Several theories in economics have been developed over the course of time to explain the sources of national wealth, the features of ideal economies, and the respective viability of other theories. Some were developed as an expansion of the previous existing theories or as an opposition to the same. Enlightenment French economists developed the Physiocracy theory in opposition to the principles of mercantilism. The theory is one of the most important as it took a scientific and methodological approach towards economics, making political economics develop as a scientific discipline.
Definition and Overview
Physiocracy is an economic theory of wealth that stated that the wealth of a nation is entirely derived from agriculture. The theory divides the society into the productive class of farmers and tenants, land owners, and the sterile class comprised of shopkeepers and artisans. These classes are based on the belief that the wealth of the society relies on the labor of the productive class where each man can increase productivity. The labor of the productive class is managed by the proprietors and landowners while the sterile class is involved in the production of non-agricultural products but consume agricultural output. Physiocracy is characterized by five distinct features, namely including individualism and laissez-faire minimal regulation of commerce, private property ownership, diminishing returns, and the need for working capital and reinvestment of the same.
Physiocracy first developed in France in the mid-18th Century, influenced by the ideas of Richard Cantillon published in his 1756 work, Essay on the Nature of Commerce. Physiocracy was developed by such thinkers as François Quesnay. Several publications expounding on the theory were written, including The Economic Picture in 1758, Explication of the Economic Picture (1759), and Theory of Taxation (1760). These and several other books were largely responsible for the growth of popularity of the theory afterward. The Physiocrats group came to an end in 1776 after its leaders were exiled. Inspirations for the theory included the economic system of China and Confucianism.
Between 1767 and 1770, Physiocracy influenced financial reforms leading to the institution of free trade in France. According to the Physiocrats, free trade ensured that prices of agricultural products were fair. Free trade allowed for stabilization of prices and to restore the state of the economy. Their economic laws of nature suggested that during times of grain scarcity, prices would naturally go up instead of falling. Physiocracy also led to the removal of some taxes that were burdensome to the citizens.
Evolution Over Time
Physiocracy flourished between 1767 and 1776, and later on the theory became a major influence on other economic theories such as Adam Smith’s classical liberalism. Adam Smith was a critic and supporter of Physiocracy. Other significant movements influenced or drawn from Physiocracy include the Georgist movement of 19th Century America.
Praises and Criticisms
Physiocracy is considered to be one of the most well-developed economic theories, and a predecessor to many contemporary economic theories. Physiocracy is praised for its emphasis on productive work (especially agriculture as the source of a nation’s wealth. The Economic Table by François Quesnay explores the nature of economic interrelationships forming the basis of modern ideas on wealth circulation. The theory is criticized for overemphasizing on agriculture and ignoring the role of manufacturing in the economy as well as perfectionism whereby they sought a perfect economic system or the absence of one.