Sunday, May 17, 2020

How Physiocracy inspired Karl Marx and Liberal Economics and Their Conflicts

Physiocracy inspired Karl Marx and liberal economics thinkers despite being developed in the second half of the 18th century, lasting from 1760 to 1770 in the short term.

The term of physiocracy means “rule of nature.” According to Physiocrats, natural law is perfect and ideal order governed by God. They suggested the functioning of society occurs in a “natural law” as it happens in physical events in nature. This argument of Physocrats is asserted “Laissez Faire Laissez-Passer” statement by Vincent de Gournay, who is the pioneer of Physiocracy. This slogan, which is attributed to Liberal Thinkers, particularly to Adam Smith, was stated the first time by Vincent de Gournay, and it was adopted by Liberal economic thinkers later on.

However, there was a conflict between physiocrats and liberal economic thinkers concerning the source of natural law. In both Physiocracy and Liberal Economics, the reason why it has not to be intervened to economic activities is the existence of natural law. But, according to Physocrats, natural law is a divine law. In this law, producers and consumers have the right to behave for their own interests, and this natural law based on the personal property and the freedom of economic activities continue by itself. On the other hand, Adam Smith claims that the source of natural law is not divine; it is the result of the economic behaviors of producers and consumers. He claims that without government intervention, an economic balance is provided by the lead of human interests. Created this economic balance, producers reach a maximum profit, and consumers reach a maximum benefit. The power that provides this balance is the interests of humans. Adam Smith names this power as an “invisible hand.”

Tableau economique written by F. Quesnay inspired Karl Marx, and “surplus” production term constituted one of the headstones of his theory. However, Marx argued that surplus is the qualification of labor in the economic process, while Physiocrats argued that surplus is in the production power of land and his arguments on this known as “surplus value theory.”

According to Karl Marx, surplus value is the excessive value that the capitalist owns over the wages that workers are paid.

Moreover, Physocrats not only inspired Karl Marx and Liberal Economics thinkers, and they also inspired American political economy theorist Henry George and promoted the “single tax” theory on land because the income of land and real estate owners increased excessively in the growing population of 19th century. Besides, Wassily Leontief, who is Russian origin and awarded with Nobel economics, was inspired by Tableau Economique in his Input-Output Model that shows product and service flow in the economy of a country in a fixed term. Today, the Input-Output model is used in economic planning in many countries.

In conclusion, even though Physiocracy didn’t spread around the world and had influence in the short term, its arguments had a significant impact on famous political-economic thinkers and schools of thought for economics. Therefore, its importance in economic history has never been ignored while studying economics.

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