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1727-1781
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If the history of
economy should begin somewhere, it might began in 18th century, when
thinkers like Adam Smith produced first analyses of the formation of
prices of goods. Instead of Smith, I am studying a French economist,
Turgot, and his main work, Réflexions sur la formation et la
distribution des richesses.
Turgot's main point
might be summarised as all wealth begins with land – a common
assumption of the so-called physiocratic school of economy. The most
concrete signal for this is that agriculture is almost a necessary
requirement for human life. I am saying ”almost”, since human
beings have lived before the invention of agriculture, through
hunting and gathering. In Turgot's time the pre-historical human
condition was, of course, not known, but even Turgot admits that
cattle raising probably preceded the agricultural style of living.
Turgot begins from
an idealised condition, in which everyone has enough land to satisfy
his needs. He is quite aware that this is only a fiction, because
difference e.g. in the types of land and in the needs of different
persons would soon produce some noticeable differences. This fiction
is just meant to emphasise how even in such equal circumstances
difference of classes would soon arise.
Thus, Turgot notes
that even in such a fictional state farmers would have difficulties
in producing enough for their whole family. They would then need from
time to time to hire people's help for some purposes – for
instance, they might occasionally need someone to sew them new
clothes that they wouldn't have time to do themselves. The outcome
would be a division of populace to two classes: the producers tilling
the land and the artisans or labourers.
Somewhat
surprisingly, Turgot appears to say that the artisans do not truly
produce any new wealth to the system. In a sense this is quite right,
since artisans do not produce new raw materials, but in another sense
it is also an exaggeration. Surely, say, finely crafted shoes are
quite a different thing from materials it is made of (leather etc.),
and indeed, more useful to many people than these materials, which is
reflected in the price of the final product.
A further
development of the economical system involves the differentiation in
the amount of land producers own – some farmer might have more
children to inherit him, so his land will be divided into smaller
pieces, some people might use their economic or military power to
gather up more lands etc. The final result of this development,
according to Turgot, is that some people will have more farming land
than they can themselves tend to, which means they must hire (as
labourers) or force (as slaves) some people to till the land for him
or rent the land forward and just take a share of the products of the
land. In any case, this means that the class of land owners is
distinguished from the producers, who are now in as bad condition as
artisans, tilling the land just for their survival. Still, Turgot considers the producers more beneficial than artisans, since they bring about the real wealth.
A further
development in the economy is provided by property that could be
circulated, and hence, traded for other goods more freely than land –
a farmer can barter barrels of wine for grains etc. Now, if every
transaction would be completely independent of other transactions,
there would be no general rule for e.g. how many barrels of wine one
has to give for a certain portions of grain. Turgot insists that
transactions are not independent – if one is unhappy with the
prize, one can go and negotiate with another person. This possibility
should create suitably fixed prizes in terms of trading one good for
another. What Turgot doesn't consider is the possibility that the
markets are not in general completely fair (e.g. one person might
have access to a place, in which some commodity has a better prize
than in another) and therefore one side of the transaction might be
in disadvantage. Of course, this is all meant to be more of a
description of how the market works than an ethical decision about
its fairness.
The final change in
the economy happens when some special type of commodity – usually a
metal like gold or silver – has been chosen as a monetary unit,
according to which all calculations can be measured. Turgot states
that because money is changed into commodities, it must always be a
commodity itself, thus, no mere artificial currency can exist. A
somewhat closer to the truth, in light of later developments in
economy, would be to say that every currency, and indeed any unit of
trade, inevitably can become a commodity – something which can be
bought and sold and which has its own fluctuating value that can be
measured e.g. in comparison with other currencies.
The accumulation of
wealth makes it then possible that some people live just by their
money. In other words, a wealthy person with lot of money or other
liquid assets can use his riches to finance enterprises that will
bring him more profit. Using money to produce more money is according
to Turgot far more profitable for the economy than wasting it to
luxury, which by itself would just ruin the whole economy. Of course,
this is a bit of an exaggeration, since luxuries would have to be
bought somewhere, which would mean more circulation of wealth.
Behind Turgot's
dismissal of luxury lies perhaps then a more ethical point – the
circulation of wealth should be such that it produces most benefit to
the whole society. Thus, Turgot notes that growth in the number of
capitalists willing to finance leads to the prize of the loans (that
is, the interest paid for loans) falling so that more people have a
possibility to lend money. What Turgot seems to be missing is the
possibility that this apparent growth of economic prosperity might
lead to some people falling behind in the development and remaining
in a state of relative or even absolute poverty.
Even more crucial is
that while Turgot does talk of the importance of the land in forming
wealth, he doesn't consider the idea that the resources of the land
might be essentially limited, which would thus set finite bounds to
the development of economy. Reading between the line, one can see in
Turgot's claims a romantic vision of nature as an infinitely creative
source of life and resources, which would sustain economic growth to
all eternity, if just silly cultural restrictions would be lifted.
So much for Turgot,
next time I shall take a look at certain English chemist.
