The Physiocrats

NationMaster.com provides a good summary of the Physiocrats:

The Physiocrats were a group of economists who believed that the wealth of nations was derived solely from agriculture. Their theories originated in France and were most popular during the second half of the 18th century. Physiocracy was perhaps the first well developed theory of economics.

Historian David B. Danbom explains, "The Physiocrats damned cities for their artificiality and praised more natural styles of living. They celebrated farmers." [1]

They called themselves économistes (economists) but are generally referred to as Physiocrats in order to distinguish them from the many schools of economic thought that followed them. Physiocrat is derived from the Greek for "Government of Nature".

The principles of Physiocracy were first put forward by Richard Cantillon, an Irish banker living in France, in his 1756 publication Essai sur la nature du commerce en géneral (Essay on the Nature of Commerce in General). The ideas were later developed by thinkers such as François Quesnay and Jean Claude Marie Vincent de Gournay into a more systematic body of thought held by a united group of thinkers.

The Physiocrats saw the true wealth of a nation as determined by the surplus of agricultural production over and above that needed to support agriculture (by feeding farm labourers and so forth). Other forms of economic activity, such as manufacturing, were viewed as taking this surplus agricultural production and transforming it into new products, by using the surplus agricultural production to feed the workers who produced the extra goods. While these manufacturers and other non agricultural workers may be useful, they were seen as 'sterile' in that their income derives ultimately not from their own work, but from the surplus production of the agricultural sector.

The Physiocrats strongly opposed mercantilism, which emphasized trade of goods between countries, as they pictured the peasant society as the economic foundation of a nation's wealth.

The Physiocrats enjoyed some support from the French monarchy and frequently met at Versailles. Adam Smith, who visited France as a tutor and mentor to the Earl of Buccleigh's son's Grand Tour, was heavily influenced by the ideas of the Physiocrats, and Karl Marx cites them as a reference in Das Kapital; they popularized the modern version of the labor theory of value.

There are several key concepts that lay the foundation of the Physiocratic doctrine.
Quesnay’s Tableau Économique
Individualism and Laissez faire regulation of commerce
Private Property
Diminishing returns
The need for working capital and reinvestment of capital

Quesnay’s Tableau Économique

Individualism and Laissez Faire

The Physiocrats, especially Turgot, believed that self-interest was the motivating reason for each segment of the economy to play its role. Each individual was best suited to determine what goods he wanted and what work would provide him with what he wanted out of life. While a person might labor for the benefit of others, he will work harder for the benefit of himself; however, each person’s needs are being supplied by many other people. The system works best when there is a complementary relationship between one person’s needs and another person’s desires, and trade restrictions place an unnatural barrier to achieving one’s goals.

Private Property

None of the theories concerning the value of land could work without strong legal support of ownership private property. Combined with the strong sense of individualism, private property becomes a critical component of the workings of the Tableau.

Diminishing Returns

Turgot was one of the first to recognize that “successive applications of the variable input will cause the product to grow, first at an increasing rate, later at a diminishing rate until it reaches a maximum” (3, p. 195) This was a recognition that the productivity gains required to increase national wealth had an ultimate limit, and, therefore, wealth was not infinite.

Investment Capital

Both Quesnay and Anne Robert Jacques Turgot, Baron de Laune recognized that capital was needed by farmers to start the production process, and both were proponents of using some of each year’s profits to increase productivity. Capital was also needed to sustain the laborers while they produced their product. Turgot recognizes that there is opportunity cost and risk involved in using capital for something other than land ownership, and he promotes interest as serving a “strategic function in the economy.” (3, p. 196)

Famous Physiocrats:
Richard Cantillon
François Quesnay
Anne Robert Jacques Turgot
Jean Claude Marie Vincent de Gournay
Victor de Riqueti, marquis de Mirabeau
Count de Mirabeau
Pierre Samuel du Pont de Nemours
Stanisław Staszic

References
(1.) Why Americans Value Rural Life by David B. Danbom
(2.) Webster's Revised Unabridged Dictionary, published 1913 by C. & G. Merriam Co., http://www.websters.com (full database can be found at ftp://ftp.uga.edu/pub/misc/webster/)
(3.) The Growth of Economic Thought, Henry William Spiegel, Revised and Expanded Edition, pub. 1983, Duke University Press
(4.) The History of Economic Thought Website, The New School of Social Research. 6 Feb. 2006,
(5.) The Political Failure of an Economic Theory: Physiocracy, Yves Charbit; Arundhati Virmani, Population (English Edition, 2002-), Vol. 57, No. 6. (Nov. - Dec., 2002), pp. 855-883., Stable URL: http://links.jstor.org/sici?sici=1634-2941%28200211%2F12%2957%3A6%3C855%3ATPFOAE%3E2.0.CO%3B2-Q
(6.) Quesnay's Theory of Growth: A Comment, A. L. Muller, Oxford Economic Papers, New Series, Vol. 30, No. 1. (Mar., 1978), pp. 150 156., Stable URL: http://links.jstor.org/sici?sici=0030-7653%28197803%292%3A30%3A1%3C150%3AQTOGAC%3E2.0.CO%3B2-L