Physiocracy: The Conservative, Agrarian Alternative to Capitalism

Introduction

Economics might be, in the words of Thomas Carlyle, a ‘dismal science’, staid and dull to most, but it is also an integral part of any human society. In particular, it is a subject of immense importance to the theonomist. Witnessing the global economy teetering on the brink of ruin, a state brought about by the concupiscence of power-brokers in both the governmental and corporate world, the imperative to return to God’s divine law in all things becomes ever more manifest.

So, folks, what to do? Marxism and its velvet-glove-in-the-iron-fist equivalent, Keynesianism, are obviously out of the question. If you believe otherwise, you might be better off writing a dissertation on Paul Tillich for Union Theological Seminary rather than wasting your time at Faith & Heritage.

I guess that settles it, then. This is a dichotomous world, so capitalism is obviously our only alternative. Sure, it’s a lesser-of-two-evils kind of deal, but at least it provides freedom and prosperity, right? Case closed, gavel down. That sure was a short article.

Hold on, though – the lesser of two evils…is still evil.

One of the most obvious similarities between Marxism and capitalism is the messianic proclivities of both systems’ most ardent supporters. In their proclamations of Utopia, both manage to denigrate Christianity. What proponent of divine law could possibly support this assertion by Ayn Rand devotee Wendy Milling?

It is not that pro-capitalists believe that free markets fail in important ways. On the contrary, capitalism is the perfect system. It is the most moral system because it respects man’s rights, and it allows the greatest abundance to be created precisely because it does respect rights. A free mind is the root of wealth creation. A mind free to succeed is also free to fail, but that mind is also free to pick itself back up and try again. There is no cause for existential hand-wringing in a truly capitalist system, and doing so would be morally wrong.¹

OK, well, Randbots always try to substitute Objectivism for the Holy Spirit anyway. There’s a plethora of Christian capitalist proponents out there – surely they can present a far more edifying case!

In theonomic circles, there is no more eloquent proponent than Gary North. He had this to say in a column:

To be grateful for what we have, we had better understand how we got it. We got it through free market capitalism. God was in charge in 1700, but He has provided greater benefits to more people since 1750 than ever before in history. If those who claim to be Christians cannot understand the difference between medieval guild socialism, free market capitalism, Keynesianism, and communism as ways of allocating resources and responsibility, then they are likely to fall into error: the error of slogans at the expense of thought.

I recommend that people say a prayer of thanks for capital markets. In the providence of God, they keep us alive.²

Given that this was written in 2004, it rings pretty hollow in these post-bubble bursting times. Particularly as it has become apparent that capital markets are guided by anything but free market principles, and that we are kept alive in spite of them, not because of them.

Having said all this, what if there was another conservative economic option? An option that predated the classical economics of Adam Smith, and also appears to have influenced some of his views? An option that is not inherently social Darwinist? An option that could work within the framework of a post-collapse, secessionist, agrarian society?

There is.

Let’s take a look at physiocracy, shall we?

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Origins

Physiocracy could be considered the first post-feudal school of economic thought. Or, to put it another way, it was the first system to focus on a source of wealth creation independent of the laird’s or the king’s direct influence. In this respect, it could also be considered to be the foundation of modern microeconomics as well. It had its origins in France in the early-to-mid-eighteenth century, before the onset of the Industrial Revolution. As a result, it is a heavily (one could say even exclusively) agrarian philosophy. The proverb ‘true wealth comes from the soil’ could easily stand as the credo of the entire movement.

Eighteenth-century France was a significant setting for the development of such a theory. The reigning House of Bourbon, to put it mildly, had seen more prosperous days. The 72-year long reign of Louis XIV and the almost equally insane 64-year long reign of Louis XV had been marked by regal extravagance unparalleled elsewhere in Europe, as well as involvement in a series of prolonged and costly wars, mostly dedicated to keeping the rival Hapsburg dynasty in check in both Spain and Austria. The Seven Years’ War of 1756-63, which would result in France losing most of her then-extant colonies to Britain, drained the national coffers further. It was inevitable that Louis XV would thus look to French agriculture for a tax grab. With its large tracts of fertile soil and its temperate Mediterranean climate, French farmers were the most productive and prosperous in all of Europe. The aristocrats and nobles who constituted the French Parliament were incensed at a tax levied against them in 1745 and openly proclaimed themselves the defenders of landowner rights against the Bourbonic plague. In such an atmosphere, an economic ideology championing the individual found very receptive ears, and the tenets of physiocracy began to take root among that portion of the gentry directly involved in food production.

In 1758, economist François Quesnay published the Tableau économique, which would codify the major physiocratic points and serve as the philosophy’s Wealth of Nations. A simplified model of this work, consisting of a zigzag chart with a corresponding eight page explanation, would appear the following year.

In the model, economic activity is divided among three classes:

• The Proprietor, or landowner, who acts as a straight consumer
• The Cultivator, Farmer, or Husbandman, who acts as the sole producer of agricultural activity, and
• The Merchant or Artisan (described as a ‘sterile’ class), who acts as a consumer of food products as well as a manufacturer or exporter of products required and desired by the Proprietor and Farmer.³

Revenues are treated as a stand-alone category. After deductions for taxes and tithes, expenses are divided up into productive ‘expenditures’, used in the direct production of food products or raw minerals, and sterile ‘expenses’, used to denote living costs, interest on loans, commercial costs, etc.⁴ The principal owed on loans is denoted an ‘annual advance’ and is dealt with separately, although it too is a sterile expense.⁵

The distribution of monies is predicated on a straightforward basis. The farmer rents the land from the proprietor and produces x units of food. A third of that is kept for the use of his family, livestock, and wages for his hands. Two thirds of the remainder is sold, and of the resulting monies a third is again kept for the purchase of non-food goods from the artisan. The artisan uses the majority of his monies to purchase food from the farmer, with the remainder going towards the raw materials he needs to construct his products, which are then sold at a price that allows him to break even. The merchant takes his monies received for the raw materials and purchases food, which is then used to trade for foreign goods (the only time in the model food is allowed out of the loop, incidentally). The landlord is counted a straight consumer, taking whatever monies he receives in rent and spending it equally between food and goods.⁶

Obviously, this is an exceptionally simplified scenario – notably, it assumes a static cycle of wealth distribution without taking into account such variables as inclement weather, disease outbreaks, generational transfers of power, etc. – but it provides the foundation which future physiocrats would refine and expand upon.

Perhaps the best known physiocrat is Anne Robert Jacques Turgot, who fleshed out concepts not covered by Quesnay’s basic economic model. Some have argued that he was not a physiocrat proper, but he certainly was in complete sympathy with their aims at the very least. Murray Rothbard, otherwise not an admirer of physiocracy, praised Turgot for introducing such factors as savings and opportunity costs into the Tableau.⁷ Alas, Turgot was also responsible for introducing the concept of usury into Quesnay’s model as well. Predictably, Rothbard considers this his ‘most important’ breakthrough and documents that he was ‘a century ahead of his time’.⁸ Nevertheless, the sophistry of his ideas led him to a brief tenure as finance minister under Louis XVI. More significantly, Turgot’s works would be translated into English by Adam Smith, who would incorporate many of the selfsame concepts into his own economic theory of laissez-faire. These would find expression in Smith’s The Wealth of Nations and, as they say, the rest is history. Capitalism seemed to be made to serve as the basis of the Industrial Revolution, and physiocracy faded into the background as a quaint, archaic relic of a past agricultural era. It’s old, it’s rural, and it’s from those dastardly French! It can’t possibly have any relevance today!

Except, as has become abundantly clear during the Bear Stearns/Lehman Brothers/automaker bailout/quantitative easing debacles of the past five years, the current structure of international crony financial capitalism sure isn’t working. What say we take a look at some of the positive and negative aspects of physiocratic principles from a kinist standpoint, and see whether or not they would be preferable?

Physiocratic Pluses

Given its bucolic origins, it should come as no surprise that several of the benefits of physiocracy are also benefits of agrarianism as a whole.

As stated above, physiocracy encapsulates many of the traits that we would find agreeable in laissez-faire. The individual matters and is considered competent to make economic choices for himself. Rothbard points out that, in his Elegy to Gournay, Turgot acknowledged ‘the uses of indispensable particular knowledge by individual actors and entrepreneurs in the free market. These committed, on-the-spot participants in the market process know far more about their situations than intellectuals aloof from the fray.’⁹ This was a controversial notion at the time. Arguing against finance minister Turgot’s proposal to suppress state-run guilds, the French parliament summed up the era’s prevailing mercantilist mindset:

The corporations of merchants and artisans form a necessary part of this indivisible whole which contributes to the general security of the realm. Sire, because independence is a defect in the political constitution and men are always tempted to abuse liberty, the law has instituted corporations, created guilds, and established regulations. The law has wished to prevent fraud of all kinds and to remedy all abuses. . . . To loosen the springs that move this multitude of different bodies, to annihilate the guilds, to abolish the regulations, in a word to disperse the members of all the corporations, is to destroy all the various means which commerce itself must want for its own preservation.¹⁰

Heard of ‘too big to fail’? In the eighteenth century, it was ‘too entrenched to fail’.

Any farmer will tell you that without solid, guaranteed property rights, sustainable agriculture becomes impossible. The physiocrats, too, recognized this well. Quesnay wrote that ‘Respect for property is the primary element of the power of society.’¹¹ A good deal of physiocratic philosophy is dedicated to the moral and natural justification towards the concept of property, with an equal emphasis being placed upon its biblical rightness and its practicality.¹² This was a revolutionary thought in its time, and while it would later be taken to perverted extremes via hedonistic utilitarianism, it still provided the most productive means whereby man’s self-interests could be satiated.

Certainly, to the agrarian, a major asset in the physiocratic model is its disdain, even abhorrence, of all things financial. As wealth can only be created from the labor and management that goes into the creation of produce (including indirectly through manufacturing), the banker, speculator, broker, et al. were looked upon as parasites. The Tableau did make provision for loans, but they were assumed to have originated directly from the proprietor. It’s safe to say we won’t be hearing any spirited defense of physiocracy from David Bahnsen any time soon. Now, I can hear a few of you scoffing that this is utopian and untenable. In its purest form, maybe that’s so. However, the model is structured so that it could easily incorporate producer-owned and -operated co-operatives: not just banks, but also electrical utilities, farm supply stores, bulk fuel depots, road maintenance crews, etc. To see a real-world example of this in successful action, one only has to look at the Bank of North Dakota – the most agrarian of American states. It’s important to note that this is not an ideal example, as it is a state-owned bank as opposed to a producer-owned credit union. (Its board of directors will tell you there is no discernible difference between the two concepts, but c’mon – we know better than that!) Still, the fact remains that, by providing competitively-priced capital to local businesses while avoiding the insanely imprudent speculation in junk investments that has devastated the global financial system, the Bank has remained solidly profitable.¹³ Given that its customer base is solidly rural and conservative, this puts the lie to the claim you have to be a derivatives trader or Manhattan real-estate developer to be an economic mover and shaker.

From the kinist perspective, physiocracy promotes familial stability by giving a healthy incentive to put down roots, bloom where one’s planted, and rear children. Urban chaos and its less-intense but still-prevalent suburban counterpart do none of these things. It stands to reason, by its own rustic character, that it would discourage non-white immigration as well. Want to experience the “joys” of multiculturalism? Move to beautiful downtown Sao Paulo instead. Want an exciting, high-powered career moonlighting as a Nigerian scam artist? Move to Tel Aviv instead.

Various other benefits could be described, but in this author’s opinion the single most important asset of the physiocratic theory comes from another economic innovation of Turgot’s, one that is well known to any agrarian: the law of diminishing returns. One author had this to say about this breakthrough concept:

Turgot observed that the subjective utility of an economic good decreases as its supply to an individual increases—diminishing utility is a function of abundance. A forerunner of the Marginalist Revolution, Turgot conceived of the idea of diminishing marginal productivity of factor inputs. Increasing the quantity of some factors increases the marginal productivity until a maximum point is attained. Past this point, the marginal productivity will decrease, fall to zero, and ultimately will turn negative. Each increase in input would be less and less productive. Essentially, all that Turgot lacked was the idea of the marginal unit.¹⁴

Why is this so important? Taken to its logical conclusion, it becomes clear that wealth itself, not just unrenewable resources, is finite. This is a concept that the world apparently finds nearly impossible to accept. Adam Smith himself was fairly tepid to this idea. Several Randbots make the case that his law of ‘economic equilibrium’ is actually a backhanded advocacy of increased returns. As one blogger has noted:

Adam Smith laid the basis for increasing returns in his opening chapter on the division of labour and it lay, practically ignored, until the 20th century (Allyn Young, Economic Journal, 1928). After Adam Smith died in 1790, economics became dominated by the work of David Ricardo, whose perspective was dominated by the agriculture sector, still a major element of Britain’s gross domestic product. Diminishing returns was still taught at the end of the 20th century (I recall lectures in it as an undergraduate in the late 1960s. Its logic of a field having diminishing limits as labour and fertiliser was added and notions of a fishing boats becoming over-crowded with fishing rods so that marginal product of labour declined is compelling. Yet cumulative improvements in productivity within the supply chains that contribute to a product (Adam Smith’s example was the common woollen labourer’s coat) (WN I.i.11: 22-23), would contribute increasing returns as unit prices fell among the final products’ inputs….Productivity per worker rises without useable practical limits over time. Think of knowledge; there are no limits. In sum, Adam Smith did not assert equilibrium economics; mathematical general equilibrium is a myth in the real world; factor prices across a ‘neighbourhood’, let alone across an economy, vary; and Adam Smith was associated [with] increasing not decreasing returns.¹⁵

Whether or not this was actually Smith’s intent, the pertinent fact is that many self-described capitalists have taken this to heart. A quick Google search turns up more than a few investment houses named ‘Infinite Wealth’, more than a few hack financial planning books with titles like ‘The Secret of Unlimited Wealth’, and, of course, the denizens of the heretical prosperity gospel who strongly imply to blue-haired grannies watching TBN that because God is infinite, He is obviously ready and willing to grant them infinite (monetary) wealth if they just send in their donation today. Why else would people get suckered into buying into an overinflated stock market if, in the back of their mind, they didn’t truly believe the party will last forever?

In comparison, once people accept that wealth itself has limits, their behavior is markedly different. They begin to focus more on long-term sustainability rather than quick ‘cash-and-dash’ money-making schemes. They realize that all mining operations must run dry someday, whether underneath a mountain or in a field. If they are farmers, they realize that biotech corporations like Monsanto operate as a mining operation. They look more to frugality and thrift rather than spending their way out of penury. They, not the government, provide for their families. In short they cease to be users of the land and become stewards of the land. They once again become tillers of the soil rather than hunters and gatherers (of made-in-China crap, in this instance), thus fulfilling their true God-ordained purpose. Agricultural laws aplenty exist in Exodus, Leviticus, and Deuteronomy for a reason. If our volk ever wish to regain God’s good favor, we had better return to such a mindset.

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The case for a return to physiocracy therefore seems to be a strong one. However, no system created by man has ever been perfect, and our subject is no exception. I would be remiss if I did not point out some of its negative aspects as well.

Physiocratic Minuses

One drawback that must be kept in mind derives not so much from the system of physiocracy as from the physiocrats themselves. Physiocracy was not just concerned with economics but, in its higher sense, was meant to be an entire life philosophy. As such, it was subject to the unfortunate influence of the humanist hocus-pocus prevalent in that age of “Enlightenment.” They extolled the rationality of natural law, and held to the inherent goodness of man as an infallible truth. Going back to Turgot, he himself

believed in progress and in the perfectibility of man. The human mind, including the exercise of reason and volition, has the potential for progression. He predicted the future of reason and the inevitable advancement of the human mind… He saw humanity progressing slowly but somewhat steadily toward greater perfection. Progress is found in man’s singular ability to conceptualize and store knowledge, improving upon it, and making it available to each new generation.¹⁶

In this one respect, it must be said that Adam Smith improved on the ideas of the physiocrats. While they paid lip service to the existence of self-interest, Smith did recognize it as the primary driving force behind all individual economic decisions, for better or worse. Hence, his insight into human nature has to be counted the more perceptive.

Although not universal, many individual physiocrats seemed to hold a bizarre reverence towards the Qing dynasty of China, considering it to be an agricultural superpower and its despotic practices to be a model for the West. Rothbard points out that Quesnay was considered the ‘Confucius of Europe’ by his followers and did everything he could to live up to that title.¹⁷ It’s safe to assume most of them never made the trek to China to check out the reality of the situation there for themselves. It’s also safe to assume that alienism is not just a twentieth-century phenomenon.

A more fundamental problem rests in a major physiocratic tenet I have not touched upon yet. The physiocrats were rabid proponents of free trade – which is to say, free trade in all its completely deregulated, international, all-sector-encompassing, anarchistic “glory.” On the one hand, this is understandable. As proponents of pure laissez-faire, they held all forms of economic regulation to be destructive, whether in the fields of domestic production, export, property rights, or labor. Also, because French agriculture was the most advanced and productive in the world at this time, they believed that the nation would be better off focusing on that as their key strength and importing necessities and (limited) luxuries from nations that specialized in those sectors – under the assumption that food surpluses would be plentiful enough to always be a bargaining tool with trading partners, of course. Perhaps, too, this didn’t seem so forbidding when one considers the limited number of trading partners available to European nations at this time. However, today we have had ample opportunity to see unparalleled free trade in action across the globe for the past twenty years, beginning with the ratification of NAFTA in 1994. What we have learned is that all economic sectors will gravitate towards those areas that can produce their goods or services the cheapest, and all other considerations be damned! Quantity trumps quality every time. With ever more intrusive trade pacts being drafted, such as the Trans-Pacific Partnership – designed to make hindrance of corporate profit in any form illegal on a global scale – the physiocratic position on trade seems an awfully difficult one to defend anymore.

Moreover, as is not uncommon with free trade proponents, the physiocrats displayed a certain amount of hypocrisy when it came time to put their proto-Austrian economic theories into practice. Upon becoming finance minister in 1774, Turgot immediately called for complete freedom of French trade in cereals, piously declaring that the goal of such was

to animate and extend the cultivation of the land, whose produce is the most real and certain wealth of a state; to maintain abundance by granaries and the entry of foreign corn, to prevent corn from falling to a price which would discourage the producer; to remove monopoly by shutting out private license in favor of free and full competition, and by maintaining among different countries that communication of exchange of superfluities for necessities which is so comformable to the order established by Divine Providence.¹⁸

In practice, though, Rothbard points out that Turgot spent much of his brief ministerial tenure trying to export French grain but keeping foreign grains out of the marketplace, as well as doing little to encourage any substantial trade in manufacturing.¹⁹ Thus, the lofty rhetoric was undercut by political reality. Such is human nature.

That one-sidedness also brings me to what was long considered the fatal flaw in the physiocratic model: at its heart, it really and truly is dedicated to one sector of the economy to the detriment of all others. It is predicated on an agricultural society, period. Manufacturing has, at best, a vague and undeveloped position in the order of things; finance has none whatsoever. Given that France was about to witness the first rumblings of her own Industrial Revolution, a process that would only gain momentum during the turmoil of her political revolution, it perhaps comes as no surprise that physiocracy began to be superseded by the new, “improved’ capitalist model coming forth from England. By the beginning of the 1780s it was moribund. By the 1790s it was dead. By the beginning of the nineteenth century it was already an all-but-forgotten footnote in the economic history of the world. To this day, it truly is difficult to see how a modern nation-state could possibly be constructed around such a lopsided economy.

However, I hardly need tell you these are extraordinary times.

As I stated in my opening paragraph, worldwide economic collapse more and more seems inevitable. The modern nation-states we all have to endure may teeter on for a while longer under brutal repression, but their days, too, are numbered. With God’s providence, we and our families will emerge from the ashes – but how to rebuild?

Funny thing about starting from scratch – you learn very, very quickly what your priorities are. In a post-wreck world, no temporal need will eclipse that of food. To ensure ample supplies of food, the producer will need to regain his biblically-mandated role as the head of the economic model, rather than the tail. Considering that we will be operating on a decentralized scale of clan and community, the physiocratic model will suddenly seem a lot more tenable. Yes, we will require craftsmen, manufacturers, even (in the future) outlays of capital. As stated earlier, it would seem that co-operative models could be easily incorporated into the physiocratic framework. Give us a civil magistrate to handle disputes and to persecute lawbreakers, and we are ready to embark.

It is never a good idea to romanticize anything, but I hope I have presented a credible enough case to at least present physiocracy as a system worth considering. While the philosophy itself might have withered, its key tenets were adopted by more than a few influential thinkers. Adam Smith. Thomas Jefferson. The Southern gentry. In more modern times, sustainable-agriculture advocate Joel Salatin. Why not us? Beats the hell out of what we’ve had the past two hundred years.

Conclusion

To wrap up, I would like to very briefly touch on the futility of anti-agricultural capitalist thinking. Remember the ‘Asian Tigers’, those supposedly great free-enterprise centers located on barren islands that were going to dominate the world through the sale of their ‘expertise’ and ‘skill’? A (Jewish) professor had this to say about them and other such economies, displaying a brazen but sadly typical contemptuous attitude towards farmers:

Conversely, minuscule and natural resource-poor places like Bermuda, Singapore, and Hong Kong have seen their economies boom far beyond the levels of their present or former colonial overlords, because their people and leaders have had the foresight to recognize that a preoccupation with direct food production or even a worry about basic food self-sufficiency are developmental dead ends.²⁰

What say we take a look at the fate of another economic superpower located on a sterile rock – the biblical isle of Tyrus?

And in their wailing they shall take up a lamentation for thee, and lament over thee, saying, What city is like Tyrus, like the destroyed in the midst of the sea?

When thy wares went forth out of the seas, thou filledst many people; thou didst enrich the kings of the earth with the multitude of thy riches and of thy merchandise.

In the time when thou shalt be broken by the seas in the depths of the waters thy merchandise and all thy company in the midst of thee shall fall.

All the inhabitants of the isles shall be astonished at thee, and their kings shall be sore afraid, they shall be troubled in their countenance.

The merchants among the people shall hiss at thee; thou shalt be a terror, and never shalt be any more.²¹

Couldn’t have said it better myself.

 

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