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The model has a deliberately abstract quality but also a number of deficiencies. There is no clear analysis of the division of labour, as Smith understood the term, and no analysis of the problem of price determination and the allocation of resources. There is no formal allowance made for profit, and nor is there a division between capitalists and wage labour – to name but a few issues of importance. Moreover, as is well known, Smith disagreed with a number of specific points which are associated with the physiocratic position: for example he rejected the idea of the impôt unique (single tax) together with the thesis that artificers (craftsmen), manufacturers, and merchants were unproductive. Indeed, the latter argument was described by Smith as the ‘capital error of this system’.19

But despite these criticisms, what Smith would have found in the Tableau économique was a model of the economic process that represents the working of a macro-economic system as one which involves a series of withdrawals of commodities (consumption and investment goods) from the market, which is matched in turn by a process of continuous replacement, by virtue of production in the same time period, all in the context of a capital-using system. Smith could hardly fail to be struck by the novelty of this model, or by the transformation effected by Turgot, who made good the bulk of the analytical deficiencies in Quesnay’s account.20

Anne Robert Jacques Turgot, Baron de l’Aulne (1727–81)

The economic analysis in Turgot’s Reflections on the Formation and Distribution of Riches must have made an immediate impact on Smith, not least because Turgot opened his argument, as Smith had done in his Lectures on Jurisprudence, with an account of the division of labour.21Turgot drew attention to the causes of increased productivity and to the associated point that ‘the reciprocal exchange of needs, renders men necessary to one another and constitutes the bond of society’.22He also offered a more familiar account of the ‘bond’ by developing a model which linked the different sectors of activity and the various socio-economic groups in a cycle which involves the generation of income, expenditure and productive activity. Turgot represented the first class as that of the cultivators. He restated the time-honoured dictum that ‘it is always the land which is the primary and the unique source of all wealth’.23Strictly speaking, the husbandman ‘is therefore the unique source of all wealth, which, through its circulation, animates all the industry of society; because he is the only one whose labour produces anything over and above the wages of labour.’24As before, the Cultivators are designated the ‘productive’ class.

The second social group is represented by the proprietors of land (the disposable class), who receive an income in the form of rent. This class ‘may be employed to meet the general needs of the Society, for example in war and the administration of justice, whether through personal service, or through the payment of a part of its revenue.’25Turgot added, in a passage whose implications would be uncomfortable for some: ‘The Proprietor enjoys nothing except through the labour of the Cultivator… but the Cultivator has need of the Proprietor only by virtue of human conventions and the civil law.’26Finally, there are the artisans, who do not generate any net revenue; and the stipendiary class, who are ‘supported by the product of the land’.27

These would have been regarded as fairly conventional points, and so too would Turgot’s emphasis on the role of capital (fixed and circulating). But it is at this stage that Turgot advanced beyond Quesnay, by introducing a distinction between entrepreneurs and wage labour, and therefore a further distinction between profits and wages as categories of return. It is worthy of note that Turgot defined profit as the reward accruing to entrepreneurs for the risks incurred in combining the factors of production