Economics As Science: Quesnay, Not Smith

Where it is revealed that Adam Smith was Quesnay’s Feeble Student…

Faithful Anglo-Saxons love to evoke Adam Smith and Ricardo, who are famous British economists.

Adam Smith is viewed as the first temple of economics, inventor of the free market. And that is the first set of deep mistakes. First, there was never any free market, ever since there are tribes, and they are governed. Even a government of pirates has laws. Which its market obeys.

Second, Adam Smith was actually a student. All right, we all are, but some of us do like Einstein, and get “their” main ideas somewhere else. They are not the ultimate creators. Ultimate creators are the ones worth pondering: their reasons are always deeper and more interesting than that of their parrots.

Adam Smith went to France, and learned from the physiocrats. The most prominent physiocrats were towering personalities. One, Turgot, became France’s Prime Minister (under Louis XVI), another was king Louis XV’s surgeon and “first doctor” (so economy was a love of his, as it was with the philosopher who named and founded economics, Xenophon. Lovers tend to think better than those paid to think correct thoughts).

What was the idea of physiocracy? Well, it’s in the name: the power of nature. Physiocracy views economics as an application of the laws of nature, hence its great reverence to agriculture. 

Mercantilism Is Much Smarter Than This Sorry Abstract Puts it. Physiocracy Insisted That Nature, Not The Sovereign, Should Guide Economics. True, But Naive...

Mercantilism Is Much Smarter Than This Sorry Abstract Puts it. Physiocracy Insisted That Nature, Not The Sovereign, Should Guide Economics. True, But Naive…

As The Economist put it at some point: “If YOU asked twenty well-educated souls to identify a physiocrat, only a couple could help you out. Writers like A.R.J. Turgot, the Marquis de Condorcet and Francois Quesnay are not household names, unlike Adam Smith or David Ricardo. But they are important. According to one late-19th century historian, the physiocrats (who called themselves the “économistes”) created “the first strictly scientific system of economics”.

Adam Smith was half the age of Francois Quesnay when the latter instructed the former (43 versus 72). At the time, intellectuals from Britain and France heavily influenced each other, to the point theater has been written about them. The phrase laissez-faire, coined by fellow physiocrat Vincent de Gournay, came from Quesnay’s writings on China

Some say that physiocracy was a theory of wealth. In this reduced vision of physiocracy, the physiocrats, led by Quesnay, believed that the wealth of nations was derived solely from the value of agriculture. In that parody, Quesnay’s understanding of value-added was rather primitive—he could not see, for example, how manufacturing could create wealth. But that is certainly not true, as Quesnay greatly admired the Chinese universal education system, and its vaunted examinations producing mandarins who ruled the empire (without aristocracy).

Moreover, as Quesnay was France’s top doctor, he could not possibly believe that there was no added value in science and medicine. Quite the opposite. Quesnay, Louis XV’s esteemed friend, was called by the king, “my thinker”. Quite a compliment, as another friend was Voltaire. So that physiocrats believed in agriculture alone is a parody.

Farmers certainly produced wealth. To quote Karl Marx in “Das Kapital”, “the Physiocrats insist that only agricultural labour is productive, since that alone, they say, yields a surplus-value”.

The physiocrats are most commonly known for these most simplistic economic ideas which do not reflect their subtlety. Indeed these parodies are not their most important contribution to economic thought. Rather, it was the physiocrats’ methodological approach to economics that was revolutionary.

Before physiocracy, economics was not viewed as a scientific discipline, but rather a strategic one (this is what is called “mercantilism”). Mercantilist thinkers sometimes assumed that amassing gold, or military power was the best economic strategy… And indeed, it often was. Economic efficiency was irrelevant.

But Quesnay was a scientist (for most of his life, he was a surgeon, trained with the best, who then, at age 50, became an official medical doctor). And Quesnay wanted to apply the scientific principles of medicine to the study of economy. The “Tableau Economique”, which shows in a single page how an entire economy functions, and the abstruse book which contained it, is Quesnay’s most famous contribution.

Quesnay,an immensely respected figure, showed that the economy was something to be respected, analysed and understood—much like a human body. It could not simply be moulded by the will of a monarch (or government, or a bunch of know-nothing aristocrats).

This was a hugely important step forward. The elder Comte de Mirabeau, father to the main leader in the first few months of the Revolution, before an untimely death at age 40, considered Quesnay’s Tableau to be one of the world’s three great discoveries—equalled only by the invention of printing and the discovery of money. As The Economist says:

Familiar notions of contemporary liberal economics, laissez-faire, the invisible hand, etc. derive from Quesnay’s scientific approach. The physiocrats, like many other thinkers of the eighteenth century, believed in “natural order”. They showed that unchanging laws governed all economic processes. Consequently, it is generally thought that the physiocrats were opposed to government intervention: the dead hand of the state would only corrupt the natural evolution of the economy.(but, as Quesnay’s admiration for the Chinese governmental system based on erudition, and for Confucius, and Quesnay’s de facto appartenance to the government shows, that’s another nefarious Anglo-Saxon parody). T. Jacob Viner, a Canadian economist, referred to the physiocrats as one of the “pioneer systematic exponents” of laissez-faire… Alongside with Adam Smith.

But the root of physiocracy was much more general. Adam Smith was the student.

Why is the preceding important? First it destroys the Anglo-Saxon hubris that the Anglo-Saxon culture invented modern economic theory and practice. And that it succeeded because of it (whereas the proper application of gunnery has more to do with it).

In truth, it is quite the opposite. When Louis XIV, the self-flattered “Sun King” took control of the state, he discovered, to his dismay, that France had only twenty (20) major capital ships. England and the Netherlands each had one hundred (100). Each.

Why?

Because the Netherlands and England practiced the exact opposite theory to Physiocracy (which would be created in name a century later). The Great Powers, starting with the Imperium Francorum, Francia, and, seven centuries later, Portugal, Spain, etc., practiced Mercantilism, or how to create economic opportunity with big armies and then, big guns. And you know what? Right now the super states of the USA, China and Russia are practicing Mercantilism, while Europe practices Physiocracy. Obama has turned out to be a major practitioner of Mercantilism. Mercantilism has been his main activity. Europeans have not understood this at all.

Guess who is winning?

Patrice Ayme’

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10 Responses to “Economics As Science: Quesnay, Not Smith”

  1. EugenR Says:

    Great essay. Very original.

  2. Gmax Says:

    Another spectacular essay, and the one of yesterday left me speechless. What’s a capital ship? Are you saying the US is lying, that they yell free market, when they run away with other people’ s property? But in truth it’s all cloak and dagger?

    • dominique deux Says:

      A capital ship was a ship of the line, behemoths with two or three gunnery decks which were supposed to maneuver in formation to bring stupendous firepower to the enemy – this could be very elaborate (google “crossing the T”) and required strenuous training at sea. Ships getting out of line would provide an entry point to better manned opponents. Non-capital ships included frigates and other smaller craft, which would act alone or in support of the fleet. The French Navy had the best ships in its time (google “Baron Sané”). But they were poorly manned, for a host of reasons, and thus often ended up under the Union Jack as treasured prizes (keeping their old names) – and faithfully copied.

      Strategic naval thinking still revolves around capital ships, that role being played first by dreadnoughts (still ships of the line), and then by airplane carriers, each in a huge bubble of escorts. IMHO the next contenders are the nuclear attack submarines (distinct from strategic nuclear boats, aka “boomers”‘ which go it alone.

      The huge discrepancy in fleet size between Britain-Netherlands and France was not only due to the former practicing mercantilism (France’s Colbert was as mercantilist as can be, and quite successful). France’s land war superiority and its nobility’s disdain for (and unability to learn) “the scientific weapons” (field and siege guns, ships) made it a very reluctant and uninterested seafarer. That it could beat the British Navy and ensure American independence is all the more remarkable. It took determined individuals to reverse the trend and build an adequate Navy, which happened briefly from time to time. Louis XVI and Sartines (an… interesting individual) were two such men, but building a Navy is a long term exercise, and they reigned shortly. Napoleon was inept, mostly accepting that he was no match to England’s naval power.

      • Patrice Ayme Says:

        Nice capital ship explanation, thanks, Dominique.
        France was really motivated to enforce the Enlightenment in America. The American independence war should be called the Enlightenment war.
        In the other wars with England, France was not as motivated. The ratio of seafarers to peasants was too low. And Voltaire and Sade the elder, and their ilk were there to scoff on empire. Too much love spoils the war.

  3. EugenR Says:

    Great essay. I would add the problem of inequality in wealth and income, each economic system causes, even if based on ideological dogma of equality, as the Soviet system was.
    Most of the economical systems, be it mercantilism, communism, feudalism need deep collaboration between the government (king), and the economic elites. This collaboration by its nature creates those who are close to the political leadership and those who are not and discriminated. The close elites gained certain kind of monopoly, supported by the power of government. While the feudalism had chosen the economic leaders from among the aristocrats, the mercantile system among successful merchants, military leaders, entrepreneurs, adventures.
    The communist system kept the monopoly in the hands of the governing body itself. All this systems were very inflexible as to resource division and social and economic mobility, even if mercantilism was more flexible than the rest. So the economic inequality was built in, in the system itself.
    The capitalistic market driven system as compared to the other systems mentioned above opened itself to the most skilled and in principle, the government’s task should be support for smooth free competition environment. But this system has its faults too. If the system exists uninterrupted for more than a generation, socially the economic and political elites create a network of mutual collaborators, through the elite schools and social relation of the next generations, and disrupt the lassaiz faire system of competition. Again the inequality grows to unacceptable levels. This is the stage we are heading too in Europe and the US. Usually this stage ends with war or revolution.
    The economic dynamics of different economic systems can be easily graduated, from the least pro wealth creative to the most wealth creative and is in perfect correlation with the level of social, economic and political mobility, the economic system enables. The worst economic systems as to the wealth creation are the communistic and the feudal system. It my be surprising that the communistic system is together with the feudal system, if to remember that USSR competed with the capitalistic countries as to its success to create wealth. But the results were far from the plan, and it was not an accident. Monopolization of economic resources, freezing of economic, social and political mobility has to delude the wealth and is anti economic development. As contrary to communism, feudalism did not try to create a economic system of growing wealth, but contrary to that. It rather tried to freeze the wealth and its distribution among the different levels of society.

    Naturally the capitalistic free market economy, based on competition and continues fight against tendencies for monopolization of certain segment of the economy is the most dynamic and pro economic growth system. But it has its own problems.
    The first one is the advantage it gives to entities that already created capital, while the entrance fee to join the club of the wealthy socially and economically is becoming harder and harder, as the length of period of time without major political disruption grows. In these times can be some new comers, mainly some new technology opportunists or fortunate ones, who are in the right place, in the right time with the right skills.
    The other problem of the capitalistic-market economic system is capital’s lust for continuous ever growing yield, while it pushes the system to necessity for ever growing economic output and performance, without consideration, if this economic growth brings additional value to the standard of living of the population or rather reduces it. This results need for increased productivity, that if not in correlation with level of aggregate demand necessarily brings disruption in economic balance, and with it unemployment.
    The capitalistic-free market system is based in principle on many competing fragmented economic entities, whose goals are profit and ever increasing market share. This goals many times brings very short term planning to the entity, many times for a one year period, between publishing the annual financial report. Also economic entities put very little attention to global effect their activities cause. This brings the phenomena of neglecting long term ecological impact on environment, or health issues, as in the case of tobacco companies.
    Other issue for consideration is the need of the system to encourage continuously consumption not always for the advantage of the consumer, by different tools of deception, like false but mainly dis-informative advertisements, consumers credits, that often brings the consumers to exceed their consumption beyond their needs and means and many others.

    The main problem of the capitalistic-free market economic system is lack of built in instruments in the system to put in consideration the long term problems of the human kind, and has no respect to human needs beyond the needs caused by immediate urge to possess and consume.

  4. ianmillerblog Says:

    Great essay. My one question relates to the last sentence – I think it is a little early to find the answer, but I believe that the predominance of the US is at least in part because of its size and wealth.

    Your comment about the creation of ideas is interesting. Maybe this will inspire me??

    • Patrice Ayme Says:

      Thanks Ian! Yes, of course, size plays a role, like in all serious empires. And wealth is in no small fashion due to fossil fuels. The USA is still number one of fossil fuels, more than 150 years later…

  5. pshakkottai Says:

    The govt and people are on opposite sides of the money balance. The purpose of a democratic govt is to serve all its citizens and therefore the people have allowed their govt to create money for their exclusive benefit. Service is the only motive for govt. Fiscal DEFICIT is created money.

    The balance is

    FISCAL DEFICIT – TRADE DEFICIT = NET PRIVATE SAVINGS.

    No body else is allowed to create money except banks with the backing of govt, a subsidy to bankers.

    People, businesses and states are not allowed to create money. They have to earn it or be given money by the federal govt. Which is why profit is the only motive for businesses.

    Taxation is needed to keep plutocracy in check. Taxation is not needed to supply money to a govt that creates money. It has no value to the Federal Govt. It has value only to the private sector which is only a money-user. Plutocracy has a history of killing democracy as in being the cause of decline and fall of Rome and earlier Greece.

    In size USA has a big economy but in the end corruption and plutocracy will prevail. You have seen this plot before.

    partha.

    • pshakkottai Says:

      The economy is half socialist and half free enterprise (red = blue and green) exactly.

    • Patrice Ayme Says:

      We agree, Partha, especially about taxation.
      Taxation’s fundamental and irreplaceable role, is to keep plutocracy in check. Absent the taxation of plutocrats as is the case now for most jurisdictions, worldwide, is an installation of ever greater plutocracy… And why 2 plutocrats are front runners for the US presidency.

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