The Physiocrats Invented Capitalism

Julius Olavarria | November 18, 2023

François Quesnay

The Enlightenment, a period in history throughout the 17th and 18th centuries, saw incredible advancements in human capability, thought, and rationale. Society was not the only thing reinvented at the hands of the philosophers. New ways to handle the economy, especially government impacts, were reimagined by the physiocrats.

Adam Smith, François Quesnay, and Robert Turgot were all considered revolutionary economic enlightenment thinkers. Although at one point all of them were called Physiocrats (as the term spread from France to the rest of the world), they had unique ideas and economic theories. Adam Smith- through his revolutionary ideas in The Wealth of Nations, Quesnay- through his writings on the Chinese economy, and Turgot- through his writings on the trade guilds, the economies, politics, and societies across the globe were changed.

Their collective ideas eventually fell under one broad umbrella: Capitalism. A connection can be noticed between these thinkers and the first uses of real, laissez-faire style capitalism in the late 1800s. Here’s why. 

Adam Smith, a philosopher from Scotland, was one of the most important and influential Physiocrats from this group. His work in The Wealth of Nations served to understand how a nation amassed wealth. He concluded that the wealth gained from a nation comes from innovation, a division of labor, and competition. These are all capitalist ingredients centuries before capitalism erupted. Adam Smith and the physiocrats were geniuses- they noticed other philosophers advocating for freedom in society and applied it to the economy, creating modern capitalism as we know it today.

Adam Smith’s primary goal was to dismantle state-centered mercantilism. He wanted freedom, no government restriction, and prosperous companies outside of government control. He argued that not only would companies benefit, or in his case 18th century merchant guilds, but society would too: innovation would automatically occur between companies as competition increases. What they failed to understand was that companies, in an attempt to increase productivity and beat the competition, would brutalize workers.

The late 19th and early 20th centuries were marked by urbanization and capitalism, specifically seen in the United States and newly industrialized cities. Laissez-faire economics, a term theorized by Adam Smith and coined by Quesnay, was prevalent across the globe. Interestingly enough, the first Laissez-Faire system was seen in China. Quesnay, a French physiocrat, was known for his writings on the Chinese and admired the structure of the Chinese economy: he wondered if France could do the same thing. 

Quesnay was surrounded by physiocrats, he was one of the most influential of the group and was said to be the leader- with the help of his ‘team’ he manifested the popular economic ideas that the 19th and 20th centuries saw, which drove political changes. “Laissez-faire” was derived from the Chinese, literally meaning “hands-off. In other words, fewer restrictions and regulations on companies would be applied. An unintended consequence was dismal work conditions- workers found themselves working incredibly hard for little pay, oftentimes poor immigrants looking for freedom/escape in America found grueling factory work and starvation. This resulted from competition, and after about 20 years of Laissez Faire public policy had to change. More restrictions were set on companies and government interference drastically increased while workers’ rights and unions were born. This wouldn’t have happened without his thoughts. 

Moving on, Turgot’s commentary on trade guilds and the structure of France’s tax system accomplished different things than Smith and Quesnay. It is in the inherent nature of mercantilist trade guilds to hold on to their power and monopolize the industry. Guilds, groups of wealthy families and merchants, were around for centuries and only contributed to the oppressive peasant system/consolidation of wealth in Europe. Turgot hated the guilds because they got in the way of his physiocrat theory, despite his theory being capitalist in nature. Turgot never realized that his policies might actually create oppressive guilds (or companies) in the future, even if he advocated for the opposite. 

Turgot was a part of the physiocrats, he advocated for innovation and competition- capitalism- just as much as the others. Louis XIV appointed Turgot the controller of finances. Using his position of power, he stood up to the trade guilds, especially since they heavily excluded others from starting new businesses, which put forth his ideas. 

This ultimately contributed to more competition, more individuals in the field, and more innovation despite the resistance from the guilds. In the same ways, using capitalist ideas in practice, he set the standard for political change in the late 19th century and early 20th. Guilds, as previously mentioned, were more monopolistic- holding onto power, crushing startup businesses, and dominating the field. In a way, even if he advocated for facets that contributed to poor working conditions, he did quite the opposite in the future centuries: Turgot’s dismantlement of the monopolistic guilds provided a basis/groundwork for workers’ rights advocates and unions in the future. In a way, these guilds were like the 20th-century oppressive monopolies and could only be stopped by government intervention. 

Capitalism calls for innovation, prosperity, and freedom from government. Innovation, as it was theorized, would ultimately lead to prosperity for society- the workers, of course, did not agree. Monopolies are a byproduct of capitalism due to capitalism’s nature of private ownership without government control. Oppressive and negligent monopolies that only care about wealth come from capitalism, especially Laissez-Faire capitalism, which is why restriction and political change are necessary. These philosophers helped accomplish this thought. Little did they know monopolies, something that would likely disprove, would be prominent through their theories. Nevertheless, their thoughts shaped history. Capitalism is the most widely used economic system in the world, and it’s all thanks to them.