keskiviikko 15. huhtikuuta 2015

Anne-Robert-Jacques Turgot: Reflections on the Formation and Distribution of Wealth (1774-1776)


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.