Turgot History of Economic Thought Boise State University Fall 2015 Prof. D. Allen Dalton

Vincent de Gournay ( ) wealthy merchant; government service as intendant of commerce ( ) central influential figure among reformers central principle: “in general every man knows his own interest better than another to whom it is of no concern” originator of "Laissez faire, laissez passer," meaning to "let things alone, let them pass" unlike physiocrats, regarded industry and commerce (as well as agriculture) to be important sources of wealth

A.R.J. Turgot ( ) – prosperous merchant family – studies at Sorbonne – works at Paris parlement ( ) comes under influence of Gournay – intendant of commerce ( ) Abbé Morellet, Condorcet, Smith – Minister of Finance, reform cabinet of Maurepas, Louis XVI ( ) 1775; lifts internal controls on grain 1776: Six Edicts; dissolves guild system and replaces corvée with l’impôt unique

The Contributions of Turgot In Praise of Gournay (1759) Reflections on the Formation and Distribution of Wealth (1766) Observations on a Paper by Saint-Peravy (1767) Value and Money (1769) Paper on Lending at Interest (1770)

The Contributions of Turgot In Praise of Gournay (1759) – reciprocal nature of exchange – indispensable particular knowledge of entrepreneurs – superiority of natural order to regulated economy

The Contributions of Turgot Reflections on the Formation and Distribution of Wealth (1766) – saving source of capital – capital may be lent, purchase land, or be employed as advances to factors in industry – capital is source of interest, rent, and profit – therefore, commerce and manufacturing are also sources of produit net

The Contributions of Turgot Reflections… (1766) – competition equalizes returns to interest, rent, and profit subject to differing risks – all prices, rents, interest determined by supply and demand – wealth is the present value of the net revenue from land plus the value of the stock of movable goods – invested capital must earn same return across industries or dislocations of production will occur

The Contributions of Turgot Observations on a Paper by Saint-Peravy (1767) – introduction of variable input proportions in analysis of production – conceives of diminishing marginal productivity of factor inputs

The Contributions of Turgot Value and Money (1769) – well-developed subjective value theory of exchange value (relative price) – mutually beneficial nature of exchange – presents account of how an increase in number of traders reduces indeterminancy of exchange

The Contributions of Turgot Paper on Lending at Interest (1770) – interest is compensation for difference in value between present money and the assurance of the same amount of money at a future date – clear presentation of capitalization concept