Physiocracy

1.15 France and physiocracy: François Quesnay

An important classical school developed in France around the middle of the 18th century, known by the name of physiocracy. The term, which derives from the union of the Greek words physis (nature) and kratos (power), was coined to emphasize the basic thesis of this school of thought; it assigned productive power to nature, or to the fertility of the land, which through agriculture created greater wealth than that expended to produce it. The most representative person of this school of thought was François Quesnay, the court physician of Louis XV. He developed the first graphical representation of an economic circuit, comparing its dynamics to the flow of blood in the human body.

In particular, Quesnay associated the circulation of blood with the flows of products and money between farmers, landowners, merchants, and craftsmen. This thesis, first described in the Encyclopédie of Diderot and d’Alembert, was later perfected when the Tableau économique was published in 1758; in that work Quesnay laid out a systematic representation of a circular economic process of production and distribution that was accurate enough overall to consider it the first economic model. Despite the Tableau économique being a very elementary representation of an actual country's economy, physiocracy can be considered the first economic school (see Fig. 1.1) that attempted to define a true theory – an all-encompassing, abstract vision – of the economy.

Fig. 1.1. The physiocratic model.

The logic of the Tableau was in fact based on simple but quite convincing ideas. The production process feeds itself through a circular, continuous flow of production and consumption that involves three social categories:

agricultural producers (the productive class). By their labor they created wealth (that is why they were called “productive”), which was determined by the portion of the crop that exceeded what was necessary to reseed to begin a new production cycle and to sustain themselves and their families; that portion was called the produit net, the net product or surplus. They sold this product to the other two classes and used the money received to acquire other means of subsistence, such as bread, and other means of production, such as tools;

craftsmen (the sterile class). They did not create a surplus, rather, they worked the raw materials purchased from the productive class and transformed them into tools and manufactured goods to sell to the productive class and the landowners. They too, like the farmers, used the proceeds of the sales of their products to support themselves and to continue production and trade;

landowners (the unproductive class). They neither worked nor produced anything; their incomes were represented by land rents, or compensation for the use of the land, that they collected from the farmers that worked it. In any case, landowners played an important role in an economy because they spent the money received from rents to purchase food from the farmers and goods from the merchants. In this manner the landowner class played a fundamental “redistribution” role of the wealth produced by the entire society.

Through the model represented in the Tableau, Quesnay brought to light that there are real flows (the circulation of goods) and financial flows (the circulation of money): flows of real goods only come from the land, and economic growth is possible only if the agricultural product obtained is greater than that necessary to reconstruct the means of production and ensure the subsistence of the populace. The excess product, or surplus, made it possible to incrementally increase the use of factors of production so as to obtain an even greater production in the future. Since land alone produced wealth (that is, by sowing a grain of wheat, 100 could be obtained in the harvest), the physiocrats posited land as the basis of the wealth of a nation.

Thus in difference with mercantilists, physiocrats were liberals; their motto was laissez faire, which later became so famous in the history of economic thought. It seems that the expression laissez faire was stated for the first time by the French merchant Legendre in response to a question by Colbert, Louis XIV's finance minister, about what could be done for the country's industry: Colbert asked“Que faut-il faire pour vous aider?” “Nous laisser faire,”¹ Legendre responded.

That same system of taxation also had the merit of incentivizing the modernization of agriculture. To recover the money spent for taxes, landowners (who were primarily aristocrats) had reason to devise new technologies that, by increasing the net product of the harvest, would consequently increase their revenue.

Furthermore, the physiocrats were the first to consider wealth as a variable flow rather than as a stock of goods. What does that mean? In difference with the mercantilists who, as we have seen, measured the wealth of a country on the basis of the gold and precious metals it possessed, the physiocrats held that a country's wealth should be measured by the income (the produit net) an economic system was able to produce each year.

This distinction between stocks and flow remains basic to economics. Even today the wealth of a country is not measured by stocks – that is, on the basis of the gold held in bank vaults, or by the quantity of raw materials possessed or other material goods – but rather on the basis of its gross domestic product, or the quantity of goods and services a given country can produce in a year. GDP can be considered the heir of the physiocrats' original produit net, which as we saw measured the surplus a country produces from year to year. Despite the fact that the Tableau économique was a very elementary representation of a country's real economy, physiocracy remains the first economic school that attempted to define a true theory, or an all-encompassing abstract vision, of the economy.

3 The Enlightenment Science of Political Economy

In the mid-eighteenth century a ‘new science of political economy’ was created, based upon a conception of the ‘natural order’ of society in which agricultural activity was the unique source of a ‘net product.’ The systematic analysis of production and circulation that was developed by the so-called ‘Physiocrats’ between 1760 and 1780 owed much to contemporary enlightenment rationalism, but it was also prompted by the growing problems of the French economy, and the increasingly parlous nature of the state finances.

Physiocratic political economy identified the natural foundations of economic activity, and at the same time implied that proper management of the economy required that the ruler not ‘govern too much,’ that excessive interference would impede the formation of wealth. The source of wealth was agriculture, whose net product circulated through the various classes of society; the greater this net product, the stronger the circulation and hence the greater the wealth. Improvements required investment, which could only take place if the net produce was not in the course of its circulation diverted into unproductive ends, such as the production of luxury goods for landed proprietors. Special taxes and duties were impediments to the free circulation of goods; and since all taxes were ultimately funded by the net product, all state revenue should be drawn directly from the sole source of this net product, agriculture.

Quesnay illustrated his ideas with a circulatory diagram, the Tableau Économique (1758–9), depicting the flow of net product from its agricultural source, through the hands of the landlords, thence to the ‘sterile class’ of manufacturers, and then, through the agricultural purchases this last group made, back again to the source. This clear diagrammatic representation of three economic classes and the flows of goods and payments between them is now seen as the original conceptualization of circular flow in an economy, but the originality of this drew little contemporary attention. Criticism of the Physiocratic system isolated two central tenets: the proposition that non agricultural employment was unproductive, and that a single tax upon agriculture was viable, practically or intellectually. The most prominent criticism of this system can be found in Smith's Wealth of Nations.

2.1 Shared roots of biophysical and ecological economics

BPE and EE emerged together from the same roots and at one point could be considered one field. They are rooted in the diverse disciplines, life and times of a number of quite varied social and natural scientists and philosophers. The evolution of BPE as anything like a formal discipline begins in the 18th century with the physiocrats' focus on the land as the source of wealth, and the discovery of the laws of thermodynamics in the 19th century that helped to reconcile biology and physics. It got a large boost with the economic and oil crises of the 20th century, and continues to focus on transitioning to less carbon intensive socio-economic systems (Cleveland, 1987, 1999; Czech, 2013; Rees, 2016).

Beginning with the transition from mercantilism to classical economics, a French school of economics called physiocracy or ‘rule by nature’ briefly flourished. Quesnay (1758), Mirabeau (1763), and Dupont de Nemours (1767) developed the Tableau Economique (later adopted in neoclassical economics for general equilibrium and multisectoral input-output systems (Leontief, 1941; Meek, 1963)), and the conceptualization that the wealth of nations came directly from the surplus of the land. They theorized that the economy was driven by a Natural Law, composed of physical and moral laws, that transcended human free will (Quesnay, 1765). Adam Smith (1776) himself stated that “…with all its imperfections, [the Physiocratic system] is perhaps the nearest approximation to the truth that has yet been published upon the subject of political economy, and is upon that account well worth the consideration of every [human] who wishes to examine with attention the principles of that very important science.”

The physiocrats' natural philosophy could not be developed further until the laws of thermodynamics and the meaning of energy, more generally, were discovered in the 19th century. Scientific curiosity led 28-year-old Sadi Carnot (1824) to stumble upon thermodynamics when he encountered an efficiency limit that steam engines could not exceed. His work on heat and energy transformations was an imperative for the bourgeoning industrial economy, and laid the foundation for Rudolf Clausius (1851, 1867) who, with the help of Lord Kelvin, formulated the first law of thermodynamics (which states that the total quantity of energy is conserved), and to develop the concept of entropy which allowed him to formalize the second law of thermodynamics (which states that the total quality of energy is not conserved).

Building on this thermodynamic foundation, the 20th century saw an insurrection of biophysical thought led by creative thinkers in the natural and social sciences who had the audacity to get out of their disciplinary boxes to question conventional thinking. The mathematical biologist Alfred Lotka (1922) described evolution as a race between energy transformers whose existence relied on capturing available energy in the most efficient way possible for the preservation of the species. In Elements of Physical Biology, Lotka (1925), introduces the term ‘biophysics’ (later adopted in BPE), and the theories he lays out there (including “maximum power”) would become instrumental in the development of ecosystem science and energetics that system ecologists would apply decades later to natural and social systems.

Frederick Soddy, a Nobel laureate in chemistry, theorized that wealth creation was ultimately biophysical in nature, and, thus, “the principles and ethics of all human conventions must not run counter to those of thermodynamics” (Soddy 1922, p.9). Consequently, this led Soddy (1926, 1933) to publish Wealth, Virtual Wealth and Debt, where he concluded that the Achilles heel of economics was its disregard for the thermodynamics of real wealth. Instead the financial sector relies on mathematical laws (e.g. compound interest) to create ‘virtual’ wealth derived from debt that lacks a physical dimension. Furthermore, Soddy realized the ‘flamboyant’ pre-depression era of the 1920s was made possible by an energy transition that replaced humans' reliance on “energy revenue” (solar energy) with high concentrations of “energy capital” (fossil fuels), which could not last forever (for more on Soddy's economic thought see Daly, 1986).

Another prominent foundation of biophysical thinking is the work of Leslie A. White, an unconventional anthropologist who believed that the evolution of human culture was inextricably linked to energy. Writing during WWII, White (1943) described civilization as a form or organization of energy, and believed that culture, being a kind of behavior, could be treated as a manifestation of energy use. This led White to propose the law of cultural evolution (White's law) stating that “culture develops when the amount of energy harnessed by man per capita per year is increased; or as the efficiency of the technological means of putting this energy to work is increased; or, as both factors are simultaneously increased” (1943, p. 338). White (1949, 1959) believed that culture was composed of three subsystems (technological, sociological and ideological), and of these the technological system played the primary role as it allowed humans to harness energy and adapt to different environments.

Cottrell (1955, 1972), a railroad man turned sociologist, was also interested in the relationship between energy and human systems. Cottrell's (1955) approach in Energy and Society was both descriptive and comprehensive in explaining the processes that humans embarked on to exploit the energy available in nature. Cottrell theorized that energy quality and energy surplus were important factors as both influenced how much work could be done by socio-economic systems through subsidizing the productivity of labor and the discovery and development of more energy. Cottrell (1955) concluded that societies preferred energy resources and technologies that would generate the most energy surplus, and that the economic development depended on the continuous flow of energy surplus.

Next in line is Hubbert (1949), a geologist who immersed himself in the collection of empirical data for the biophysical analysis of mostly nonrenewable energy. He developed the pioneering ‘Hubbert Curves’ predicting the future availability of fossil fuels (e.g. 1971, 1980). Hubbert (1956) initiated the discussion on peak oil by forecasting a peak of domestic oil production for the lower-48 states in 1970. While a peak did in fact occur in 1970, and production dropped essentially every year until 2007, this oil production was surpassed in 2018 due to new technologies such as hydro-fracking that can exploit diffuse petroleum deposits. Fracked oil too inevitably will encounter a production peak (Hughes, 2013; Heinberg, 2014). Hubbert's (1972, 1974) and Eugene Ayres' (1949, 1956) work added empirical biophysical analysis that showed clearly the ephemeral nature of the age of fossil energy, and how its discovery, production, consumption and eventual depletion were too essential for economics to continue to ignore.

These biophysical critiques of economic growth came to a head during the birth of the U.S. environmental movement of the 1960s and early 1970s amidst growing concerns about the inability of neoclassical economics to take seriously its biophysical embeddedness (Boulding, 1966; Daly, 1968; Ayres and Kneese, 1969). Other important publications of that time included high profile publications on population growth (Ehrlich, 1968; Ehrlich and Holdren, 1971) and limits to growth (Meadows et al., 1972). The oil and economic crises of the 1970s and the rise of nuclear energy led a new wave of natural and social scientists to advance theories about the biophysical foundation of the economy that they thought were necessary to address environmental problems (e.g. Odum, 1971; Pimentel et al., 1973; Cook, 1976; Ayres, 1978). These years proved foundational to the development of ecological economics as a transdisciplinary alternative to the economic sub-disciplines of natural resource and environmental economics (Erickson, 1999), and were an exciting supplement to the graduate training (under Howard Odum) of the second author.

3.2 The End of the Guild System

A hundred years later, the opinion of guilds held by political and intellectual elites had changed completely. During the second half of the eighteenth century, an antagonistic discourse emerged. Mainstream economic and political thought—expressed in the fields of political economy, physiocracy, or in Enlightenment thought in general—came to regard guilds as obsolete relics of the past that sought to retard or prevent economic development. Proponents of this approach called for complete freedom of trades and the abolition of guilds. Conclusions diametrically opposed to these were drawn by conservative thinkers who saw guilds as the embodiment of a corporative ideal and as a means of combating the assumed decay of authority and order.

When the leading physiocrat and Enlightenment thinker Turgot served briefly (1774–76) as French prime minister, he issued a decree in 1776 completely abolishing all guild privileges as well as expressly forbidding ‘all masters, journeymen, workers, and apprentices (…) to form any association or assembly among themselves (…), (Sewell 1980, p. 73). Despite the fact these measures were repealed only a few months after Turgot's fall from power, they nevertheless initiated the process of the elimination of guilds from Europe over the course of the next 100 years. Revolutionary France took a radical step as early as 1791 and banned guilds along with all other labor organizations. England's Combination Acts of 1799/1800 also mandated the ‘prohibition of all combinations’—those of masters as well as of journeymen (Chase 2000, p. 84). Most Central European states oscillated between anti-guild and pro-guild principles. They indeed forbade the organization of artisanal workers, but permitted the guilds—as organizations of masters—to remain in existence. It was not until the 1860s that the guilds were dissolved once and for all in the German states and in the Habsburg Monarchy. This process reflected the guilds’ loss of their social function. In most countries, dissolving the guilds met no opposition, but it was precisely in Central Europe that guilds remained alive as the object of the projections engendered by a corporative social ideal and conservative nostalgia.

2 What is the biophysical economy?

From a biophysical perspective, the history of human civilization has been marked by the pursuit of energy, energy exploiting technologies, and the economic surpluses that they allow accompanied by the energy transformations that have enabled the development of our complex socio-economic systems. Earlier economic theories, before the “marginal revolution” of the 1880s, often had a biophysical basis, as do a growing number of more modern theories. The latter have argued that conventional economics has many flaws, including that the modern theory of markets, based on mathematical models, methodological individualism, and equilibrium analysis, ignores the main drivers of socio-economic development while making other assumptions that do not reflect reality. For example, Georgescu-Roegen (1979) stressed that mathematics is a tautological system, and thus incapable of capturing the evolutionary qualitative changes that characterize socio-economic development. Daly et al. (1994) stress that we are not atomistic individuals motivated by self-interest, but rather persons-in-community whose very identity is constituted by relations to others. Gowdy and Erickson (2005) argue about the absurdity of replacing realism with the formalism of an equilibrium theory that assumes individualism, rationality, perfect information and that all agents are price-taking economic actors. In addition to these critiques of conventional economic theory, Polanyi et al. (1957) provided a useful biophysical definition of economics: “The substantive meaning of economics derives from [humans] dependence for [their] living upon nature and [their] fellows. It refers to the interchange with [their] natural and social environment, insofar as this results in supplying [them] with the means of material want satisfaction” (p. 243). In this section, we unpack this dependence of economies on the material world by first reviewing the intellectual foundations of a biophysical approach to the economy, including the formative years of ecological economics and the current renaissance in BPE.

2 Back to the Roots

The scientific analysis of the physical conditions of our earth has already a history of many centuries, as is witnessed by the body of knowledge collected in such disciplines as biology, physical geography, archaeology and chemistry. The social sciences were latecomers in studying issues of environmental quality and nature. Of course, there are early examples of social science research on environmental and resource issues, for instance, by nineteenth-century scientists like Malthus and Marx. But it lasted until the 1960s and 1970s when the urgency of environmental degradation and resource depletion had become so widely recognized that various social science disciplines started to develop a pathway for environmental research. This does not mean that in some disciplines attention had never been given to resource and environment issues. On the contrary, in economics we observe a long-standing interest in resource scarcity, in relation to agricultural land use and mineral use. The Physiocrat thinking in economics even advocated that nature—in particular, land and water—were the real sources of economic wealth. But this early interest in resource use was mainly instigated by the (positive) productive contribution of physical resources to economic activity. Only a few economists in the first part of the twentieth century recognized the ‘unpriced scarcity’ nature of the environment and of many resources (notably Pigou). Marshall introduced the concept of ‘externalities,’ which meant that the social value of various goods and services, including nature and the environment, is not or is insufficiently reflected in market prices, so that a socially undesirable use of these goods and services will follow. This may be the result of myopic behavior of selfish people, the public good nature of various resources, the lack of control by property rights or proper regulations.

The real interest in environmental issues started essentially in the 1970s when the growing recognition of a worldwide environmental decay and of severe resource depletion (in combination with a population explosion) received an unexpected but welcome support in the oil crisis. This sudden event was complemented by the First Report to the Club of Rome (‘The Limits to Growth’), which was based on a scenario analysis with a systems dynamics model of the World. Although the scientific contents of the latter study left much to be desired—as a result of conservative information on resource availability and insufficient incorporation of negative behavioral and technological feedback mechanisms—it created a shock effect among social scientists. This gave rise to an intensive debate between growth optimists and pessimists (Daly and Townsend 1993).

This also marked the beginning of the social science interest in environmental sciences. Economists constructed abstract models of economic growth and resource use (Dasgupta and Heal 1979) and developed a theory of environmental policy for correcting environmental externalities (Baumol and Oates 1988). Economists and psychologists began to investigate how people value environmental change, environmental policy and ecosystem management, using stated preference and revealed preference methods (Hanley and Spash 1993). Demographers started to investigate the relationship between resource scarcity, population growth and migration. Decision theorists tried to develop new tools for policy-making that were more tuned to the often qualitative and unpriced nature of environmental goods (such as multicriteria and multi-objective decision tools). Many disciplines worked together in integrated modeling and assessment, addressing both ecosystem and global scales (climate). Finally, statisticians became involved in the formidable task of developing new statistical data that would map out and monitor energy use, environmental deterioration and the like. So, in some 25 years time there has been an explosive interest among social scientist in environment and resource issues.

It should be noted that there are many ways for a simultaneous analytical treatment of economics and environment. Since the 1960s, a great many attempts has been made to link economics to the ecology (Costanza et al. 1997). An important contribution began simply with a reflection on the principles of the materials balance for resources (extracted or collected, transformed, consumed and emitted) and on the need to take account of an economic viewpoint of such processes (Ayres et al. 1999). Several attempts have also been made to build economic and social accounting systems that could incorporate the measurement of economic welfare and performance together with the measurement of environmental indicators and performances. The integration of economics with ecology has also been approached from the viewpoint of land-use—where economic and ecological processes have the most disruptive effects—and of urban environments. In addition, the interaction between economics and ecology has next been dealt with for situations with global risks and uncertainties.

In the past decade, one can observe an avalanche of publications on environmental issues, not only in popular journals, but also in academic publication channels (journals, books). Most of these publications demonstrate clearly the multidisciplinary nature of environmental sciences, which caused researchers from various disciplines to cooperate, with more or less success. In particular, the field of ‘ecological economics’ (and its journal with the same title) has shown the relevance of multidisciplinary thinking in environmental and resource economics.

The Interplay of Theory and Measurement

Economics as a discipline is the outcome of more than 400 years of collective effort to explain why economic agents behave as they do, and in what circumstances. During this time, economic concepts have progressively sharpened, but in certain general respects the issues addressed even in the early years are still familiar to the modern economist.

Macroeconomics, the study of the behavior of groups of economic agents, began as an attempt to explain economic growth and industrial development as a consequence of what is today called international trade. As early as the second half of the 16th century, Jean Bodin in France and John Hales in England produced treatises on money and economic development that addressed then-topical issues such as inflation and the effect of the agricultural revolution of that time. With the increasing power of central governments of nation states, the growth of trade during the next 100 years and its promotion, regulation, and taxation increasingly became a matter of policy, leading to the first attempts by writers such as Josiah Child and Thomas Mun during the 17th century to explain its determinants and effects. Of course, these centuries were also the period of the discovery and colonization of the Americas, which additionally helps to explain both the trade expansion and the growing degree of general awareness of its role in commercial life.

Trade was an obvious source of wealth for the individual and the nation, but so was the increased production of goods and services. William Petty, who lived in the second half of the 17th century, may to be regarded as one of the founders of political economy, today called economics, but the important element of his contribution is not only his attempt to interrelate the concepts of money, interest, taxation, and the value of land and labor as productive forces, but also his contributions to the foundation of statistics, particularly economic statistics. The most novel aspect of his argument was to bring empirical economic measurements to bear. He determined, as he said in the preface to his 1690 book Political Arithmetick, to “express [himself] in terms of number, weight or measure; to use only arguments of sense, and to consider only such causes, as have visible foundations in nature.” In France in the middle of the next century, this theme was taken up by Quesney and the physiocrats who also stressed production but focused on agriculture as the principal source of a nation's wealth. The important methodological similarity was the attempt, in the form of Quesney's Tableau Economique, to explain empirically an economy's characteristics, using economic measurements to estimate the relationships. Subsequently, John Sinclair in Great Britain, the first to use the word “statistics,” and Charles Alexander de Colonne in France were among those who attempted during the last 20 years of the 18th century to produce detailed compilations of their respective governments' accounts, as well as quantitative statements of economic and social conditions.

The 19th century, in contrast, became more conceptual in approach, following Adam Smith's synthesizing 1776 inquiry into the cause of the wealth of nations, which he famously cast in terms of the beneficial outcome of the selfish actions of individual economic agents. At the start of the century, Robert Mathus struck a discordant note, asserting that in as much as food production grows arithmetically but population geometrically, famine and want are the inevitable lot of mankind. Less well known are his writings on economic rent and related price concepts. The focus of such 19th century economists as Mathus, Mill and Ricardo, and even Marx was the more detailed conceptual explanation of microeconomic phenomena, culminating in the work of Bohm-Bawerk, Jevons, Marshall, Menger, and Walras at the end of the century. By then, production and cost were joined to the concept of marginal utility, leading to an explanation of supply and demand as the joint determinants of prices. Speaking in 1907, Marshall (pp. 7–8) proclaimed a “general agreement as to the characters and directions of the changes which various economic forces tend to produce,” but recognized that “much less progress has indeed been made towards the quantitative determination of the relative strength of different economic forces. That higher and more difficult task must wait upon the slow growth of thorough realistic statistics.” In the 19th century, there were attempts to collect statistics on such things as earnings and hours worked, and there were a few methodological innovations, such as Marshall's chain index formula, that are relevant even today. But this work proceeded for the most part as isolated, individual efforts, even if often as the result of governmentally established inquiries and commissions.

The 20th century opened quietly, as Marshall's words indicated, but a shock to economic analysis soon came in the form of the first of two world wars. The years 1914–1918 marked a watershed. The sudden need to mobilize entire societies to support the war effort meant that it immediately became necessary to understand and, ideally, stimulate and control actual economic performance. In the United States, for example, entities such as the War Industries Board were established and, in this case, led to the construction by Day, Stewart, and others of the first reasonably extensive set of single industry production and price indices. But this work proceeded slowly. The fact that the major industrial countries had blundered into a conflict beyond previous imagination meant that few prior preparations had been made. Consequently, only after the war did statistical reports begin to appear in any significant numbers. Even then, immediately afterward, the war was at first seen as a temporary aberration. However, the early postwar years produced widespread unemployment, hyperinflation in Germany, and then, following a boom in the second half of the 1920s, a pervasive depression in the 1930s. This accumulation of circumstances progressively established the general recognition of needs, even if no immediate solutions were forthcoming.

1 Introduction

For Joan Robinson (1978; CEP, in reprinted Vol. 5, 1979, p. 210), ‘the expression post-Keynesian…[applied] to an economic theory or method of analysis which takes account of the difference between the future and the past’: a helpful point from which to start but it must be remembered that the approaches to political economy reflecting Post-Keynesian thought are there for historical reasons and because of logical associations. Post-Keynesianism is a broad church. Overlaps at each end of a long spectrum of views are marginal, reflecting little more than hostility towards mainstream neoclassical economics and methodology, and conventional forms of Keynesian economics as opposed to the economics of Keynes. Some Post-Keynesians attempt to synthesize the principal strands. Others regard this as misguided. Post-Keynesianism should use a situation—and issue-specific method, a ‘horses for courses’ approach, itself an all-embracing structure at the methodological level.

In this essay historical origins are discussed first; it then deals with approaches to fundamentals issues political economists have tackled since the Physiocrats and Adam Smith theories of value, distribution, price-setting, accumulation, growth and the cycle, and the role of money and financial intermediaries, especially whether money is endogenous or exogenous. Post-Keynesian thought belongs to the tradition that the raison d'être of economics is its bearing on policy. Stress is put on the role of institutions in determining economic and political processes, the political philosophies of Post-Keynesians and the policies following from their theories.

All these issues, the methodologies implied in them, the particular ‘vision’ of the economy associated with each strand, are intertwined. This article concentrates on origins, pioneers, and issues. For a full cast list see, for example, Eichner and Kregel (1975), Hamouda and Harcourt 1988; reprinted in Sardoni 1992, Arestis 1992, Lavoie 1992.

4 Emancipation, Reform and Utopia

In its most essential and creative moments, each innovative choice of the Enlightenment was preceded by an ethical reflection which cannot be mechanically reduced to an individual reckoning of pleasures and sorrows. The utilitarian moral itself had imagined with Bernard de Mandeville that private vice could become public virtue; but in the middle of the eighteenth century it was perceived more as a tension to ensure the maximum happiness to the largest possible number of men. From this point of view the analysis of Montesquieu's works, of the ‘economists,’ of Pietro Verri, Beccaria, and Gaetano Filangieri are important because of the strong relation they establish with a new ethical project. The Scottish Enlightenment also starts from morals to discover economy and sociology. In fact one of the concepts most charged with future, that of ‘civil religion’ theorized by Rousseau in his Contrat social, was based on a profound thought of natural law (above all through Jean Barbeyrac) which had tried to set the field of man's rights and duties free from the traditional links of Patristics and Scholasticism.

Rousseau and Mably had transformed this inheritance and founded a new system of rights and duties of the citizen. The state was taking upon itself new tasks in the fields of instruction, cultural control and assistance, thus widening its public dimension and secular action; as a consequence religious choice would tend to become a private question, involving the intimate and inviolable sphere. The most significant lesson of the Enlightenment was not so much a lay morality opposed to the religious one, as the possible dialog on the field of citizenship between different kinds of ethic: a difficult project, continuously interrupted, which modernity has to tackle all the time.

Also from the point of view of political models the Enlightenment does not show a unified front, but a series of possible choices, from enlightened absolutism to the return of a republican culture, to the bureaucratic centralization of the ‘well-ordered police state,’ to constitutionalism, to debates on representation, to projects of direct democracy. Each of these terms in fact can be used to define very different experiences, unless there is the intervention of a contextual historical event. There is a sharp distinction, for example, between the forced modernization of Peter the Great, which is an example of reformism to the point that it attracted Voltaire's attention, and the strategies of ‘enlightened’ princes like Frederick II, Joseph II, Peter Leopold, and even Catherine the Great.

In the same way, with regard to republican thought, one should not confuse the patrician models of the republics which survived the success of absolute power (Holland, Venice, and Genoa), or the mannered republicanism one learnt by reading the classics, with the new republican tensions which arose as a consequence of the claims for freedom of the Poles, the Corsicans, the Genevans and above all the American colonies. But enlightened absolutism itself attracts or repels enlightened thinkers because of two equal possibilities. The first is the use of centralization in order to carry our reforming politics, where the accent was not so much on strength, however necessary to win resistance, as on the involvement in the project of new fields: law, politics, economy, religion, culture, together with the elimination of particularisms and unjust social relations. This implied the other necessity, that of transforming the model into constitutional forms. The process of emancipation, but also of adaptation to the complexities of the real world one wants to change, Enlightenment moves between the two poles analyzed by Franco Venturi (1971): utopia and reform, closely entwined. These two tensions vivify each other. But the course of the Enlightenment revolves round another two essential terms: freedom and democracy. The first term above all was the main object of Montesquieu's L'esprit des lois (1748). It is not possible here to go beyond a schematization recognizing virtue as the essential value of republics, as distinguished from honor, the real ethical and social cement of monarchies. Montesquieu does not choose among the different political forms. He only discards Asian despotism and is very diffident against absolutism, which he wants to temper not only by separating the three powers, or through the binding strength of the laws, but also through the concrete presence of intermediate bodies, including the nobility.

The other term of reference for the political theory of Enlightenment is Rousseau. He opposes to eighteenth-century cosmopolitism the love for one's own country, which requires the practice of direct democracy. Rousseau's democracy is right for a small republican country. It does not admit representatives. Between majority and minority only the former represents the general will, because sovereignty derived from the social pact cannot be divided. The Genevan's challenge was even more complex: he questioned a developmental model of civilization based on the progress of art and science, but also on the basis of social inequality. Democracy was the courage to modify ownership, justice, and instruction. A large part of later political thought is linked to a comparison between Montesquieu and Rousseau, to establish a connection between freedom and democracy, the aspiration to absorb the Genevan's Utopian drive and transform it into a spirit of reform. An exemplary text is Dei delitti e delle pene, which questions the right to punish in an unjust society because it is unequal.

Various other experiences belong to Enlightened politics: cameralism, an administrative model mainly used by Prussian and Austrian officials; the physiocratic theory of legal despotism, in which a monarchic power guarantees certain natural laws, among which is ownership. From the above considerations it appears that the question of enlightened politics is narrowly linked with the question of law, which becomes ‘science of legislation.’ The weaker field was feminine political and cultural identity. For this question one would have to wait for Mary Wollstonecraft's adventure and her work on women's rights.

Economy becomes a science during the eighteenth century, evolving from late-mercantilist models. The physiocratic project established the essential points of the productive cycle based on agriculture and on free corn trade. If agriculture was the only wealth-producing sector, while transformation and circulation were the task of industry and commerce, taxing had to become progressive with respect to land, whose ownership was one of the fundamental natural rights. Adam Smith extended liberalism to sectors such as industry and commerce, which were not considered subsidiary, but highly productive. In this way the first strong perception of an industrial revolution under way in England became a theory. During the last decades of the century there was a return to protectionism.

What happens with economy could well be verified with other sciences, not only social and natural, but human as well. The Scottish school creates the premise for sociology, by studying social stratification or the concept of civil society. Economy itself, by defining a stages theory based on production forms, laid down the basis of anthropology. Consolidated disciplines like physics were renovated, as well as chemistry, geology, agronomy, and geography itself. Linneus and Buffon had reclassified nature, thus rendering it an open book. Natural history had given a common language to natural and biological sciences.

As for history, one can only register a change in some fundamental paradigms: the loss of the superiority of sacred history, the transformation of ecclesiastical history into history of religions, the emergence of the history of civilization within new models of universal history, the flourishing of civil history as institutional history, the first appearance of the history of science.