What is Physiocracy? | History of economics thought.

Definition of Physiocracy:

Physiocracy refers to an economic system which developed in France about the mid 18th century. The word "Physiocracy" was used for the first time by Dupont-De-Nemours in 1768. 

It is a Greek word which denotes the rule of nature. Physiocrats believed in a natural system of the society which was only the way of increasing human welfare.

History of economics thought.

Factors of growth or rise of Physiocracy:

Following factors are responsible for the growth of physiocracy-

(i) Continuous neglect of agriculture: During mercantilism in development process trade, commerce and industries developed significantly. The agriculture economy become stagnant for a quite a long time. Lower prices of agriculture products prevented capital accumulation in agriculture.

(ii) Emergence of a group ambitious farmers: In France, a group of ambitious farmers and land lord started seriously thinking of development of agriculture. They thought that proper economic development and self sufficient could be achieved through the development of agriculture.

(iii) Subjective factors: People were not satisfied with the king. After the death of Louis-XIV, people of France got sufficient liberty to express their opinion. People wanted something more rational,more simple and more practical and above all something which is based on natural justice.

(iv) Regressive Taxation: In France, taxation was very heavy and regressive in character. It means most of the burden of tax was beared by the poor farmers.

(v) Extravagant court life: The life at the political administrators was very luxurious. The king had to contract a heavy loan. The burden of royal expenditure was entirely on the common people.

(vi) Existence of socio economic inequality: France witness an extreme from at inequality between different sectors of the economy. People wanted to escope from this inequality.

(vii) Transformation of society: The transformation of France society was another important factor that helped the rise of physiocracy.

Basic tenets (Economics thought) of Physiocracy:

The important economic thoughts of physiocracy are given below-

(i) Net product: The concept of net product (surplus) is an important concept in physiocracy analysis. Net product is the difference between the goods produce and goods consumed in the process of production. The net product only be generated in agriculture.

History of economics thought

In the above figure input applied in agriculture is ON. Cost level of input is OC, the total product is OPN. The total cost of input is OCDN. Thus we get-

Net product= Total product- Total cost

                   = OPN-OCDN

                   =PCD

(ii) Circulation of wealth (Tableau of economics): The physiocractic writers explained the theory of circulation of wealth. It defines how the net product is circulated in different classes in the society. This concept was first developed by Quesnay. According to him the net product is circulated among different sections of the society just like the circulation of blood.

Physiocrats divided the entire society into there classes- The cultivators, land lords and traders. The circulation of wealth can be explain with the help of following chat-

History of economics thought.

Let us assume that the total production in agriculture was 400 MT (Million Tones) out of the total firm product 100 MT was the firm expenditure. Therefore 300 MT was the net product. Now the cultivators paid 200 MT  to the land lords as rent or various taxes. 100 MT to the traders for supplying necessary goods.

The land lord also likely to take some important goods from the traders. Therefore, they had to pay them 100 MT for their services. Similarly, the land lord also paid 100 MT to the cultivators for supplying food gains and raw materials.

Under the process of circulation of wealth, the trader paid 100 MT to the land lord as rent as taxes. Similarly, 100 MT was paid to the cultivator for supplying food gains and raw materials.

Therefore it is cleared that wealth or net product is circulated among different sections of the society. Later on Walras and Leontief developed the general equilibrium analysis and input-output analysis on the basis of circulation of wealth.

(iii) Taxation: The physiocrats wanted to simplify the system of taxtion. They want to put the burden on those who could bear the tax. They favoured a single tax system on the net product. The physiocrats had fairly good idea about the principle of taxation. Adam Smit developed the cannon of taxation on the basis of physiocratics thought.

(iv) Trade: According to physiocrats, trade is unproductive occupation. It does not produce any wealth but it simply transfers wealth of equal value. Trade means "One man gain and another man's loss". The only useful exchange would be the transfer at agriculture products from the produces to the consumers.

(v) Wages and population: Physiocrats thought that the subsistence ways were given to the workers. On the population they did afraid of the possibilities at over population.

(vi) Role of the state: The physiocrats believed that a state with the minimum civil low is the best state. They advocated the natural order of the society. They were fully against the political liberty,  

the main duty of the state is only the protect the country from external attack.

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