Physiocracy: Meaning, Factors and Critical Estimate

In this article we will discuss about Physiocracy:- 1. Meaning of Physiocracy 2. The Factors That Gave Rise to Physiocracy 3. Critical Estimate.

Meaning of Physiocracy:

Physiocracy is the collective name of those economic principles and policies which developed in France in the middle of the 18th century. Physiocracy is also known as the ‘Agricultural System’. Economic thinkers who contributed to the growth and development of physiocracy have been called as physiocrats.

The Physiocrats have been regarded as the founders of economic science because they were the first to grasp the general principles under-lying the economic phenomena and to evolve a theoretical system. Physiocracy is also remarked as the first school of economic thought. The term physiocracy means “Rule of Nature’.

Physiocracy may be defined as a reaction against Mercantilism and its concepts. The physiocrats believed that the mercantile policies instead of doing any good have done great harm to the nations. So they revolted against the mercantile policies.

According to Gide and Rist, “Physiocrats must be credited with a foundation of the earliest school of economists in the fullest sense of the term. The entrance of this small group of men into the arena of history is a most touching one”.

The influential French School of thinkers of the early 18th century was led by “Quesnay and Turgot”. They believed in the existence of natural law which governs the universe. Their emphasis on agriculture has earned for their system of thought, the name agricultural school.

The Factors That Gave Rise to Physiocracy:

In 1750, France provided a favourable climate for the emergence of physiocratic ideas. There were many economic, political and social factors that were responsible for the rise of physiocracy. Firstly, physiocracy was essentially a revolt of the French against Mercantilism. Under Colbert the famous Finance Minister of France, Mercantilism was carried to an extreme degree.

As a result, there was neglect of agriculture and lot of government regulations. So there was need for an economic theory to prove that the mercantile policies were not favourable for the progress and wealth of a nation. The Physiocrats provided the theoretical basis to attack Mercantilism.

Secondly, the tax system of France was corrupt, inefficient and unjust. The nobles and the clergymen, who owned nearly 2/3rd of the lands, were exempted from direct taxation. On the other hand, the burden of taxation on the poor was very heavy. The poor were affected by taxes like salt tax, poll tax, etc.

Thirdly, the finance of the French government was in a bad condition. The unnecessary wars and the luxurious court life of King Louis the XIV and XV made the government bankrupt. So the government started borrowing loans.

Fourthly, the French farmers were exploited by the nobles and landlords in a number of ways. The landlords took large share of the produce. The government levied heavy taxes upon the farmers. Even the markets for agricultural commodities were restricted because Mercantilism was in favour of industrial goods.

Fifthly, the general economic conditions of France were also unfavorable. Britain had already realised that it was a wrong policy to develop trade and industry at the expense of agriculture. Agricultural revolution was taking place in England. So in France also attention was diverted to agriculture.

Lastly, there were other forces working for the change. The political and moral philosophers emphasised the importance of individual rather than wealth. They told that man must be the centre of study.

Thus as Eric Roll says, “With the physiocrats we enter an era of schools and systems in Economic Thought”. Physiocrats are important in the history of economic thought because they represented the first school of economists.

The mercantilists were ordinary people who emphasised only foreign trade. But the physiocrats realised the importance of various economic activities and their relation. In the physiocratic system all social factors like production and distribution are connected. In short, the physiocrats were reformers.

Critical Estimate of Physiocracy:

Physiocracy was the revolt of the French people against Mercantilism. It is, from this angle, we have to judge the economic ideas of the physiocrats. While the mercantilists were occupied with gold, the physiocrats emphasized “Real wealth” in the form of raw produce.

The Mercantilists aimed at maximising exports and minimising imports with an object of securing a favourable balance of trade. But the physiocrats in general regarded foreign trade as an evil. While the mercantilists believed in the regulation of trade and Industry, the physiocrats suggested freedom of trade and Industry.

In spite of the above merits, the physiocrats were wrong in considering agriculture alone as the productive occupation. Commerce and industry are equally important and productive. The physiocrats had a wrong idea of production. They regarded manufacture as unproductive although it creates utility. Further the physiocrats were mainly responsible for their wrong classification of labour into productive and unproductive.

The greatest defect in the physiocratic doctrine is the absence of any reference to value. The physiocrats suggested complete freedom of trade and industry. But absolute freedom of trade is not advisable. The aim of the physiocrats was to develop agriculture. They regarded land, as the only source of wealth.

So it followed that the landlords should pay the taxes. But this idea is against the interest of the agricultural class. The weakest point in the physiocratic system is the theory of distribution.

But, at the same time, we have to remember that the physiocrats made some important contributions to economic thought:

1. They put economics on a scientific basis by applying scientific methods.

2. Economic development was a major concern of the Physiocrats. They realised the importance of agriculture which give surplus for capital formation.

3. The physiocrats were the first school of economists to analyse capital and capital formation.

4. The physiocrats realised the interdependence of different classes in the economy.

5. The physiocrats insisted that the government should restrict its functions.

6. They advocated direct taxes rather than indirect taxes.

7. Lastly, the physiocrats must be given a high place among those who prepared the ground for French Revolution.