It is also remarkable that in their study of the industrial classes wages should have claimed the exclusive attention of the Physiocrats. Profits even then were by no means unsqueezable, but curiously enough they failed to realise this. Voltaire’s rich banker would have proved embarrassing here. They would have had some difficulty in showing how a reduction of his extravagance could possibly have endangered production. But they might have replied that since he had so little difficulty in squeezing the 400,000 livres out of his fellow-citizens he would not experience much more trouble in getting another 400,000 out of them and paying them over to the State.
Another objection consists in the insufficiency of a single tax to meet all the needs of the State. “In some States it is said that a third, a half, or even three-fourths of the clear net revenue from all sources of production is insufficient to meet the demands of the Treasury, and consequently other forms of taxation are necessary.”[106]
In reply to this the Physiocrats would point out that the mere application of their fiscal system would result in such an increase in the net product that the yield from the tax would progressively grow. We must also take account of the economies resulting from the simplicity of the tax, and the almost complete absence of expenses of collection. But the most interesting point of all is that they thought the State should adapt its needs to meet its revenue, and not vice versa. The great advantage of the Physiocratic impôt, however, was that it was regulated by a natural norm, which gave the amount of the net product. Without this, taxation becomes arbitrary.[107] At bottom the system affords a barrier against the autocracy of the sovereign—a barrier that is much more effective than a parliamentary vote.
One of the disciples of Quesnay put the theory to the test of practice. The Margrave of Baden had the advantage of being a prince, and he proceeded to experiment on his own subjects. The system was tried in three communes of his principality, but, like most social experiments, failed. In two of the communes it was abandoned at the end of four years. In a third, despite its evil effects, it was prolonged until 1802. The increase in the land tax caused a veritable slump in the value of property just when the remission of taxes upon consumption was resulting in the rapid multiplication of wineshops and beerhouses.[108] It is unnecessary to add that the failure of the experiment did nothing to weaken the faith of the Margrave or his fellow Physiocrats. An experiment on so small a scale could not possibly be accepted as decisive. This is the usual retort of innovators when social experiments prove failures, but we must recognise the element of truth contained in their reply.
But if we wish to see the real results of the Physiocratic system we must look beyond the private experiments of a prince. Elsewhere the effects were much more far-reaching.
The fiscal aspect of the French Revolution owed its guiding inspiration to their ideas. Out of a budget of 500 million francs the Constituent Assembly decreed that about half of it—that is, 240 millions—should be got out of a tax levied upon land, equal to a tax of 2400 million francs nowadays; and the greatest part of it was to be raised by direct taxation.
Distrust of indirect taxation, and of all taxes on commodities, is also a consequence of the Physiocratic system—a distrust that is bound to grow as society becomes more democratic. Most of the arguments in favour of direct taxation are to be found in the Physiocratic writings. But the chief one employed nowadays—namely, that indirect taxes often bear no proportion to the amount of the revenue, but weigh heaviest upon those who have least, is not among them. This concern about proportionality, which is merely another word for justice, was quite foreign to their thoughts.[109]
At a later stage of this work it will be our duty to call attention to the enthusiasm aroused by this old theory of an impôt unique as advocated in the works of an eminent American economist,[110] who renders homage to the Physiocrats for inspiring him with ideals altogether opposed to those of the landed proprietors. And a similar movement under the very same name—the single-tax system—is still vigorous in the United States.
IV: RÉSUMÉ OF THE PHYSIOCRATIC DOCTRINE. CRITICS AND DISSENTERS
A brief résumé of the contributions made to economic science by the Physiocrats will help us to realise their great importance.
From the theoretical point of view we have:
1. The idea that every social phenomenon is subject to law, and that the object of scientific study is to discover such laws.
2. The idea that personal interest if left to itself will discover what is most advantageous for it, and that what is best for the individual is also best for everybody. But this liberal doctrine had many advocates before the Physiocrats.
3. The conception of free competition, resulting in the establishment of the bon prix, which is the most advantageous price for both parties, and implies the extinction of all usurious profit.
4. An imperfect but yet searching analysis of production, and of the various divisions of capital. An excellent classification of incomes and of the laws of their distribution.
5. A collection of arguments which have long since become classic in favour of landed property.
From a practical point of view we have:
1. The freedom of labour.
2. Free trade within a country, and an impassionate appeal for the freedom of foreign trade.
3. Limitation of the functions of the State.
4. A first-class demonstration of the superiority of direct taxation over indirect.
It is unjust to reproach the Physiocrats, as is sometimes done, with giving us nothing but social metaphysics. A little over-systemisation may prove useful in the early stages of a science. Its very faults have some usefulness. We must admit, however, that although their conception of the “natural order” supplied the foundation, or at least the scaffolding, for political economy, it became so intertwined with a kind of optimism that it nullified the work of the Liberal school, especially in France.[111]
But the greatest gap in the Physiocratic doctrine is the total absence of any reference to value, and their grossly material, almost terrestrial, conception of production. They seldom mention value, and what little they do say is often confused and commonplace. Herein lies the source of their mistakes concerning the unproductive character of exchange and industry, which are all the more remarkable in view of the able discussions of this very question by a number of their contemporaries. Among these may be mentioned Cantillon,[112] who resembles them in some respects and whose essay on commerce was published in 1755; the Abbé Galiani, who dealt with the question in his Della Moneta (1750); and the Abbé Morellet, who discussed the same topic in his Prospectus d’un Nouveau Dictionnaire du Commerce (1769). More important than any of them, perhaps, is Condillac, whose work Du Commerce et du Gouvernement was unfortunately not published until 1776; but by that time the Physiocratic system had been completed, and their pre-eminence well established.
Turgot, though one of their number, is an exception. He was never a thoroughgoing Physiocrat, and his ideas concerning value are much more scientific.[113] He defines it as “an expression of the varying esteem which man attaches to the different objects of his desire.” This definition gives prominence to the subjective character of value, and the phrases “varying esteem” and “desire” give it greater precision.[114] It is true that he also added that besides this relative attribute value always implied “some real intrinsic quality of the object.” He has frequently been reproached for this, but all that he meant to say was that our desire always implies a certain correctness of judgment, which is indisputable unless every judgment is entirely illusory. But Turgot would never have admitted that.
It is possible that Turgot inspired Condillac, and that he himself owed his inspiration to Galiani,