the economic omnipotence of the State is perhaps somewhat sanguine if we look at the world of action instead of the world of ideas. But at any rate they went to the roots of economic and financial conditions. They showed that taxes do not always rest where they seem to fall, that in the long-run the State suffers by an unfair and unequal distribution of its burdens, and, above all, that the economic welfare of a nation may be stifled by excessive restrictions. Their impbt unique might have proved, as Voltaire said, an impdt inique; but in probity and honesty of purpose they fought earnestly against injustice and oppression. At the Revolution the nation desired the abolition of indirect taxes, but the war budgets defeated the project. The modern tendency in England has shown a remarkable movement in this direction, over 40 per cent of the national income now coming from direct taxation, as compared with 2 5 per cent a quarter of a century ago. The Treaty of Commerce with England in 1786 must be regarded as the last important success of the Physiocrats in the field of politics. The corvées, the farming of taxes, and the jurandes were abolished at the Revolution, and a tax was laid upon all land without privilege or exemption.
The Physiocrats form at once the first and the most compact school to be encountered in the history of economics. The first to share and provoke a widespread enthusiasm for the study of economic causes and effects, they stood boldly together — daring, original, sometimes paradoxical, but rendering great service to future ages by their luminous and penetrating theories, which spread like a wave over the whole Continent. The rulers of the earth did not disdain to learn from them. And though their own country, for which they wrote and worked, still turns a deaf ear to one part of their pleading, it must be remembered that Adam Smith and Pitt, Huskis-son, Peel, and Gladstone have but repeated their arguments in endowing us, for better or for worse, with our settled policy of Free Trade.