The Wealth of Nations_ Books 4-5 - Adam Smith [5]
Having come thus far, Quesnay introduced the concept of avances (literally ‘advances’, or acts of investment) for which these classes may be responsible. The most interesting avances are those which may affect the farmers and manufacturers. These are the avances primitives, or investment in fixed capital, and the avances annuelles, that is investment in circulating capital. This decisive step already carries us well beyond Smith’s Lectures.
Quesnay then proceeded to identify the assumptions of the model. These are both qualitative and quantitative. The qualitative assumptions are set out in the Tableau économique17and were to reappear, with further additions, in The General Maxims for the Government of an Agricultural Kingdom.18Quesnay assumed, inter alia, that the whole revenue of the system would enter circulation; that there would be a constant level of population, with no movement between the sectors; no barriers to trade in corn or in manufactured products; a single tax (on the agricultural surplus); and large-scale (capital-using) farming. The quantitative assumptions include the statement that the annual net produce in the agrarian sector is 2 million livres (5 million livres gross). It is assumed that the total output of the manufacturing sector is 2 million livres and (implicitly) that the money supply is also 2 millions livres.
Quesnay then proceeded to develop his model in terms of an exercise in period analysis. In following out the logic of his argument, let us abstract from the complications presented by the government sector, by the presence of mercantile groups, and by the fact that the proprietors as a class have important economic functions. Let us further assume, for the sake of simplicity, that at the beginning of the period in question the proprietors have no resources saved out of income generated in the preceding period; that the farmers possess the entire stock of money at the beginning of the current period, together with 2 million livres’ worth of food produced in the preceding period and 1 million livres’ worth of raw materials, all available for sale. The manufacturing class are assumed to hold 2 million livres’ worth of manufactured goods produced in the preceding period, which are available for sale in the current period.
The ‘magic of a well-ordered society’ can now be illustrated in terms of a series of steps. First, the farmers transmit rent (i.e., the whole supply of money) to the proprietors of land (2 million livres), thus giving that class an income which can be used to make purchases of the primary and manufactured products which are necessary to sustain life in the current period. Let us assume that the proprietors transmit 1 million livres to the farmers in exchange for food and 1 million livres to the manufacturing sector, thus reducing the stocks of goods which were available for sale at the beginning of the current period. Let us also assume that the farmers transmit 1 million livres to the manufacturing sector in exchange for commodities, thus eliminating the stocks of goods held by this group.
This means in effect that the whole supply of money has moved from the farmers to the proprietors and then to the manufacturers. This class is now in a position to purchase food (1 million livres) and raw materials (1 million livres), thus eliminating the stocks of commodities held by the farmers and at the same time returning the whole stock of money to this sector. The proprietors thus end the period with no unspent income and no accumulation of commodities. The farmers hold the stock of money, while the agrarian and manufacturing sectors are able to replace the goods used up in the current period by virtue of current productive activity. The following period, on these assumptions,