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Physiocracy - Development of Economic Thought
The First School of Thought
About the middle of the 18th century, a group of French thinkers called physiocrats evolved a system of economic thought which came to be known as Physiocracy. By physiocracy we mean the rule of nature. The physiocrats were the vehement critics of mercantilists. They were the believers in 'Natural Order' and were against the materialistic, rigid, restrictive and controlled merchant capitalism of the mercantilists. The physiocrats preferred to be called 'the economists'. They believed in some natural power which is responsible for human happiness and prosperity. In a sense, physiocracy was a political and social system.
The system of economic thought of the physiocrats formed one of the important roots of modern economics. Though they were different types of people, like physicians, philosophers, men of letters and statesmen with different views, they had great unanimity of ideas. In the history of economic thought, physiocrats occupy an important place as they formed the first School of Thought. Unlike the mercantilists, the physiocrats were in close touch with each other, acknowledged a common leader, established organs of propaganda and presented a common doctrine Francis Quesnay, a physician and court doctor in France was the leader of this School of Thought. The physiocrats advocated returned to agriculture as the chief occupation. The restoration of natural justice and liberty was there aim. Hence Adam Smith considered physiocracy as a School of Agriculture or 'Agricultural System'.
Factors Responsible for the Rise of Physiocracy
Physiocracy was a revolt against mercantilism in France. This was due to the deteriorating economic and social conditions at that time which were chiefly due to mercantilist policies. The various factors responsible for the growth of physiocracy in France are enumerated below.
1. Tyranny and Extravagant Court Life
France was experiencing an absolute monarchy but without its potential benevolence. The life of the political administrators, from the king downwards ,was very luxurious and corrupt. Public expenditure was very extravagant and wasteful. The result was an increasing indebtedness of the government and the need to levy extra taxes to finance the public expenditures. The deteriorating economic conditions provided a new ground for new ideas and a welcome change.
2. Regressive Taxation
In France, during the reigns of Louis 14, taxation was unduly heavy, unjust and inequitable. The nobility and clergy owned about two-thirds of the country's land, but they were hardly paying any taxes while the poor peasants were being crushed under all sorts of levies in addition to the extortionist land rents. The manner of tax collection was also highly deplorable. Obviously the farmers were hardly left with any surplus which they could use for improvement of land or for improving their own consumption standards. The peasants also had to bear the burden of providing services to the feudal lords. There were many other oppressive taxes like the salt tax, poll tax, the tithe etc.which were equally burdensome for the poor sections of the community. The tortured life led by the farmers gave an impetus to the physiocratic policies and doctrines.
3. Decay of Mercantilism
Mercantilist policies had outlived their importance. Its policies were severely criticised. People were looking for an alternative system. In England agriculture was being revolutionised with the introduction of large scale farming. The achievements of this revolution reached the ears of the French people through the writings of Gourney, Mirabeau and Montesquieu.
4. Neglect of Agriculture
Agriculture in France was in a state of stagnation compared with its increasing usefulness and profitability in England. Colbertism was partly responsible for this. Industrial development was taking place in France at the cost of agriculture. Investments were diverted from agriculture to manufacture. The value of agricultural produce fell on account of restricted markets. Lower prices of agricultural products prevented capital accumulation in agriculture. Agriculture suffered due to lack of capital and initiative.
5. Emergence of a Group of Ambitious Agriculturists
In France a group of ambitious agriculturists and landlords started seriously thinking of the development of agriculture in France. They did not tolerate the suppression of French agriculture by king. One such ambitious landlord was Quesnay. The on-going Agricultural Revolution in England influenced very much these ambitious French landowners. They thought that a similar revolution can be brought about in France.
6. Subjective Factors
According to Prof: Haney, there were great subjective factors at work for change and progress discarding mercantile policies. During the period of Louis 14, the people could not criticise his policies. After his death the people of France got sufficient liberty to express their opinion. This was the beginning of breaking away from the established policies, politics and religion.
7. Existence of Socio-economic Inequality
France witnessed an extreme form of inequqlity between different classes of people and between different sectors of the economy. There were both privileged and unprivileged classes. The common people were underprivileged who wanted an escape from this unwanted situation.
8.Influence of the Writers
Thinkers concerned with the ills of the society were trying to figure out and convey suggestions for the reformation of the system. There were analytical discussions and explorations regarding the ill-effects of the existing system and the type of the ideal system which should replace. They were all agreed that the ideal system is physiocracy.
The Basic Principles of Physiocracy
The following are the fundamental principles and policies of physiocracy.
1. Agriculture is the only productive occupation.
2. Industry and trade are sterile occupations.
3. Agriculture alone produces net product.
4. There is a natural order which makes life happy and meaningful.
5. There is harmony among all classes of people.
6. The individual should get maximum liberty.
7. State action should be limited to the minimum.
8. Trade is a necessary evil, and there should be free trade.
9. Value depends on utility. Wealth has value. value and price are the same things.
10. The wage level is at the subsistence level.
11. There is interdependence in the economic system.
12. Real wealth lies in tangible and consumable goods.
13. Private initiative must be encouraged.
14. Distribution of products is very essential.
15. money is a medium of exchange.
16. All that is bought is sold and all that is sold is bought.
17. Rent is a perfectly legitimate income of the landlords.
18. There should be a single and direct tax on land, as it is the only productive source.
19. Private property is essential.
20. There is the possibility of over population on land.