Turgot, forerunner of Adam Smith? Life, ideas and posthumous influence

Like many other French liberal economists, Turgot is one of those figures more acknowledged abroad than in his home country, where he is mainly remembered as Louis XVI’s ephemeral minister of finance. His political work was undoubtedly considerable, so much so that Edgar Faure, his biographer and head of government during the 1950s, wrote that had Turgot been longer in power, the French Revolution may not have occurred.

However, this shouldn’t overshadow his contribution to economic thought. Wrongly classified as a physiocrat because he shared some François Quesnay’s theories, Turgot proved more than once, by the originality of his ideas, that he didn’t belong to any “sect of economists”. His personal experience as an administrator encouraged him to design practical solutions to the problems he faced rather than a comprehensive system he actually intended to describe but didn’t have time to do so: he died at the age of 53, after having devoted most of his life to serving the state.

The great treatise which would have given a coherence to Turgot’s vision and would have made it known might be found, to some extent, in Adam Smith’s Wealth of Nations (1776). It is attested that the two men met at Quesnay’s, in Paris, around 1764, and that they highly esteemed each other, even if, contrary to a common belief, they never corresponded. Besides economics, Turgot and Smith also had a common interest for moral philosophy, from which they drew justifications for liberalism. The comparison could hardly go further, as their contributions to economic thought were of different nature and didn’t have the same impact on the development of the discipline. In fact, Turgot’s life expresses by itself his ideas much more than his flagship book Reflections on the formation and the distribution of wealth (1766). For this reason, his biography will occupy the major part of this paper. In a second section, focus will be given to theoretical concepts he usually formulated in little-publicized works and then, as a conclusion, an assessment of his legacy up to our times, if any, will be made.

Biography

Early life

Anne Robert Jacques Turgot was born in Paris in 1727. Being the third son of Michel Étienne Turgot, “provost of the merchants” of Paris and formerly court president of the Parlement of Paris, he was destined to take Holy Orders and studied theology in the Sorbonne. However, his career as a prior didn’t last very long: he resigned in 1751, two years after his election, because he lost faith and “could not bear to wear a mask all his life”. The shift wasn’t very difficult as he had also studied a lot of languages, sciences, moral philosophy and law. He chose the latter and partly thanks to his father’s position, he became a magistrate. The charge kept him busy for ten years, during which he wrote contributions for the Encyclopédie and translations, in particular David Hume’s and Josiah Tucker’s writings on trade.

This led him to meet Vincent de Gournay, then trade intendant, and together they toured France for two years. Gournay’s liberal ideas (he’s the one who popularised the now famous slogan “laissez faire, laissez passer”) had a strong influence on Turgot, who afterwards fiercely condemned monopolies, corporations and any obstacle to freedom to work. Nevertheless, Turgot didn’t recognize that trade and industry were also a source of wealth: in this respect, he remained closer to François Quesnay, who believed that agriculture was the only productive sector.

From the administrator…

In 1761, Turgot was appointed intendant of the généralité of Limoges, in Limousin. The region was one of the poorest in France and was heavily taxed. Turgot found there the occasion to put into practice the ideas he got during the previous decade. Beyond measures aimed at encouraging private initiative, freedom of trade and agriculture, he also introduced technical innovations such as the use of merino and potato, the distribution of seeds and agricultural tools, the establishment of a cadastre… The intendant didn’t forget social justice either, replacing the corvée with a tax on landowners, modifying the tax collection system, creating charity workshops, giving alms in case of food shortage and abolishing forced conscription in favour of voluntary enlistment.

Despite a strong attachment to liberalism, Turgot didn’t plead for the total absence of state intervention. We mentioned his social policy but, like Adam Smith, he believed that state intervention could sometimes be desirable, even necessary. Therefore, he conducted ambitious construction projects of roads and canals in order to increase trade, and he opened schools for vets, midwives and physicians to struggle against epidemics. On a less positive tone, he didn’t hesitate to harshly crush uprisings to maintain the state’s authority: “freedom to harm has never existed […] The law must forbid it”. Turgot’s function in Limousin didn’t keep him isolated from the Parisian boiling intellectual life. In the 1760s, he met Pierre Samuel du Pont (not yet de Nemours) with who he worked on the edict liberalizing grain trade ― the act would be abolished a few years layer by the minister of finance Terray. At the same period, Turgot frequented the Tuesday dinners organized by the marquis de Mirabeau, another physiocrat. There, he met many other economists as well as philosophers, and this way he developed his ideas not only about economics, but also about justice and politics.

… to the statesman

Louis XV died in 1774, after a murky end of reign. The country was nearly bankrupted because of the Seven Years’ War and the Crown was at war with the Parlement of Paris. In order to calm down the situation, the new king, Louis XVI, decided to call on new personalities, less involved in political disorders and able to undertake reforms. Maurepas came back from exile and was appointed Prime Minister, while the name of Turgot was advanced for the position of minister of finance, thanks to his reputation of integrity and his talent as an administrator. At the same time, Maurepas expected to take advantage of the Limousin intendant’s lack of connections among the court to keep him under control. Turgot left Limoges for Paris in the summer, under peasants’ mournings: “The king did well to take M. Turgot, but it’s very sad for us not to have him anymore.”

The newly appointed contrôleur général quickly started the work and presented Louis XVI a clear programme: “No bankruptcy, no increase of taxation, no borrowing”. Indeed, although France was squeezed by taxes, her debt equaled almost ten years of revenue and servicing it monopolized around a third of the budget. The only solution therefore was to cut spendings. Turgot replaced fermes (monopolies sold by the state to individuals who run them) with régies d’État (companies directly managed by the state) in the field of gunpowder and mail, with the result of increasing receipts, improving the quality of service and diminishing complaints from the population. To be the model, he cut his own salary and refused the farmers-generals’ usual “gifts”.

The next reform was more difficult to achieve and concerned grain trade. Turgot, faithful to his convictions, lifted most of the regulations and the taxes that hampered free trade of wheat. However, the poor harvest of 1775, and the subsequent rise of prices, fueled opposition from the Colbertist school, then predominant in the country, which pretended that law was necessary to prevent speculators from stocking grain and starving people. Plunderers began to attack bakeries in Dijon, Paris and Versailles, forcing the army to intervene and to put an end to this Flour War by arresting the leaders and eventually executing them. If the king kept his trust in his minister, it was no longer the case from Maurepas, who felt threatened by Turgot's growing role.

Nevertheless, the minister of finance was resolute to pursue the reforms he considered necessary. In January 1776, his six edicts enforced, among other less important things, the abolition of the corvée and the dissolution of jurandes for most of occupations except in medecine and printing (because of censorship). This was almost revolutionary and in this respect, Turgot did anticipate the Night of August 4 and the Le Chapelier Law, two key elements of the French Revolution.

Like in Limousin, the corvée referred to these several days a year during which peasants were obliged to work for free to maintain roads or to create new ones. In addition of not being very productive, the corvée was, according to Turgot, unfair because the main beneficiaries of roads were landowners, therefore they should pay for these public works. The direct consequence of the abolition of the corvée was the establishment of a contribution in money paid by everyone, including the gentry and the clergy. It challenged a long tradition of tax exemption for these two estates, even if Louis XV previously tried, in vain, to go back on their privileges.

The Third Estate wasn't spared either. The jurandes were craft guilds which had a monopoly on an occupation, so that no one could do it without the jurande’s authorization. The restrictions on the number of granted maîtrises allowed them to keep a relative shortage of crafstmen and high prices. Someone who wanted a job had to pay for apprenticeship and pass certain tests, but before becoming independent, he was in a condition near to slavery. Jurandes, which also had the power to impose norms on the production, were usually reluctant to change their techniques because of the lack of competition.

The fall

Through these acts, Turgot managed to unite against himself all the privileged. Notwithstanding the fact that the king would register the edicts against the Parlement’s will, he started to reconsider the support he had for his minister. Turgot’s personality probably played an important part in his disgrace. Many testimonies described him like a “man with a system”, “stubborn, […] presumptuous, […] who had no single doubt”. The long hours he used to spend at work, alone, “haven’t given him the art to get his conviction into the souls of those who aren’t prepared for it”. At the same time, the king became fed up with his learned tone, perceived as a challenge to the supreme authority: “Mr. Turgot wants to be me and I don’t want him to be me”.

The fall became then inescapable. One month after Malesherbes, his friend in charge of the Maison du Roi (equivalent to the modern Ministry of the Interior), resigned, in April 1776, Turgot was asked to give his demission. Afterwards, he spent the rest of his life at his “dear studies”, with the bitter feeling of having failed to complete his work. The subsequent ministers of finance cancelled the most controversial edicts and ironically, the Colbertist Necker, who wrote the Essay on the legislation and the trade of grain against Turgot’s policy in the area, took his position a few years later. Turgot eventually died in 1781, before the event that was going to resurrect his ideas: the French Revolution.

Ideas

If Turgot’s main principles can be read through his political action, a lot of his economic concepts remained at the stage of draft, not developed enough or lost in some paper whose no one knew the existence. Nevertheless, the relevance of many of his intuitions is striking, even from today’s point of view. The biggest part of his writings is now compiled into a series of books, yet their scattering doesn’t make easy for the reader to find pearls among the jungle of small talk of his correspondence or the legal forms of his bills. By consequence, the following list does not pretend to exhaustivity and should only be considered as a sample of Turgot’s most avant-garde ideas.

Marginalism and diminishing returns

Turgot is credited to have been the first who clearly enounced and applied the concepts of marginalism and diminishing returns in economics, decades before Ricardo’s writings and the Marginal Revoution. The idea remained relatively discreet though as it was only mentioned in the Observations on the paper by Saint-Péravy (1767), an obscure writing about the problems of indirect taxation.

As an administrator acquainted with agriculture, Turgot explained that due to soil exhaustion and the scarcity of very fertile lands, “production can’t be exactly proportional to the amount of seeds used”, “each increase [being] less and less fruitful”. He illustrated his idea with the example of a stiff spring progressively loaded with equal light weights. If, at the beginning, nothing happens, the spring starts to bend a lot when the charge is heavy enough, before bending less and less because of a greater resistance.

The iron law of wages

While Thomas Malthus and David Ricardo are often associated with the “iron law of wages”, i.e. this assumption saying that the real price of labour trends towards its natural price ― or subsistence wage (just enough for the worker to survive and reproduce) ― , we can already find traces of it in Turgot’s correspondence: “For the worker’s wage, the fundamental price is the worker’s cost of subsistence. The worker must find a certain profit to ward off accidents, to raise his family. In a nation where trade and industry are free and lively, competition fixes this profit at the lowest possible rate”.

He would repeat that idea a few years later in his Reflections: “The wages of the worker are limited to his subsistence by competition between workmen. […] The mere worker, who has only his arms and his industry, has nothing except in so far as he succeeds in selling his toil to others. […] [The employer] pays him as little as he can ; as he has the choice among a great number of workers, he prefers the one who works for the least wage.”.

Division of labour, specialization and gains resulting from trade

The description of the pin making factory Adam Smith used to explain the process of division of labour and its consequences has probably helped more than any other theoretical writing to popularize the concept. As a French who didn’t travel a lot, Turgot remained in a field he was more familiar with to give his own vision of it, that is agriculture. His Reflections contain two paragraphs about the impossibility, for a single man, to do all the tasks between the harvest of raw materials to the making of clothes first because he can’t be skilled for everything, secondly because of the indivisibility of certain materials: “will [the ploughman] kill an ox to have this [single] pair of shoes ?”. There follows an explaination of the benefits from trade, which doesn’t equal however another one he gave in a paper written a few years later, Values and currencies (1769).

Although the article was never completed, it expressed a surprisingly modern analysis of the gains resulting from trade. Anybody who studied economics will smile at the evocation of a Crusoe economy. “[…] the introduction of trade between our two men increases the wealth of the one and the other, that is giving them a bigger quantity of pleasure with the same faculties. I suppose, in the example of our two savages, that the beach which produces corn and the one which produces wood are far from each other: a savage alone would be obliged to do two journeys to have his provision of corn and wood ; by consequence, he would lost a lot of time and tiredness to sail. If at the contrary they are two, each of them will use the time and the labour he would have lost in the second journey, one to cut wood, the other to get corn. The total sum of corn and wood collected will be bigger, so will be everyone’s part.”

Replacing the words “pleasure” with “satisfaction” and “faculties” with “quantity of labour” or “production-possibility frontier”, the text could almost be used as it stands in a contemporary lecture of economics. In an extract quoted by Charles Staley about the qualities of vineyards in different regions of France, we may even find the absolute advantage theory later developed by Adam Smith.

Money, interest rate and theory of value

During his term as an intendant in Limousin, Turgot faced a financial scandal in Angoulême about usury. The word at that time referred to any loan granted for interest, regardless of the rate, and the practice was forbidden in France, essentially for religious reasons. In his Paper on money lending (1770), Turgot developed an argumentation to decriminalize usury, proving that the foundations of the law which prohibited it were wrong.

First, he stated that capital could be used by entrepreneurs to start a business and make profit: therefore, money could produce money, contrary to the Scholastic belief. Secondly, Turgot introduced the concept of usefulness to assess things, saying that they “don't have […] a real and intrinsic value” because “everyone attributes to the thing he gets a bigger value than the thing he sells relatively to his personal usefulness, to the satisfaction of his needs or his desires”. If it wasn’t the case, people wouldn’t trade. By consequence, equity in the contract doesn’t obviously mean that the lender should get back a sum of money equal to the one he lent. Present and future values of money could be different, and according to Turgot, they were, that difference being called interest.

In this respect, the French economist didn’t innovate a lot and drew his inspiration from contemporaries such as Ferdinando Galiani. However, his definition of interest and the explaination of the factors influencing it may have been clearer and deeper. Turgot described the positive relations between interest, the risk of not being paid back, the borrower’s need for money and his possible expectation of profit drawn from the loan.

Last but not least, as he considered money like any other commodity, he claimed that “interest being the price of lent money, it rises when there are more borrowers and less lenders, it falls at the contrary when there is more money offered than the demand of loans”.

The government’s role in fighting against unemployment

In opposition to Adam Smith who believed that the state shouldn’t intervene to reduce unemployment, Turgot may to some extent have announced the Keynesian point of view on this topic. In a Paper on the means to provide, by an increase of work, the people of Paris with ressources, in the case of a rise of commodity prices (1775), he repeated the principles which had guided his action in Limousin and called for the launch of public works. Giving people jobs wasn’t only for Turgot a social question but also an economic one. In absence of income, they would no longer have been able to buy grain, and the slower circulation of money in the economy would have jeopardized the creation of wealth. In other words, it was the state’s responsibility to rebalance the “disproportion between wages and subsistences, between faculties and needs”. The particular importance given to consumption may already be found in his Letters on the freedom of grain trade (1770).

Posthumous influence and conclusion

After having reviewed all these elements, we can but regret that Turgot’s work has never received the fame it has deserved. Joseph Schumpeter even said that economic analysis lost one century by not having given enough attention to Turgot’s writings. If his concrete legacy to economic thought was therefore quite limited, as most of the posterior scholars of the subject probably didn’t read him, his political influence shouldn’t be neglected. We already mentioned the French Revolution, but the 19^th century also bore his mark: for instance, the advocates of free trade during the Second Empire borrowed many of his arguments.

Curiously, Turgot is as well used by a part of the left for his temperate liberalism, which wasn’t only justified by utilitarism but also by moral considerations. Even some Marxists appropriated Turgot’s theories, especially his division of the society between classes and his opinions about history and progress. This ability to be quoted by extremely various currents recalls us that beyond economics or politics, Turgot was before all a comprehensive intellectual, who carried a certain vision of the world and who tried, somehow or other, to put it into practice. Considering the events subsequent to his life, it seems that he didn’t entirely fail.

Bibliography :

• Elisabeth Badinter, Les passions intellectuelles (T.3), Volonté de pouvoir (Intellectual passions, Will to power), Éditions Fayard, Paris, 2007

• Françoise Bayard, Joël Félix, Philippe Hamon, Dictionnaire des surintendants et contrôleurs généraux des finances (Dictionary of superintendants and controller-generals of finances), Cheff, Paris, 2000

• Cordorcet, Vie de Monsieur Turgot (Mr. Turgot’s life), Association pour la diffusion de l’économie politique, Paris, 1997

• Edgar Faure, La disgrâce de Turgot (Turgot’s disgrace), Gallimard, Paris, 1961

• Peter Groenewegen, “The nature, functions and value of Money: a brief exposition of Turgot’s monetary theory”, in: History of political economy, vol. 39 no. 2, Duke University Press, Durham, (United States), 2007

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• Francisco Vergara, “Intervention et laisser-faire chez Turgot : le rôle de l’État selon le droit naturel” (Intervention and laisser-faire in Turgot’s thought: the role of the state according to natural law), in: Cahiers d’économie politique, no. 54, 2008