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The Physiocratic School

The foundations of the Physiocrats' doctrine

The Origins of Laissez-Faire Economics

The foundations of the Physiocrats' doctrine

  • First principle: only agriculture is productive
  • Second principle: legal despotism rather than democracy
  • Third principle: absolute respect for private property
  • Fourth principle: absolute freedom of commerce
  • Fifth principle: All men are brothers
The term Physiocracy, meaning "government by nature", was coined by Dupont de Nemours and used as the title for Physiocracy, a collection of articles by Quesnay published in 1768.
This is an obscure phrase. No student of Quesnay has provided us with its true meaning. Nevertheless, their system of thought was far from obscure. In fact, it was built around a few very clear principles, which we will outline here.

First principle: only agriculture is productive

This first idea is the one that has caught the attention of historians. Today, in textbooks or economics courses, this is how the Physiocrats are summarized. They are said to have naively believed that only agriculture is productive. On that basis, their doctrine is dismissed as irrelevant, and the analysis quickly moves on to Adam Smith.
However, it is unfair to criticize the Physiocrats for placing disproportionate importance on agriculture, since in the mid-18th century, agriculture employed 90% of the population and formed the foundation of the French economy.
The Physiocrats' idea is actually subtle. According to them, there is a difference between production and gain. The industrialist and the merchant may earn profits, but only the farmer truly produces, because production is the creation of useful material, rather than the addition of utility to pre-existing material.
We should also try to understand why they rejected industry and crafts as unproductive. At the time, these trades were locked within the guild system, which banned innovation, investment, and progress.

Second principle: legal despotism rather than democracy

Today, to insult someone, we say he's not a democrat. While historians forgive the Physiocrats their strict view on agricultural productivity, they do not forgive their opposition to democracy, especially since they lived during the height of Enlightenment ideas. From the mid-18th century to just before the Revolution, the Physiocrats were seen as enemies of progress.
Tocqueville insisted on this idea:
The Physiocrats were indeed very favorable to free trade of goods, to laissez-faire or laissez-passer in commerce and industry; but as for political freedoms proper, they did not consider them, and even when such ideas happened to cross their minds, they initially rejected them.
Liberal in economics, the Physiocrats were therefore not liberal in political matters. Quesnay writes in his maxims: "Let the sovereign authority be unique and superior to all individuals of society and to all unjust enterprises of private interests." And later, in the same maxim: "The system of checks and balances in government is a fatal notion, which only reveals discord among the great and oppression of the small".
Tocqueville aptly noted that the Physiocrats rejected democracy as soon as they saw its forms. They were skeptical of democracy, which would become a constant in French political economy, because democracy is far from a perfect system: it potentially allows the oppression of minorities by the majority, and it can become a tool for usurpation, tyranny, and despoilment.

Third principle: absolute respect for private property

The Physiocrats believed that people needed to own and keep the results of their labor. In their view, property rights were the very foundation of a society. They thought the State had one main job: to protect people's property. Furthermore, from an economic standpoint, the Physiocrats assert that the inviolability of property encourages work and effort and is a condition for economic progress.
Quesnay put it simply:
Let the ownership of land and movable wealth be assured to those who are their legitimate possessors, for the security of property is the essential foundation of economic order and the security of society; it is the certainty of permanent possession that encourages labor and the use of wealth in improving and cultivating the land, as well as in commercial and industrial enterprises.

Fourth principle: absolute freedom of commerce

In his previously cited Maxims, Quesnay states:
Let there be complete freedom of commerce, for the most reliable, precise, and beneficial regulation of both domestic and foreign trade for the nation and the State lies in full freedom of competition.
The Physiocrats had seen the damage caused by government interference, especially in the grain trade. One must acknowledge, they say, that the authority will never be able to manage commerce as well as individuals do, because it would need to respond to every need and react to every change in demand or supply. All of this is far beyond the capabilities of even the wisest government one can conceive. Therefore, it is necessary to let things be and to let them flow.
Beneficial by nature, trade must be entirely and perfectly free. One of their members, Le Trosne, even wrote a pamphlet titled The Freedom of the Grain Trade: Always Useful, Never Harmful.

Fifth principle: All men are brothers

Fierce opponents of slavery, the Physiocrats were also great pacifists. "Our foreign policy is called peace", Mirabeau simply said. In 1790, at the Constituent Assembly, Dupont de Nemours continued this pacifist stance when he proposed a bill banning offensive wars.
Quiz
Quiz1/5
For the Physiocrats, what is the difference between production and profit?