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Mercantilism & Physiocracy

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Mercantilism and Physiocracy
PACourse Code: PA-511

Course Title: Public Administration Theories and Problems
Submitted To: Md. Mashiur Rahman Assistant Professor Department of Public Administration Comilla University

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Md. Nazmul Haq Student of MSS Session: 2010-11 Class ID: 005 Department of Public Administration Comilla University Date of Submission: 5th February, 2013

Department of Public Administration Faculty of Social Science Comilla University

Mercantilism and Physiocracy

In the beginning, I exert my gratitude towards Almighty Allah that I have done this great job. Then thanks to my honorable course teacher Md Mashiur Rahman that he has made the opportunity for me to do a work on such intellectual course contents. I think, in the way of accomplishing this assignment I have earned a lot of knowledge about Mercantilism and physiocracy and it is great achievement for me for sure. This assignment also has taught me about the historical knowledge of economic nature of different states in middle age.. Finally I want to get rid of my mistakes that age may be occurred in preparing this assignment such as spelling or occurred printing mistakes with the merciful mind of my course teacher Md. Mashiur Rahman.. Rahman
Md. Nazmul Haq Class Roll-005


Mercantilism and Physiocracy
Table of Contents
Topics 1. Introduction 2. Mercantilism 2.1 Factors that Gave Rise to Mercantilism 2.2 Representative Mercantilists 2.2.1. Thomas Mun (1571-1641) 2.2.2. Antonio Serra (1580-1650) 2.2.3. Philipp Wilhelm von Hornick 2.3. Principles of Mercantilism 2.4. Rationality of Mercantilism 2.4.1. Prolongation of State Power 2.4.11. Encouraging Exportation 2.4.3. Prosperity in Income, Employment & Tradition 2.4.4. Pursuance of conservative Policy 2.4.5. Emphasis on precious Metal & Money 2.4.6. Population Policy 2.4.7. Rate of interest 2.4.8. Trade Law 2.4.9. Preservation of Precious Motel 2.4.10. Discouraging Importation 2.4.2. Growth of Wealth 2.5. A Critical Appraisal of Mercantilism 2.6. Decline of Mercantilism 3. Physiocracy 3.1 The factors which gave rise to Physiocracy 3.2. Main Representatives of Physiocratic School 3.2.1Quesnay (1694-1774) 3.2.2. Turgot (1727-1781) 3.2.3. Etienne Bonnot de Condillac (1715 –1780) 3.3. Features of Physiocracy 3.3.1. Importance of Agriculture 3.3.2. Agriculture based Industry and Trade 3.3.3. Distribution and Mobilization of Wealth 3.3.4 Productivity Pages 05 05 06 07 07 07 07 08 08 08 08 09 09 09 09 09 09 09 09 09 10 11 12 12 12 13 14 14 14 14 14 14 14 3|Page

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3.3.5. Religious Explanation 3.3.6 Real Source of Wealth 3.3.8. Tax system 3.3.7. Productive Class 3.4. A Critical Appraisal of Physiocracy 3.4.1. Means of Production 3.4.2. Value Judgment 3.4.3. Freedom of Trade 3.4.5. Theory of Distribution 3.4.4. Disguise Emphasis on Agriculture 4. A Comparison on Mercantilism and Physiocracy 5. Meaning of Mercantilism for Underdeveloped Countries 6. Meaning of Physiocracy for Underdeveloped Countries 7. Conclusion 8. Reference 15 15 15 15 15 15 15 16 16 16 16 17 18 20 21


Mercantilism and Physiocracy
1. Introduction Public administration is collective endeavor. The complexities of human lives have increased with the advancement of science industrial revolution, invention of various techniques, and high growth of population. In these regard, the role of state and government becomes indispensable. Economics is in the centre of all state activities including policy initiation to program implementation. International trade was expanded in western countries, especially in England. Italy, France, from the middle of 15th century to late 18th century. The information related to economic thought of that time is known as system of political economy. This economy was divided in to two systems. (i) A system of commerce or mercantile system (ii) A system of agriculture as physiocrat system 2. Mercantilism International trade was expanded in western countries, especially in England, France, Italy and Germany during 1590-1780. In this situation a changed economic structure was built. The economic ideas and policies which were followed by European statesmen from the 15th century until the second half of the eighteenth century have been generally described as mercantilism. The mercantilists thought that the wealth of a nation could be increased by trade. The meaning is there in the word “mercantilism” itself. Mercantilism is known by various names such as bullionism, Colbertism, and Kameralism. The early mercantilists believed that the wealth of a nation consisted in the amount of bullion (gold and silver) possessed by it. So they suggested ways and means of increasing the stock of gold and silver in a country. Hence the terms bullionism, In Germany, Mercantilism was known as Kamcralism. In the worlds of Heney, Kameral affairs concerned the economy of the prince, and Kameralism was the art which maintained, increased, and administered the royal income. In France, mercantilism was known as colbertism for nearly three hundred years, Italy, Spain, and in almost every other European nation. It was followed in Russia too. Professor Haney identified these doctrines combined as commercial system or mercantilism in his book “History of political thought” (1964). Mercantilism is the economic doctrine that government control of foreign trade is of paramount importance for ensuring the military security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from the 16th to late-18th centuries1. Mercantilism was a cause of frequent European wars in that time and motivated colonial expansion. Mercantilist theory varied in sophistication from one writer to another and evolved over time2. Favours for powerful interests were often defended with mercantilist reasoning.
1."Mercantilism," in David Henderson, ed. The Concise Encyclopedia of Economics (2008)]


Mercantilism and Physiocracy
According to this doctrine, trading is the main source to increase state power. Some economists identified mercantilism as economic dimension of nationalism. According to professor Hecksher, “Mercantilism is to be regarded essentially as a phase in the history of economic policy which contains a number of economic measures to secure political unification and national power”. (Mercantilism, Vol-11, Part-11, P-14). Mercantilism is one of those abstract concepts which represent some vague concepts and policy formulas collectively. Bacon identified mercantilism as the primary objective of state power. It is symbol of such a philosophy in which state power is essential for defensive and offensive purpose and this philosophy support state control over the individual’s economic interests. Finally, Mercantilism, as the term implies, is closely associated with trade and commercial activity of an economy. 2.1 Factors that Gave Rise to Mercantilism The historical background should be taken into account is explaining the Mercantilist philosophy. Many political, social, economic and religious factors were responsible for the rise of Mercantilism. Towards the close of the middle Ages, nationalism became a strong force, Europe changed greatly as a result of the Renaissance, the Reformation, the invention of printing and the discovery of America. As a result of these changes, there was a fundamental political change. It resulted in the emergence of strong nation States like England, France, Germany and Spain. Feudalism came to an end and the king became powerful. Each nation wanted to preserve its independence and considered the other nation as its potential rival. In order to create a strong and powerful state, the mercantilists tried to regulate the political and economic activity of the people3. During the middle Ages, life, both economic and political, was dominated by religion and ethics. But the political teachings of Machiavelli (1469-1527) and Jean Bodin (1520-1596) influenced the thought of the ru ler. There were other factors, economic in character, which gave rise to mercantilism. During the middle Ages, money was scarce and emphasis was laid on self-sufficiency. The result was that there was little exchange. But from the sixteenth century onwards, exchange economy became the rule. Markets developed and money came to be increasingly used in exchange. The supply of money increased by the discovery of a large number of silver mines.
3. Lokanathan V, A History of Economic Thought, 1973, 1st Ed, S. Chnad & Company Ltd., New Dellhi-110055, P-43


Mercantilism and Physiocracy
Slowly, competition began to take its place as a factor in controlling industry. Machiavelli divorced politics from ethics. He. Argued that what was ethically wrong could be politically right. As Alexander Gray put it, “Machiavelli thus became the unscrupulous despot’s guide to power.” Sometimes, mercantilism is viewed as the equivalent of Machiavelli and Bodin. Further, war became expensive during the period of mercantilism. The King had to find more money to maintain huge standing armies and prices were rising. Some of the Mercantilists thought that the whole art of war was reduced to money and the easiest way to win a war was to find more money to fed, clothe and pay one’s army. Thus they argued that money and not courage was the important factor in war. 2.2 Representative Mercantilists Some famous writers contributed significantly in Mercantilist period. Some important wirters among them are as follows. 2.2.1. Thomas Mun (1571-1641): Thomas Mun has stated the East Bangladesh Company. He has given a systematic statement of mercantilist principles in his book “England’s Treasure by Foreign Trade” (1664). Thomas Mun was a prince among mercantilists. It has been rightly said by Alexander Gray that, “Mun is perhaps the nearest approach to the perfect 4 mercantilist.” 2.2.2. Antonio Serra (1580-1650): Antonio Serra was an Italian. His pamphlet, “A Briet Treatise on the causes which can make Gold and Silver abound in Kingdoms where there are no Mines” contains his mercantilist views. There are some countries blessed with gold and silver mines. But in other countries, according to Serra, the presence of gold and silver may be attributed to: (1) The quantity of industry, (2) The quality of the population, (3) Extensive trading operations, and (4) The regulations of the sovereign. 2.2.3. Philipp Wilhelm von Hornick: Von Hornick was an Austrian pamphleteer. According to him, “the might and eminence of a country consists in its surplus of gold and silver.” All other things necessary or convenient for its subsistence should be derived from its own resources without dependence on other countries5.
4. Alexander Gray, The Socialist Tradition: Moses to Lenin, 1946, p-43 5.


Mercantilism and Physiocracy
2.3. Principles of Mercantilism If the might and eminence of a country consist in its surplus of gold, silver, and all other things necessary or convenient for its subsistence, derived, so far as possible, from its own resources, without dependence upon other countries, and in the proper fostering, use, and application of these, then it follows that a general national economy (Landes-Oeconomie) should consider how such a surplus, fostering, and enjoyment can be brought about, without dependence upon others, or where this is not feasible in every respect, with as little dependence as possible upon foreign countries, and sparing use of the country's own cash. For this purpose the following nine rules are especially serviceable6. The Austrian lawyer and scholar Philipp Wilhelm von Hornick, in his Austria Over All, If She Only Will of 1684, detailed a nine-point program of what he deemed effective national economy, which sums up the tenets of mercantilism comprehensively7. First, to inspect the country's soil with the greatest care, and not to leave the agricultural possibilities or a single corner or clod of earth unconsidered. Every useful form of plant under the sun should be experimented with, to see whether it is adapted to the country, for the distance or nearness of the sun is not all that counts. Above all, no trouble or expense should be spared to discover gold and silver. Second, all commodities found in a country, which cannot be used in their natural state, should be worked up within the country; since the payment for manufacturing generally exceeds the value of the raw material by two, three, ten, twenty, and even a hundred fold, and the neglect of this is an abomination to prudent managers. Third, for carrying out the above two rules, there will be need of people, both for producing and cultivating the raw materials and for working them up. Therefore, attention should be given to the population, that it may be as large as the country can support, this being a wellordered state's most important concern, but, unfortunately, one that is often neglected. And the people should be turned by all possible means from idleness to remunerative professions; instructed and encouraged in all kinds of inventions, arts, and trades; and, if necessary, instructors should be brought in from foreign countries for this. Fourth, gold and silver once in the country, whether from its own mines or obtained by industry from foreign countries, are under no circumstances to be taken out for any purpose, so far as possible, or allowed to be buried in chests or coffers, but must always remain in circulation; nor should much be permitted in uses where they are at once destroyed and cannot be utilized again. For under these conditions, it will be impossible for a country that has once acquired a considerable supply of cash, especially one that possesses gold and silver mines, ever to sink into poverty; indeed, it is impossible that it should not continually increase in wealth and property. Therefore,
6. Philipp Wilhelm von Hornick , AUSTRIA OVER ALL IF SHE ONLY WILL, 1684, pp- 223-225 7. Ekelund, Robert B., Jr.; Hébert, Robert F., A History of Economic Theory and Method, 1997, 4th ed., Long Grove, Illinois: Waveland Press.


Mercantilism and Physiocracy
Fifth, the inhabitants of the country should make every effort to get along with their domestic products, to confine their luxury to these alone, and to do without foreign products as far as possible (except where great need leaves no alternative, or if not need, wide-spread, unavoidable abuse, of which Indian spices are an example). And so on. Sixth, in case the said purchases were indispensable because of necessity or irremediable abuse, they should be obtained from these foreigners at first hand, so far as possible, and not for gold or silver, but in exchange for other domestic wares. Seventh, such foreign commodities should in this case be imported in unfinished form, and worked up within the country, thus earning the wages of manufacture there. Eighth, opportunities should be sought night and day for selling the country's superfluous goods to these foreigners in manufactured form, so far as this is necessary, and for gold and silver; and to this end, consumption, so to speak, must be sought in the farthest ends of the earth, and developed in every possible way. Ninth, except for important considerations, no importation should be allowed under any circumstances of commodities of which there is a sufficient supply of suitable quality at home; and in this matter neither sympathy nor compassion should be shown foreigners, be they friends, kinsfolk, allies, or enemies. For all friendship ceases, when it involves my own weakness and ruin. And this holds good, even if the domestic commodities are of poorer quality, or even higher priced. For it would be better to pay for an article two dollars which remain in the country than only one which goes out, however strange this may seem to the ill-informed. Indeed, in such a way expiration will be increased that will result increased amount of money. Thus national income will be increased including growth. 2.4. Rationality of Mercantilism: The main attributes of mercantilists is their work procedure. Mercantilists were in a desire to develop their own countries from early 16th century. Especially they were aeeare to increase production, exportation, employment, investment in home and abroad; to reduce importation and to expansion of conservative trade policies. The rationalities of mercantilists behind mercantilism were2.4.1. Prolongation of State Power: The main objectives of mercantilists were to make the country as powerful as to other countries in international menace sphere. 2.4.2. Growth of Wealth: Wealth of a nation will be increased through commercialism. Trade surplus will be existed in the economy as there is lens importation and more expiration. 2.4.3. Prosperity in Income, Employment & Tradition: Main taxes of Kingdome come from trading as mercantilists Tomas Moon explained. The subject matters of commercialism are pride of kingdom, honorable occupation of merchant, art of industry, adequate supply against


Mercantilism and Physiocracy demand, employment for poor, development of land, protection of kingdom, equipment of war, threatening other countries etc. 2.4.4. Pursuance of conservative Policy: The development of a country is closely related to conformity with the conservative policy. 2.4.5. Emphasis on precious Metal & Money: Gold and silver were the main wealth to the mercantilists. According to them more gold is more wealth that implies more power. Main key of commercial activities is money. More money will bring more investment, Employment, income etc. 2.4.6. Population Policy: Mercantilists were in favour of more population because of two reasonsa. Maximum labor at minimum cost b. More population is necessary to conduct a war. 2.4.7. Rate of interest: They were in favor of low interest rate that will facilitate indigenous investment. 2.4.8. Trade Law: The economic lives of citizen should be controlled by trade regulation to maximize the social welfare. Thus they were in unsavory of importing food. 2.4.9. Preservation of Precious Motel: Mercantilists supported the preservation use of precious metal especially gold and silver for trading purpose of a country. Skilled Manpower: People will be skilled through the utilization resources and technology of a country. 2.4.10. Discouraging Importation: Mercantilists discouraged the importation for the improvement of indigenous industries. In this process they imposed taxes on import. Thus foreign commodities were discouraged in mercantilism. 2.4.11. Encouraging Exportation: Mercantilists inspired people to export their finished goods in exchange of precious metal especially gold and silver. From the above discussion it is observed that the mercantilists were cooperative in economic nature. 2.5. A Critical Appraisal of Mercantilism Mercantilism was a strong economic doctrine in Europe from 16th to 18th century. But in late 18th Century Intellectual antiparty was started against it. From that time many scholar including smith criticized this doctrine. From the foregoing analysis, it is clear that the following points form the essential features of mercantilism:

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The mercantilists laid too much of emphasis on the advantage of gold and silver as compared with that of other commodities. Thomas Mum & John Locke argued that the gold and silver constitute 1/3 of the total wealth of a country. So it is not right way to consider golden silver as wealth of a country only. They overestimated the importance of commerce and underestimated the relative importance of agriculture. They went wrong in supposing that a favorable balance of trade necessitated a benefit in the long run. They went wrong in assuming that what was gain for one nation was loss for another. Adam smith argued that liberalism is much important rather conservation in international trade. An increase in the amount of gold and silver will push to the price of other commodities of the country. Mercantilism was failed to differentiate wealth and capital. Increase in per capita income and living standard were ignored in this doctrine which is on important objective of welfare state. 2.6. Decline of Mercantilism Mercantilism declined in England and other parts of the world towards the end of the eighteenth century. The following were the main reasons for the decline of mercantilism: Under the influence of the teachings of Adam Smith, the ‘policy of plenty’ began to replace the ‘policy of power. The development of banking, both domestic and international, reduced the importance of bullion (Gold and silver) and coins. The expansion of market economy showed that real estates, factories and machinery were more important items of wealth than gold and silver. The economic growth that took place during the Industrial Revolution made it possible for the society to rely on competitive forces and laissez faire rather than promoting and regulating monopolies. The great progress made in science and technology taught people that a country could become rather not only by impoverishing its neighbors but also by mastering the forces of Nature in a more efficient way. It was also found that the wealth of all nations could be increased simultaneously.

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During the period of mercantilism, economic life was highly regulated. There were many regulations protecting the quality of goods. But these regulations which were once necessary ultimately became a barrier to progress. So the regulations were withdrawn. But we should remember that the doctrines of mercantilism have not completely disappeared from the current scene. There are ideas and policies extant today that resemble the ideas of the mercantilists. A brief study of neo-mercantilism will explain this point. 3. Physiocracy The physiocrats were a group of writers who developed a body of economic theory in France in the eighteenth century. Their publications covered period from 1756 to 1778. Though the physiocrats wrote only for a relatively short period, their ideas had profound influences on the economic thought. That is why they are regarded as the founders of the science of political economy. In fact, Adam Smith was greatly influenced by the economic ideas of physiocrats. The word physiocracy was derived from Greek Vocabulary which means “Government of Nature”. This world was first used by the French physiocrat Pierre Samuel du Pont de Nemours8 (17391817). Francois Quesnay (169-1774) and Turgot (1727-1781) might be considered as the chief representatives of the physiocrats. . N.J. Ware opined that physiocracy was emerged to prove the rationality of some specific political objectives. Physiocracy was a strong movement against extreme mercantilist. The main objective of physiocracy was to develop the society and keep it to an equilibrium situation. Finally according to this doctrine individual should be given to do that economic work which is appropriate for him from his position, ability, facilities, interests and market system. Natural low will govern all trading and economic activities of the state and government should not intervene in market. 3.1 The factors which gave rise to Physiocracy France in 1750’s provided a favorable climate of opinion for the emergence of physiocratic doctrines. There were many economic, political and social factors at work9. Firstly, physiocracy was essentially a revolt of the French against mercantilism. Under Colbert, the famous Finance Minister of France, mercantilism was carried to an extreme degree resulting in the neglect of agriculture and a lot of governmental regulation of industry.
8. 9. Lokanathan V, A History of Economic Thought, 1973, 1st Ed, S. Chnad & Company Ltd., New Dellhi-110055, pp-58-59

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Agriculture was badly organized at that time. There was need for an economic theory to prove that the pursuit of mercantilist policies was detrimental to the progress and wealth of a nation. And the physiocrats provided the theoretical basis to attack mercantilism. The chief aim of the physiocrats was to reorganize the French economy by means of tax reform and by promoting a system of efficient, large-scale farming. Secondly, the tax system of France at that time was corrupt, inefficient and unjust. The nobles and the clergy, who owned nearly about two-thirds of land, were exempted from direct taxation. Thirdly, the finances of the French government were in a bad shape. The unnecessary wars and the luxurious life at court made the government bankrupt and the government started borrowing loans under unfavorable conditions. Fourthly, The French peasants were exploited by the nobles and other wealthy classes by a number of methods. The landowners took a large share of the produce. The Government put heavy taxes. Even the markets for agricultural commodities were restricted because mercantilist policies were in favor of manufactured goods. Fifthly, in general, economic performance and prospects in France appeared unfavorable as compared with that of Britain. Britain had already realized that it was a wrong policy to develop trade and manufacture at the expense of agriculture. Agricultural revolution was taking place in England with emphasis on large scale farming and scientific techniques of production. SO in France too, attention was diverted to the strengthening of agriculture. Lastly, there were other forces at work for progress and change. The political and moral philosophers of those times underlined the importance of the individual in their discussions. They emphasized that man must be the centre of philosophy and politics. And the forces of liberty were at work. 3.2. Main Representatives of Physiocratic School Francois Quesnay (1694-1774) and Turgot (1727-1781) might be regarded as the chief representatives of the physiocrats. 3.2.1. Quesnay (1694-1774): Quesnay was the founder and leader of the physiocratic school. He was the court physician of Louis XV. It may be interesting to note that he took interest in economics at the age of sixty-two. His main writings were: (1) An article on “Farmers” (Fermier 1756), (2) an article on “Grains” (1757), (3) The “Tableau Econmique” (1753-1758). Quesnay’s ideas regarding the circulation of wealth are found in his “tableau Economique”. Quesnay was in favor of strengthening and developing agriculture to increase the wealth of France. He attributed the ills of Kingdom to the poverty of the peasants. “Poor peasants, poor Kingdom, poor king.” He advocated freedom of trade and industry. The basic

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Mercantilism and Physiocracy ideas of the physiocrats such as natural order, net product, circulation of wealth, a single tax system are all essentially the ideas of Quesnay. 3.2.2. Turgot (1727-1781): It is customary to place Turgot among the main physiocrats. But we have to note that “he was never a thorough-going physio-crat, and his ideas regarding value are much more scientific” (Gide and Rist). He realized the subjective character of value. Schum-peter describes him as a ‘nonphysiocrat with physiocrat sympathies’. The main ideas of Turgot are found in his “Reflexions” (1769). Turgot was a great success as an intendant (General Adminisurator) (1761-74). He was appointed Minister of the Navy in 1774 and a few months later he became Finance Minister to Louis XVI.

3.2.3. Etienne Bonnot de Condillac (1715 –1780): Condillac’s name must be mentioned here because his views on some of the economic problems were far more advanced than those of other physiocrats.10 Condillac was the only physiocrat who regarded value as the foundation of the science of the science of economics. He emphasized that value was based upon utility. “Value is not an attribute of matter, but represents our sense of its usefulness, and this utility is relative to our need. It grows or diminishes according to our need expands or contracts.” Thus Condillac has laid the foundation of the psychological theory of value. He was also aware of the fact that value increases with scarcity and diminishes with plenty. Here we have the germ of the theories of the Marginal school.11 3.3. Features of Physiocracy: The main features of the doctrine of physiocracy have been discussed below. 3.3.1. Importance of Agriculture: The main basis of physiocracy as an economic doctrine is that natural order is eternal, universal and unchangeable. From that perspective they invent that land is the only source of all resources. Thus they extremely emphasized on land as well as agriculture. 3.3.2. Agriculture based Industry and Trade: According to the physiocrats, commerce and industry is fully depended on agriculture. The agricultural production is used as raw materials of industry that results growth of wealth. Again the profit from commerce and industry is reinvested on agriculture. 3.3.3. Distribution and Mobilization of Wealth: The resources and wealth will be distributed and mobilized through natural law. 3.3.4 Productivity: According to this doctrine, agriculture is productive only and commerce and industry is nonproductive.
10. . 11. Lokanathan V, A History of Economic Thought, 1973, 1st Ed, S. Chnad & Company Ltd., New Dellhi-110055, pp-58-59

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3.3.5. Religious Explanation: Physiocracy is a religion based economic doctrine. According to them agricultural production is generated by God and industrial production is manufactured by men. Man can not create anything new. 3.3.6 Real Source of Wealth: Gold, Silver, or international trade are not the main sources of wealth Real source of wealth is agriculture Real wealth means that which is gift of nature or God. 3.3.7. Productive Class: According physiocrats, Productive class refers to Land owners and Farmers The surplus production of productive class is distributed to the different portion of the society by natural law. 3.3.8. Tax system: It is necessary to impose tax to execute the expenditure of national security and day to day activities of government or activities of state. The Activities of state sin eludedExpansion of education Raise productivity of land Routing work of government 3.4. A Critical Appraisal of Physiocracy Physiocracy, in essence, was the revolt of the French against Mercantilism. It is from this angle, we have to judge the economic ideas of the physiocrats. While the Mercantilists were preoccupied with gold, the physiocrats laid emphasis upon ‘real wealth’ in the form of raw produce. The mercantilists aimed at maximizing exports and minimizing imports with the object of securing a favor able balance of trade. But the physiocrats, in general, regarded foreign trade as a necessary evil and attacked the favorable balance-of-trade idea of the mercantilists. While mercantilists believed in regulation of trade and industry, the physiocrats advocated freedom of trade and industry. 3.4.1. Means of Production: The physiocrats were wrong in considering agriculture alone as the productive occupation. Commerce and industry are equally important and equally productive as agriculture. There was a fundamental error in their economics. That is, they did not have a correct notion of production. Today, by production we mean creation of utilities. But the physiocrats did not understand this simple trough. They had a materialistic conception of productivity. The physiocrats regarded manufacture as unproductive although it creates form utility, which is one form of production. The physiocrats are mainly responsible for the erroneous classification of labor into productive and unproductive labor basing on the fact whether the labor has resulted in the production of material or immaterial goods. 3.4.2. Value Judgment: The greatest defect in the physiocratic doctrine is almost the total absence of any reference to value. As Gide and Rist put it “They seldom mention value, and

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Mercantilism and Physiocracy 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. 3.4.3. Freedom of Trade: The physiocrats advocated complete freedom of trade and industry. But absolute freedom of trade and industry are not advisable. If we follow the laissezfaire doctrine, there will be little scope for social action. 3.4.4. Disguise Emphasis on Agriculture: The aim of the physiocrats was to develop agriculture. They regarded land as the only source of wealth. For land alone yielded a surplus (net product). It followed the landed proprietors alone should bear the burden of taxation. In effect, their conclusions went against the interests of the agricultural class. Further, their nonintervention policy helped industry more than agriculture. It must be noted that it was not their intention at all. 3.4.5. Theory of Distribution: The weakest point in the physiocratic system is its theory of distribution. According to the physiocrats, rent is a free gift of nature. But Ricardo has pointed out that rent arises not because nature is bountiful but because it is niggardly. 4. A Comparison on Mercantilism and Physiocracy: Physiocracy and Mercantilism are two opposite or anti-agonistic concepts. There is nothing similar among them. Physiocracy was an insurgency against extreme Mercantilism. The differences between these two doctrines have identified in the following table.

Mercantilism Mercantilists emphasized on conservative trade (international). They argued a country should export more and import lens and reserve precious mental including gold and silver in exchange of trade profit. Trade is the main basis of net production

Physiocracy Physiocrats agued that real source of wealth is agriculture. Besides they mentioned gift of nature or God is real wealth.

Agriculture is the main basis of net production It emphasized on internal trade and commerce, It emphasized on agriculture for industry. development rather trade & commerce because development will be achieved by natural lave. Economic activates are limited to ruling and It has opposite stand about trade and support business classes. divine theory and individual freedom. It ignored religion and recognized business men Physiocrats were inspired on religious faith as carries of development. and believed that agricultural products are created by govt. Rosiness class is productive class Land owner and farmers are productive class

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Mercantilism and Physiocracy
Mercantilism Revenue will be collected from international trade but it is It was in favor of economy and parsimony in source use Reserve can be enriched through preservation of gold and silver Balance of trade and other trade related principles are emphasized. Physiocracy To execute the expenditure activities, tax was imposed. There is no explanation about of state

Land and agricultural product can develop the economic sedation of a country. Average cost of production is the base of price and price of product will be determined through perfect compete Tax was imposed on poor general citizen rather Tax was imposed on all citizens to execute the expenditure of state functions. than business men and priest. It emphasized on economic power to increase It emphasized on human Endeavour to increase state power. state power Table: Difference between Mercantilism and physiocracy. 5. Meaning of Mercantilism for Underdeveloped Countries The mercantilists have dealt with many factors of economic growth such as consumption investment, the role of Government, money and capital, foreign trade and population. Some of the economic ideas of the mercantilists have relevance to the underdeveloped countries of today. The countries in which mercantilism flourished resemble present-day underdeveloped countries in some respects, and differ from them in others. For instance, England and Western Europe were better equipped with resources per head then are many present-day underdeveloped countries, especially the crowded ones like Bangladesh. Population was growing much more slowly and the mainland ration was more favorable. There was not much of international lending. But there was a great deal of unemployment and under-employment as we have today. International transfer relations are much better in many underdeveloped countries today than in the past. The mercantilists, according to Heckscher had “belief in official intervention as a corrective to evils.” Even today in under-developed countries, the State is assigned a key role in the process of economic growth. Economic development of England, France and Germany was made possible by the activities of millions of private entrepreneurs under the policy of nonintervention (laissez-faire) by those governments. But in the shortage of private entrepreneurial skill, the state has to play a dominant role in the developing countries. Not only that, it has to regulate production and distribution with the object of promoting growth with justice. The mercantilists considered the non-agricultural sectors foreign trade and manufacturing sectors-as strategic in the economic growth of a nation. They thought that a favorable development of foreign trade and manufacturing by State regulation and assistance, would give rise to favorable development in agricultural and other less strategic sectors. But

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Mercantilism and Physiocracy most of the underdeveloped countries like Bangladesh are predominantly agricultural. In Bangladesh, for instance, most of our traditional exports such as tea, jute, cotton and sugar depend either directly or indirectly on agriculture. So priority has to be given for schemes of agricultural development. For, if agriculture fails, our Plans will fail. Of course, agriculture alone cannot support the increasing population and generate the surpluses necessary for investment. With regard to population, we must follow the teachings of Malthus rather than the mercantilists. There is a definite need for population control in our country. The mercantilists have assigned a most important role to money in economic development at all times. It is true that money is essential for economic development. But whenever certain bottlenecks developed in an economy more money would mean only increase in prices. Further, the mercantilists failed to explain the conditions under which further increases in money would push up prices rather than increase employment. Thus while the mercantilists recognized the role of money in economic development, they exaggerated this role and underestimated the role of “real” factors. More money, especially, paper money may sometimes generate inflationary pressures. Bangladesh is a case in point. Capital deficiency is one of the main problems of underdeveloped countries. External assistance is uncertain and cannot be relied upon forever. So self-help is the best help. We can promote capital formation in a country by promotion of exports. Even today gold plays an important role in international monetary transactions. Only by promotion of exports, underdeveloped counties can earn enough gold and foreign exchange. That there is short age of foreign exchange in most of the underdeveloped countries, no one can deny. There is every need for seeking a favorable balance of trade by maximizing exports and minimizing imports. This part of mercantilist policy has relevance to most of the underdeveloped countries. The Governments of underdeveloped countries provide financial and non-essential commodities should be restricted so as to conserve foreign exchange. Even the developed nations may be persuaded to have liberal trade terms towards their imports from underdeveloped countries. But unfortunately, some of the rich countries of today follow mercantilist policies in some form of other in their trade relations with poor countries. It is one of the causes for the chronic deficit in the balance of payments position of most of the poor countries.

6. Meaning of Physiocracy for Underdeveloped Countries The salient features of physiocracy were: (1) Their emphasis on agriculture to secure surplus for economic development, (2) freedom of trade and industry both within the country and outside, (3) agriculture alone should bear the burden of taxation, and (4) minimum role for government. We shall see how far the ideas of the physiocrats are applicable to the underdeveloped nations where the main concern is economic development.

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Mercantilism and Physiocracy
Most of the underdeveloped countries are predominantly agricultural societies. Bangladesh is a case in point. In Bangladesh, agriculture accounts for nearly one-fifths of our national income, the success of our agriculture. The physiocrats emphasized that agriculture should provide the surplus for capital formation. Even in our country, there is need for transforming our traditional agriculture into modern agriculture by employing advanced technological methods. The agricultural sector in our country accounts for a sizable portion of our national consumption, saving and investment. Naturally, it affects our national output. Even today, there is terrible concentration of landed property in our country. SO the wealthy sections of the agricultural sector should help promote capital formation by reducing their consumption of luxury goods. Agriculture often provided the surplus that helped in saving and investment, which in turn, helped the industrial development of France, United States, Germany and Japan. SO there is lot of meaning in the physiocrats considering agriculture as the strategic sector in the economic development of a nation. So there is lot of meaning in the physiocrats considering agriculture as the strategic sector in the economic development of a nation. They thought that the development of agriculture would help in the development of non-agricultural sectors too. They were right in considering agricultural surplus as a dynamic, growth-generating factor. But, with all that, we cannot depend entirely upon agriculture. Industrial development must take place side by side for we find that most of the developed nations of the world are highly industrialized and they enjoy high standards of living. The physiocrats maintained that the agricultural sector should bear the burden of taxation (for capital formation) because they felt generation of surplus was possible only in the agricultural sector. Even today there is a well-informed opinion in our country that there is a lot of scope for mobilizing more financial resources for our schemes of economic development from the agricultural sector. There has been a substantial development in the agricultural sector. But the tax proceeds from this sector have been more or less inelastic. Of course, direct taxation of agriculture alone would not meet the entire needs of the State. The underdeveloped countries should depend both on direct as well as indirect as taxes for mobilization of resources. The physiocrats believed in competition and opposed monopoly in all its forms. They hoped that under competitive conditions there would be the best set of prices including suitable prices for agricultural products. In underdeveloped countries, the growth of monopolies is acting as a check on economic development. The physiocrats did not attach much importance to external economic relations when a country was large and essentially self-contained. Our country is large but not self-sufficient even in such a bare necessity as food. While the population policy of the mercantilists was in favor of increasing numbers, the physiocrats recommended the increase of agricultural output and net product, and not the increase of numbers. The physiocrats were champions of Free trade. But if the developing nations of the world are to adopt a policy of Free Trade, It would be very difficult for products from the newly

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Mercantilism and Physiocracy set up industries of these countries to compete with the goods from the developed nations of the world. So they must grant protection to infant industries to a certain extent against dumping and by granting subsidies to industries in export sector. Even the developed countries of the world today impose high tariffs to protect their domestic industries. So the present conditions in the world are not ideal for following a policy of free trade as advocated by the physiocrats. Lastly, the physiocrats have assigned only minimum functions to the State. And they advocated laissez-faire. But the State has an important role to play in the economic development of the underdeveloped countries. The Laissez-faire policy is not suitable both for developed as well as underdeveloped countries for different reasons. The main concern of the poor countries is to improve the standard of living of their people. That is possible only through schemes or plans of economic development. Growth with social justice is our aim now. And this is possible only with social action and governmental interference.

7. Conclusion Mercantilism and physiocracy are two economic doctrines which are opposite to one another. But the objective of these doctrines is same which is the development of respective nation. The advocates of these two doctrines believed that the implementation of mercantilist or physiocratic concept will make their country as powerful state in the international arena. The Mercantilists were pre-occupied with gold, the physiocrats laid emphasis upon ‘real wealth’ in the form of raw produce. The mercantilists aimed at maximizing exports and minimizing imports with the object of securing a favor able balance of trade. But the physiocrats, in general, regarded foreign trade as a necessary evil and attacked the favorable balance-of-trade idea of the mercantilists. While mercantilists believed in regulation of trade and industry, the physiocrats advocated freedom of trade and industry. From these two perspectives there is lot to learn for developing country like Bangladesh. Developing countries should emphasis the agriculture and the improvement of agriculture will facilitate the industrial activities and thus the surplus industrial production will be exported. Though theoretically mercantilism and physiocracy are different in undertakings but developing country should utilize these in blend. The combined application of these two doctrines in an appropriate extent with analysis of socio-economic environment of a country will ensure the devlpment.

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Mercantilism and Physiocracy
1."Mercantilism," in David Henderson, ed. The Concise Encyclopedia of Economics (2008)] 3. Lokanathan V, A History of Economic Thought, 1973, 1st Ed, S. Chnad & Company Ltd., New Dellhi110055, P-43 4. Alexander Gray, The Socialist Tradition: Moses to Lenin, 1946, p-43 5. 6. Philipp Wilhelm von Hornick , AUSTRIA OVER ALL IF SHE ONLY WILL, 1684, pp- 223-225 7. Ekelund, Robert B., Jr.; Hébert, Robert F., A History of Economic Theory and Method, 1997, 4th ed., Long Grove, Illinois: Waveland Press. 8. 9. Lokanathan V, A History of Economic Thought, 1973, 1st Ed, S. Chnad & Company Ltd., New Dellhi110055, pp-58-59 10. . 11. Lokanathan V, A History of Economic Thought, 1973, 1st Ed, S. Chnad & Company Ltd., New Dellhi-110055, pp-58-59

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