Physiocracy - Introduction -

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The founding document of the the Physiocratic system was François Quesnay's Tableau Économique (1759). It was allegedly first printed for private circulation by King Louis XV of France himself (as court physician, Quesnay had the king acquire a small printing press as part of his physical exercise regimen). Quesnay's Tableau made its first public appearance in the Marquis de Mirabeau's L'ami des hommes: Pt. 6 (1760). It went through a few more versions in Mirabeau (1760, 1763), Mercier de la Rivière (1767) and DuPont de Nemours (1767).

The essential doctrines of the Physiocrats are well known. In short, it is commonly argued that the "wealth" of a nation is defined not as its stocks of gold and silver but rather as the size of the produit net ("net product") of its industries. A particular activity generates a "net product" or "surplus" if the value of the outputs of that activity exceeds the value of the inputs that went into it. The Physiocrats' fundamental axiom is that only agriculture is "productive" (i.e. yields a net product). Manufacturing and commerce, they asserted, take up as much value in inputs as they create in output, and thus are "sterile".

However, even though the net product is created in agricultural production, it is appropriated by landlords in the form of land rents which they extract from farmers. So, ultimately, the net product can be measured by rents. This conclusion generated their famous policy that the entire tax system of a nation should be overhauled and replaced with a "single tax" on land rents.

That, in a nutshell, is their doctrine. But just what was this document -- this Tableau -- intended to show? It does not "prove" their theory. In it, yes, agriculture is productive and manufacturing is sterile, but that is an assumption, not a result, of the Tableau. One could easily change their numerical examples and depict the opposite. Is the Tableau then, simply superfluous, reasserting what was already clearly stated in theory?

A Monetary Circuit?

Not quite. The Tableau complements what is already known by providing the monetary side of Physiocratic doctrine. In their Tableau, the stock of cash in the economy is identical to the size of the economy-wide produit net. What the Tableau shows is that although there is only one sector which produces a surplus, that stock of cash is sufficient to circulate the entire output of the economy in all sectors. And furthermore, it shows where the cash is at any moment in time, and tries to identify at what point it is most efficient to tax it.

Surprisingly, most commentators (e.g. Meek, 1963; Pressman, 1994) overlook or under-stress the essential monetary aspect of the Tableau. Too often, the Tableau is compared with and lauded as the analytical precursor of Marx's reproduction schemes, the input-output models of Leontief, Walras's general equilibrium system, etc. That's all very interesting and very true. But omits half the story. For the most part, these other models are not monetary. Indeed, there are flows of goods back and forth, but these flows are modeled by barter or credit. Money is usually absent from the start, and so the question of money circulation does not come up.

Yet if we ignore monetary circulation, Quesnay's Tableau would be little more than a grand exercise in pedantry. And the remainder of Physiocratic doctrines -- particularly on taxation and government -- appear rather unconnected, obscure and even flawed. And we are bound to balk at the omission of certain essential elements of general equilibrium theory -- like a price adjustment mechanism -- in the Tableau.

We should refrain from regarding Quesnay's Tableau as a precursor to anything and take it for what it is: a theory of the monetary circuit. It is essential that we consider all these flows as being monetized, i.e. undertaken by exchange against cash. Once we do that, much of the nature and purpose of the Tableau becomes clearer.

The Economics of Bloodletting

This should not be surprising. François Quesnay, after all, was not an abstract general equilibrium theorist. He was a mere court physician. The men he encountered at Versailles -- such as the Marquis de Mirabeau -- were aristocrats and officials concerned with the affairs of the French state. They weren't merchants or teachers or scientists, but government officers of one sort or other.

And, in the mid-18th Century, the main concern at Versailles was nothing more nor less than the solvency of monarchical finances, made all the more urgent by the great expenses of the Seven-Years' War (1756-63). And for the set of practical men walking the halls of the palace, state finance is simply about cash, not agricultural net products or general equilibria. You don't pay mercenary soldiers with food or theories, but with gold and silver.

How does one increase the cash intake of the French government? This, of course, was not a new question. The French monarchy had been cash-strapped since the Middle Ages. In any other age, the fiscal crisis of the French state would have been "solved" by yet another round of new taxes. But new taxes usually meant political headaches. There would be demands for an Estates-General to be called for the purpose -- and, in an age of absolutist kings, this was an avenue to be avoided at all costs.

Tax reform -- reorganizing existing taxes and duties in clever ways -- had been the name of the game since the 17th Century. The French government had staved off full-scale bankruptcy (when it could) by the expedient of regrouping taxes & duties, suspending exemptions, more energetic collection, farming taxes and duties out to the private sector, forced loans, repudiating obligations, etc.

Yet, through all this, the cash intake remained anemic. And now, in the middle of the 18th Century, the situation was urgent and the king's clever comptrollers were running out of options.

But this was also the age of Enlightenment. If the scientific method can be used to study the stars in the sky, the anatomy of animals and the progress of civilization, surely it can be put to the more practical end of analyzing the cash intake of the French state?

For a physician -- and particularly a surgeon, like Quesnay -- one analogy was straightforward. Cash is like blood, it circulates in the economy, just as blood circulates in the body. And thus the problem of taxes -- draining some of that cash out of circulation -- is just like the problem of bloodletting. You need to know how the cash circulates, in order to be able make the incision at the right point. The wrong incision might not yield anything; or, worse yet, it might arrest circulation and kill the patient outright.

It is essential to keep in mind that the analogy is between blood and cash -- and not blood and goods. Goods are like oxygen, it's what needs to be carried. Cash, like blood, is the carrier. And just as there is less blood in the body than substances to be carried, there is less cash in the economy than goods to be carried. A given amount of blood -- like a given amount of cash -- will, by circulation, carry amounts larger than itself.

Which brings us back to the produit net.  If our interpretation is correct, then the Physiocrats are not so far away from the Mercantilist doctrine as is commonly suggested.  If wealth is regarded as the stock of cash (gold and silver), it is because that stock of cash happens to be identical to the net product of the economy.  The Tableau shows that although there is only one sector which produces a surplus, that surplus, when monetized, is sufficient to circulate the entire output of the economy in all sectors.

This, then, is the purpose of the Tableau.  It is a depiction of the monetary circuit, showing where money is at any point in time, for the purposes of figuring out at which point it is most efficient to tax it. 

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