The Physiocrats - Wealth and Income

The Physiocrats, Distribution Of Wealth and Income

Interest in the distribution of national income and wealth arose as a consequence of the reaction against Mercantilism. The Physi­ocrats, French economists and philosophers of the Eighteenth Cen­tury, were the first to protest against nationalistic commercial policies. They believed that a nation's wealth was derived from intensification of agriculture rather than from foreign trade. Since wealth had only one source, the Physiocrats felt it was im­portant to show how this wealth was distributed throughout the population. For in their thinking, as Turgot said, the circulation of wealth was the "very life of the body politic." Modern critics are ready to admit that the investigation of the circulation of wealth was one of the great turning points in the development of economic ideas.

The investigation of the Physiocrats into the basic principles of distribution was elaborate and pretentious. The Tableau £co-nomique, developed by Francois Quesnay (1694-1774), not only summarizes the ideas of distribution prevailing among the Physiocrats generally but it stands as the most significant single document in Physiocratic literature. In the Tableau, Quesnay described society as consisting of three classes: first, a productive class composed chiefly of agriculturists; second, a class of land­owners and other persons who exercised power as a result of landownership and who were partly productive; and third, la classe sterile (the sterile class), consisting of merchants, manu­facturers, and professional men who produced nothing, but drew the necessities of life from the productivity of the agriculturists. Nothing at all was said of wage-workers and laborers, although one author indicated that all such miscellaneous persons consti­tuted a fourth class. The Tableau attempted to trace the cir­culation of a sum of money from the time of its investment in agricultural pursuits by the productive class until it returned to that class for further use in production. Quesnay estimated the return on the investment at one hundred percent. Now let the an­nual return equal the round figure of 100. It will be divided so that 40 is immediately used by the agriculturist to meet the expenses of next year's production, while 40 is paid to the pro­prietor and to the state in the form of taxes, and the final 20 go­ing to the sterile class to pay for manufactured goods and services. The amount received by the landlord is the produit net. Now the landlord and the sovereign spend their income (40) as follows: half going to the agriculturists (20) and half to the merchants, manufacturers, and professional men (20). The sterile class must also spend their income (20 + 20). And since as a class they are unproductive, the total goes to buy raw materials and food stuffs directly from the agriculturist. Thus the total income received by others than the agriculturists soon gravitates back to the productive class and is used to increase real production from natural sources. Thus the process continued indefinitely to the advantage of all classes. The purpose of this analysis was not only to show exactly the source of income of each class, but also to state precisely how and why agriculture and mining were the only sources of real wealth. By concentrating its energies upon the improvement of agriculture and the extraction of minerals the nation would inevitably increase its wealth.

The important position accorded to the landlord and the failure to attribute any productive quality to the functions of the wage-earner and farm laborer indicate clearly that the Physi­ocrats believed firmly in private property in land. Indeed, the function of the landowner in preparing the land and in making it available for productive use was worthy of the highest honor, and, in the plan of distribution outlined by Quesnay, the land­lord received abundant compensation though he actually lived in idleness. The claim which the landlords had to income was justified on the ground that if they had not cleared the land, prepared the soil by cutting trees, removing roots, and setting drains, and had not constructed buildings, the one source of wealth would never have been available for use. Baudeau, an exponent of Physiocratic doctrine, said, "A proprietor who keeps up the avarices foncieres (the capital equipment of a farm) with­out fail is performing the noblest service that anyone can perform
on this earth."

In return for this income and honor, however, the proprietor was obliged to assume certain duties. He must of course keep the land up to its maximum efficiency by constantly improving its capital equipment. He was required to see that the produit net was adequately distributed and not appropriated for personal use. His leisure was to be spent in services for the general wel­fare. And, finally, landlords, generally, were forced to assume the entire burden of taxation for the upkeep of the state.

At best the Physiocratic scheme of distribution of wealth was a paternalistic ideal. Its manner of operation even from an aca­demic viewpoint was unrealistic and confused. Fortunately it never actually faced the test of practice. Turgot, during his brief term of office as minister of finance under the monarchy just prior to the French Revolution of 1789, was overwhelmed by the immediate problems which faced him; consequently experiments with Physiocratic doctrines were impossible. Yet however critical one may be of their practicability, the ideas propounded by Quesnay, Baudeau, Dupont, Turgot, and other Physiocrats were important, primarily because they directed the attention of later economists to the circulation of wealth as an important factor in economic activity.