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received the position of doctor under the commander-in-chief of the English army in
Ireland, left for this country in September 1652. He headed the work on drawing up
plans for Irish land, became one of the largest and richest Irish landowners. In 1661
he was awarded a knighthood.
Petty left a noticeable mark on the history of economic science, although there
is still no single point of view on his scientific contribution. Some authors consider
him as an outstanding representative of mercantilism, others see his main merit in
creating the foundations of the statistical-economic method of research and economic
statistics, others consider him the founder of a new direction in science, from which
English classical political economy subsequently grew.
Petty’s works: "A Treatease of Taxes and Contributions", "Political Survey
or Anatomy of Ireland", "Quantulumcunque Concerning Money", "Political
Arithmetic", etc.
In his writings, he expressed deep understandings about value, factors of
production, wages, rent, taxes, money.
The alpha and omega of Petty's teaching is his theory of labor value. He saw
labor costs as the basis of cost. Petty called labor input, or value, the "natural" price
of a commodity, and the market price the "political" price. The natural price serves as
the basis for the political one. At the same time, Petty believed that the source of
value is not all labor, but only labor in the extraction of monetary metals — gold and
silver. The value of other goods is measured indirectly, when they are exchanged for
gold and silver.
In his works, Petty examined which factors of production are involved in the
production of products and the creation of wealth. He identifies four factors. The first
two — land and labor — are basic: "labor is the father of wealth, and the earth is its
mother". Two other factors — the qualifications of the worker and the means of his
labor (tools, materials) — are not basic, since they cannot exist independently,
without labor and land.
Petty believed that it was labor, not manpower, that was sold. He called wages
the natural price of labor and saw its highest limit in the physical minimum of
workers' means of subsistence. He argued that increasing wages would lead to lower
productivity.
One of the main questions for economists of that time was the following: what
is the price of land? Petty said, land is not a subject of labor, it is a special
commodity, the price of which depends on the income from the land. The natural
price of land is equal to the sum of rents for 21 years. At the same time, he
understands land rent as a surplus obtained after deducting the costs of seeds and
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employee maintenance. 21 years is the time of simultaneous life span of three
generations.
Petty calculated the size of the national wealth of England (land, houses,
buildings, vehicles, livestock, household property, stocks) and stated that the amount
of money does not exceed 3 % of total wealth. He refuted the mercantilist ideas of
wealth as accumulated gold and silver. Petty said that there must be a certain
measure, a proportion of the money needed to carry on the country's trade. Excess or
lack of money is equally harmful.
Petty advocated indirect taxation. He believed that taxes should be paid by the
entire population, not just entrepreneurs.
In the last years of his life, Petty, with his friend John Graunt, dealt with issues
of population, its growth, distribution, employment, and can be counted among the
founders of demographic statistics.
5.3. The emergence of bourgeois political economy in France.
P. Boisguilbert
In the 17th century France the feudal system still dominated. Manufacturing
flourished. The state policy of mercantilism was pursued: exports exceeded imports.
To stimulate exports, subsidies were paid to royal factories through taxes from
peasants. Agriculture was in decline. In this regard, advocates of agriculture appeared
in the country.
Pierre Boisguilbert (1646–1714) is the founder of classical political economy
in France.
Born into a noble family, he received a legal education and studied literature.
Due to a quarrel with his father, he was deprived of his inheritance and was forced to
"come out into the public eye". At the age of 43, he was able to buy the lucrative and
influential position of lieutenant general of the judicial district of Rouen (something
like the chief city judge, along with the functions of police and general municipal
administration). Boisguilbert retained this position until the end of his days. Two
months before his death he transferred it to his eldest son.
Boisguilbert was one of the most frantic, honest and disinterested economic
projectors.
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Boisguilbert was a defender of the peasantry. In 1707 he proposed a system of
economic reforms consisting of three elements:
1) carry out tax reform — introduce a progressive taxation system, according
to which the nobility and the church (who did not pay taxes at all) will pay taxes in
the same proportion as the poor;
2) free internal trade from restrictions, "clear the roads" of customs barriers
(from this measure he expected an expansion of the internal market, an increase in the
division of labor, and an increase in the circulation of goods and money);
3) introduce a free grain market and not restrain the natural increase in grain
prices. He found the policy of maintaining artificially low grain prices extremely
harmful, since these prices do not cover production costs in agriculture and exclude
the possibility of its growth.
Boisguilbert considered these reforms to be the initial conditions for economic
recovery and improvement of the well-being of the country and people. This is the
only way to increase state revenues.
Trying to convey his ideas to the public, Boisguillebert published the book "Le
Détail de la France; la cause de la diminution de ses biens, et la facilité du remède".
He also wrote desperate letters to the government with proposals. But Buaguilbert
and his ideas did not find support.
Boisguilbert's role as one of the founders of economic science is determined by
the fact that he based his reforms on a complete and deep system of theoretical views
for that time. He wondered what determines a country's economic growth; what are
the reasons for the stagnation and decline of the French economy; what patterns
operate in the national economy and ensure its development.
He wrote that the most important condition for economic equilibrium and
progress is proportional or normal prices that ensure coverage of production costs and
a known profit, net income in each industry. These are the prices at which the process
of selling goods occurs uninterruptedly, at which stable consumer demand will be
maintained. Finally, these are prices at which money "know their place", serves the
payment turnover and does not acquire tyrannical power over people.
5.4. School of Physiocrats. F. Quesnay
The next stage in the formation of classical political economy in France was
the physiocratic direction in economic science.
The word physiocracy comes from the Latin words physis — nature, and
kratos — strength, power. The physiocrats considered agricultural production the
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main subject of economic science study; they declared it the only productive industry.
The objective reason for this approach was the fact that until the end of the 18th
century France remained an agrarian country, where agriculture was the center of
economic contradictions. Physiocrats associated the reason for the decline of the
French economy with the underdevelopment of capitalist relations in agriculture.
François Quesnay (1694–1774) — French economist, founder of the
Physiocratic school.
He was born in the village of Merais near Versailles. The eighth of thirteen
children in the family of a peasant engaged in small trade. He remained illiterate until
he was eleven years old. At the age of seventeen he left for Paris, where he
simultaneously practiced in a hospital and worked part-time in an engraving
workshop. His natural intelligence and perseverance allowed him in 1718 to pass the
exam for the title of doctor and begin medical practice in the town of Mant. In 1734,
the already famous doctor F. Quesnay was offered a permanent job as a physician by
the Duke of Villeroy. In 1744 he received the academic degree of Doctor of
Medicine, in 1749 he received an offer from the Marquise of Pompadour, and in 1752
he became the court physician under Louis XV. The king favored Francois Quesnay,
promoted him to the nobility and, addressing him only as "my thinker", listened to
the advices of his doctor. Following one of them, Louis XV personally made the first
prints of the "Economic Table" on F. Quesnay’s printing press, as a physical exercise
beneficial to health, which, as it turned out later, was the first attempt at a scientific
analysis of social reproduction.
Eventually Francois Quesnay begins to become interested in ideas that go
beyond medicine. At first, he devotes his free time to philosophy, and then entirely to
economic science. Since 1756, he agreed to participate in the "Encyclopedia" of
Diderot and d’Alembert, where he published his main economic works.
Main works: "Population", "Fermiers", "Grains", "Taxes", "Economic Table",
"Physiocracy", "Maximes générales de gouvernement economique d'un royaume
Agricole".
The main theses of Quesnay's teachings:
1. Quesnay condemned the views of mercantilists, which was a consequence of
the unsatisfactory state of agriculture. He considered it necessary to transition to farm
agriculture as the basis of a free market economic mechanism on the principles of
complete freedom of pricing and export of agricultural products abroad.
2. Quesnay developed the concept of the natural order, which is given by God
and exists everywhere: in nature, in society, and in the economy. It was argued that
"the private interest of one cannot be separated from the general interest of all". The
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world then develops on its own. The desire to enjoy transmits a movement to society,
which becomes a constant tendency towards a better state.
3. A special place in the works of Francois Quesnay is occupied by the doctrine
of the net product, which is now called national income. According to Quesnay, the
source of a pure product is the land and the labor of people applied to it. In industry
and other sectors of the economy, there is no increase in income, but only a change in
the original form of the product. Quesne divided the farmer's products into two parts:
one of them goes to his food, and the other is the surplus, which constitutes the "pure
product". Thus, the "pure product" is actually surplus value. Quesnay argued that the
"pure product" is a definite value and depends on the amount of wages. He also
believed that a worker’s wages should be a strictly defined value and not exceed the
minimum means of subsistence.
4. Quesnay was one of the first to try to figure out the economic basis for the
division of society into classes. In his opinion, the population consists of three
classes: the productive class, the class of owners and the sterile class. The productive
class includes all people engaged in agriculture, the owner class includes landowners
(including the king and the clergy), and the sterile class includes industrialists,
traders, financiers and workers in other industries.
5. Quesnay performed the first scientific analysis of the circulation of
economic life, the social reproduction process. In 1758 he created the famous
"Economic Table". The work shows how the product is produced in agriculture and
sold in other areas. A relationship was identified: "reproduction is constantly renewed
by costs, and costs are renewed by reproduction", i.e. it was simple reproduction.
6. Quesnay is the first in history to provide a deep theoretical substantiation of
the provisions on capital. He believed that "money itself is sterile wealth that
produces nothing" Agricultural implements, buildings, livestock and everything that
is used in agriculture for several seasons constitute "initial advances" (in our time —
fixed capital). He attributed expenses for seeds, feed, wages and others to "annual
advances" (working capital).
7. Recognizing trade as "sterile", Quesnay warned against the false impression
that, thanks to worldwide competition, it was becoming harmful. He argued that
absolute freedom of trade was necessary as a condition for its expansion, the
expulsion of monopoly and the reduction of trade costs.
The disadvantage of F. Quesnay’s teaching was that he recognized only
agriculture as production, considering all other sectors "sterile". Quesnay's table is
also limited to agriculture, and it does not reflect the problem of accumulation.
In general, the scientific activity of F. Quesnay, as well as the entire school of
physiocrats, was a transitional stage from the outdated mercantilist views of
feudalism to the progressive ideas of classical political economy of the new
capitalist system.
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5.5. The ideas of the physiocrats in the teachings of J. Turgot
Anne Robert Jacques Turgot (1727–1781) — French statesman, philosopher
and educator, representative of the Physiocratic school.
Born into a noble family, he graduated from the seminary and theological
faculty of the Sorbonne, but at the age of 23 he abandoned his career as a priest and
entered the public service. By the beginning of his career, he spoke six languages, his
interests included philosophy, philology, law, natural sciences, mathematics, fiction,
and poetry. Turgot was also very interested in the economic situation of France.
At the age of 25, Turgot held a judicial position in parliament, and a year
later — rapporteur of the judicial chamber. During these years, Turgot became close
to the intendant (manager) of trade, Vincent Gournay, with whom he fell into the
circle of Francois Quesnay. At the age of 34, Turgot was appointed to the post of
intendant in the city of Limoges, where he worked for 13 years. At his post, he was in
charge of economic issues and the tax collection system. At the same time, he wrote
his main work, "Reflections on the Formation and Distribution of Wealth", the
unfinished work "Value and Money", and other works.
In 1774, Turgot was appointed to the position of Comptroller General of
Finance, equivalent to the position of Minister of Finance. Overcoming the powerful
resistance of parliament, Turgot was able to carry out several important reforms: he
abolished the restriction on grain trade; abolished guilds and guild corporations;
replaced the in-kind road tax with a cash tax. Turgot saw the path to improving the
financial condition of France in austerity and cutting government spending, but he
was unable to implement this. In May 1776 he was dismissed, and three months later
all his decisions were canceled.
Economic views of J. Turgot:
1. Turgot, like all the physiocrats, argued that the labor of the farmer is the
driving force of the entire life of society, it is the only source of wealth and the source
of the "pure product".
2. Turgot divided prices into current (formed on the market as a result of the
relationship between supply and demand) and basic (what the product costs a worker;
in modern terms — cost). Turgot also revealed the negative impact of protectionist
policies on the economy and expressed his conviction is that freedom of purchase and
sale is the only way to secure a price capable of encouraging production and
providing the buyer with the best product at the lowest price.
3. Turgot defines wages as the result of "the sale of one’s labor to others" and
believes that it is limited to the necessary minimum for the worker’s existence. He
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put forward the idea that this minimum is formed due to the lag between the
demand for labor and its supply, which leads to competition in the fight for jobs. As
a result, only those who agree to the minimum wage get jobs.
4. Money, according to Turgot, is just one of the goods that serves as an
equivalent in the exchange of all other goods. Gold and silver, in their material
form, are most suitable for this purpose.
5. Turgot also paid attention to such a form of income as loan interest. He
considered such income to be fair, since the lender, by lending money, loses
possible profit, as if he had spent the money himself.
5.6. The significance of the teachings
of the physiocrats in economic theory
Summarizing the contribution of the physiocrats to the development of
economic science, the following should be noted:
1. The teaching of the physiocrats was the first systematic concept of
capitalist production.
2. The physiocrats were the first to devote their research not to exchange
processes, but to the sphere of pr oduction. They argued that the wealth of society is
created by the labor of people in production. Labor in production is productive. The
addition of product (creation of a "pure product") occurs in production.
3. They put forward the idea of a classes of society based on the socioeconomic division of the population.
4. For the first time they tried to reveal the basic principles of the
reproduction process.
5. Physiocrats were the first liberals in economics. They refuted the
provisions of the mercantilists about the need for direct government intervention in
the economy.
6. They affirmed the thesis that the economy does not develop chaotically, but
on the basis of certain objective patterns that do not depend on the whims of
individual people, but are determined as a whole by the evolution of human society.
Despite the fact that the ideas of the physiocrats are limited to the agricultural
sector, their teaching served as a prologue to the economic science of developing
capitalism, i.e. classical political economy.
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TOPIC 6. THE RISE OF CLASSICAL POLITICAL ECONOMY AND ITS COMPLETION
6.1. Economic doctrine of A. Smith
Classical political economy reached its highest development in the teachings of
the great economists A. Smith and D. Ricardo.
Great Britain in the second half of the 18th century became the most advanced
country in the world. Capitalism developed very rapidly. Great Britain turned many
countries into its colonies, at the expense of which it enriched itself.
Capitalist incomes also grew from internal sources. The process of landlessness
among peasants continued. By the middle of the 18th century. peasant proprietors in
England practically disappeared. Agriculture passed into the power of large owners
(land lords), farm owners.
Former peasants became cheap hired labor in industrial enterprises.
Manufactories with manual labor turned into enterprises with mechanized production.
The country became agrarian-industrial. Society was divided into three classes:
the working class, the bourgeoisie, and landowners. The exploitation of workers was
merciless. But industrial capitalists also felt the shackles of the feudal order and the
power of the state.
A new method of production, new socio-economic relations required a new,
deeper economic analysis. The beginnings of this analysis have already been laid by
W. Petty and the physiocrats. But there was no complete systematic theory of
capitalism yet.
The needs of the economy resulted into the emergence of a new major
economic doctrine — English bourgeois classical political economy. It is believed
that the beginning of this teaching was laid by W. Petty, the foundations were
developed by A. Smith, and the teaching was completed by D. Ricardo.
K. Marx deeply analyzed and generalized the teachings of classic political
economists. Therefore, sometimes the teachings of K. Marx are classified as classical
political economy. We can agree with this, but with the caveat that K. Marx lived in
another era and was the ideologist of the working class, and A. Smith and D. Ricardo
are the ideologists of the capitalists.
Adam Smith (1723–1790) was the greatest English economist and founder of
classical political economy.
Adam Smith was born in Scotland, in the small town of Kirkcaldy in the family
of a comptroller of the customs. Smith's father died before he was born. Adam
studied at a local school, where he received a good education. From early childhood
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he was surrounded by books, which he loved to read. He showed great interest into
mental activities.
Smith studied philosophy at the University of Glasgow from the age of 14.
There he received a master's degree and a scholarship for further study. Three years
later he entered the college of Oxford, from which he graduated in 1746. In 1748, in
Edinburgh, Adam, with the support of Lord Kames, began lecturing students on
literature, economics, law and other subjects.
In 1750, Smith had an important meeting with David Hume, who shared his
views in philosophy, religion, politics and economics. Their joint works played a
significant role during the period of the Scottish Enlightenment.
In 1751 Smith became professor of logic at Glasgow. There he gave lectures on
rhetoric, political economy, and law. Based on the materials of his lectures, he wrote
and published the scientific book "The Theory of Moral Sentiments" (1759), which
became one of his most famous works. In this book, Smith revealed ethical standards
of behavior that maintain stability in society, and also described an approach to moral
and ethical equality among people.
Subsequently, A. Smith's scientific interest increasingly shifted to economic
science, which was partly due to his active participation in the peculiar Glasgow Club
of Political Economy, and partly to his friendship with the philosopher and economist
David Hume.
In 1764 a turning point occurred in the life of A. Smith: he left the department
(as it turned out, forever) and accepted an offer to accompany a young lord, the
stepson of a prominent political figure, the Duke of Buccleuch, during a trip abroad.
The material interest from this journey was not the least important for A. Smith; the
trip guaranteed him £ 800 annually until the end of his life, which was clearly more
than his professorial fee. The journey lasted from 1764 to 1766, i.e. more than two
years, of which he spent a year and a half in Toulouse, two months in Geneva, where
he had the opportunity to meet Voltaire, and nine months in Paris. Close acquaintance
during the trip with the French philosophers d'Alembert, Helvetius, Holbach, as well
as with the physiocrats, including F. Quesnay and J. Turgot, was subsequently
reflected in his main work, "An Inquiry into the Nature and Causes of the Wealth of
Nations", which he began in France.
Smith completed work on the book in 1776 in London.
"The Wealth of Nations" consists of five books. In the first book, Smith
explores value, profit and rent. In the second — the nature of capital, its accumulation
and consumption. The third book describes the history of the formation of capitalism.
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The fourth book is devoted to the history and criticism of various trends in political
economy. The fifth book — the largest — reveals the problems of state finances.
This work covers many topics. It combines a deep theoretical study of
economics, a description of specific events, economic processes in the life of society.
Smith also developed the methodological basis of political economy and scientific
methods that can be applied in the study of other social sciences.
"The Wealth of Nations" had brought Adam Smith worldwide fame. This book
is considered the main basis of economic education to nowadays.
In 1778, Adam Smith moved to Edinburgh, where he received the post of
Commissioner of Customs (he remained in this position until his death in 1790). A
serious attitude to work did not leave time for scientific activity. Still, Smith made
sketches of his third book, which he never managed to finish.
From the character traits of A. Smith, it is known that he was characterized by
emphatically delicate behavior and at the same time legendary absent-mindedness.
A. Smith's contribution to the methodology of economic science
A. Smith saw political economy as a universal science of society, so he tried to
develop methods for studying this science.
The main method, that Smith used, was the method of logical abstraction. Its
essence is that in society there are natural, fundamental and determining processes,
while random, secondary, private phenomena are temporarily removed from the field
of view of the researcher, i.e. researchers are abstracted, distracted from them. They
are included only when the process is analyzed entirely in its full, complete form.
Another method of Smith is penetration into the essence of phenomena and
processes, the discovery of deep patterns, and not the description of surface signs. In
everything it is necessary to find internal connections and interdependencies.
Smith defined the subject of economics. In the book "An Inquiry into the
Nature and Causes of the Wealth of Nations", he highlighted the main task of
political economy — the economic development of society and increasing its wellbeing.
The wealth of a nation is the products of material production, the quantity of
which depends on the proportion of the population engaged in productive labor, and
labor productivity. Smith considered only labor in the sphere of material production
to be a productive labor.
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