‘It is easy to exaggerate the extent of Smith’s emancipation from physiocratic notions.’
(Meek, 1962b: 353)
Abstract
This paper discusses the use Adam Smith made in the Wealth of Nations (WN) of physiocratic concepts and ideas. Notwithstanding his critique of the ‘Agricultural system’, Smith endorsed many distinctively physiocratic ideas and in his analyses of value and distribution, of the reproduction and accumulation of capital, and of development and growth adopted (and adapted) several physiocratic concepts. In particular, the paper argues that Smith adopted the ‘material expenses’ approach of the Physiocrats and sought to use it side by side with his tentative proposal of a labour-based approach to the theory of value, and draws attention to inconsistencies and tensions which arise from the simultaneous presence of the two different approaches to the theory of value in the WN. By adopting physiocratic ideas on the relationship between corn prices and money wages, Smith is also seen to have provided the key elements for David Ricardo’s ‘corn ratio reasoning’ in his early theory of profits.
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Notes
There is also a long list of commentators who have sought to determine more precisely the physiocratic influences on Smith’s economics by comparing the contents of the WN with that of the Lectures on Jurisprudence (LJ), which Smith had delivered at the University of Glasgow in 1762–64, prior to his contact with the Physiocrats; see, for instance, Campbell and Skinner (1976: 22), Skinner ([1979] 1996: 138–41), Cartelier (2003: 409), and Aspromourgos (2009: 184–5).
Apart from a ten-day visit in February 1764, Smith spent some ten months in Paris, from December 1865 to October 1866, and during this time met several of the French “Economists”, including Quesnay, Mirabeau, and Turgot; see WN IV.ix.2 n1.
See Smith (Corr: 114, n1).
See Ross (1995: 214).
Smith’s acquaintance with Turgot’s Reflections, and his possible debts to it, have been extensively discussed by modern commentators; for a summary account of those debates see Groenewegen ([1968] 2002b).
The notion of ‘physical real cost’ was used by Piero Sraffa in his unpublished manuscripts. With this notion Sraffa referred to the ‘objectivist’ concept of cost which he had discerned in many preclassical and classical authors, from William Petty to the Physiocrats and beyond, and which, unlike Alfred Marshall’s concept of ‘real cost’, did not include subjectivist elements such as ‘disutility’, ‘abstinence’ or ‘waiting; see Gehrke and Kurz (2018) and Kurz (2023). The notion of a ‘material expenses’ approach, which essentially designates the same concept, was used with regard to the value theories of the Physiocrats and other preclassical authors by Meek ([1951b] 1962: 334, 352) and Vaggi (1987: 77–80).
This argument is based mainly on Vianello (2011), who showed that Ricardo’s argument can be traced back to his study of some passages in Smith’s WN.
On Smith’s distinction between fixed and circulating capital and his treatment of fixed capital see Kurz and Salvadori (2005: 495–7).
See Turgot (1770] 1971: 83–5). See also Meek ([1956] 1973: iv-vii) and Faccarello (2016: 75–8).
See Marx ([1861–63] 1975a: 369): ‘The view of Adam Smith and his followers that the accumulation of capital is due to personal stinting and saving and self-denial of the capitalists also originates from the view of the Physiocrats that profit (including interest) is merely revenue for the consumption of the capitalist.’
As Lauderdale pointed out, Smith’s commentary, ‘instead of a refutation, [appears] to be a confirmation of the doctrine of the economists; and even to carry along with it an avowal of the opinion, that manufacturing labour is not productive of an increase of wealth’ ([1804] 1819: 130–31).
Another route along which the labour theory of value came to be developed goes back to John Locke’s ideas on the origin of property rights.
As William Petyt, one of the authors quoted by Meek, put it: ‘Most materials of Manufacture are of small value whilst raw and unwrought, at least in Comparison of the Manufacture, since by Manufacture they may be made of five, ten or twenty times their first value, according to the Workmanship.’ (Petyt, 1689: 23–4) Petyt’s writings influenced also John Locke, who opened up another route leading to the labour theory of value; on Locke’s contribution, see Meek ([1956] 1973: 21–2).
The one author who already in the eighteenth century formulated a system of simultaneous equations and showed that it was possible to determine the exchange values from it was the French engineer and critic of the Physiocrats Achilles Nicolas Isnard in his Trait des richesses ([1781] 2005: 118–9). As has rightly been pointed out, Isnard’s contributions ‘offer a glimpse of how the “surplus approach” to value and distribution might have developed after Quesnay, without recourse to the labour theory of value’ (van den Berg 2005: 5). However, Isnard’s contribution remained unnoticed and therefore had no influence on the classical authors.
The material expenses approach of the Physiocrats is set out, for example, in Mercier de la Rivire’s L’ordre naturel et essentiel des sociétés politiques (1767), which was partly written by Quesnay and described by Smith as ‘the most distinct and best connected account’ of the physiocratic doctrine (WN IV.ix.38).
See Quesnay ([1757] 1962: 105).
That rents do not originate from nature, but rather from social institutions, and thus constitute a ‘social cost’ which must be incurred for political and legal reasons, was clearly spelt out by Turgot: ‘The Cultivator has need of the Proprietor only by virtue of the human conventions and the civil laws.’ ([1770] 1971: 16)
See Vaggi (1987: 86).
Somewhat confusingly, rent and taille were considered by the Physiocrats as both a cost element and as part of the revenue; see Vaggi (1987: 86–7).
The use of ‘labour’ instead of ‘wages’ here can be read as a sign of Smith’s conceptual confusion which emanated from his attempt at amalgamating the concepts of the two approaches to value theory. Smith’s uncertainty with regard to the proper use of terms also shows in chapter VII of the WN, “Of the Natural and Market Price of Commodities”, where he used, in a single paragraph, both ‘rent, wages, and profit’ and ‘rent, labour, and profit’ (WN I.vii.3, 8; emphases added).
A similar treatment can be found also in Ricardo’s Principles: In chapter 31, “On Machinery”, Ricardo argued that a country’s net revenue, and even its gross revenue, can increase and yet the demand for (human) labour be diminished, ‘and that is, when the labour of horses is substituted for that of man. If I employed one hundred men on my farm, and if I found that the food bestowed on fifty of those men, could be diverted to the support of horses, and afford me a greater return of raw produce, after allowing for the interest of the capital which the purchase of the horses would absorb, it would be advantageous to me to substitute the horses for the men, and I should accordingly do so’ (1951–73, I: 394).
John R. McCulloch, in his Supplemental Notes and Dissertations to Smith’s “Wealth of Nations”, advocated an even broader definition of “labour” than Smith himself: ‘Labour may properly be defined as to be any sort of action or operation, whether performed by man, the lower animals, machinery, or natural agents, that tends to bring about a desirable result.’ (McCulloch in Smith [1776] 1828: 75)
With this proposition Smith anticipated Say’s law of markets (see also WN I.vii.12, 16 and WN IV.i.12), which states that the problem of a deficiency of aggregate effective demand cannot arise with regard to the economy as a whole.
See Vianello (1999). For Marx’s discussion of Smith’s erroneous analysis of the reproduction and circulation of the social capital, see chap. 19 in vol. II of Capital ([1885] 1956: 364–93).
See also WN I.vi.17.
Following Smith’s lead, Ricardo in parts of his analysis also tended to base his argument on the same simplifying device; see Gehrke and Kurz (2006: 119).
See Ricardo’s criticism of Smith in his chapter “On Gross and Net Revenue” (1951–73, I: 348n). For a critical discussion of Ricardo’s chapter, see Gehrke (2012).
See Skinner ([1979] 1996: 141).
Marx, referring to these statements, observed: ‘Adam Smith is very copiously infected with the conceptions of the Physiocrats, and often whole strata run through his work which belong to the Physiocrats and are in complete contradiction with the views specifically advanced by him. This is so, for example, in the theory of rent, etc. … [in] these passages of his writings, which are not characteristic of himself, … he is a mere Physiocrat.’ ([1861–63] 1975a: 377)
On the following, see also Jeck (1994).
According to Smith, the policy measures proposed by mercantilist writers corrupted this ‘natural’ course of economic development.
On the following, see also Vianello (2011).
Smith then altered the passage in the second edition as a result of criticism from James Anderson (see WN IV.v.a.23, note 28).
See Smith (WN IV.v.a.15). For Smith’s exposition of the “food-ratio” argument, that is, of ascertaining the agricultural surplus in physical terms as the excess of the ‘quantity of food produced’ over the ‘quantity of food consumed’ by the agricultural worker, see the quotation from WN I.xi.b.2 in Sect. 3 above.
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Useful comments and suggestions from two anonymous reviewers and most helpful discussions with the editor are gratefully acknowledged. Some parts of the present paper were presented, as part of an earlier paper on “Physiocratic influences on British Classical Political Economy” (Gehrke, 2019), at an International Symposium on “Eighteenth Century French Political Economy” at Rikkyo University, Tokyo, on 23 November 2019. I am grateful for the comments and suggestions which I received from the participants. For a related paper that focuses on the transformation of the ‘material expenses’ approach see Gehrke (2024).
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Gehrke, C. Corn, Cattle, Land and Labour: Physiocratic Ideas in the Wealth of Nations. Homo Oecon 41, 67–90 (2024). https://doi.org/10.1007/s41412-024-00148-3
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DOI: https://doi.org/10.1007/s41412-024-00148-3