John Ramsay McCullogh: The principles of political economy: with a sketch of the rise and progress of the science (1825)

(1789-1864)

John Ramsay McCullogh follows the tradition of classic British economists, such as Adam Smith, Ricardo and Malthus. He is definitely not a very original thinker, but his work is a representative example of this current of thought and takes its ideas to a certain extreme. Good example is McCullogh’s opinion on labour as a source of wealth. This thought goes back to at least Adam Smith, but McCullogh upholds it in a very one-sided manner, explicitly denying that anything else could ever produce any wealth. In a famous example, he tries to show that passage of time as such does not produce any additional wealth. McCullogh asks the reader to think of a barrel of wine that its owner locks in cellar. Seemingly, McCullogh notes, the barrel appears to become more expensive just by itself, but actually, McCullogh insists, it is the act of placing the barrel in the cellar and waiting that has produced the additional wealth.

McCullogh’s example is rather unconvincing in itself - certainly the act of putting the wine in the cellar has the least to do with the chemical and biological changes in the wine that make it more valuable. A clear counterexample is provided by the generation of oil and diamonds. The starting point of the process is something relatively cheap - dead life forms and coal. These have become valuable just because they have lied underground for several generations, under the pressure of Earth’s crust, and no person has definitely buried them there.

What engages McCullogh most is the question how to increase the effectiveness of labour. Answer he provides are familiar from previous economists: guaranteeing property rights makes it possible to amass capital to different endeavours, which enables different persons and even different nations to specialise on their own type of industry. McCullogh's three main classes - workers, landlords and entrepreneurs - and their respective sources of income - wage, rent and profit - follow the ideas of previous economists, but feel a bit outdated nowadays, when landlords rarely exist and individual entrepreneurs have been replaced by global corporations.

McCullogh, like other economists of his time, is thus more than a bit blind to the influence of his own cultural context - this is somewhat paradoxical, since McCullogh begins his work with an account of the history of economy. His special blindspots - which he shares with other economists - are the questions of population growth and gluts. On the first issue, McCullogh follows Malthusian idea that increased wages will eventually lead to an increase of population and thus to a return of wages to the old level, when the amount of potential workers has grown. As we know from the state of Western Europe, this “eventual” link is no law of nature, since there the development of effective contraceptives and liberation of general mores have suppressed the population growth.

When it comes to gluts - that is, excess of supply in relation to demand - McCullogh is far more radical than either Malthus and Ricardo, who agreed that gluts were a real problem. McCullogh, on the other hand, simply states that gluts appear only in cases where markets are unnaturally regulated e.g. by monopolised fields of commerce. In a completely free market, on the contrary, gluts would be only temporary and would - again, eventually - vanish when capital was transferred to more lucrative fields of business and workers would find new type of employment. One might agree that this happens eventually, but it could still be that this transfer would take an inordinate amount of time, especially from the viewpoint of an individual worker. This is especially important question in our time, when many jobs require extensive, specialised training. Indeed, there might be whole generations full of people who have basically educated themselves to an outdated and obsolete profession.

In addition to the reliance on eventual change of things, McCullogh’s work, like that of Ricardo before him, suffers from emphasis on mass market products, like corn or wool, where one item is just like any other and easily reproducible. Indeed, McCullogh himself admits that there are items, like rare artworks, which create natural monopolies, since e.g. there is only one artwork of certain sort in existence and their supply cannot be augmented. Just like with Ricardo, we may well ask whether the modern economy contains more and more examples of industries concentrating on such rare goods.

By far the most interesting part of McCullogh’s work is the last chapter on consumption. His definition of consumption is rather problematic. While labour, he says, changes matter into a form useful for us, in consuming we at the same time take advantage of this usefulness and turn matter into a form in which it is not anymore useful for that purpose. This definition works well in case of food items, where eating something both benefits us and destroys what we eat. Still, it seems clear that this combination of using and destroying things is not necessary. Firstly, we may well lose usefulness of a thing without using it, for instance, when we break a household item. Secondly, there are a lot of things we can use without destroying them, such as a book which can be read many times over.

Despite the flaw in the definition, we can at least agree upon the general sentiment behind it: we use things, and while we use them, they tend to lose their cohesion. McCullogh notes that this process of using things does incite us to produce new things and thus increases the amount of labour. Hence, McCullogh concludes, consumption is not as such a bad thing, but can increase the wealth of a nation. Indeed, McCullogh goes even further. While earlier economists had considered service sector to be of secondary importance in comparison with industries, McCullogh sees no essential difference between them. Thus, he says, there’s no clear economic difference between farmer’s work of producing corn and cook’s work of preparing corn for a dinner. In fact, McCullogh quite radically suggests that even seemingly useless tasks, like building a house of cards, can be economically useful, if they incite people to work harder for the rest of time - an important concession for the importance of spare time.

Although McCullogh is thus positive about the power of consumption, he admits that in some cases consumption should be restricted. The ground for such a restriction, McCullogh insists, is formed by the limits of consumable resources. The main target of McCullogh’s point is frivolous government spending, but nowadays, instead of this laissez faire -reading, one might as well choose its unintended ecological meaning - resources form a strict limit for consumption, and human race cannot continue its economic growth unless it will take care that this growth remains sustainable and does not overstep the boundaries.

Thomas Robert Malthus: Principles of political economy (1820)

Although Malthus is mostly remembered from his seminal work on population growth, he was also interested of more extensive questions in economy. Like Ricardo, Malthus followed on the tradition of Adam Smith, and indeed, he engaged in dialogue with Ricardo, often criticising details of latter’s work.

An important point of contention between Ricardo and Malthus was the question of measure of value. Of course, they shared a lot of common conceptual ground in their notions of value. By value of thing both writers meant the so-called exchange value or value measured in relation to something. In other words, when thing A is exchanged for certain quantity of B, then the value of A could be said to be this quantity of B. Usually some goods - at the time, gold - is chosen as a general measuring stick for all other goods.

Now, it is common knowledge that exchange values of goods change, depending on how much demand there is for it and how much supply there is to satisfy this demand. Even the conventional measure of value or gold has a variable value. Ricardo had suggested that despite this variation, there is some natural measure for value of different goods, namely, the amount of labour required for their production. This value was natural, according to Ricardo, because if left unregulated, prices of good would tend to move toward this natural value.

In a sense, Malthus agrees with Ricardo. He admits that goods do have a natural price, which is partially defined by the labour used for their production. Yet, firstly, this natural price is said by Malthus to be determined by other things beyond labour, such as cost of manufactures required for the production - in other words, this natural price is just the lowest price, which would take care of the costs of the goods and especially keep the labourers and people selling goods fed. Secondly, Malthus notes that despite this naturalness, there is no guarantee that prices would universally tend to move toward this point. Indeed, one might well imagine that two items, with equal productions costs, would still never have the same price, if the demand for one would always higher than the demand for the other. Thus, Malthus is more willing to admit that e.g. differences in quality might affect prices of goods. Instead of Ricardo’s measure, Malthus then suggests his own: value of a good should be measured by the amount of labour one could hire with it. Malthus’ suggestion seems believable, when one considers what we usually mean by value - things are more valuable, if we could get more goods and services with the money we could get by selling them.

Just like Ricardo, Malthus still considers mostly agricultural products, which indeed were the most important factor in the economy of the time. Thus, following Ricardo’s example, Malthus is eager to study the relations of three different classes - the landlords, who live by renting their land to farming, labourers, who live by the wages they get from working in the farms, and capitalists, who live by the profits they get from farming. Now, Ricardo thought that the rents, the wages and the profits should be measured by the proportion all the classes receive from the total amount of the produce. Malthus noted quite correctly that at least in case of rents and wages this style of measurement makes no sense, since it assumes that landlords, labourers and capitalists are playing a zero-sum game, where the gain of one means loss for others. Thus, if the total amount of agricultural produce would rise, but the rents of the landlords would remain equal or even rise in lesser quantity, Ricardo’s theory would assume that landlord would have lost something, although he would get the same or even bigger quantity of the products as a rent. Malthus instead suggests, more naturally, that rents and wages should be measured simply by the quantity of the products landlords and labourers receive. The profits of capitalists, on the other hand, should be measured, according to Malthus, in relation to the original capital they have spent for getting the products.

With these measures in hand, Malthus goes on to discuss in what manner each class involved in agricultural production could optimise the value they get from their efforts. The case of landlords is simplest, since practically any permanently positive effect on agricultural produce eventually raises the rents. Thus, in complete opposition to Ricardo, who noted that in poor countries landlords get a larger share of agricultural produce, Malthus notes that in developed countries landlords still fare better, since they get more of that produce, although their proportional share of the whole might be lower. Similar considerations apply to optimising the profits of agricultural capitalist - the more she can produce with less costs, the better. The case of labourers is somewhat more complicated, since rise in production of food, says Malthus, tends to incite population growth, which in the long run lowers wages of labourers. Thus, following his population studies, Malthus suggests that general avoidance of early marriages - the only form of birth control Malthus allows - would be beneficial for all labourers, because it would keep the wages steady.

Like Ricardo, Malthus is careful to distinguish wealth or richness from value - a society with abundance of goods would be immensely rich and wealthy, but the goods would be of no value, since everyone had what they wanted. The more interesting question for Malthus concerns then the means for making a state wealthier. We can at once note some clear deficiencies in Malthusian notion of wealth. He defines wealth as the sum of all material goods, which could be used in exchange. This definition, as Malthus himself notes, at once precludes all immaterial goods, such as skills and cultural artifacts, from entering into account of wealth. Malthus himself notes the unfairness, which leads to giving no value to the work of teachers and artists, since their work does not directly lead to the production of material goods. Still, Malthus says, this restriction must be made for theoretical purposes, because it would be enormously difficult to quantify the immaterial goods. A more important point of criticism is that Malthusian theory gives no value to leisure, which is seen as a mere detriment for development of state. One might speculate that the overall happiness of a state would at some point not be helped by increasing the production of new goods, but by decreasing the amount of work.

Malthus suggests two principles for the progression of national wealth. Firstly, the quality of soil gives a natural limit to what can be produced - lands of certain quality just won’t give enough agricultural produce to make investing in them useful. Although Malthus is again speaking from the standpoint of mostly agricultural society, his point can be clearly extended to an industrial society: the efforts required for finding the necessary raw materials put an ultimate limit to production. Secondly, the interplay of demand and supply regulates the rate at which the potentials of the production can be actualised - if there’s no demand for certain products, capitalists do not have any incitement to sell them. With his regulating principle Malthus does away with an idea common at the time that any supply of goods would just create its own demand. On the contrary, Malthus notes, there might well be times with too many products with not enough buyers. While this state of affairs might at first seem good for the labourers, who could buy things cheaply, it would in time affect them adversely, because there would eventually be no incitement to hire workers for farms and factories, leading the state to a further depression. Thus, Malthus notes, while parsimonious lifestyle of citizens is sometimes good for the society, because it creates more capital that can be used for investments, it might also lead to such a state of too few buyers of goods.

Antoine Destutt de Tracy: Elements of ideology, parts 4 and 5. Treatise on will and its effects (1815)

The unfortunately final piece of Destutt de Tracy’s Elements of ideology seems like a patchwork or a combination of disparate parts. Firstly, Destutt de Tracy uses the occasion to introduce a supplementary topic that should have been included somewhere in the first three parts of his work, namely, probability. The aim of this supplement is merely to show that probability requires no independent science of its own, but instead, all sciences should contain a part which deals with uncertainties.

The topic of the book proper is volitional part of human consciousness. Just like in his study of the cognitive side of consciousness, Destutt de Tracy divides his topic into three different parts, yet, he now also begins with a general introduction for all of these parts, dealing with will in general. We have already seen that Destutt de Tracy regards will as a completely passive faculty - it is mere perception of what one finds preferable or what one desires. We have also noticed that Destutt de Tracy considers our self-conception to arise from this volitional perception - we identify these preferences as belonging to ourselves, whereas all hindrances against attaining the preferable seem contrary to ourselves. Despite this rather passive view of volition, Destutt de Tracy admits that there is something active in human nature, namely the muscular system, which serves as our means for fulfilling our desires.

Going somewhat further with the basic concepts, Destutt de Tracy introduces such familiar notions like richness, freedom, right and duty. Richness means for him simply owning things one finds preferable (one wonders how this definition could be used as a basis for actual measuring of one’s riches). Freedom, on the other hand, is for Destutt de Tracy merely the absence of any constraint for one’s actions (what later would be called negative freedom).

Even more peculiar is Destutt de Tracy’s idea that desires determine our rights. Simply put, he says that all basic rights come back to the fact that living entities should have the right to fulfill their desires - a somewhat rash statement, since surely then many rights of different people would clash with one another, like the desire of having some slave serve you would contradict the slave’s desire of walking freely. Similarly, all duties should be determined by our actual means of obtaining things (one might suppose that Destutt de Tracy thinks here that one is morally obligated to use all means to gain what one desires).

The first part of the general science of volition Destutt de Tracy calls economy, which he defines as a study of human actions. Evidently, he is not speaking of just individual actions, but of the actions produced by the society in general. Indeed, Destutt de Tracy indicates that group work is a necessary ingredient in human manner of doing things, since it gives certain advantages to everyone, such as the ability to let each person concentrate on one aspect of a certain work process.

Destutt de Tracy goes even so far as to suggest that society can be divided into three classes according to the parts of a general scheme for all work processes. That is, since all work processes require at most three types of people, a theoretician knowing the general laws governing world, applicationist knowing how to apply theories and a practical person performing the actual work, society should be divided into three parts: scientists, entrepreneurs and workers. In practice, Destutt de Tracy quickly incorporates scientists into the workers, or generally, hirelings of entrepreneurs, and he also introduces a third class of sterile owners, who get their money e.g. from rents and do not actually produce anything new.

Why are the renters then sterile? This statement just reflects what for Destutt de Tracy is the goal to be sought in economy, that is, the production of useful things. This seems quite a materialist dream, although obviously a lot might depend on what is meant to be useful. Unfortunately, Destutt de Tracy’s answer just avoids this issue - the utility of something is evaluated by the number of sacrifices one is willing to make to obtain it. We seem to be walking in circles here - we should do things that are valuable, but valuable are just those things we are willing to do most.

The more we get to the details of Destutt de Tracy’s economy, the more quaint it appears. He divides the work to be made into two different types - the one or industrial produces new things (Destutt de Tracy includes agriculture in this type), while the other or commercial moves things to where they are most needed. It is very notable that the service sector is altogether missing from Destutt de Tracy’s scheme, which just accords with his notion of where the true value in economy lies. Indeed, the only place where he speaks of service work is in connection with the sterile renters, who pay for other people to serve their needs. Since such a service does not produce any new goods, Destutt de Tracy condemns it as a mere luxury, which just consumes the wealth of the society.

It is not surprising that Destutt de Tracy thinks government resembles more the sterile property owners who merely consume without adding to the wealth of society. State in his eyes is just a necessary evil, and indeed, its only function appears to be just to protect its citizens from other states. The inevitable conclusion then is that the state budget should be restricted as much as possible and that the state should not meddle with the economy any more than it needs to. One can raise many obvious objections, the foremost being that there is no a priori reason why state couldn’t also be productive in the sense demanded by Destutt de Tracy; it is then a different question whether such a state-controlled production of goods is as effective as private production, but since he is not treating this as an empirical question, neither need we. Furthermore, we might well also ask whether state could not have other important functions, not involving production of goods, such as construction of infrastructure, education etc., which are handled by many modern states.

Despite the rather right-wing attitude toward state and his enthusiasm for the entrepreneurs, Destutt de Tracy does not forget the salaried workers. Although he does state that some inequality of wealth is almost inevitable, inequality is still unjust and an inherently wrong state of affairs. Despite this, he still denies that the poor would need any special economic policy. Instead, the general development of economy should help also the salaried workers, by giving them more work and cheaper goods.

What developments Destutt de Tracy then expects of the economy? His general attitude is anti-mercantilist in that he advocates for a completely free foreign trade, which in his opinion just serves to combine all parts of the globe, moves goods to where they are most needed and incites even internal trade. He is also somewhat Malthusian, because he thinks population shouldn’t increase unless the means of sustaining them also increase - unemployment does no good for workers. Despite these at the time modern attitudes, deeply conservative is his idea that valuable metals, gold and especially silver, are the only possible form of currency and that especially paper money just encourages swindling and causes disturbances in the economy. One might hear people proclaiming nowadays that we should return to gold standard, but Destutt de Tracy speaks for an even great leap backwards in history. He is again speaking especially for the workers, who apparently are best served by stable prices - this would be a controversial statement nowadays, when a low, but steady inflation is taken as the best state in economy.

Although Destutt de Tracy has emphasised more the means of action instead of its goals in his economy, he might have said something about the latter in the fifth part of his ideology, which would have covered morality, by which he meant the study of human emotions. Indeed, Destutt de Tracy himself suggested that the two books would have been complementary, regarding the same topic from different viewpoints, in a manner reminiscent of Adam Smith. Unfortunately, Destutt de Tracy managed to write only a small part of the beginning of morality, leaving his whole ideology unfinished.

What Destutt de Tracy did manage to complete was an introduction to the book, describing his view on the metaphysical underpinnings of our will in particular and our personality in general. He endorsed the idea of Cabanis that one’s physiology in large part determines what one is like and especially what one fancies and desires. Interestingly, Destutt de Tracy still in a sense upheld the Leibnizian pre-established harmony. Of course. his interpretation of it was rather original - Destutt de Tracy suggested that Leibniz had tried to express the notion that within human body happen some yet unobserved movements, which cause both our experience of wanting something and the corresponding perceivable movements of body attempting to achieve what is wanted. Indeed, if one just replaces Leibnizian soul with the far less ontologically loaded consciousness, this interpretation appears not that far-fetched.

When it comes to the actual emotions of a human being, Destutt de Tracy managed to just begin a chapter on love, which he called the most positive emotion possible. One might speculate that love might have offered him a similar basis for goal of human being as general sympathy did for some British moralists, but this is all a mere speculation. Even less to say we have of the planned sixth part of ideology, which would have completed the section on volitional part of human consciousness. We do know that this part would have dealt with the art of governing societies, but since we have already seen that Destutt de Tracy wanted to restrict the role of government, it would probably been quite a short work.

David Ricardo: On the Principles of Political Economy and Taxation (1817)

1772-1823

The main aim of David Ricardo’s work is to find the natural measure for evaluating different commodities in economy. Ricardo continues in the footsteps of Adam Smith, who had suggested that corn - or more extensively, nourishment - provided such a natural measure, in other words, that one could always determine the true value of a thing by checking how much food one could get with it. Yet, Ricardo pointed out, the value of food fluctuated as much as the value of any other commodity - during a year when fields produced more corn, its value would be considerably lower. If one wanted to use some commodity as a measuring stick for other commodities, one might as well use gold, the quantity of which didn’t change as radically as the quantity of corn. Still, even the value of gold could fluctuate somewhat, e.g. if new mines were found, so even gold was not the best possible answer for the desired criterion.

Ricardo’s answer was then that the true value of a thing was determined by the amount of human work required for producing that thing. For instance, if a machine could be used for reducing the need of manpower in producing corn, the value of corn would be lowered. At first sight this seems like a strange thing to say - surely the value of a thing would have something to do with how much demand a thing has. Ricardo’s answer appears to be twofold. Firstly, he insists that this effect of demand is in some manner built in to his model of value - work of a jeweler is qualitatively more difficult than work of a farmer. This solution seems a bit of a cop out, especially as Ricardo never develops the idea of qualitative differences in work, but in practice speaks only of things that can be easily mass produced, like shoes or corn. Indeed, one might suggest that a growing part of modern economy happens in a qualitatively higher level than mere simple production of commodities, because e.g. design of a thing may raise its value, although it wouldn’t require that much more work to make it.

Ricardo’s second answer is that he is speaking of the natural value of a thing, which may differ from the actual price a thing has in the market. Ricardo’s point is, first of all, based on the hypothesis that prices of commodities, if left to themselves, would inevitably tend to move towards their natural values. For instance, if it would become more difficult to produce corn, more workers would be required for producing the same amount of corn, thus, the person selling the corn would have to eventually raise the price of corn if he wanted to get some profit from his business.

An obvious objection to Ricardo’s suggestion is that the price of work or the wages of workers can also fluctuate. Suppose, for instance, that the population of a country would grow larger through reproduction or through immigration and that there would then be more potential workers than before. In a non-regulated system and with more competition for all jobs, the employers wouldn’t have to pay that much money to their employees, thus making it possible to for them to get more profits with the same products, although the amount of work required for doing something would have stayed same. Ricardo’s answer is simple. Surely once the wage costs of a manufactured good diminish, someone would come to the market and start selling it with smaller price. In time, other producers would be forced to change their prices, if they wanted to remain in the business of selling things. The price of things in general would be lowered and thus the workers would get the same amount of goods with their money, although their wages would have been seemingly lowered.

Ricardo’s explanation makes one suspect that in many cases the eventual behavior of a commodity cannot be so straightforwardly determined or that the so-called natural values might never be reached, except in very idealised conditions. Indeed, there is a clear moralistic tendency in Ricardo’s theory of natural values - government should leave the economy alone and we would soon be in those idealised conditions. One example of this tendency is the Malthusian strain in Ricardo’s ideas. If the wages of workers would be generally lowered, the worker population would diminish, because workers wouldn’t have enough money to provide for a big family. Diminishing population would then eventually then lead to a rise of the wages to their normal level, where a worker has just enough to sustain himself and a modest family. At least in Western world, this Malthusian link between the price of work and the amount of population has broken, because workers clearly have more than enough money for providing for their families and still the population growth has reached almost a standstill. The reason for this, as I pointed out when speaking of Malthus, is that the link between the satisfaction of basic sexual needs and the family size is no longer in effect, because of developments with contraceptives, changes in moral outlook of Western world and other things.

Although Ricardo’s theory is supposed to be true in all circumstances, it is hence evidently built on the context of his own time. One peculiarity is his theory of the rent of land. On some land, production of some good, say corn, is peculiarly easy, on others, it requires more effort. At first, only the lands easy to till are in use, but as the economy grows, even the less suitable lands will be used for farming. The result of this change is then that the landowners of the better lands will start to ask for a rent from the farmers. The worse and worse are the lands used for farming, the more and more grows the rent in the better lands. This whole story Ricardo makes up is evidently meant to apply to the English society, in which the landowners did not till their lands themselves, and indeed, in which the main use for land was farming. In a modern urban society, value of land is determined more by its environment than its use in production - one square piece near or within a buzzling city is far more in value than a good farmland far away from cities.

If Ricardo’s take on rent looks back on the last feudal vestiges in English society, his ideas about the use of machines show how uncertain he still was of the effects of the industrial revolution. In the original edition, Ricardo was certain that the use of machines could be nothing but beneficial for the workers as well the machine owners, because they could buy cheaper commodities. In a later edition, Ricardo corrected himself that this would be literally true, only if workers would still be able to find work somewhere, even if machines took care of production of commodities. He suggested that the best hope would be if the machine owners would start to live like medieval nobility and hire workers to do menial work for them. This suggestion is in one sense ahead of its time, since in the current Western world it is a quite distinct possibility that the number of workers in service sector might grow when the number of workers in industrial sector diminishes. In another sense, it is another sign of Ricardo’s times - Ricardo speaks of individuals as owners of machines, while in modern world, industries often belong to companies.

Ricardo’s individual-centred view on economy is glaringly obvious in his ideas about foreign trade. He states as a certain truth that capitalists rarely move their industry from one country to another, because they are accustomed to the habits and culture of one country. This may well be generally true of individual owners, but when it comes to large companies with no clear single owner, the case is rather different. Indeed, in the globalising world it is not at all uncommon that one company moves its production to a completely different continent, for instance, to avoid large wage expenses. Workers, on the other hand, are often in a situation where such a movement is practically impossible due to just mentioned cultural differences.

If Ricardo’s blindspot reveals an intimidating possibility of a world where global enterprises can take advantage of workers in one country and leave workers of another country completely destitute, one distinction he makes raises a more hopeful possibility. Ricardo distinguishes between value and richness - while value means the relation of commodity to work required in producing it, richness is for Ricardo the collection of all goods and commodities available to a certain nation. Now, he notes that there is no clear correlation between the two quantities. If a nation uses more workers to produce more commodities, the total value of commodities in a nation grows and at the same time the nation becomes richer. Then again, it is quite possible that nation becomes richer without any increase in value, if the commodities produced are made by machines. Indeed, one might say that the common human being is more interested of richness, which is a general indicator of how much goods people have in their use. One might even suppose that the society would become more ideal if it became richer through use of machines - provided that this increase of richness would make everyone richer, instead of filling up only some pockets. In fact, in such an ideal society all commodities would have quite a low value, because of ease in making things.

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

1727-1781

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.