Download Mercantilists - explained surplus through Circulation

Physiocrats
Mercantilists - explained surplus through Circulation
Physiocrats
- sought surplus in production
Cantillon (@1680 - 1734)
- Essays on the Nature of Trade in General ( early 1730s)
- "all the classes an inhabitants of a state live at the expense of the Proprietors of the
Land"
- agricultural products supports all classes
- 'Proprietors' - landowners
- 'Farmers' - overseers or farm capitalists
- 'Labourers' - farm workers
- 'Mechanics' - craftspeople, traders, professionals, etc.
- shows distribution of agricultural product as
1) proprietor organization of cultivation
-> allocation by proprietors
2) farmers organize cultivation
-> allocation by prices
- in both, agricultural output provides
- subsistence - animals and labourers, overseers, and mechanics
- fixed corn cost per unit of output
- surplus - proprietors (rent by prices)
-> "the principal agent in the changes which may occur in demand"
- both forms of allocation (proprietor and price)
-> same equilibrium
- profit – represents uncertain income, i.e., the difference between price and cost
- a theoretical advance in that he recognizes the employer, not merely the
merchant, although he retains the mercantilist concept of buying cheap and
selling dear.
- expand his theory of demand etc.
-1-
Physiocrats
Mirabeau (1715 – 1789)
- had Cantillon’s Essay for 16 years before it was published (1755)
- collaborated with Quesnay from 1757
Francois Quesnay (1694 – 1774)
Tableau Economique ‘zig zag’ (various versions 1694 – 1766)
- self-interest is the fundamental force that maximizes receipts and outlays
Kingdom
- 3 classes
- Proprietors (class des propriétaires)
- Productive (classe productive) - cultivators
- Sterile (classe sterile) – non-agricultural industry -> manufacture
(crafts, trade, professionals, etc.)
- inputs, outputs, and exchange are measured in money, e.g., silver, but money is not
really relevant to the overall exchange of commodities (though necessary to the
actual exchange)
- demonstrates the exchange of equal values and the surplus and reproduction of the
economy
- Annual Advances (‘avances annuelles’)
- inputs into production used up in the year [circulating capital]
- 2 milliard into Agriculture -> 1 m. Food, 1 m. Raw Material
- 2 milliard into Manufacture (Sterile) -> 1 m. Food, 1 m. Raw Material
- Primitive Advances (‘avances primitive’)
- replacement of depreciated equipment in agriculture (unclear) [fixed capital]
-> 1m. manufacture
- Output
- 5 milliard in Agriculture (> avances because productive)
-> 3m. Food and 2m. Raw Material
- 2 milliard in Manufacture ( = avances because not productive)
-> 2 m. Manufacture
-2-
Physiocrats
- Revenue
- rent of the Proprietors (do not produce anything)
Productive Class
Proprietory Class
Sterile Class
AVANCES ANNUELLES:
AVANCE ANNUELLES:
1 milliard Food
1 milliard Food
1 milliard Raw Material
1 milliard Raw Material
1 milliard Manufacture
OUTPUT:
REVENUE:
OUTPUT:
1 milliard Food

[
Food
]
1 milliard Food

[
Food
]


1 milliard Food

1 Raw Material
1 Raw Material
1 milliard Manufacture




1 milliard Manufacture

Physiocrat Overview
- interested in the production process but primarily agriculture
Surplus
- agriculture alone is productive
- assumed physical surplus on land had a net value product with a counterpart rent
- manufacture merely changed the forms of produce and received incomes as
transfers from agriculture
Wealth
- elements of the production process – land, movable riches, durable goods
-3-
Physiocrats
Capital
- recognized the importance of temporal tie-up in production (avances)
Price
- self-interest the prime mover in the market-exchange system
- competition organizes production provided free trade by determining the costs of
labour and material goods
- in agriculture, since supply is volatile and demand highly inelastic, a good price
requires foreign competition to establish the price above costs which gives a
surplus in rent (and apparently profit)
Accumulation
- capital is a time-consuming advance with its source in disposable surplus
- generally due to landlord’s consumption of surplus but saving can occur amongst
landlords, farmers, and manufacturers
- saving is converted into capital without a lag (Turgot)
Consumption
- favour expenditure on agricultural products since production is wasteful if too
much (i.e., contract agriculture) is spent on luxuries – manufactured goods
Foreign Trade
- free trade is necessary for surplus in agriculture (assuming the foreign price above
the domestic price)
-exports of agricultural goods and import of more efficient foreign goods using
foreign raw materials
- exports should balance imports to provide purchasing power for French
agricultural goods
Wages
- subsistence because the competition of workers pushes to minimum costs
- may be above subsistence if this helps productivity since workers strive harder or
are more educated and can use more sophisticated implements
Population
- responds to an increase in net output not vice versa
-4-
Physiocrats
Technology
- primarily agricultural
- productivity important for surplus
Tableau Economique
-5-