The Economics Book

62

F

renchman Anne-Robert-

Jacques Turgot (p.65) was

one of a small group of

thinkers known as the physiocrats,

who believed that national wealth

was created from agriculture.

Turgot’s twin interests in tax and

the output of land led him to develop

a theory that explains how the

output of each extra worker changes

as successive workers are added to

the production process. A fellow

physiocrat, Guerneau de Saint-

Péravy, had said that for each extra

worker on the land, the amount of

additional output is constant; in

other words each extra worker adds

the same to production as the last.

But in 1767, Turgot pointed out that

unprepared soil produces very little

when sowed. If the soil is plowed

once, output increases; plowed

twice, it might quadruple. Eventually,

however, the extra work begins to

increase output less and less, until

additional workers add nothing

further to production, because the

fertility of the soil is exhausted.

The role of technology

Turgot’s idea is that adding more of

a variable factor (workers) to a fixed

factor (land) will lead to the last

worker adding less to output than

the first. This has become known

as “diminishing marginal returns,”

and it is one of the most important

pillars of modern economic theory.

It explains not only why it costs

more to produce more, but also why

countries struggle to get richer if

their population expands without

improvements in technology. ■

IN CONTEXT

FOCUS

Markets and firms

KEY THINKER

Anne-Robert-Jacques

Turgot (1727–81)

BEFORE

1759 French economist

François Quesnay publishes

Economic Table—a model that

demonstrates the physiocrats’

economic theories.

1760s French physiocrat

Guerneau de Saint-Péravy’s

essay on the principles of

taxation argues that the ratio

of outputs to inputs is fixed.

AFTER

1871 Austrian Carl Menger

argues in Principles of

Economics that price is

determined at the margin.

1956 In A Contribution to the

Theory of Economic Growth,

US economist Robert Solow

applies the idea of diminishing

marginal returns to the growth

prospects of countries.

THE LAST WORKER

ADDS LESS TO

OUTPUT THAN

THE FIRST

DIMINISHING RETURNS

The earth’s fertility

resembles a spring that is

being pressed downward...

the effect of additional weights

will gradually diminish.

A R J Turgot

See also: The circular flow of the economy 40–45 ■ Demographics and

economics 68–69 ■ Economic growth theories 224–25