The Economics Book

LET TRADING BEGIN 45

The interdependence of consumers and producers was first
illustrated by Quesnay. Consumers rely on producers for goods and
services, who in turn rely on the consumers for sales and labor.

François Quesnay

Born near Paris, France, in

1694, François Quesnay was

the son of a plowman and the

eighth of 13 children. At

the age of 17 he began an

apprenticeship in engraving,

but then transferred to the

university, graduating from

the college of surgeons in 1717.

He made his name as a

surgeon and specialized in

treating the nobility; in 1749,

he moved to the royal palace

at Versailles, near Paris, as

physician to Madame de

Pompadour. In 1752, he saved

the king’s son from smallpox

and was awarded a title and

enough money to buy an estate

for his own son.

His interest in economics

began in the early 1750s, and in

1757 he met the Marquis de

Mirabeau, with whom he

formed les Economistes—the

physiocrats. He died in 1774.

Key works

1758 Economic Table

1763 Rural Philosophy

(with Marquis de Mirabeau)

1766 Analysis of the

Arithmetic Formula for the

Economic Table

This system... is, perhaps,

the nearest approximation

to truth that has yet been

published on the subject

of political economy.

Adam Smith

Goods and

services

Consumer

expenditure

Wages, rent,

Households dividends Firms

Labor

around the economy. The value of
the total product of an economy is
equal to the total income earned
—a notion that was an important
part of Quesnay’s theory. In the
20th century much of the analysis
of macroeconomies has revolved
around the Keynesian multiplier
(pp.164–65). Keynes showed how
government spending could
stimulate further spending
in a “multiplier effect.” This
idea has obvious links to

Quesnay’s circular flow, with

its susceptibility to expansion

and stagnation.

Perhaps most importantly,

Quesnay’s concepts of surplus

and capital became key to the

way that the classical economists

analyzed economic growth. A

typical classical model focuses on

three factors of production: land,

labor, and capital. Landowners

receive rent and spend wastefully

on luxuries; laborers accept a low

wage, and if it rises, they produce

more children. However,

entrepreneurs earn profit and

re-invest it productively in industry.

So profit drives growth, and

economic performance depends on

sectors of the economy generating

surpluses. Thus, Quesnay

anticipated later ideas about

the growth of economies

and inspired Karl Marx (p.105),

who produced his own version

of the Economic Table in 1885.

Marx said of Quesnay that

“never before had thinking in

political economy reached such

heights of genius.” ■