Quesnay: A Story of Oxen and Horses—the Avances

“Le fondement de la societe est la subsistance des hommes,”⁷ writes Franςois Quesnay in the 1765 “Le droit naturel” (in Quesnay, 2005, 1: 122). Societies are based on people’s subsistence.

This way of proceeding highlights a method that will become typical of classical political economy. This approach to economic facts is duly called “political,” not because it investigates the way in which people express their political orientation, but because it directly tackles a policy issue. The starting point of the analysis is not represented by an abstract theoretical debate but by the most pressing problem of contemporary societies. For Quesnay, this problem is France’s sluggish growth and the continuous social and economic crises that during the first half of the eighteenth century have led to several defeats by England.

The 1756-57 articles written by Quesnay for the Encyclopedic tell part of the story, and they are an example of the use of that comparative historical method that characterizes classical political economy “Hommes,” “Grains” and “Fermiers” focus on the compari­son of France and England.

Quesnay’s starting point is the contention that trade is just an exchange of value for equal value; therefore, no surplus can be created in exchange: trade is a sterile activity (see “Sur les Travaux des Artisans,” in Quesnay, 2005, 2: 983).

Thus Quesnay focuses on agricultural production and finds that France is a much poorer country than England because her agriculture is less productive. England’s supe­riority in the cultivation of corn is explained by the fact that in England the farmers use the best available techniques of cultivation, while the French cultivators employ older techniques of production.

In the 1756 essay “Fermiers,” there is the story of oxen and horses that provides an example of comparative economic analysis. In England, rich farmers use horses that pull a plow with an iron spade, while in France the poor sharecroppers plow their fields with a plow pulled by oxen and with a wooden spade (see Quesnay, 2005, 1: 129-30). Hence the productivity per hectare is higher in England than in France, notwithstanding the more fertile soil of the latter.

The most famous aspect of physiocracy is the contention that only agriculture is pro­ductive, while industry, along with trade, is a sterile occupation. However, the activities taking place in the primary sector are not productive simply because nature provides them with a gift. Being part of the primary sector is a necessary, but not sufficient, condition of productivity. It is the existence of a physical surplus that bestows the qual­ity of “productive” on the labor employed in agriculture. Quesnay regards only those agricultural activities whose output is considerably higher than their inputs as sources of surplus and wealth, such as large-scale cultivation, which characterizes agriculture in England and in the northern provinces of France (see “Fermiers,” in Quesnay, 2005, 1: 149-51). But where does the surplus come from? Why are those agricultural activities generating a surplus, while the rest of French cultivation is barely at a subsistence level?

In England and in the northern provinces of France, cultivation takes place under the supervision of rich farmers who can rent large amounts of land, and above all they employ large advances in the process of cultivation.

In small-scale cultivation, like metayage, crop-sharing cultivators are poor; they cannot afford the advances necessary to make agriculture really productive, and they hardly have a surplus on top of the expenses of cultivation. It is the existence of a large stock of capital that allows cultivation to be productive. Surplus is not a gift of nature but the result of modern and efficient techniques of production.

Quesnay emphasizes the role of fixed capital in increasing the productivity of culti­vation. Thanks to a large stock of avances primitives, it is possible to create a modern and prosperous agriculture.⁸ Horses are a necessary type of fixed capital, in order for the most advanced agricultural techniques of Quesnay’s time to be adopted, as the best tech­nology is embodied in the most modern type of capital equipment.

Industry is sterile largely because of its lack of fixed capital; industrial activities are carried on by poor artisans, who can only recover their production expenses, that is to say their wages and the costs of raw materials (see “Sur les Travaux des Artisans” in Quesnay 2005, 2:982-83).

Quesnay singles out a theory of wealth based on capitalistic agriculture where we can identify some logical steps.

1. Focus on the subsistence sector, as Petty and Cantillon did;

2. define national wealth as the annual flow of agricultural output;

3. separate the gross output from the advances and define the net product;

4. explain how to achieve the most productive type of techniques in the subsistence sector;

5. the best technology is identified with large-scale cultivation, which is character­ized by a 100 percent ratio between the surplus and the avances annuelles (circulating capital);⁹

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Points four through six provide the new theory of the causes of wealth. In particular, point six links the new principle of wealth to productivity and technical progress. The accumulation of capital in the most productive sector (the only productive one for Quesnay) is an important point on which Smith will build his own theory of wealth. Smith will more clearly describe that surplus-profit-investment-productivity nexus, which is no longer limited to the subsistence sector and which by and large still explains the rise and fall of nations.¹⁰

This approach to economic analysis is also known as the “surplus approach,” because the size of surplus relative to the capital invested becomes the decisive indicator of past successes and future potentialities. Petty and Cantillon underline the existence of a phys­ical surplus of necessaries, while Quesnay shows that the size of the surplus depends on the technology adopted and the amount of capital employed. Quesnay provides a clear analytical link between the notions of surplus and reproduction.¹¹ However, in Quesnay it is reproduction that takes the fore, because the future physical surplus depends on the quantity and the quality of the new means of production. With Quesnay, we move from the emphasis on a surplus of subsistence commodities to the role of commodities in the process of capital accumulation.

But now come the policy and political challenges. How can the French cultivators command enough fixed capital to be able to implement the most productive type of cul­tivation? In modern terminology, how can French agriculture reach the frontier of the production possibility set and not stagnate inside it?

For Quesnay, this is not a purely technical issue. The two techniques correspond to two different modes of cultivation and to two different ways of describing the social set­tings in agriculture—-fermage and metayage—which distinguish the grande culture in England from the petite culture in France.

Policies must enter the picture, and they should transform the poor sharecroppers into rich farmers by helping the cultivators become rich and accumulate fixed capital.

In the final part of a note to “Maxime XX” of the Maximes generales du gouverne- ment economique d'un royaume agricole, Quesnay writes, “PAUVRES PAYSANS, PAUVRE ROYAUME” (see Quesnay, 2005, 1: 592, emphasis in original).¹³

To move toward large- scale cultivation, the physiocrats advocate two major reforms: the single tax on rents and the so-called laissez-faire policies for corn trade. The former is advanced by the Marquis de Mirabeau in the 1760 Theorie de l'Impot, written under the supervision of Quesnay. The two physiocrats try to convince the landlords of the advan­tages of their proposed tax reform. This reform should replace an old system that imposes many different taxes on the cultivators and on the gross products of agriculture with a single tax on rent, the only disposable part of agricultural output. Therefore, the cultiva­tors would pay less in taxes because the revenues of the Kingdom would be supported by the new tax on landlords’ rent. However, according to Mirabeau and Quesnay, in the end landlords will benefit from accepting to pay taxes in place of the cultivators. The latter would reinvest the money saved for taxation into larger and better techniques of cultiva­tion, which would lead to increases in the productivity of agriculture and to higher surplus and rents in the future. Needless to say, the reform was never implemented, but the Theorie de l'Impot saw Mirabeau sent to the Bastille, from where he was released thanks to Madame de Pompadour, only to be exiled for a few months to southern France.

Between the end of 1763 and the first months of 1764, Controlleur General Bertin had already favored the exportation of some products of agriculture, and on July 18, his successor, de L’Averdy, proclaimed some edicts that allowed the free export of all kinds of corn by sea and land (see Weulerrse, 1910, 2: 222-24). But in 1770, the edicts were revoked by the new Controlleur General, Terray. This is the only physiocratic recom­mendation adopted by the French rulers. In the physiocratic analysis of the origin of wealth, the liberalization of corn trade is the starting point for the increase in the pros­perity of the country (see Mirabeau, 1769, 47-48).

It is worth recalling that contrary to Turgot, the physiocrats are not in favor of unlim­ited free trade; rather, they just want to allow the French cultivators to sell their corn where it is more convenient, either at home or abroad. The physiocrats oppose the import of manufactured products. In a sense, it is a kind of export-led model of accu­mulation but with exports being limited to the products of the primary sector. Today, there is a debate in many developing countries on how to transform incomes that derive from the export of primary commodities into a process of structural change that could reduce dependence on commodity exports and lead to sustained economic growth. The debate is particularly vibrant in Latin America and Africa (see, for instance, Cimoli and Porcile, 2011).

The physiocratic attempt to reform the economic policy of the ancien regime failed for social and political reasons (see Fox-Genovese, 1976, 11 and 238-42). Physiocracy was looking for a utopian alliance between the farmers, the landed aristocracy and the sovereign against the merchants and the bureaucrats, such as the tax collectors—the fermiers generaux violently attacked by Mirabeau in the Theme de l'Impot (see Mirabeau, 1760, 102-8).

The failure of physiocratic policies has little to do with their analytical structure; however, there are analytical flaws in Quesnay’s analysis of the causes of wealth. Capital accumulation and technical progress in agriculture are the causes of national wealth, and both depend upon the reinvestment of a farmer’s profits. However, in physiocracy the profits of the cultivators represent a magnitude of uncertain existence and unstable size, as a farmer’s profits depend on the existence of a difference between the “firsthand” price of corn—which is a market price subject to frequent and large fluctuations—and the fundamental price (see Vaggi, 1987, 80-86). The firsthand price is the selling price of corn for the farmer, while the fundamental price is the unit cost of production of corn. Free exportation should increase the fundamental price without affecting the firsthand one, thus leaving a higher profit for the French cultivators.

This may be a good description of the working of corn markets at the time of Louis XV but this notion of profit can hardly sustain a long-run theory of growth based on the accumulation of capital in agriculture. In Quesnay’s economics, profits are a sort of hybrid magnitude. On the one hand, they depend on market prices, which are subject to wide fluctuations and appear as a short-run phenomenon; on the other hand, profits are the source of capital accumulation and economic development, which are typical long- run factors, and for this reason they must be exempted from taxation. The two elements can hardly coexist.

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