Boisguilbert’s approach

Boisguilbert picked up the main Jansenist themes and particularly the theologi­cal hypothesis of the Fall and the ensuing corrupted and selfish nature of men. However, focusing on economic activities, he radicalised Nicole’s line of thought: somewhat downplaying the necessity for self-love to be enlightened, he also removed the necessity for a strong moral and political order and brought free mar­ket relationships to the fore.

The distinction between a “natural state” of society - or “state of innocence” - and a developed state of society - “etat poli et magnifique” (“polished and magnifi­cent state”) - opened the way to the methodology of analysing the characteristics of a developed market society, comparing it to other types of social organisation: the latter can be purely fictitious, as in Boisguilbert, Anne-Robert-Jacques Turgot (two men on an isolated island), Adam Smith or David Ricardo (the “primitive” state of society supposed to precede private ownership of land and capital accumulation), but also real, even if idealised, as in Richard Cantillon (the big agricultural estate), Franςois Quesnay (the Incas) or Karl Marx (pre-capitalist societies).

Boisguilbert’s natural state of society is characterised by a simple state of divi­sion of labour: a very low number of needs and professions prevails - farmers and cattle breeders, for example - and producers exchange their products through barter. However, violence put an end to this peaceful state of things, with the result that society found itself split into two distinct classes: the productive class and the leisure class of landowners and rentiers of all denominations. In turn, this funda­mental social change provoked three major consequences: (1) In the first place, needs multiplied among the leisure class, and so also, as a consequence, did the number of professions among the productive class. (2) In the second place, barter becoming more and more difficult, money was invented to facilitate exchanges: Boisguilbert simply took up the legend of the invention of the circulating medium that authors have repeatedly proposed since Aristotle. (3) Finally, in this “polished and magnificent” state of society, it is necessary to distinguish two kinds of inter­twined economic flows: that of the professions and that of incomes.

These consequences are far-reaching. Let us first focus on the last point. The flow of professions depicts the progressive emergence of the different trades, from the most necessary (farmers) to the most superfluous (actors). This emergence is historical, it happened only once but, Boisguilbert stressed, once a profession appears, its maintenance becomes necessary to the economy because all the other trades are negatively affected whenever it suffers some damage - any attack on any trade inevitably induces, through the diminution of incomes and expenses, a depressing effect on all the other trades. This kind of ratchet effect is likely to generate a progressive decline in the number of professions, starting from the most superfluous, and plays an important role in the propagation of crises (below).

The two hundred professions which are nowadays found in the composi­tion of a polished and opulent state, starting with bakers and finishing with actors, for the most part, are initially only called upon one after the other by voluptuous desires; but since no sooner have they been introduced and taken root than they are then part of the substance of a state, they cannot be discon­nected or separated without immediately altering the entire body.

(Boisguilbert 1691-1714, 986)

The flows of incomes refer to the relationships between the two social classes and the fact that the income of the rentiers does not result from an exchange, contrary to the various incomes within the productive class: this is a one-way flow received by the leisure class from the productive class, and a flow that must constantly be renewed: it is thus necessary, Boisguilbert states, that the rentiers spend their income in order to maintain the level of activity of the productive class. This neces­sity to spend rents was to be powerfully stressed later by Quesnay and the physi­ocrats but questioned and qualified by Turgot.

As for money, for Boisguilbert, it has the three usual functions of being a meas­ure of value, a medium of circulation and a store of value. But Boisguilbert went beyond the traditional analysis. (1) Firstly, he stressed that, even if money is made of precious metals, the function of circulating medium can also be implemented by “paper”, that is, bills of exchange, which, with the developments of exchanges, can even do most of the job. (2) Second, he noted, as other authors from Quesnay to Marx would also note later, that the function of store of value could be dangerous, because it could induce people to keep money instead of spending it, interrupting the flows of exchanges and thus disrupting the economic equilibrium.

In modern language, this led him to state that, as regards circulation, the money supply is made up of two components: coins and bills of exchange. But money demand is also composed of two components: money is required for transac­tions, but it can also be held for precautionary motives. When economic activi­ties are flourishing and people are confident in the future and in the solvability of merchants, Boisguilbert affirmed, almost all the circulation is made by means of “paper”, more convenient to use than coins, and the demand for precautionary motives is low. In time of crisis, on the contrary, people no longer trust “paper”, almost all the burden of circulation falls on the precious metals and the demand for precautionary money stocks dramatically increases. As we will see, Boisguilbert uses this original approach in his analysis of economic crises, to criticise the eco­nomic policies of his time.

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