Turgot

Anne Robert Jacques Turgot

Jonathan Sherman

Anne Robert Jacques Turgot was a philosopher and statesman, but he also laid much of the ground work for today’s modern economic thought. Born in Paris in 1727, Turgot was enrolled in a private school in Paris prior to attending Seminaire De Saint-Sulpice to prepare for priesthood. From his schooling Turgot received a Bachelor of Theology in 1747 from Seminaire De Saint-Sulpice. Turgot went on to hold several positions in municipal and provincial governments which would ultimately lead him to being Intendant of the Generalite of Limoges. While holding this position Turgot made several economic reforms. One of which was the removal of restrictions on trade of not only agricultural products but also financial transactions. While Turgot refused to be associated with physiocrats, he derived some of his theories in economics from them. Turgot was also influence by Adam Smith as well as Quesnay and many of his writing challenged the true physiocratic principles. Today, many of Turgot’s principles are considered the building blocks for a successful capitalist society.

Free trade was one Turgots most prominent principles. Physiocrats regarded trade as unproductive. This rational was due to the idea that goods are exchanged for something of equal value and that there could be no new wealth created. Physiocrats did however support the idea on freedom to export grain as essential to growth of produit net, or in other words the net product. The export of grain during the time of Louis XVI however was restricted. Along with restrictions on exports, imported goods were also encouraged. This limited the quantity of goods a producer could sell and limited the price a good could be sold at. During Turgot’s time as Controller General of Finances for Louis XVI, Turgot attempt to reform the restrictions put on exports. However, his push for freedom of trade and other reforms was ended in May 1776, when Louis XVI removed him from his position.

Turgot’s rationale behind liberalizing trade was to grow the net profit of producers and lead to a capital surplus. This surplus in turn would lead to growing investments which would produce further increased returns. While the idea of investing back into ones company was generally excepted, the idea of lending money while requiring interest was not accepted by Scholastic theologians. Turgot however, believed that the lending of money on the agreement of return plus interest was fully acceptable and in fact good for an economy. While The Scholastic theologist believed money produces nothing on its own, Turgot could see the advantages to both the lender and the borrow. By lending capital, the lender is taking a risk of losing the loaned capital with no incentive to take the risk. By asking for interest the lender thus has the incentive of making a profit which makes the risk of the loan more appealing. On the side of the borrow, without the loan the individual may never be able to get what in needed to start them on the road to prosperity. By being able to borrow, one is able to invest and hopefully make enough of a profit to pay back their loan, plus the interest, and reinvest their new capital. With the positives of both side it is obvious why Turgot would argue that loans with interest were profitable for both parties.

Turgot also developed idea on how societies must function and interact to grow to perfection. Torgut’s laissez-faire ideology was learned from Gournay, his economic teacher and is evident in todays free markets. By creating and economy free from monopolies, tariffs and other regulatory agents, economies would grow. During Turgot’s time as Intendent of Limoges he successfully implemented this laissez-faire policy.

In 1766 Turgot began writing “Reflections on the Formation and Distribution of the Riches”. In this Turgot defined three classes of agents the landowner, the wage-earner, and the capitalist-entrepreneur. It is also in this writing that Turgot defines what a capital-driven economy must have in order to function. For the capitalist there must be a return on investment to incentives the capitalist to take risks. This return on capital produces a greater capital surplus, which encourages further investments by the capitalist. He also believed that by taxing the capitalist, it would remove the incentive to invest and cause a slowing of the growth of the economy.

Turgot was able to turn these ideas in to reforms which he was largely successful in implementing while in Limoges. However, he did not have the same success in France. Turgot’s proposed reforms for Louis XVI included; eliminating the trade restrictions, huge changes in the tax system which would include a single tax on landowners, as well as a public education system. These reforms were too much for Louis XVI who would terminate Turgot as the Controller General of Finances. While Turgot’s reforms were unsuccessful under Louis XVI after the French Revolution the National Assembly would put into effect many of his reforms. However, Turgot did not live to see this happen.

Turgot has legitimate claim to “the father of capitalism” for producing many of the most basic ideas for successful capitalist economy. In his writing, Reflections on the Formation and Distribution of Wealth, Turgot laid the ground work and explained in great detail a capitalist society. He explains that their must be a return on all investment in order to incentives more investment. If no profit can be made from an investment individuals would prefer to live without taking the risks. However, if returns on capital exist the accumulation of wealth is possible through trade and reinvestments.

Turgot believed, that as fast as the return on investment or sales came back to the capitalist, he would use the new capital to reinvestments in his business to maintain production. With his profits he would live, but with the money he could spare from his profits he would put back into his business. This increase in capital allows a bigger return on his investment which he could then put back into his business and and in turn his business would grow bigger. This process of accumulating wealth is endless so far as cost never exceed’s revenue.

This accumulation of wealth is what drives a capitalist economy. Through production, manufacturing, sale and investment individual’s are able to acquire greater capital over time. To impose tariff 's on trade would reduce the amount the capitalist could invest due to his diminished returns. Without a reward to a risk, very few individuals are willing to partake because it would not be in there own self interest to. It should be noted as well that Turgot was a believer that individual always acted in their own self interest. This idea would later become Adam Smiths “invisible hand”. Through these policies individuals acquire a capital surplus which is needed for an economy to grow and in Turgot’s mind to reach perfection.

Turgot never regarded himself as an economist but his influence on economic theory is obvious in today world. He is credited for laying the ground work for a capitalistic society in which competition drives the price of labor and goods, and which capital surplus leads to increased investment and increased economic growth. It is this capitalist way of thinking which has led to some of the most advanced economies in the world such as France and The United States among many others.

References:

Martel, Robert J. (1990) A. R. J. TURGOT (1721-1787). Philosopher, Statesman, But Never and Economiste, Whittenmore School of Business and Economics. University of New Hampshire

Rima, Ingrid Hahne. Development of Economic Analysis. 7th ed. New York, NY: Routledge, 2009. Print.

References: Martel, Robert J. (1990) A. R. J. TURGOT (1721-1787). Philosopher, Statesman, But Never and Economiste, Whittenmore School of Business and Economics. University of New Hampshire Rima, Ingrid Hahne. Development of Economic Analysis. 7th ed. New York, NY: Routledge, 2009. Print.