Few studies have focused specifically on the physiocratic analysis of money. The physiocrats' position was based on their criticism of Law's system and more broadly on the role of finance. First, they rejected the idea that a large amount of money was the condition for the wealth of nations. Second, they rejected paper money, as well as any form of currency alteration. As a simple means of exchange, Quesnay and his followers recognized that money could be replaced by paper. However, in order to comply with the “value for equal value” principle of exchange, money had to be made of precious metals, as Le Trosne, the main architect of the physiocratic monetary doctrine, forcefully asserted. This doctrine of money created a tension: from the circulation perspective, money was not considered as a component of wealth and could be replaced by paper to simply represent flows in expenditure; but from the equality-of-exchange perspective, money had to be made of precious metals, thus becoming a storable asset in a portfolio. To overcome this tension, the économistes were to forcefully denounce hoarding and deny money the function of a store of value.
It is now universally accepted that the physiocratic school played a leading role in the emergence of political economy in the second half of the eighteenth century. As early as 1861, going against the tide of opinion at the time, Walras (1987: 139) characterized physiocracy as “the largest, and at the same time the first school of economists that ever was.”1 In his History of Economic Analysis Schumpeter (1954) referred to the members of the sect of économistes as the founders of modern political economy, in that they were the first to conceive of economics as a system of “general equilibrium,” anticipating the views of Walras and Keynes.2 Other authors went so far as to consider François Quesnay “the first economist” (Schachter 1991).
Nevertheless, as Faccarello and Steiner (2012) argue, it is striking that this impetus was given to political economy in France “without money being a central object.” Indeed, while the physiocratic school is well known for its defense of competition and free trade, for its theory of taxes and its analysis of the circulation and reproduction of wealth, its monetary doctrine is often overlooked. Evidence of this is that there is not a word about the physiocrats in Charles Rist's Histoire des doctrines relatives au crédit et à la monnaie (1938).3 According to Robert Legrand (1900), the study of money was “unimportant” for the physiocrats; in the opinion of Louis Salleron, Quesnay was “very hostile to money and very not clear about the role of money” (François Quesnay et la Physiocratie1958, 2:447n14), and his “anti-mercantilism led him to underestimate the role of money” (2:809n19).
Even if these comments are somewhat abusive, it remains true that Quesnay's position that money was merely the instrument of exchange—a simple “utensil of commerce” (Quesnay  1958: 527)—contrasted markedly with the views of influential authors like John Locke (1632–1704), Richard Cantillon (1680–1734), and David Hume (1711–76), who, a few years earlier, had placed monetary phenomena at the heart of their analyses. In the Tableau Economique, Quesnay modeled an economy in which exchange was monetary, meaning that money was not unimportant for the physiocrats. Nevertheless, while emphasizing the monetary conditions for the circulation of riches, the school minimized the role of money by turning it into a simple medium of exchange. This paradox gave rise to divergent views about the physiocrats' analysis. Most economists, like Faccarello and Steiner (2012), interpret Quesnay's thought in terms of real analysis. On the contrary, Schumpeter (1954), followed by Cartelier (1984), asserts that the school belongs to the “interlude of monetary analysis (1600–1760).” These conflicting views, and the scarcity and vagueness of studies on the monetary writings of the économistes, show that further investigation on the physiocratic analysis of money is required.4
Undoubtedly, the physiocrats' views on money stemmed from the impact that Law's system and its bankruptcy in 1720 had on the intellectual and political context of the time, especially in France. According to John Law (1671–1729), only an economy free to expand its currency could develop significantly. Paper can substitute for gold or silver as money in order to avoid a shortage of metal and to create a modern credit-based economy. However, when applied in France during the Regency to find a solution to the disastrous state of public finances following the wars of Louis XIV, the paper-money experiment degenerated into a speculative bubble on certificates of public debt and, finally, into bankruptcy. The Law episode had a lasting influence in France, both economically and culturally, by creating an intellectual environment hostile to finance (see Orain 2018). As Spang (2005) argues, the “System” became a chronological marker and even a word negatively connoted as an elucubration devoid of any real basis.
Thus, five decades after the bankruptcy, the “ghost of Law” still haunted the physiocrats' thinking: alluding to the buffoonery associated with the commedia dell'arte, Du Pont (1769: 9) talked about “this Scotsman who deserves to have been an Italian,” while Turgot called Law's system “the grimoire” (i.e., a collection of spells whose author must be included in the category of magicians and wizards).5 Among the fiercest opponents of finance, perhaps because his father had lost 200,000 French livres in the Mississippi bubble (see Loménie 1879: 102–3), Mirabeau (1775: 340) raged that “the whole history of the System is contained in the picture of a complete orgy pushed to the highest point of debauchery: action and movement first, indecent gaiety then, drunkenness and transport of fury afterwards, fright, sleep, lethargy and death finally.” Indeed, at that time the économistes wrote that there were still defenders of the system, especially in the context of the Franco-British rivalry (Shovlin 2016). Like Law, René Louis Voyer d'Argenson (1694–1757)—who however, in other aspects, anticipated physiocratic thought (see Alem 1900 or Conan 1955: 207)—believed that public credit had vitalized the British economy by increasing the money supply, and he proposed applying the same strategy again in France.6 According to him, Law's system was “badly heard and badly followed,” which “spoiled everything” (Argenson 1784: 168). In the same vein, to modernize the system of public credit, François Véron de Forbonnais (1722–1800) in 1755 proposed to establish a French equivalent of the Bank of England. Moreover, beyond geopolitical issues, the controversies surrounding Law's system and its bankruptcy had stimulated considerable interest from a doctrinal perspective. Between 1734 and 1761 there were no fewer than eight editions of the Essai politique sur le commerce by Jean-François Melon (1675–1738), which Voltaire praised; and his discord with Nicolas Dutot (1684–1741) was based on theoretical considerations about the nature of money.
The physiocrats were opposed not only to paper money, which they viewed as a corrupt and artificial means of stimulating activity, but also, more broadly, to any system of centralized finance such as Law had sought to construct. This would have the consequence of depriving France of a modern banking system, which was not, from the physiocratic point of view, a shortcoming. In particular, they judged that the size of the English banking system was not an advantage for that nation, because wealth did not come from finance or commerce but from agriculture. The English model, although more efficient in raising funds, was thus shown as fragile by Mirabeau, and it was exposed to the threat of “the misfortunes of war, or unforeseen events,” such that England would have to choose between “the annihilation of public debt or the death of the state” (Mirabeau 1756–61: pt. 2 , chap. 8, p. 189). Conversely, the French neo-Colbertist system of decentralized finance was seen as advantageous because it reduced the risk of systemic failure. Based on the corporation of “notaires” rather than bankers, it served to generate low-cost credit to the monarchy without having to resort to the destructive palliative of public credit (Murphy 2004).7 This view was reminiscent in some respects of Hume's position in his 1752 essay “Of Public Credit.” Perpetual indebtedness of the state, Hume claimed, could lead to a level of public debt such that the entire taxable national income passed into the hands of creditors. There was thus no choice but to go voluntarily bankrupt or to collect additional taxes. The fiscal program of the physiocrats to reform the tax system and strengthen agriculture then consisted in seeking a third way following the slogan, “Neither bankruptcy, nor new taxes.”
The économistes' position on money was largely based on this criticism of the defenders of Law's system and more broadly on the role of finance. First, they rejected the idea that a large amount of money was the condition for the wealth of nations. For the physiocrats, money was merely a means of making riches circulate. Money was endogenous, and there would always be enough money, provided that the circulation of goods (or more precisely foodstuffs, reflecting the fact that agriculture was the only real wealth in the kingdom) was secured (sec. 2). Second, they rejected paper money, as well as any form of currency alteration. For Quesnay and his followers, exchange might be well ensured by “commercial paper.” However, money was necessary, because such paper had no intrinsic value and was merely a representative sign of riches, whereas money had the general power to discharge debts. “With money, one pays,” Le Trosne ( 1846: 911) was to claim. In line with the principles of natural order and equality in exchange, this general power to discharge from a payment obligation (the legal tender of money) could be ensured only by a commodity with an intrinsic value of its own, namely, metallic money. Hence, the physiocrats adopted a doctrine of commodity money, in which money not only “represented” values but “equalled” them. It followed that the monarch should not manipulate the currency or even resort to seigniorage lest that equality of exchange be broken (sec. 3). However, this doctrine of money created a tension: from the circulation perspective, money was not considered as a component of wealth and could be replaced by paper to simply represent flows in expenditure; but from the equality-of-exchange perspective, money had to be made of precious metals, thus becoming a storable asset in a portfolio. To overcome this tension, the économistes were to forcefully denounce hoarding and deny money the function of a store of value. Indeed, money, even if formed by precious metals, should only be regarded as a flow (a là Aquinas) and not as a stock that could stop circulation. Hence, for the économistes, holding money was an undesirable feature to be excluded from their model (sec. 4).
2. Money, Wealth, and the Issue of Circulation
The starting point of the physiocratic theory of money lay in criticism of the bullionist theories developed by the early mercantilists. Although these theories cannot be reduced to the bullionist belief—despite the ways some members of the sect caricatured them—the goal was first to claim that the wealth of nations was not measured or conditioned by the quantity of precious metal they possessed.8 Consequently, trade surpluses were not the objective. In the middle of the eighteenth century, these views were hardly original. In England and Scotland, authors such as Locke and Hume developed the idea of a mutual advantage in trade, and although mercantile ideas were still present in some authors, notably Gournay (Tsuda 1983) and Forbonnais (Faccarello and Steiner 2012), none of them confused precious metals with wealth. However, these authors continued to attribute the highest importance to money and the conditions of its circulation, while the physiocrats focused on the circulation of goods rather than that of money.
2.1. The Distinction between Money and Wealth
In the middle of the eighteenth century, bullionism had long ceased to be advocated, and economists such as Vauban recognized that “it is not the great quantity of gold and silver that makes the wealth of a State” (Vauban  1843: 49). Nonetheless, states were still keen to secure for themselves large quantities of precious metals, as Mirabeau denounced in 1755: “Politicians, in their systems, come together to make it a capital point to constantly attract gold and silver into a state and to prevent them from leaving it.”9 The influx of precious metals was advocated because it was useful for militaristic and diplomatic purposes. However, according to Le Trosne ( 1846: 918), the ban on exporting precious metals was necessarily based on a false principle because “it would suppose that money is the only wealth, or at least that it is preferable to the others.” To seek to attract precious metals would be nothing more than to delude oneself about so-called balance-of-trade benefits and to believe that a nation gained by selling more than it buys. For the physiocrats—advocates of free trade—sellers always needed buyers, and surpluses in the balance of trade were neither desirable nor sustainable over the long run. According to Hume's “price-specie flow” mechanism, which they accepted, if a country attempted to develop permanent trade surpluses, prices would rise relative to other countries, making imported goods more desirable, resulting in an outflow of specie until trade was balanced.
This argument corresponded to the physiocratic principle that trade was not a source of enrichment: through buying and selling, one exchanged “value for equal value.” This equivalence of money and goods was part of the general system of equality in trade, “a principle which the Physiocrats consider to be indisputable” (Weulersse 1910, 2:260) and which was shared by a large number of contemporaries, such as, for instance, Hume and Forbonnais.10 The only advantage to foreign trade, as to trade in general, was to support domestically the right price in agriculture, that is, the price that ensured sufficient remuneration for producers to maintain and increase production.
Nevertheless, while they highlighted the vacuity of perpetual balance-of-trade surpluses, the physiocrats remained faithful to the idea that precious metals were an attribute of the power of nations. “The more money a kingdom can obtain,” stated Quesnay ( 1846: 300), “the more powerful it is, because money, is the only wealth that can lend itself to all uses and that can decide the strength of nations relative to each other.” This statement seemed to be a Colbertist position.11 That the stock of precious metals contributed to the relative power of states and their domination was a leitmotiv in physiocrats' contemporaries, such as Cantillon (1755: 119)—“Gold and silver are the true reserve stock of a State, and the larger or smaller the actual quantity of this stock necessarily determines the comparative greatness of kingdoms and States”—or Law ( 1843: 506): “To be powerful and wealthy in proportion to other nations, we should have money in proportion with them.” From the physiocratic perspective, however, this view was somewhat paradoxical: How could precious metals account for the relative strength of states, when they failed to account for the strength of a particular state?12 Behind the notion of relative power, it might have been the notion of liquidity that was perceived, making precious metals an asset that could be quickly mobilized and that could “lend itself to all uses” more easily than other forms of wealth.13
Beyond the balance of trade, the physiocrats systematically defended the idea that money should not accumulate in the state to the detriment of the increase in wealth. However, they were often unclear about the distinction between precious metals and riches, as they used the terms wealth or riches in different ways: “Money is a particular wealth equivalent in purchases at market value of all kinds of tradable wealth” (Quesnay  1958: 527); “Merchandise is a richness equivalent to money, and money is a richness equivalent to merchandise” (537); “Acquiring money is not getting rich, it is only changing wealth” (Mirabeau 1756–61: pt. 6 , p. 92).14 In this respect, the distinction between riches and money was made more precise by Le Trosne, for whom riches were made up only of goods that satisfied the double criterion of being “useful or pleasant” objects of enjoyment, and of being tradable.15 Utility was necessary but not sufficient, because it was the market value that imparted the quality of wealth to production. Since money did not provide direct enjoyment, “precious metals, used as money, are not the kind of wealth that people seek to satisfy their needs” (Quesnay  1958: 652).
The physiocrats' views of “true” wealth were well defined by Le Mercier de la Rivière: “By the term wealth, I mean a mass of available values, values that one can consume according to one's desires, without becoming impoverished, without altering the principle that constantly reproduces them” (Le Mercier  1846: 568). Thus, wealth corresponds to its modern definition: it is that which one can consume without becoming poorer. This contrasts with money, which “is dissipated by your spending, so that you cannot enjoy it without impoverishment,” while wealth “is nourished and perpetuated by consumption itself” (573). It was therefore not only the precious metals that appeared here as “sterile wealth,” but also all the products of manufacturing industry, which were not replenished by their consumption. From then on, agriculture was the only real source of wealth, as Quesnay ( 1846a: 82) proclaimed: “Let the sovereign and the nation never lose sight of the fact that the land is the only source of wealth, and that it is agriculture that multiplies it.”
The term “sterile” was therefore used by the économistes, not only to characterize the “sterile class”—made up of merchants or industrialists who only transformed agricultural products—but also to refer to money. In the Maxims of Economic Government, Quesnay ( 1846a: 104) spoke of “sterile pecuniary fortunes.” For the physiocrats, therefore, money did not belong with riches—it did not provide enjoyment—but simply served to facilitate circulation.
2.2. Money and the Issue of Circulation
Since the middle of the seventeenth century, concerns had been expressed in France about the obstacles to circulation in a context of latent crisis where the fall in prices seemed to result from the scarcity of precious metals. At the beginning of the following century, in addition to the fear of the “decadence” of agriculture, two main considerations emerged about a possible shortage of money. On the one hand, major leaks of precious metals occurred, particularly to India, due to imports of spices and silk. Although those leaks had been structural for two hundred years, in relation to the deficit in the balance of trade, they were increasing with the revival of a major trade movement, particularly toward the Far East. On the other hand, the rivalries between France, Holland, and England gave rise to a “war economy” (Vilar 1974), generating significant precautionary saving behavior that resulted in a high level of hoarding (this behavior was amplified in France by the bankruptcy of Law's system).
Here again, the physiocrats' position on circulation resulted from their opposition to authors such as Law and Forbonnais, who defended the idea that money contributed to increasing wealth by facilitating trade. In his Principes et observations économiques, published in 1767, Forbonnais (1767, 2:142) wrote that “the continuous increase of pecuniary wealth is a considerable advantage in accelerating the progress of production.” In his brief to the Scottish Parliament in 1705, Law ( 1843: 506) argued that “what constitutes the power and wealth of a nation is a large population and shops of foreign and domestic goods. These objects depend on trade, and trade depends on money.” For Law, the level of economic activity depended directly on the amount of money available, as money facilitated circulation and exchange, for the enrichment of all: “As money increased, the disadvantages and drawbacks of exchange were removed; the idle and the poor were employed; more land was cultivated; production increased; manufacturing and trade improved; the owners lived better, and the lower classes of the people were less dependent” (471).
Therefore, circulation was the main issue for Law, who used the well-known analogy of blood circulation: “Money is to the state what blood is to the human body” (Law  1843: 605).16 For the physiocrats, circulation was also essential, but this circulation was that of goods, in which the quantity of money did not matter. An increase in the quantity of money did not necessarily lead to an increase in riches. Rather, cause and effect were reversed, since “it is always the abundance and good price of commodities that is the source of money” (Quesnay  1958: 528). According to Le Trosne ( 1846: 915), money is “a simple tool of commerce”; “it is not money that is the object of circulation and the goal of exchange, but it is the production that sets it in motion and makes it circulate.” For the économistes, the quantity of money was therefore fundamentally endogenous: it was the ease of circulation and the freedom of trade that would ensure the right price and thus the inflow of money.
Hence, the abundance or the scarcity of precious metals was not essential. On the one hand, money was not the object of circulation; on the other hand, it could be supplemented by increasing its speed of circulation, notably through the use of paper. Thus, far from being “the object of trade, money is the ‘makeshift solution’” (Quesnay  1846: 175). In his Lettre sur les avantages de la concurrence . . . en réponse à une lettre de Quimper, which was published in 1765 in two installments (one in July and one in August) in the Journal de l'agriculture, Le Trosne stated,
You only consider money when you speak of the interest of a Nation, without realizing how poor and miserable a Nation, reduced to this fictitious wealth, would be. . . . But Sir, money is the least thing that needs to be taken care of, not because it is necessary to facilitate exchange and to animate circulation, but because there is always enough money in a Nation that is rich by the abundance and value of its productions. (Journal de l'agriculture, August 1765: 63–64)
This idea was to be further clarified in L'Intérêt social: “One should never worry about money, there is always enough” (Le Trosne  1846: 915). Indeed, “one can compensate for money, but nothing can compensate for production” (915). To compensate for money, one simply needed to increase the speed of circulation, because the “celerity of circulation,” according to Quesnay ( 1846: 293), “is a very advantageous remedy for the abundance of money.” For Le Trosne, “When the circulation slows down, money disappears, it becomes rare without its mass being diminished, because it stops where it should only pass through” (Journal de l'agriculture, August 1765: 66). The physiocrats, like Mirabeau, Quesnay, or Le Trosne, developed at length the idea that the quantity of money did not necessarily have to equal the value of the goods in circulation. Before them, Boisguilbert and especially Cantillon had already focused on the speed of circulation (which Boisguilbert called “frequency of representation”) of money.17 Money “stops, decamps and runs” with consumption, so that “by generating much consumption, little money, through its frequent representation, is equivalent to a very large quantity of cash”; if, on the contrary, consumption decreased, “money stops immediately and makes people say that it has disappeared.”18
A small quantity of money was enough, then, to meet the needs of circulation. More often, money can be replaced with paper in commerce, because “the written insurances that represent money are more convenient,” said Quesnay ( 1958: 528) in his article “Hommes.” Indeed, since the seventeenth century, commercial paper had become widespread, and it was noteworthy “that in Paris, money was so scarce in commerce that, to make a payment, only a quarter was given in cash and three quarters in notes or bills of exchange” (Savary 1742: 259). Boisguilbert ( 1843: 398) claimed that at the fairs in Lyon “one has never seen a sou marked with cash”; all transactions were made by exchanging commercial notes.
As early as 1696, Petty had already well understood that paper could increase the speed of circulation by adding to cash.19 However, for Quesnay and Le Trosne, it was not just a simple addition of paper to circulation but a substitution. Some years before, Boisguilbert ( 1843: 397) wrote that “a simple piece of paper, which costs nothing, nevertheless replaces all the functions of money.” Bills of exchange could therefore very well substitute for money to facilitate circulation. These three authors went even further by developing the concept of solvency, particularly underlined through Quesnay's notion of “written insurances.”20 When a kingdom was flourishing, paper replaced money everywhere, and the diffusion of credit paper was a sign of prosperity, because it was proof that there were many solid fortunes in the country and therefore many solvent citizens. Thus, “the richer a Nation is, the less it needs a proportionate amount of money, because there is in this Nation a greater number of people whose solvency is well established, and whose promises circulate as money” (Le Trosne  1846: 916).
If commercial paper could so easily substitute for money to increase its speed, could not paper money do the same? Could circulation be ensured by means of a pure sign?
3. A Rejection of Paper Money and Monetary Manipulations
The theoretical debate about money in the first half of the eighteenth century was characterized by the resurgence of the controversy on the nature of money, following Law's experiment from 1716 to 1720. Many of Law's successors, such as Melon or Dutot, adopted a conventional definition of money.21 Montesquieu apparently shared this view in L'Esprit des lois (1748), arguing that “money is a sign that represents the value of all things.”22 The physiocrats were to fiercely combat this theory of sign money, mainly in reaction to the disastrous paper-money episode. But the rejection of the conventional view of money was also, for Quesnay and his disciples, a doctrinal issue: money must remain in conformity with the precepts of the natural order and insulated from the sovereign's financing needs. The physiocrats then vehemently denounced the practice of monetary manipulations in the form of money alterations or “mutations.”
3.1. A Doctrine of Commodity Money
The sect first sought to invalidate John Law's proposals on paper money. Beyond the attempt to provide France with a bank of issue, Law defended the use of paper money for reasons of convenience and efficiency. By substituting paper for metallic money, precious metals could be used for other purposes. In particular, this would avoid sending royal tableware to the mint, as Louis XIV, like many kings before him, did. From the economic-activity perspective, paper could be multiplied at will with no fear of a shortage of money. From the balance-of-trade perspective, paper would overcome the dependence on foreign countries caused by gold or silver shortages. More broadly, from a geopolitical perspective, Spanish America in particular would cease to be strategically vital once the metals it produced were replaced by paper (Shovlin 2016). In this view, Law devalued the importance of international commerce and the Humean price-specie flow mechanism, because public credit offered a more powerful means than trade surpluses to increase the money supply: introducing paper credit in France, Law ( 1843: 609) argued, “would augment the quantity of money more in a year that an advantageous commerce could in ten.”23
According to Law ( 1843), commercial papers were insufficient to fulfill these missions, because as they had to be repaid with money, these papers had to be maintained in a certain proportion with precious metals. This argument opened the way to unconvertible paper money, namely, a paper requiring no repayment. The eventual refundable nature of paper would even have adverse effects, since it would limit its circulation. However, the acceptance of such an unconvertible paper money was not self-evident, since it relied on public confidence. The bankruptcy of the system showed how difficult it was to keep paper-money issues reasonable and to maintain public confidence in them. This was precisely what the physiocrats were to decry: paper money could not be self-sufficient, because for money to be accepted as a pledge in trade, it had to remain linked to precious metals. In his Lettre à M. l'Abbé de Cicé, written when he was a young seminarian at the Sorbonne, Turgot vehemently opposed the idea that it might be not only desirable but even possible to replace metallic money with paper credit: “First of all I observe that it is absolutely impossible that the King substitutes paper in place of gold and silver” (Turgot  1844: 98). Imbued with Law's experience, he believed that the public would never accept paper in place of metallic money.
For the physiocrats, money needed to have an intrinsic value. “Money is received as an intermediate pledge between sales and purchases,” said Le Trosne ( 1846: 910). This notion of “intermediate pledge”—repeated by all the physiocrats, and in particular Quesnay, Le Mercier, and Du Pont—established the distinction between money and commercial bills.24 Indeed, while “written insurances” could easily replace money in circulation, money retained a crucial role in repaying debts. This was the difference between debts and money, which Le Trosne ( 1846: 910–11) would detail with precision:25 “In the hands of the seller who has received it, money is a pledge or a mandate, with which he can pay anytime and anywhere. . . . Wherever he goes, he will be sure not to be refused by offering this pledge for value, because those to whom he gives it will be equally sure to convert it at their will.”
Thus, money “is everywhere, without any concern about where it comes from” (910), and this is precisely what distinguished money from commercial paper, which “has no intrinsic value and derives its value only from the presumed solvency of the debtor” (910). “In short, with debt you promise to pay, with money you pay” (910). With this concise formula, Le Trosne clearly stated that money was legal tender, that is, that it had the general capacity to discharge debts.26 But this power could not be the exclusive prerogative of the prince, who had to share it with precious metals. Only commercial bills were pure signs of value, whereas the general discharging power of money was based on its intrinsic value: “It is therefore not true to say that money is a sign of riches, and that it represents values. It is not a simple sign, because it is itself riches; it does not represent values, it equals them” (910; emphasis added).
There was no ambiguity here about the notions of money and riches: silver was wealth, through the uses one could make of it for enjoyment, whereas metallic money was not, since it was not itself an object of enjoyment. Indeed, precious metals were in themselves suitable for various uses, and as such they had value. They were riches. When these metals were used as money, their value was increased by this new use. Thus, in addition to their value as wealth, gold and silver gained an additional value through their use as money. This did not mean, however, that the value of money (its intrinsic value as a commodity and its conventional value as money) should be given a double foundation: the additional value that silver derived from its use as money resulted from the associated increase in the demand for silver and not from the seal of the prince.
In this, the physiocrats subscribed to the doctrine of commodity money. Money was a commodity: silver, which—as in any exchange—everyone gave “equal value in order to receive equal value” (Turgot  1844: 86). The price expressed in money was thus “the thing one gives in exchange for another” (88). For the physiocrats, while exchanging for money, one thus exchanged for a commodity.
However, other passages might suggest the opposite view that money might have no intrinsic value. Money was “only the word of convention attached to the tokens and numbers that designate the values of sales and purchases” wrote Mirabeau (1756–61: pt. 6 , 3:8). For Le Mercier de la Rivière ( 1846: 557), “Money is only a pledge, a representative sign of common things.” According to Weulersse (1910, 2:264), these were only “formal mistakes,” which misrepresented “the true doctrine of the économistes.” While this statement was ultimately to prove correct, it seems that these passages reflected some indecision in physiocratic writings.
A comparison between two texts from Le Trosne reveals this indecision. In his Lettre à Quimper published in 1765 in the Journal de l'agriculture, he focused on the conventional role of money: “Money needs to be considered either as wealth or as a sign: as wealth, one cannot have money without buying it with other riches, as a sign, it is only a trading tool that serves to balance purchases and sales, which has no other use than this conventional use” (Journal de l'agriculture, August 1765: 64). In what followed, Le Trosne claimed that “[money] is more often represented as a sign. . . . It just slides from one hand to the other without stopping for a moment. . . . Often it is not sufficient to ensure the speed that is required. . . . It is replaced by a representative, the paper, which, when the credit is full, fulfils the same function and becomes the sign of a sign” (64).
Le Trosne might appear here as the apostle of paper money, because the expression “when the credit is full” meant that here he did not refer to a simple commercial bill but to a general means of payment. However, any allusion to the sign was removed from the same passage in L'Intérêt social, written twelve years later in 1777: here, money “only slides from one hand to the other without stopping for a moment. Often it is not sufficient to ensure the speed that is required. . . . It is replaced by a paper with which an infinite amount of business is done without the money showing up” (Le Trosne  1846: 915). In this case, there was no longer any question of paper money, and only commercial bills served as paper. Hence, there was, in Le Trosne, an evolution from the sign-money doctrine to the commodity-money doctrine.27 He recognized the specific character of money with respect to debts, namely, to be a general pledge of exchange, a property that could come only from the prince's seal and the specific characteristics of the metal.
Owing to this doctrine of commodity money, the physiocrats could only reject the use of paper money. Thus, there would be “no banknotes or other public papers” as Quesnay (1757b: 566) claimed. Why prohibit the state from issuing paper money when commercial papers could be used as a substitute for money? The answer was simple: because “with money, one pays”! Any unconvertible paper money would be refundable in itself only. Paper money necessarily implied the intervention of the prince to establish its value, thus contradicting a major principle of the natural order. “There are points where public authority stops, that of a Nation, like that of a Prince. And one of those points where the power of Nations is most invincibly limited is the fixing of values,” asserted Du Pont in his speech to the National Assembly on April 15, 1790.28 Paper money is not a “natural” pledge used in exchange “but a pledge that requires the guarantee of an authority, an external force” (Morellet 1769: 95). Such papers would never have a natural value and would thus contradict the principle of equality in exchange. “A purely conventional money is therefore an impossible thing” (Turgot  1844: 28).
In addition, accepting paper money would be equivalent to accepting that the sovereign's credit was full, namely, that it was worth more than the merchants', which was only a promise to be paid. Accepting paper money would mean stating that the solvency of the sovereign could not be questioned. This would be, according to Turgot's Lettre à M. l'Abbé de Cicé, “putting his fortune at the mercy of the Prince” (Turgot  1844: 99). Beyond the refusal of the sign-money doctrine, it was the confidence in the state that was called into question. The économistes' criticism of sign money was above all a criticism of the sovereign's ability to manage the supply of money. This criticism was in line with their conception of the natural order, which meant that money did not belong to the prince, who was no more solvent than other borrowers. Paper money was even considered as a form of tyranny, for only a tyrant can hope to force people to accept a worthless thing as if it had value (see Kaiser 1991).29
The économistes' hesitation about the nature of money (sign vs. commodity money) reflected the tension that arose in any regime of coinage of precious metal: money was not just a sign; it was also a sign. Consequently, the prince's seal made it possible to increase the use of the metal and thus to increase its value. However, for the physiocrats, this added value came not from the seal itself but from the increase in the demand for precious metals following their use as a medium of exchange. Hence, money should not circulate for more than its intrinsic value so as not to infringe the principle of equality in exchange, “value for equal value.” The sect then set about keenly criticizing currency manipulations.
3.2. The Fight against the Alteration of Money
From the physiocrats' perspective, the rejection of the sign-money doctrine was associated with a vehement opposition to currency manipulations.
In the first half of the eighteenth century, a lively doctrinal discussion on the question of the manipulation of money was reopened, following the monetary expedients of the end of the reign of Louis XIV and the episode of the system during the Regency. The weakening of specie was notably defended by Melon in his Essai politique sur le commerce ( 1843), because it made it possible to relieve debtors. In particular, the alteration of money made the payment of taxes easier, because the debtors of the Treasury were alleviated, and allowed the king to raise the contributions of his subjects. Money manipulations were thus a painless form of taxation. This vision was challenged by Dutot in his Réflexions politiques sur les finances et le commerce ( 1843). His analysis is worthwhile here, because it anticipated the physiocratic views on money, both as it concerned the effectiveness of alterations and as it concerned principles. On the side of efficiency, Dutot stressed the limits of the weakening of specie, since the state received only a weakened currency as a tax collector. The fiscal return of money alterations was then doubtful, all the more so because they inhibited circulation: “No confidence, no circulation, and consequently no trade” (Dutot  1843: 851). On the side of principles, any form of alteration needed to be avoided, because “currency must not be altered any more than weights and measures” (973). Therefore, the sovereign had to do nothing but certify the weight and the denomination of specie. Moreover, Dutot found no reason, either customary or legal, to favor debtors, because it would affect the confidence of lenders.
In his Observations sur MM. Jean Lass, Melon et Dutot, sur le commerce, le luxe, les monnaies et les impôts ( 1873), Voltaire adopted a subtle position, denouncing the drawbacks of alterations, along the lines of Dutot, while advocating, in some instances, Melon's principle of alleviating the debtor. But Voltaire was much more explicit about who the debtor was: even if it might sometimes be “the magistrate, the writer, etc.” (Voltaire  1873: 365), it was above all the prince. Hence, the alteration of money was clearly, for the philosopher, a means of eliminating public debts, when “the chief of the Nation . . . has only a specific amount of money paid out, and some rights that he does not want to increase excessively, for fear of arousing murmurs” (365). Already in 1718, the chancellor d'Aguesseau, in his Considérations sur les monnaies, understood this subterfuge: “mutations” favoured debtors, because the state wanted to favor itself. The prince weakened the specie when he wanted to eliminate his own debts, “so he chooses the system which, while benefiting him, also favors those who are in a similar situation to his own” (Aguesseau  1777: 45). But, unlike Voltaire, who did not seem to mind, d'Aguesseau strongly condemned this practice.
The économistes developed a more uncompromising vision, and particularly Le Trosne, who, among the physiocrats, devoted “the best pages” to alterations and whose study provided “a complete idea of the views of the School” (Picard 1912). He focused first on economic efficiency. Altering the species distorted the common measure and disturbed trade, to no advantage. “The sovereign who wanted to deceive is himself caught in his own trap” (Le Trosne  1846: 912), since taxation was paid in the same currency. If the sovereign intended to repay his debt with this weakened currency, it would be simpler to declare partial bankruptcy. There was no point in trying to change the system of values through altering money, because money did not create but merely expressed value: “The Prince may claim that two equals three, but he cannot make them really equal; it is no more in his power to add value than to create substance” (912). For the physiocrats, as we have seen, money was the general medium of exchange. Beyond specie, goods circulated, and money was useful only as long as it circulated in the opposite direction. The conclusion was simple: money needed to circulate freely. From this point of view, the manipulations of money were “far more disastrous by their consequences, than if one had taken it directly from all wallets” (913) because they “remove all confidence from trade, stop circulation and bring uncertainty to all ownership” (913).
These principles, as we can see, were not very different from Dutot's a few years earlier. In this respect, Le Trosne's decisive contribution was to place the criticism of money manipulations in the general framework of natural law and tax reform. Hence, the systematic defense of liberties against the sovereign made the physiocrats' position more consistent compared to their predecessors. Their stance against the alteration of species was part of their fiscal program to remove indirect taxation. Indeed, the économistes were constantly protesting against all the barriers to trade and fighting against the various taxes, tolls, tonlieux, and other rights of way that hampered traffic under the ancien régime. As money was, following Le Mercier de la Rivière, “a kind of river on which one can transport merchantable things” (Le Mercier  1846: 584), alterations, like everything else that hampered circulation, needed to be abolished.30 Thus, “the circulation of money is not taxable,” wrote Du Pont (1768: 116).
The physiocrats, however, went further. Their protests against monetary manipulations were not only related to the perverse effects they cause but were an attack on their legitimacy. Here the économistes became the heirs to Oresme, who in 1335 had already condemned mutations as counterfeiting practices in his Traictié de la première invention des monnoies (Oresme  1864). Le Trosne ( 1846: 913) said nothing different from Oresme when he claimed that “the operation to lower the denomination . . . is nothing other than manifest theft.” Money belonged to the community and not to the prince, who was only its guardian. Le Trosne then opposed Condillac over seigniorage. Although Condillac followed the principle of commodity money, he considered that the sovereign could take a profit on top of the costs of producing currency. This right stemmed from the socially useful value added to the money by the sovereign's seal. For Le Trosne, in contrast, “money, not being fit for particular uses . . . [,] belongs to nobody strictly speaking,” and “its production must be regarded as part of the public service” (914), because the state did not have to charge for each act of its sovereignty. But above all, saying that the sovereign's seal had a value because of its usefulness and that it had to be paid for would have been to accept an ideal value; it would have been “to attribute to money a value independent of that of metal, a sign value” (915). For Le Trosne, the word livre had no other sense than the name given to a particular weight of precious metal. The king could change the meaning of the word livre—he “may well say that he means that two equals three” (912)—but he could not change the monetary reality, which was of a physical nature. Consequently, the sovereign had to keep the relationship between the quantity of precious metal and the monetary unit unchanged.
These ideas of freedom and of defending the interests of individuals against the sovereign were not specific to the physiocratic school but were those of the philosophy of the Enlightenment and were shared by most eighteenth-century economists. However, the physiocrats systematized these ideas into a consistent framework that established monetary practices on precise legal principles. Admittedly, at the time of their writing, monetary manipulations ceased for a while, with the recasting of currencies on May 26, 1726, but this ending of alterations was not based on a well-established theoretical foundation. The condemnation of manipulations stemmed from ancient canonical doctrine, moral considerations, or the disturbances they caused in commerce and business. The main achievement of the économistes, and in particular of Le Trosne, was that they clarified the theoretical foundations of the fight against money manipulations.
4. Money as a Pure Medium of Exchange
From the physiocrats' perspective, the adoption of a theory of commodity money and the diatribe against monetary manipulations derived, as we have seen, from the principle of equality in exchange and not from the principle of maintaining the value of money over time. Indeed, it is noteworthy that the sect ignored the role of money as a store of value. Not because its supporters were unaware of this role—it was a fundamental aspect in mercantilist thought and had long been recognized, at least since medieval times31—not because the physiocrats did not perceive the reality of the hoarding phenomenon that had been common in Europe since the Middle Ages but because their system did not want money as a store of value.
Admittedly, the definition of money as a pledge of exchange implicitly presupposed that its value was preserved during the period of time between sale and purchase; but this period of time had to be as short as possible, so as not to hinder circulation. The definition of money as an intermediate pledge between purchases and sales, which was often reiterated by the économistes, is here fully revealing, especially when compared to that of Aristotle (1856, 2:157): “Money that one keeps in one's hands is like a guarantee that the future exchange can easily take place as soon as the need arises” (emphasis added); or to that of Galiani ( 1955: 70), for whom “money is a metal coin . . . which can be given and received without risk by everyone as a pledge and permanent security of what one will obtain from others, at any moment, the equivalent of what was given to receive that metal coin” (emphasis added). These two quotations reflect the idea that money should be a commodity with a long shelf life.
This negation of the store-of-value function among the économistes was first based on a condemnation of hoarding and saving behavior, which diverted wealth from effective employment. It was then justified by the need to maintain the equilibrium of the Tableau Economique and therefore led, finally, to a purely circulatory vision of money.
4.1. The Sterility of Hoarding and Saving
Since the Middle Ages, Europe had been characterized by the “passion for precious metals”: first a passion for “gold ornaments,” then a “new capitalist passion for coined specie” (Braudel 1979, 1:407). At the beginning of the eighteenth century, hoarding behavior increased, both for precaution and speculation, in the context of the wars that began in the twilight of the Roi Soleil's reign, such that “the France of Louis XIV is full of idle silver” (2:351). But this development of hoarding and luxury goods was a general feature in Europe. In 1751, Galiani quantified the stock hoarded in the kingdom of Naples as four times larger than the monetary stock circulating: “Luxury has made all silver objects, watches, snuff boxes, sword and cane handles, cutlery, cups, plates, so common that it is incredible” (Della Moneta, quoted in Braudel 1979, 1:407).
The damnation of luxury and hoarding in the seventeenth and eighteenth centuries was first of all a moral disapproval of avarice. From being “valets of commerce” when they remained “within their natural limits,” precious metals “set themselves up as tyrants” when they left circulation, proclaimed Boisguilbert ( 1843: 398) in his Dissertation, whereas “left in a chest, [they] are no more useful than if they were stones” (Boisguilbert  1843: 212).32 “Avarice keeps gold and silver; because, since it does not want to consume, it loves signs that are not destroyed,” Montesquieu (1748, 2:93) would later say in L'Esprit des lois. According to Turgot ( 1844: 52), “Avarice is a true mortal sin.” For Quesnay ( 1846a: 94), hoarding was similar to a psychological disorder: “Greed for money is a lively passion among individuals, because they are greedy for the wealth that represents other riches.” As we shall see below, it was indeed essential, in the eyes of the économistes, to denounce hoarding as aberrantly avaricious behavior or an immoderate taste for luxury.
In terms of economic efficiency, this behavior was also reprehensible. Indeed, hoarding created poverty because money ceased to contribute “to perpetuate wealth when it is kept out of circulation” (Mirabeau 1756–61: pt. 5 , p. 226); “the more it accumulates in the coffers of private individuals, the more it impoverishes the Nation” (Du Pont 1768: 116). Physiocrats, after Hume, perceived the deflationary nature of hoarding, which did not make it possible to achieve the “right price” of agricultural commodities.33 Indeed, according to Quesnay ( 1846: 173), opulence should be sought in “high prices in abundance,” which would not be possible by accumulating money, “which would intercept the circulation and lower the prices of products.”34
This condemnation of hoarding was hardly original. It was long recognized that hoarders kept money out of circulation where it benefited no one (see Kwass 2005). In his Fable of the Bees, Mandeville ( 1957) showed how the “private vice” of prodigality, by reducing “the sordid love of money,” could sustain “public benefits” (i.e., national prosperity) by inducing the rich to spend. The contribution of the physiocrats was to have systematized this injunction to spend, within a better-developed theoretical framework (the Tableau Economique). Moreover, their criticism of hoarding was part of a broader opposition to saving. Indeed, the pure physiocratic perspective rejected saving and hoarding in the same way, in contrast with Turgot, who in his Réflexions distinguished between different reasons for nonspending, namely, hoarding that was unproductive and saving that could increase capital.35 In particular, the principal holders of net product, landowners, must spend all their revenue because the whole reproduction of national income depended on it, as Mirabeau and Quesnay (1767: 61) stated: “It is important that revenue be spent, because all saving on revenue is a reduction in expenditure, and consequently, in production and revenue.”
Quesnay ( 1846a: 100) particularly insisted on the sterility of savings: “That owners and those in gainful occupations should not be inclined . . . to engage in sterile savings, which would remove from circulation and distribution a portion of their income or earnings.” It was therefore important that public borrowing, “which leads to financial trade or traffic” (104), should not lead to the formation of “pecuniary fortunes which stop the course of part of the national income” (103), these “sterile pecuniary fortunes, which separate finance from agriculture, and which deprive it of the wealth necessary for the improvement and cultivation of land” (103). Beyond avarice, it was indeed rent that was to blame. If the “small savings” of the common people were not really in question, although they did harm by restricting expenditure, then above all financiers, large landowners, or merchants should not amass pecuniary fortunes, “which are gradually pumping out the nation's entire nest egg” (Quesnay  1958: 566). The criticism of the “financier,” a “lackey of commerce” and a spurned figure of the seventeenth century, was not new (see, on this subject, Bayard 1986), but the physiocrats, and in particular Mirabeau, who rebelled against the “devouring finance” of this “rodent order” (Mirabeau 1756–61: pt. 5 , p. 228), established it as a principle in the name of economic efficiency.
In his Essai sur les monnaies, Dupré de Saint-Maur (1746) clearly perceived that rent owners, through their loans, could generate effective opportunities for borrowers. But at the time they were writing, the économistes observed that money was mainly invested in state rents, to the detriment of investments in agriculture, which was threatened with decay.36 It was therefore a matter of denouncing both, explicitly, the substitution of financial investment for agricultural investment and, more implicitly, the inefficiency of state borrowing. Behind the condemnation of luxury and avarice lay a criticism of the workings of the state. On the one hand, there was a criticism of the inefficiency of the monarchy's spending, which was too oriented toward “silverware” and not toward productive spending, such as the improvement of roads and paths for easy circulation. And, on the other hand, there was a criticism of the taxation system of the old regime, which focused excessively on indirect taxes that destroyed trade, thereby reducing the taxes actually collected by the sovereign and encouraging him to launch sterile loans.
4.2. Hoarding as a Threat to Equilibrium
As we have seen, the physiocrats considered the economy as a flow, which was perfectly depicted by the use of the fluid metaphor. Like blood, rivers, or streams, riches had to circulate like a flow of expenditure. From this point of view, hoarding, as the formation of a stock of money, could be viewed only as a diversion of the flow. It therefore had to be prevented from slowing or even paralyzing the circulation of riches. Predecessors had already pointed out that money had to be “stirred up” because it was, in trade, “in the hands where it is neither useless nor idle” (Vauban  1843: 47) so as to maintain a “perpetual circulation” that favored trade and enriched the kingdom (Melon  1843: 819). As John Law (1934, 3:92) testified in 1719, “Anyone who stops it [money] is a parricide, any man who keeps cash without using it and thereby prevents the gain that would come from its circulation is a bad citizen.”
But for the physiocrats, the challenge was more sensitive; it was vital that money should not stop. It was “an absolute necessity,” and “all would be lost if [money] ceased to circulate” (Le Mercier  1846: 541).37 It was not only a necessity in practice, to ensure the proper functioning of trade, but also an absolute necessity in theory, because the circuit described by the Tableau Economique would be broken by the formation of money stocks. This property was immediately apparent in the Explication du Tableau Economique à Madame, in which Baudeau identified money with commercial paper, a paper that was simply exchanged between different classes before returning to the owners who issued it.38 Such paper, which merely circulated before being destroyed on its return to the issuer, prevented any leakage; it was a simple debt that self-destructed at maturity and did not allow for any imbalance. Thus, money must be perpetually mobile. It was on this condition alone that, in the Tableau Economique, the circulation of money could be superimposed on the circulation of real wealth, which it merely reproduced in the opposite direction. In this double circulation, money was a simple instrument of exchange; “money is only the means of routing,” as Boisguilbert ( 1843: 210) had already stated. Under this requirement only, the Tableau Economique would be balanced.
We can note here the proximity with the ideas expressed more than a century later by Jean-Baptiste Say (1803, 1:154): “Money only fulfils a transitory function . . . ; and, once the exchanges are over, it always turns out that one has paid for products with products.”39 Karl Marx, in Capital, notably highlighted this similarity between the physiocrats and Say. He even went so far as to make Le Trosne the inventor of the law of markets: “J. B. Say's most famous aphorism: ‘One buys products only with products' has the following form in the original Physiocrat: ‘Productions are paid for only with productions (Le Trosne)’” (Marx  1872, 69n2).40 However, as Lambert (1952) points out, the formula “products are paid for with products” did not fully reflect the law of markets. To be sure, Le Mercier de La Rivière ( 1846: 540) clearly stated that “the sales that one proposes to make in money can only constantly take place to the extent that one in turn buys in money.” But these were, in the words of Say, only the premises of the law of markets: “From these premises I had drawn a conclusion . . . : since each of us can only buy the products of others with his own products; since the value we can buy is equal to the value we can produce, men will buy all the more as they produce more.”41
As a principle of circulation, the physiocrats' analysis nevertheless seems to us to offer more than the premises of Say. Indeed, in various passages of the chapter “Outlets” in his Treatise on Political Economy, one recognizes developments of Le Trosne's thought.42 Even more striking is the following passage from Le Mercier ( 1846: 540–41):
Thus, by considering commerce as a multitude of sales and purchases made with money, no one is a buyer only as much as he is a seller; and since buying is paying, no one can buy only because of what he sells, because only by selling can he get the money to pay for what he buys. From the fact that every buyer must be a seller, and can only buy as much as he sells, a second axiom obviously follows: that every seller must be a buyer, and can only sell as much as he buys; that thus every seller must, through the purchases he makes in turn, provide others with the money to buy the goods he wants to sell them.
Yet, from this balance of flows, reflecting the identity of trade, the économistes did not derive any “law” arguing that “if some goods do not sell, it is because others are not produced,” nor that “it is production alone that provides outlets for products” (Say, quoted in Comte, Daire, and Say 1848: 443). They did not therefore formulate the law of markets, and “it is felicitous for their glory,” Lambert (1952) was to say. In contrast to Say, the physiocrats clearly perceived the risk that savings could create in their system by disrupting the balance of circulation. In his notes on Turgot's Réflexions published in the Éphémérides in 1770, Du Pont was particularly specific about this aspect:
For, in vain would half of the Society put all the fruits of its labour of a year on sale, if the other half refuses to buy, and persists in saving all, or a large part of its means of payment, the first half will not be able to sell everything. (Éphémérides du citoyen 1770, 1:127)
In this observation, Du Pont recalled the pure physiocratic doctrine, whereas Turgot seemed to depart from it in his Réflexions, in order to “prevent superficial readers from misunderstanding the meaning of some of his expressions.” In this doctrine, savings were not at the origin of the formation of capital. On the contrary, it was by spending “intelligently and profitably” that wealth could be increased. If the circulation was interrupted, the economy could be dragged into a downward spiral: “The reduction in income will also be a loss for parsimonious owners, who will find it hard to imagine how they managed to ruin themselves by saving, and who will only see it as a resource to increase their savings. This will precipitate the march towards their ruin” (Éphémérides du citoyen 1770, 1:129).
The physiocrats therefore understood that if money ceased to fulfill its unique function as a means of exchange, the relationship between buyers and sellers would be disrupted. “From then on, the equilibrium of prosperity is disturbed, and replaced by the equilibrium of poverty and degradation” (Le Trosne  1846: 899). The économistes here anticipated Keynesian theory on the possibility that the equilibrium was achieved at different levels of resource use. They did not, however, develop this aspect, preferring to pursue their model of a “healthy” economy in which money had no other function than as an intermediary.
4.3. A Pure Circulatory Theory of Money
In the physiocratic system, there was no place for the individual behavior of holding money. Hoarding had to be eliminated, and therefore it had first to be eliminated as rational behavior. Consequently, holding money could be the result only of unreasonable or fetishistic motivations, such as avarice or an irrepressible taste for precious metals.43
For the sect, money therefore had to be used only as a medium of exchange, hence the rejection of a patrimonial analysis of money, which would justify its conservation over time. Thus, according to Le Trosne ( 1846: 917), money that failed to circulate was “absolutely useless.” Moreover, the holding of money cannot be analyzed from an individual standpoint, since, far from belonging to individuals, “money belongs to the State and circulates only for general trade” (915).44 Quesnay was even more precise: money had no owner and no one had the right to keep it in reserve, since the individual freedom to hold money might conflict with the general interest. Thus,
it is therefore not as indifferent as one might think for the State, whether the money goes into Peter's or Paul's pocket, because it is essential that it is not taken away from the person who uses it for the benefit of the State. Strictly speaking, the money that is in use in the Nation has no owner; it belongs to the needs of the State, which circulates it for the reproduction of the wealth that sustains the Nation and provides the tribute of the Sovereign. (Quesnay  1846a: 94)
Hence, for the économistes, money should obey moral natural laws and was not the subject of individual portfolio management.
However, this position of the physiocrats was paradoxical. In their analysis, money was not the source of enrichment, but it could nevertheless, if hoarded, be the cause of the impoverishment of the nation. On the one hand, the circulation of money was only the counterpart of the circulation of goods; therefore “there will always be enough money,” as Le Trosne stated; but on the other hand, if money stopped, it was made responsible for slowing down the circulation of riches. Here there was a tension between their conception of commodity money, which was made of metal and therefore had the properties that made it a desirable asset because of its good preservation qualities, and their approach to the circuit in which money had only to circulate.45 Condillac, however, emphasized, for the farmer, the advantages of storing money, when the storage of wheat is subject to bad weather and insect attacks: the farmer
could not keep the surplus of his wheat without cost and without waste; and it is without cost and without waste that he would have kept the money he would have taken out of it. He would therefore be richer with this money than he is with the surplus that remains. The safest and least expensive way to keep wheat is to keep it in silver: for it is to keep wheat to keep silver with which one can always buy it. (Condillac 1821: 158; emphasis added)
For the économistes, from the point of view of society, it was necessary that people did not keep money, despite the individual advantages that precious metals (“the ease of storage and transport,” said Le Trosne) brought them. To overcome this tension, they denied the store-of-value function: money had to be made of metal to be accepted, but it should not be stored, even though made of metal. Consequently, money was constantly condemned to wander between two stocks, in the form of flows of income and expenditure.
In fact, the économistes did not see, or rather did not wish to see, that hoarding could be more the consequence than the cause of poor circulation, and the length of time that cash could be held in a portfolio could be the syndrome of frictions in exchange. Money that was not transformed into income had no choice but to remain in the portfolio, in the form of “idle” balances. But these cash balances that slowed down circulation took on the appearance of idleness only because they were waiting for a more profitable use in the future. Even if money had only an intermediary role, it was storable, so it was necessary to explain why its use was deferred. It was because they were dedicated to the elaboration of an ideal system, a “model,” that the physiocrats neglected the viscosity of exchange, the uncertainty or the frictions that alone could justify the rational behavior of holding money. Behind the disregard for the value reserve function, it was a repression of transaction costs that was at issue.
Long before the économistes, Petty, in his Political Anatomy of Ireland, had nevertheless perceived this dimension and envisaged money as a lubricant that facilitated exchanges: “Money is the Fat of the Body-Politick, whereof too much doth as often hinder its Agility, as too little makes it sick . . . so doth Money in the State quicken its Action” (Petty 1691: 14). “It is the oil which renders the motion of the wheels more smooth and easy,” Hume (1752: 41) said sixty years later. As soon as one recognized the viscosities in the circulation, money thus became made of grease and not of blood. It was because the system of the physiocrats repressed this viscosity that the holding of money had no place in it.
The physiocrats described an ideal world where imperfect circulation had no place. They sought to build a scientific model of economic government, as opposed to the sterile game of finance or the mercantile practices they discredited. In this quest for “economic science,” as the members of the sect called it for the first time, the Tableau Economique served as an almost experimental model, whose ins and outs it might be useful to discuss.46 Whether in Le Trosne's De l'utilité des discussions économiques (1766) or Morellet's Réflexions sur les avantages de la liberté d’écrire et d'imprimer sur les matières de l'administration (1775), “the private space of conversation thus becomes the ‘laboratory,’ the place where ideas are experimented with” (Markovits 2002: 9). For, if they wanted to construct a “science of governing nature,” the members of the sect were often also administrators or jurists who had to fight to convince their audience, for example, to adopt measures in favor of free trade. They clearly recognized in the France of their time a dysfunctional economy, where hoarding, luxury goods, and indirect taxes penalized traffic, but which they sought to bring closer, through the principles of good governance, to their ideal model where natural order reigned.
However, in this model, money did not completely fit. The physiocrats, by their denial of circulation's frictions and their expenditure-flow approach in the Tableau Economique, eliminated any imbalances from their analysis, although they had clearly perceived the risks of disequilibrium. Although money was an indispensable “tool of commerce,” the study of individual motivations for holding money had no place, because introducing money meant introducing disorder. Therefore, the physiocratic school seems to us to have prefigured, a century before Walras, the first unsuccessful attempt to “integrate” money into a theory of equilibrium.
We are grateful to the editor, Kevin D. Hoover, and to the anonymous referees for their excellent critiques. The usual disclaimer applies. No potential conflict of interest was reported by the authors.
Unless otherwise indicated, all translations are ours.
In this article we follow Schumpeter (1954) by defining the économistes as the small group of François Quesnay’s (1694–1774) followers, namely, Victor Riquetti de Mirabeau (1715–89), Pierre-Paul Le Mercier de la Rivière (1719–1801), Guillaume-François Le Trosne (1728–80), and Pierre Samuel Du Pont de Nemours (1739–1817). They were “all disciples, nay, pupils of Quesnay in the strictest and most meaningful sense these terms will bear” (Schumpeter 1954: 270). Authors such as Anne Robert Jacques Turgot (1727–81) and Abbot André Morellet (1727–1819), although sympathizers, did not belong to the sect stricto sensu.
Rist refers succinctly to Quesnay on only two occasions, notably to mention that “money is nothing” for the leader of the sect (Rist 1938: 85).
This reassessment is particularly necessary considering the silence that has fallen on the thought of the school’s main contributor to monetary issues, Le Trosne. Indeed, while Quesnay gave little scope to discussions of monetary doctrines, Le Trosne developed reflections on monetary doctrines in a very original way compared with the other members of the sect, especially in his book De l’intérêt social, published in 1777 in response to Condillac (Le Trosne  1846).
Letter written to Du Pont on February 6, 1770 (in Schelle 1914: 375).
“A state that uses public credit and goes bankrupt every ten years will become much more powerful, despite its bankruptcy, than a similar state which makes no use of public credit” (Argenson, Réflexions politiques sur le credit public , quoted in Sonenscher 2009: 160).
But the cost of this system appeared clearly during the Seven Years’ War, with the difficulty of raising funds.
From a narrative perspective, to advance their ideas, the physiocrats opposed themselves to invented fictional characters that were characterized by mercantilist traits. For this reason, Forbonnais, in his Principes et observations économiques, denied the confusion between wealth and precious metals, while Quesnay claimed to take the opposite view: the doctor’s “great art,” Forbonnais (1767: 287) told us, was to “create errors in order to combat them.”
Mirabeau quoted in Weulersse 1910, 2:256. Notice that in 1755 the ban on taking gold and silver out of the kingdom had only just been officially lifted.
“It is right to give an equivalent of what one receives: this is the essence of commerce, which consists in the exchange” wrote Forbonnais at the very beginning of his article “Commerce” in the Encyclopédie (see Journal encyclopédique ou universel1756–93: vol. 4, pt. 2, p. 20).
“I believe that one will easily agree with this principle, that only the abundance of money in a State makes the difference between its greatness and its power” (Colbert in Clément 1861–82, 2:259).
Louis Salleron, in his Textes annotés de François Quesnay, considers that Quesnay’s position in “Grains” is a “thought that is being sought” in the early writings for the Encyclopédie (François Quesnay et la Physiocratie 1958: 2:427n1) and that this error would not be repeated later (508n26). For Weulersse (1910, 2:262), in contrast, Quesnay acknowledged here that the possession of precious metals held particular advantages over other riches.
The notion of liquidity was only glimpsed, because it would have been necessary, in order to develop this notion, for the économistes to define money as a financial asset, which they refused, as we will see.
The multiple meanings of the term wealth are revealed particularly by the following quotation: “Coined money is wealth that is paid for by other riches, . . . which no longer contributes to perpetuating the wealth of a State when it is kept out of circulation and no longer returns riches for riches; then, the more it accumulates, the more it costs in wealth that is not renewed and the more it impoverishes the Nation. Money is therefore an active and truly profitable wealth in a State, only to the extent that it continually returns riches for riches; because money is by itself only a sterile wealth” (Quesnay  1846a: 93). According to Louis Salleron, although his doctrine on wealth is “perfectly clear,” Quesnay, “like most great intuitive persons,” “composes badly” and “constantly contradicts himself” (François Quesnay et la Physiocratie 1958, 2:519n8).
According to Boisguilbert’s Jansenist tradition, for the physiocrats, the finality of goods was indeed to be found in human enjoyment: “To obtain the greatest possible increase in enjoyment, by the greatest possible reduction in expenditure, is the perfection of economic conduct,” said the master of the sect (Quesnay  1846: 192).
The circulatory metaphor, whether it concerned blood, water, canals, or rivers, was often taken up by the physiocrats (Mirabeau, Quesnay, and Le Mercier, in particular), and there is no doubt that Quesnay took inspiration from blood circulation in his Tableau Economique. Nevertheless, the analogy can be misleading, because the économistes compared the circulation of blood to that of riches, not that of money.
If, with Schumpeter (1954: 301), one can “discern the shadow” of the speed of circulation in Davanzati, Cantillon was the first economist to conceive that an increase in the speed of the circulation of money was equivalent to an increase in its quantity: “I have already noticed that an acceleration, or greater speed, in the circulation of money is worth as much as an actual increase in money, up to a certain degree” (Cantillon 1755: 213).
Letter from Boisguilbert of July 1, 1704 (in Correspondance des contrôleurs généraux des finances avec les intendants de provinces1883: 536).
In answer to the twenty-sixth question in his Quantulumcumque concerning Money, Petty ( 1906: 484) says that “if we have too little money, [the remedy is] to found a bank which, by good calculation, should almost double the real value of our money.”
The term solvency appears explicitly in Boisguilbert’s Dissertation (see Boisguilbert  1843: 405).
This conventional definition was illustrated by Melon ( 1843: 781), in his Essai politique sur le commerce: “The convention has given to public credits, i.e. paper-money, the value of money, of which they are only representative,” so that a banknote “merely represents a money which, by itself is only a convention, provides an assured pledge for all purposes” (781). Similarly, in the Réflexions politiques sur le commerce et les finances, Dutot ( 1843: 906) wrote that “a louis d’or, an ecu, etc. are bills whose effigy of the Prince is the signature.”
De la nature de la monnaie, in Montesquieu 1748, bk. 22, chap. 2. This quotation deserves to be qualified, because Montesquieu also stated that commodities are also a sign of money. While Turgot interpreted Montesquieu as a defender of the conventional view of money, it is not clear what his precise vision of the nature of money was.
A few years later, Hume also distinguished between increases in the money supply generated by inflows of foreign coinage or by a domestic expansion of paper money, but he judged the latter to be inflationary: “To increase such a credit, can never be the interest of any trading nation” (Hume  1985: 284). Having witnessed the failure of Law’s system, he was opposed to any link between public debt and money issue. Hume did not trust the government to restrain itself and not overissue paper money (see Schabas and Wennerlind 2011 and Caffentzis 2021).
According to Quesnay ( 1846: 202), “The coined metal is intended to circulate. . . . It has no other use than to facilitate the exchange of goods, by serving as an intermediate pledge between sales and purchases.” For Le Mercier ( 1846: 542), “Money can be regarded as an intermediate pledge, by means of which the exchange begins between the buyer and these sellers, and is then consumed by them with other men who, based on this common pledge, supply the goods which the first buyer did not have in his possession.” For Du Pont ( 1846: 373), “To facilitate [the circulation], an intermediate pledge of great price and little volume is needed. . . . This pledge is what is called money, currency, cash, etc.”
The physiocrats were not always so precise. For example, in his Explication du tableau économique first published in the Éphémérides du citoyen in November 1767, Baudeau ( 1846: 856–57) makes no distinction between bonds and money: “We will now consider . . . the sum of any money now in circulation in the State as a quantity of bills of exchange, warrants, commercial bills, . . .”
It also stated, before Marx, the function of money as a means of payment. Le Trosne was here, if not the first, at least the clearest of the economists of his time to claim that money had the general capacity to settle any debt.
This conversion of Le Trosne to the doctrine of commodity money is probably due to Turgot, whose Réflexions, written in 1766, was published in 1769–70 in the physiocratic journal the Éphémérides du citoyen, namely, a few years after Le Trosne’s 1765 Lettre à Quimper.
To be found in the Tableau des opérations de l’Assemblée Nationale, no. 51: 428.
In this way, the detractors of Law’s system forcefully denounced Law’s “despotic” combination of multiple enterprises into a single institution headed by himself. According to Montesquieu, Law was “one of the greatest promoters of despotism yet seen in Europe” (Montesquieu quoted in Kaiser 1991: 20).
In his presentation of the Second problème économique on the effect of indirect taxes, Quesnay ( 1846b: 127) explicitly likened the rights on the circulation of money to an indirect tax: “There are indirect taxes, simple and inexpensive in their collection. . . . Others are highly compounded, and result in a very expensive collection. Such are those that would be levied on goods and merchandise, on entries, exits, tolls, customs, or on navigation and carriage of internal and external trade, or on the circulation of money in purchases and sales of all kinds.”
As early as the fourteenth century, Buridan made a clear distinction between the two functions of money, namely, to save transport costs (“ex distantia locorum”) and to preserve values over time (“ex distantia temporum”); see on this point Dubois 1903: 92.
The expression “valets of commerce” may have been borrowed from Davenant, who spoke of “servants of trade” in his Discourses on the Public Revenues, published in 1698. This is notably the point of view of Paul Harsin (1928: 108) and Gabriel Bonno (1948: 151).
Hume (1752: 91) explained that thanks to (the physiocrats would say because of) hoarding, “provisions and labour [in France] still remain cheaper among them, than in nations that are not half so rich in gold and silver.”
“La non-valeur avec l’abondance n’est point richesse; la cherté avec pénurie est misère; l’abondance avec cherté est opulence” (Quesnay  1846: 300).
“To imagine that saving and hoarding are two synonymous words! What a reversal of ideas!” Letter written to Du Pont on March 23, 1770 (in Schelle 1888: 127n2).
In the words of the Irish physiocrat Henry Pattullo (1758: 186–87), “The immense profits and rapid fortunes made in France by financiers and all those who deal with the King, or receive his money, disgust any other profession; but above all to buy or make use of land.”
“As soon as money becomes the only means of purchase, everything would be lost if it ceased to circulate; it is absolutely necessary that it should only pass through each hand” (Le Mercier  1846: 541). A quotation that can be compared to that of Boisguilbert ( 1843: 213): “The body of France suffers when money is not in continual movement, which can only be as long as it is movable, and in the hands of the People; but so soon as it becomes immovable, . . . one can say that all is lost.”
Published in the Éphémérides du citoyen by November 1767.
This is what was to make Spengler (1945) say that the physiocrats were “responsible” for the formulation of Say’s law.
As Lambert (1952: 8) points out, although brought to light by Marx, this formula from Le Trosne remained virtually ignored thereafter, so that “neither the great histories of economic thought nor the encyclopaedias do credit to Le Trosne.”
Première Lettre de Say à Malthus (quoted in Comte, Daire, and Say 1848: 441).
According to Say (1861: 136), “Whenever people say: ‘the sale is not going well, because money is scarce,’ we take the means for the cause”; “There is always enough money to be used for circulation”; “When money is lacking in the mass of businesses, we easily make up for it,” etc.
The recognition of the fetishism of money by Quesnay is clearly evident in an anecdote reported by Weulersse. In the course of a conversation, Quesnay “had declared that he knew the powder of the perlinpinpin; as everyone was amused by this naivety, he took a few louis from his pocket. Everything that exists, he said, ‘is printed in these little pieces, which can take you conveniently to the end of the world. All men obey those who have this powder and hasten to serve them. . . . Long live the almighty perlinpinpin powder’” (Weulersse 1910, 2:262–63).
The fact that money belonged to the state did not mean, here, that it belonged to the sovereign (which would come down to the feudal theory of money) but that it was a common good that served all citizens.
As Turgot ( 1844: 81) clearly described in his “desert island story” to justify the exchange, “Experience teaches our savage, however, that among the objects proper to his enjoyment, there are some whose nature makes them likely to be preserved for some time and which he can accumulate for future needs: these retain their value, even when the need of the moment is satisfied.” Le Trosne ( 1846: 909–10) himself, when comparing exchange (barter) to sale (for money), stated that “one usually prefers sale . . . because often the seller has no current need to fill, and the storage and transport of money is less troublesome,” thus contradicting his assertion on the previous page that “everyone returns the money he has received daily and puts it back into circulation” (910; emphasis added).
Quesnay asserted in the Tableau économique avec ses explications (1760), written in collaboration with Mirabeau, that “one must not confuse the principles of the science of economic government with the trivial science of the specious operations of finance which have as their object only the nation’s nest egg and the movement of money by a traffic in money where credit, the lure of interest, etc., produce, like a game, only a sterile circulation.” (Mirabeau 1756–61, pt. 6 , p. 65). The term economic science was used by many physiocrats. Du Pont ( 1846: 375) asserted that “economic science is nothing other than the knowledge of the natural ways of distribution.” According to Le Trosne ( 1846: 934), “Each science requires a particular language, so economic science has a ready-made language.” The same was true of Baudeau, who referred to “economic science” on numerous occasions (Baudeau  1846: 702, 792, 793).