The Birth of Modern Economics: Physiocracy and its Principles

Although discussions about production and distribution have a long history, economic science in its modern sense, as a separate discipline, is conventionally dated from the publication of The Wealth of Nations by Adam Smith in 1776.^[7] In it, he describes the discipline in these exact words:

Political economy, considered a branch of science of a statesman or legislator, proposes two distinct objects: first, to supply goods or income in abundance for the people, or more properly, to enable them to provide such a revenue or subsistence for themselves; and, second, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign.

Smith referred to the subject as "political economy," but that term was gradually replaced by "economics" (economics) after 1870.^[9]

Understanding Physiocracy

• Is the science of government social life, which discovers natural laws and indicates the economic behavior of government and classes, to increase wealth and reach prosperity? Social reformers.
• Theories represent a reaction to commercialism and certain features of the feudal Old Regime.
• Preach reforms by enlightened?
• Group centered on the figure of Quesnay.
• The other disciples who absorbed and accepted teachings faithfully (except Turgot).
• Acting as a group, were more than one school of science: they formed a unified group with respect to a creed; constituted, in fact, what is often called a sect.
• Militancy exercised by his ideas, considered as eccentric.

Main Economic Ideas of Physiocracy

General Aspects of the School

• Start from the perspective adopted by the Classical School: there is a national product and the task of the economy policy is to study the causes (origin or source) of the product, its global circulation, and its distribution among walks.
• Origins of a systematic study of economics as a specialized scientific method of analysis.
• Are considered by many authors as the founders of economic theory (as science) because they discovered the first laws of operation of the economy (economic conditions of reproduction).

Idea of Natural Order

• Companies incorporated under the laws of nature, the Physiocracy seeks harmony between human activities and these laws, making the discovery of these laws.
• Analogy of science society (Physiocracy) with Biological Sciences: cash and market system.

Role of the State

• Important: governments should remove barriers to free trade, provide infrastructure, roads, bridges, canals, and drains, which met the social physiology (it was fighting for the acceleration of the economic organism).
• Defense and security of life and property.
• Industry, commerce, and professions are useful, but sterile, the value of its production is only equal to wage costs and inputs, the preparation (creating works) as worth the work, which represents cost.
• Subsistence wage and salary of the entrepreneur or artisan (or artist) are all costs.
• Profit in industry and commerce is exceptional (restrictions on competition) or decreases in earnings skilled.

Liberal Orientation

• Free trade in grain should raise their prices, stimulate production, and increase the net.
• Champions of laissez-faire, laissez-passer = freedom from internal and free-trade can be considered the first economic doctrine identified with capitalism (although agricultural).
• The emphasis on capital (agricultural advances) and for his defense of economic liberalism.