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A FUNDAMENTAL REVOLUTION IN IDEAS began to emerge in the 18th century against the premises and policies of mercantilism. These ideas undermined the rationales for government regulation and control of the economic affairs of the people of European society. In its place there arose a conception and vision of a free society based on individual liberty, free trade, and market-based and market-directed prosperity. The two leading centers for this change were France and Scotland.
In France the proponents of the new idea of economic freedom were known as the Physiocrats. They also liked to refer to themselves as the economists. Central to their critique of the regulatory state of their time was the insistence that there was a natural order to things in the social world as much as in the physical world. A proper arrangement of the institutions of society required reflection on the nature of man, his requirements for survival and betterment, and his relationship to others in society.
One of the clearest statements of this conception of man and the social order was presented by Pierre-Paul le Mercier de la Riviere in his 1767 work, The Natural and Essential Order of Political Societies. Each man, he said, has a natural right to secure what was necessary for his survival. And this right was the cornerstone for deducing the relationships that would be both just and wealth-generating for all men:
I do not think that anyone will deny the existence of the natural right to secure ones own survival. This basic right is, indeed, only the result of a basic duty which is imposed upon man under penalty of pain or even death…. Now, it must be clear that mans right to secure his own survival includes the right to acquire, by his own work, those things that are useful to his existence as well as the right to keep them after their acquisition. It is evident that this second right is only part of the first, for one cannot be said to have acquired what one has not a right to keep; the right to acquire and the right to keep form together only one and the same right although considered at different times…. The exclusive property of his person, which I am going to call personal property is thus for each man a right by absolute necessity; and since this exclusive personal property would be nil without the exclusive ownership right to those things which man acquires by his own labor, this second exclusive right of property, to which I shall give the name of negotiable property is an absolute necessity, like the first from which it is derived…. Once it is realized that it is absolutely necessary that personal and movable property are exclusive rights we are able to realize that each man has also duties which are of absolute necessity. These duties consist in the obligation not to invade the property rights of others, for it is evident that without these duties right would cease to exist.
From this le Mercier de la Riviere concluded, Property and, consequently, security and liberty of enjoyment are the essence of the natural and fundamental order of society. This order is part of the physical order, and therefore its principal characteristics are in no way arbitrary.
Following these principles ensured a proper order and working of the social system. To deny them or act contrary to them would be as absurd as passing laws that mandated that the sowing of crops was to be done during the harvesting season and the harvesting done during the sowing season. The right of men to freely produce and exchange among themselves logically followed from the nature of man and his circumstances. Indeed, le Mercier emphasized the necessity of leaving domestic trade as free as possible. And at the same time, The natural and fundamenal order of societycalls for the greatest possible freedom of foreign trade in the common interest of both the sovereign and the nation.
But if there was a natural order to society, how did it ensure harmony and balance in the productive activities among men? An explanation was formulated by one of the leading figures of the Physiocrats, Franois Quesnay. For more than two decades Quesnay served as physician to the king of France, Louis XV. But his attention and interests were focused equally on the social system and its functioning. He blended his knowledge of agriculture with his training as a medical doctor. He insisted that it was the production of the land resources and food production that was the basis of all prosperity in society. Manufacturing and industrial crafts were derivative and not primary sources of wealth. After all, there would be nothing to transform into finished goods for consumption and other productive uses if the resources of the earth had not been mined and the soil had not been tilled so both those who worked the land and those who were employed in industrial enterprises could have the means of material survival. Thus, in the division of labor, it was the agricultural sectors that were the foundation of society and its economic well-being.
In Quesnays most famous work, Tableau Economique (Economic Table), he outlined the interdependency of the various specialized activities within the economic order. He traced out how the resources and foodstuffs produced by the agricultural sectors were exchanged for the manufactured goods of the towns and cities. The town manufacturers and craftsmen supplied those who worked in agriculture with the tools and implements that increased their productive capability on the land as well as with finished items for consumption that the farmers could not as easily produce for themselves. The more abundant the output from the countryside, the more the people could be freed from agriculture to specialize in manufacturing in the towns. And the more improvements from specialized manufacturing there were, the better the tools and equipment were that those in agriculture could acquire to improve their own productivity over time.
Goods circulated in exchange from countryside to towns and from towns to countryside. And the circulation of all these various goods between town and country was facilitated by the medium of money. Quesnay devised an intricate diagram showing how goods for money and money for goods flowed through the various parts of the economic system and how wealth was distributed among the farmers, the manufacturers, and the king.
He insisted that government had no essential role directing or controlling the circular flow of goods between town and country and the matching flow of money between agriculture and manufacturing to facilitate the exchanges.
And most certainly, there was no need for the government to regulate the prices at which goods were bought and sold. Do not attempt to fix the prices, Quesnay declared. Only competition can regulate prices with equity.
And the same applied to international trade. The mercantilist dogma that trade among nations always resulted in a gain for one of the traders and a loss for the other was wrong. Stop, my friend, stop and do not be misled by political speculations that aim to persuade you that in commerce you can take advantage at the expense of other nations. For a just and good God has seen to it that that is impossible. The best policy for government to follow is laisser passer, laisser faire let goods pass and leave men alone to their own decisions.
Turgots political reforms
Another member of the Physiocratic School, Anne-Robert-Jacques Turgot, brought some of the ideas of greater economic freedom into practice, at least to a limited degree. In 1761 Turgot was appointed the intendant (or governor) of the French province of Limoges a position that he held for 12 years and that gave him virtually complete administrative powers within the provinces boundaries as the local representative of the central authority in Paris.
Early in his administration he did away with one of the most oppressive and hated taxes in the province, the corvee, the compulsory labor required of the peasantry to construct and repair roads, for which labor the workers received no pay. Any who resisted or failed to show up to perform their required work could be imprisoned or arrested and compelled to work.
Instead, Turgot paid salaries for skilled workers to perform the roadwork and assessed a moderate tax on all the taxpayers within the province to cover the cost. Within a short time, the roads in Limoges were considered some of the finest in France. One of Turgots contemporaries said of his abolition of the corvee: A benefit which will cause the name of Turgot to be blessed by succeeding generations is the abolition of the corvees. There are deeds on which we do not compose an ode, as on a battle gained, but which are worth more than victories.
Later, when Turgot served as the comptroller-general for all of France, he presided over the abolition of this crude and despised forced labor in the entire country. He insisted that it was important not to sacrifice the liberty of the kings subjects.
Another reform that Turgot fostered was the abolition of the laws restricting the free flow of agricultural goods from one part of France to another, particularly during a time of famine. Freedom of trade among the provinces of France would ensure a partial shift of available wheat supplies to those provinces experiencing famine and a high price for cereals from those provinces experiencing a greater abundance and therefore lower prices for bread. Said Turgot,
It is necessary, then, that the transport and the storage of grain should be entirely free, for if the inhabitants of a particular town arrogate the right to prevent the grain going elsewhere, the other towns will believe themselves to have the same right, and thus the places where the dearth is greatest, not being succored by the others, will be condemned to suffer famine. Also, if merchants who form magazines of wheat are exposed to the insults, to the violences of the populace, if the magistrates by their suspicions, by imprudent inquisitions, by injunctions to sell at a low price, sanction the popular prejudice against this commerce … no one will give himself to it…. What design have the people in their blind excitement? That the merchants should be obliged to sell cheap? That they should be forced to lose? In this case who would bring grain to them? The pavements of the towns would not produce it. Soon, in places of mere scarcity, a famine would ensue.
Turgot also ended the forced billeting of soldiers in the homes of people in the province. Instead, he rented several houses and built others to end what had been an especially hated practice of the government.
Taxes and spending
In his last year as intendant of Limoges, in 1773, Turgot spoke out in favor of greater economic liberty in general, saying, I know no other means of quickening any commerce whatever than by granting it the greatest liberty, and the freedom from all taxes.
In August 1774, Turgot was appointed comptroller-general of the finances of France by the new king, Louis XVI. The finances of the French government were in total chaos because of the exorbitant expenditures of the royal house, with an accumulated debt of 2,470,000,000 livres (a livre then being worth about 20c). The royal expenses for 1774 alone were 399,200,000 livres, with tax receipts of only 371,980,000, leaving a deficit of 27,220,000 livres.
Turgot wrote to the king saying that bankruptcy of the government had to be avoided but taxes should not be increased and there should be no more borrowing to cover expenses. Instead, he said that the government should institute a policy of retrenchment through deep cuts in its spending. He also told the king that he realized the anger he could expect from those who had become accustomed to financial favors, privileges, and subsidies from the government:
I foresee that I shall be alone in fighting against abuses of every kind, against the power of those who profit by these abuses, and against the crowd of prejudiced people who oppose themselves to all reform, and who are such powerful instruments in the hands of those interested parties for perpetuating the disorder. I shall have to struggle even against the natural goodness and generosity of your Majesty, and of the persons who are most dear to you. I shall be feared, hated even, by nearly all the Court, by all who solicit favors.
Alas, all that he anticipated came true. But before his removal from office, he attempted to carry out the free-market reforms he considered essential for the betterment of the people of France. He abolished all restrictions on the free trade in grain within France, declaring, It shall be free to all persons whatever to carry on, as it may seem best to them, their trade in corn and flour, to sell and to buy it, in whatever places they choose throughout the kingdom. He abolished the practice of the comptroller-generals being paid huge bribes for appointing tax gatherers for the various provinces of the country. Restrictions on and financial abuses against foreigners residing in France were ended.
He eliminated discriminatory taxing practices against various segments of the French public that discouraged investment and work. He demanded that provincial authorities reduce their regulatory infringements on the manufacturers and merchants in their areas of jurisdiction. He went about breaking the power of privileged monopolies by ending legal restrictions that prohibited new competitors from entering various markets and local taxes that made entry too costly.
Finally, to bring the governments finances under control, Turgot began the arduous process of eliminating layers of bureaucracy and privileged court intermediaries who used their positions to obtain bribes from special interests desirous of political privileges and benefits. He said, It is the interest of the whole kingdom we have to consider, the interests and the rights of all our subjects, who, as buyers or as sellers, have an equal right to find a market for their goods and to procure the object of their needs on the terms most advantageous to themselves.
The more Turgot instituted such sweeping free-market-oriented reforms, the greater the number of special interests who found themselves with a common goal to defeat him. The nobility and the clergy formed a common front to oppose him the latter group because he was suspected of liberal views on religion. The manufacturing interests who feared the free winds of competition in their corners of the market worked hard to defeat him. The bureaucracy and the members of the royal court who saw their privileges, tax revenues, and sources of bribes and favors being eaten away intrigued against him.
Finally, on May 12, 1776, the king dismissed Turgot. The power of the interests had triumphed against the economist reformer who dreamed of making France free and prosperous. This was also Frances last real chance for economic transformation before the corruption and financial chaos of the government would lead to the catastrophe and terror of the French Revolution that began in 1789.
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