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Thursday, June 6, 2013

The main stress of the physiocrats was in two areas: political economy and technical economic analysis, and the difference in the quality of their respective contributions is so great as to be almost stupefying. For in general political economy, they were usually perceptive and made important contributions, whereas in technical economics they introduced egregious and often bizarre fallacies which were to plague economics for a long time to come. In political economy, the physiocrats were among the first laissez-faire thinkers, casting aside contemptuously the entire mercantilist baggage. They called for complete internal and external free enterprise and free trade, unfettered by subsidies, monopoly privileges or restrictions. By removing such restrictions and exactions, commerce, agriculture and the entire economy would flourish. On international trade, while the physiocrats lacked the specie-flow-price mechanism of the brilliant and sophisticated Cantillon, they were far bolder than he in laying down the gauntlet to all mercantilist fallacies and restrictions. It is absurd and self-contradictory, they pointed out, for a nation to attempt to sell a great deal to foreign countries and to buy very little; selling and buying are only two sides of the same coin. Furthermore, the physiocrats anticipated the classical economic insight that money is not crucial, that in the long run, commodities – real goods – exchange for each other, with money simply an intermediary. Therefore, the key goal is not to amass bullion, or to follow the chimera of a permanently favourable balance of trade, but to have a high standard of living in terms of real products. Seeking to amass specie means that people in a nation are giving up real goods in order to acquire mere money; hence, they are losing rather than gaining wealth in real terms. Indeed, the whole point of money is to exchange it for real wealth, and if people insist on piling up an unused hoard of specie they will lose wealth permanently. When Turgot became finance minister of France in 1774, his first act was to decree freedom of import and export of grain. The preamble of his edict, drawn up by his aide Du Pont de Nemours, summed up the laissez-faire policy of the physiocrats – and of Turgot – in a fine and succinct manner: the new free trade policy, it declared, was designed to animate and extend the cultivation of the land, whose produce is the most real and certain wealth of a state; to maintain abundance by granaries and the entry of foreign corn, to prevent corn from falling to a price which would discourage the producer; to remove monopoly by shutting out private license in favor of free and full competition, and by maintaining among different countries that communication of exchange of superfluities for necessities which is so comformable to the order established by Divine Providence.1 Although the physiocrats were officially in favour of complete freedom of trade, their besetting passion – and this reflects their often bizarre economics – were repealing all restrictions on free export of grain. It is understandable that they would concentrate on the elimination of a long-standing restriction, but they seemed to show little zeal for the freedom of importation of grain or for the freedom of export of manufactures. All this was wrapped up in the physiocrats’ unremitting enthusiasm for high agricultural prices, almost as a good in itself. Indeed, the physiocrats frowned on exports of manufactured products as competing with, and lowering the price of, agricultural exports. Dr Quesnay went so far as to write that ‘happy the land which has no exports of manufactures because agricultural exports maintain farm prices at too high a level to permit the sterile class to sell its products abroad’. As we shall see below, ‘sterile’ by definition meant everyone outside agriculture.

While the physiocrats were the first economists to stress and develop the case for laissez-faire, they had distinguished forerunners among statesmen and merchants in France. As we have seen, the laissez-faire concept developed among classical liberal oppositionists to the absolutism of late seventeenth century France. They included merchants such as Thomas Le Gendre and utilitarian officials like Belesbat and Boisguilbert.

Bridging the gap between turn of the eighteenth century laissez-faire writers and the physiocrats of the 1760s and 1770s was the eminent statesman, René-Louis de Voyer de Paulmy, Marquis d'Argenson (1694–1757). The heir of a long line of ministers, magistrates, and intendants, d'Argenson's ambition was to become prime minister and save France from what he saw as impending revolution by instituting laissez-faire. A voracious reader and prolific writer throughout his life, d'Argenson only published in his lifetime a few articles in his Journal Oeconomique in the early 1750s, and these were not printed but widely circulated in manuscript form. For a long while, d'Argenson was erroneously credited by historians with originating the phrase ‘laissez-faire’ in one of the articles in his Journal of 1751.

While d'Argenson did not originate the term, laissez-faire was his repeated cry to the French authorities, a cry he continued to stress even though his ideas were dismissed as eccentric by all his governmental colleagues. As intendant in his early years on the Flemish border, d'Argenson was struck with what he saw to be the economic and social superiority of free people and free markets across the border in Flanders. He then became greatly influenced by the writings of Fénélon, Belesbat, and Boisguilbert.
D'Argenson saw self-love and self-interest as the mainspring of human action, as bringing about energy and productivity in the pursuit of each man's happiness. Human social life, to d'Argenson, has the ‘natural tendency to inherent harmony when artificial constraints and artificial harmony and artificial stimuli are removed’. Looking to an enlightened monarch to remove these artificial subsidies and restrictions, d'Argenson pointed out that in the ideal society, the sovereign would have very little to do. ‘One spoils everything by meddling too much... The best government is that which governs least’. Thereby the marquis anticipated the famous phrase attributed to Thomas Jefferson.

D'Argenson concluded that ‘each individual [should] be left alone to labor on his own behalf, instead of suffering constraint and ill-conceived precautions. Then everything will go beautifully...’. Then continuing the proto-Hayekian point made by Belesbat:

It is precisely this perfection of liberty that makes a science of commerce impossible, in the sense that our speculative thinkers understand it. They want to direct commerce by their orders and regulations; but to do this one would need to be thoroughly acquainted with the interests involved in commerce... from one individual to another. In the absence of such knowledge, it [a science of commerce] can only be... much worse than ignorance in its bad effects... Therefore, laissez-faire! (Eh, qu'on laisse-faire!’)

Austrian Perspective on the History of Economic Thought (2 volume set)

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