Transcript Turgot and the Physiocrats

Toward Classical Political
Economy
History of Economic Thought
Boise State University
Fall 2015
Prof. D. Allen Dalton
Background to French Political
Economy of the 18th Century
• Descartes
– deductive natural law rationalism
• Colbert
– systematic regulation of the economy
• Cantillon
– the economy as a naturally regulated
interdependent system
• French Enlightenment
– Voltaire, Diderot, d’Alembert
French Political Economy
• Physiocrats (les Économistes)
– François Quesnay (1694-1774)
– Victor de Riqueti, Marquis de Mirabeau (1715-1789)
– Paul Pierre le Mercier de la Rivière (1720-1793)
– Pierre Samuel DuPont de Nemours (1739-1817)
• “Liberals”
–
–
–
–
Vincent de Gournay (1712-1759)
Abbé (André) Morellet (1727-1819)
Anne Robert Jacques Turgot (1727-1781)
Marquis de Condorcet (1743-1794)
The Master of the Physiocrats
• François Quesnay (16941774)
– born into rural laborer family
– surgeon (1716)
– physician to Madame
Pompadour, mistress to Louis
XV (1749)
– contributes articles on farming
to Diderot’s Encyclopèdie (1756)
– reads Vauban, Boisguilbert,
Cantillon; “invents” Tableau
Èconomique
– converts Mirabeau, Mercier de
la Rivière, DuPont
The Physiocratic Literature
•
•
•
•
Mirabeau, L’ami des hommes (1756)
Quesnay, Le Tableau Èconomique (1758)
Mirabeau, La philosophie rurale (1763)
Quesnay, Analyse de la formule arithmétique
du Tableau Èconomique de la distribution
des dépenses annuelles d’une Nation
agricole (1766)
• de la Rivière, L’ordre naturel et essentiel des
societes politiques (1767)
• DuPont de Nemours, La Physiocratie (1767)
The Physiocratic System
• fundamental axioms
– agriculture is the only source of produit
net -net product (surplus of output over
cost)
– manufacturing and commerce are sterile
(value of ouput equals value of inputs)
– nation’s wealth equals value of net product
• stylized presentation of the
interdependent economy - Le Tableau
Èconomique
Le Tableau Èconomique
• “graphical” portrayal of
the interdependence of
an economic system
• used to analyze
mercantilist policies concluded all reduced
net product superiority of natural
order over regulated
economy - laissez faire
Ferdinando Galiani (1728-1787)
– Della Moneta (1751)
• subjective utility theorist
– Neapolitan ambassador to
Paris 1759-1769
– critique of Physiocracy
– Dialogues sur le commerce
des bleds (Dialogues on the
Grain Trade) (1769)
• Critique of free trade policy in
corn enacted in 1764
Marquis de Condorcet (1743-1794)
– disciple of Turgot
– Monopole et Monopoleur (1775)
– Essay on the Application of
Analysis to the Probability of
Majority Decisions (1785)
• “Condorcet’s Paradox”
– intransitivity of majority preference
• Condorcet Method
– pairwise elections
– Life of M. Turgot (1786)
Etienne Bonnot de Condillac (1714-1780)
– An Essay on the Origin of
Human Knowledge (1746)
• French empiricist, tradition of
Locke and Hume
– Commerce and Government
(1776)
• subjective value theorist, notion
of declining value as quantity
expands
• exchange arises as consequence
of reverse inequality of values
Background to British Political
Economy in the 18th Century
• Act of Settlement 1701
– parliamentary supremacy; establishes House of
Hanover
• Act of Union 1707
– join Scotland and England; Scottish parliament
dissolved; free Church of Scotland (Presbyterian)
• The Jacobite Uprisings of 1715 and 1745
– James VIII and Bonnie Prince Charlie attempt to
restore House of Stuart to thrones of
Scotland/England
Background to British Political
Economy in the 18th Century
• The Scottish Enlightenment
– Gershom Carmichael (1672-1729)
– Francis Hutcheson (1694-1746)
– Adam Ferguson (1723-1816)
• The Rise of Methodism (1738)
– brothers John and Charles Wesley
– denied absolute predestination; denied that
the grace of God is irresistible; and affirmed
that a believer may fall from grace
• Problems in the American Colonies
Bernard Mandeville (1670?-1733)
• Dutch, settled in England in 1699
• The Grumbling Hive: or Knaves
Turn’d Honest (1705)
• The Fable of the Bees: or Private Vices,
Public Benefits (1714)
– Argues that “vices” animate the economy and that if
people were virtuous the economy would stagnate
– Shock to moral philosophy of the Scottish Enlightenment
– Problematic nature of his economics
• If people don’t spend on vices won’t they spend on
virtues?
• Commits broken-window fallacy and also confuses saving
with hoarding
The Scottish Enlightenment
• Remarkable flourishing of intellectual
activity at time such activity is moribund in
England
• Gershom Carmichael (1672-1729)
– first Professor of Moral Philosophy,
University of Glasgow
– brought natural law views of Pufendorf,
Grotius, and Locke to Scotland
– Natural Rights: Observations upon
Pufendorf’s On the Duty of Man and
Citizen (1724)
The Scottish Enlightenment
• Francis Hutcheson (1694-1746)
– Professor of Moral Philosophy, University of
Glasgow
– Essay on the Nature and Conduct of the
Passions and Affections (1728)
• opposed hedonism of Hobbes and Hume with
notion of moral benevolence; opposed
Mandeville’s argument that private vices lead
to public benefits; arrived at “greatest
happiness” principle as moral commandment
– Adam Smith’s teacher (“the incomparable
Hutcheson”)
The Scottish Enlightenment
• Adam Ferguson (1723-1816)
– Professor of Moral Philosophy,
University of Edinburgh
– An Essay on the History of Civil Society
(1767)
– Principles of Moral and Political Science
(1792)
The Scottish Enlightenment
• Features of the Scottish Enlightenment
–
–
–
–
secular
scientific objectivity
clear social and historical focus
constancy of human nature within changing
environments and institutional settings
– social order as the consequence of human action,
but not of human design
– belief in progress
– belief in historical relativism
David Hume (1711-1776)
“Hume is our Politics,
Hume is our Trade,
Hume is our
Philosophy,
Hume is our Religion."
-19th century British idealist
philosopher James Stirling
David Hume (1711-1776)
– historian, philosopher, essayist
– tutor, traveling secretary,
Edinburgh University librarian,
diplomat
– A Treatise of Human Nature
(1739-40)
– Essays Moral and Political
(1741-42)
– Political Discourses (1752)
– multi-volume History of England
(1754-1762)
Hume’s Economics
• Political Discourses (1752)
– Three essays: “Of Money,” “Of Interest,” and “Of
the Balance of Trade”
• Contributions
– mutual gains of international trade (not zero-sum)
– price-specie flow mechanism (first publication)
– long-run neutrality of money (first explicit
statement); crude simplification of quantity theory
– short-run non-neutrality of money due to price
inertia; relationship to booms and depressions
– interest rate function of demand for and supply of
real capital (savings)
James Steuart (1712-1780)
• An Inquiry into the Principles of
Political Œconomy: Being an
Essay in the Science of Domestic
Policy in Free Nations, in which
are Particularly Considered
Population, Agriculture, Trade,
Industry, Money, Coin, Interest,
Circulation, Banks, Exchange,
Public Credit and Taxes (1767)
– perhaps the longest book title in the
history of economics (39 words)
James Steuart
• Principles of Political Œconomy
– English introduction of term “political economy”
– first to specifically use phrase “supply and demand”
– superior analysis of competition
• “double competition”- competition on both sides
of market
– moderate mercantilist
– concentration on employment and public works
– rejects quantity theory
• demand determines prices (real-bills doctrine?)