Adam Smith's Simplified Wealth of Nations, Book 4, Chapter 9c: Errors of the physiocrats
Chapter 9c: Errors of the physiocrats
24 According to this liberal and generous system:
A landed nation can raise its own artificers, manufacturers, and merchants best by granting the most perfect freedom of trade to the artificers, manufacturers, and merchants of all other nations.
It raises the value of its own surplus produce
Its continual increase gradually establishes a fund which raises up all the artificers, manufacturers, and merchants that it needs
25 On the contrary, a landed nation hurts its own interest when it oppresses foreign nations by high duties or prohibitions by:
By raising the price of all foreign goods, it sinks the real value of its own surplus produce
Its surplus produce is the price it uses to buy those foreign goods
By giving a monopoly of the home market to its own merchants, artificers, and manufacturers, it raises mercantile and manufacturing profits over agricultural profits
It draws capital from agriculture
It hinders capital from going into agriculture
This policy discourages agriculture in two ways:
By sinking the real value of its produce and lowering its profit rate
It makes agriculture less advantageous.
By raising the rate of profit in all other employments
It makes trade and manufactures are made more advantageous than they otherwise would be.
Every man is tempted by his own interest to turn his capital and industry from the agriculture to trade and manufactures.
26By this oppressive policy, a landed nation will be able to raise up artificers, manufacturers, and merchants of its own sooner than by the freedom of trade.
Yet it would raise them up prematurely before it was perfectly ripe for them.
By raising up too hastily an industry which only replaces its own stock, it would depress a more valuable industry, one that affords a net produce in the free rent to the landlord.
It would depress productive labour by encouraging unproductive labour too hastily.
27 Mr. Quesnay's Economic Table represents:
how this system distributes the total produce of the land among the three classes.
how the labour of the unproductive class only replaces the value of its own consumption without increasing value of that total.
Mr. Quesnay is the very ingenious and profound author of this system and its mathematical models.
The first of these models is the Economic Table.
It shows how he supposes the distribution happens in a state:
which has the most perfect liberty and highest prosperity
where the annual produce affords the greatest possible net produce
where each class enjoys its proper share of the whole annual produce
Some subsequent formulas show how:
this distribution is made in different states of restraint and regulation
the class of proprietors is more favoured than the class of cultivators
the one or the other class encroaches on the share which should properly belong to this productive class
the most perfect liberty establishes that natural distribution
Every such encroachment or violation of this distrbution must degrade yearly the value and sum total of the annual produce.
It must create a gradual decline in the society's real wealth and revenue.
The speed of this decline depends on the degree of this encroachment.
Those subsequent formulas represent the degrees of decline which correspond to the degrees of violation of this natural distribution.
28 Some speculative physicians imagined that the human health could be preserved only by a precise regimen of diet and exercise.
The smallest violation creates some disease or disorder proportional to the degree of the violation.
Experience shows that the human body frequently is perfectly healthy under a vast variety of regimens, even those which are unwholesome.
The healthful state of the human body contains in itself some unknown principle of preservation.[dharma]
It is capable of preventing or correcting the bad effects of a very faulty regimen.
Mr. Quesnay is a very speculative physician.
He had the same notion about the political body.
He imagined that it would thrive and prosper only under a certain precise regimen.
This exact regimen is perfect liberty and perfect justice.
He did not consider that, in the political body, the natural effort every man to continually better his own condition is a principle of preservation which can prevent and correct the bad effects of a partial and oppressive political economy
Such a political economy retards the natural progress of a nation towards wealth and prosperity
But it cannot always stop nor make the natural progress of wealth go backwards.
If a nation with perfect liberty and justice could not prosper, then no nation could have ever prospered.
However, in the political body, nature's wisdom has fortunately made ample provision to remedy the bad effects of man's folly and injustice, in the same way that nature has done in the body to remedy man's sloth and intemperance.
29 The capital error of this system was in representing the artificers, manufacturers, and merchants as unproductive
The following show this error:
30This class annually reproduces the value of its own annual consumption.
At least, it continues the stock or capital which employs it.
This does not mean it is barren or unproductive.
We should not call a marriage unproductive if it produced only a son and a daughter to replace the father and mother.
It only continued the human species as it was before and did not increase it.
Farmers and countryside labourers annually reproduce a net produce.
This is a free rent to the landlord, over and above the stock which maintains and employs them.
A marriage which produces three children is certainly more productive than one which produces only two.
The labour of farmers and countryside labourers is certainly more productive than the labour of merchants, artificers, and manufacturers.
However, their superior produce does not render the produce of merchants and manufacturers unproductive.
31It is improper to consider artificers, manufacturers, and merchants in the same light as menial servants.
The labour of menial servants does not continue the fund which maintains and employs them.
Their maintenance and employment is at their master's expence.
Their work does not repay that expence.
That work consists in services which perish right after they are done.
It does not realize itself in any vendible commodity which can replace the value of their wages and maintenance.
On the contrary, the labour of artificers, manufacturers, and merchants naturally realizes itself in vendible commodities.
Because of this, I have classed artificers, manufacturers, and merchants as productive labourers and menial servants as unproductive labourers in Book 2, Chapter 3.
32The labour of artificers, manufacturers, and merchants do increase the society's real revenue.
Even their consumption was equal their production, it would not follow that their labour added nothing to the national annual produce.
For example, an artificer who creates £10 worth of commodities in the first six months after harvest, might consume £10 worth of food.
He really adds £10 worth to national annual produce.
While he was consuming a 6-month revenue of £10 worth of food, he produced an equal value of work.
This work can buy an equal 6-month revenue to himself or someone else.
The value of what was consumed and produced during these 6 months is £20, not £10
It is possible that only £10 worth of this value may have ever existed.
But if the £10 consumed by the artificer was instead consumed by a soldier or a menial servant, the annual produce at the end of the 6 months would have been £10 less
The artificer's produced value is not greater than his consumed value.
But the actual value of goods in the market is greater because of his production.
33 The patrons of this system assert that the consumption of artificers, manufacturers, and merchants is equal to the value of what they produce.
They probably mean that their revenue is equal to the fund for their consumption.
If they had asserted more accurately that their revenue was equal to the value that they produced, it might have been obvious to the reader that what would be naturally saved out of this revenue would increase the society's real wealth.
To make an argument, they expressed themselves as they did.
This argument turns out to be a very inconclusive one.
4. 34 Without parsimony, farmers and country labourers can do no better in increasing their society's real revenue than artificers, manufacturers, and merchants.
The annual produce of any society can be increased only in two ways:
By some improvement in the productivity of useful labour actually maintained in it
By some increase in the amount of that labour
35 The improvement in the productivity of useful labour depend on:
the improvement in the worker's ability
the improvement of the machinery with which he works
The labour of artificers and manufacturers can be more subdivided.
They can be reduced to more simplicity than the labour of farmers and country labourers.
They are capable of both these improvements in a much higher degree.
In this respect, cultivators can have no advantage over artificers and manufacturers.
36The increase in the amount of useful labour actually employed depends on the increase of the capital which employs it
The increase of that capital again must be exactly equal to the amount of the savings from the revenue of the persons who either:
manage and direct the employment of that capital, or
lend that capital to them
If merchants, artificers, and manufacturers are naturally more inclined to parsimony and saving than proprietors and cultivators, they are more likely to increase their society's useful labour and real revenue.
37 5. Even if the revenue of a country were measured in food, a trading and manufacturing country would always have greater revenue than a country without trade or manufactures
By trade and manufactures, more food can be imported into a country than what its own lands could afford.
The town's inhabitants frequently possess no lands of their own.
By their industry, they draw other people's rude produce.
What a town is to its countryside, an independent state may be to other independent states.
Holland draws most of its subsistence from other countries.
It imports live cattle from Holstein and Jutland and wheat from other European countries.
A small amount of manufactured produce buys a large amount of rude produce.
A trading and manufacturing country, buys a great part of the rude produce of other countries with a small part of its manufactured produce
A country without trade and manufactures must buy a small part of the manufactured produce of other countries with a great part of its rude produce
The manufacturing country exports goods that can subsist and accommodate a very few.
It imports the food and accommodation of many.
The non-manufacturing country exports the accommodation and subsistence of many.
It imports the subsistence and accommodation of a few.
The people of the manufacturing country must always enjoy more food than what their own lands could afford.
The inhabitants of the non-manufacturing must always enjoy fewer.
38 This system, with all its imperfections, is perhaps nearest to the truth on political economy.
Political economy is a very important science.
It is the nature and causes of the wealth of nations.
This system is worth the consideration of anyone who wishes to examine the principles of political economy.
It is too narrow and confined in representing the labour employed on land as the only productive labour.
Its doctrine seems as just as it is generous and liberal in:
representing the wealth of nations as consisting in the consumable goods annually reproduced by the labour of society
representing the wealth of nations not in the unconsumable riches of money
representing perfect liberty as the only effective expedient for rendering the greatest possible annual reproduction
It has many followers.
Men are fond of:
appearing to understand what surpasses the comprehension of ordinary people.
The paradox of their system on the unproductive nature of manufacturing labour has perhaps contributed greatly to multiply its admirers.
In recent years, they have made a considerable sect known in the French republic of letters as The Œconomists.
Their works have certainly been of some service to France by:
bringing many subjects into general discussion which was never well examined before, and
influencing the public administration in favour of agriculture.
Because of them, French agriculture was delivered from oppressions.
The term a lease can be granted, which will be valid for every future purchaser of the land, has been prolonged from 9 years to 27 years.
The ancient provincial restraints on the transportation of corn from one province to another was entirely taken away.
The liberty of exporting corn was established as the common law of France in all ordinary cases.
This sect has very many works.
Their works deal with political economy and every other branch of the system of civil government.
They all follow the doctrine of Mr. Quesnay implicitly, without any sensible variation.
There is little variety in most of their works.
The most distinct and best connected account of this doctrine is found in The Natural and Essential Order of Political Societies by Mr. Mercier de la Riviere.
For some time, he was Intendant of Martinico.
Mr. Quesnay was a very modest and simple man.
The admiration of this whole sect for Mr. Quesnay is not inferior to the admiration of ancient philosophers for the founders of their respective systems.
Marquis de Mirabeau was a very diligent and respectable author.
He says that since the world began there were three great inventions which gave stability to political societies.
The invention of writing
It gives human nature the power of transmitting its laws, contracts, annals, and discoveries, without alteration.
The invention of money
It binds all the relations between civilized societies
The invention of Economic Table
It is the result of the other two inventions.
It completes them by perfecting their object and allowing future generations to reap their benefits.