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The Physiocrats and Adam Smith have been viewed as founders of the modern discipline of economics. The leader of the Physiocrats was François Quesnay (frahnn-SWAH keh-NAY) (1694–1774), a highly successful French court physician. Quesnay and the Physiocrats claimed they would discover the natural economic laws that governed human society. Their first principle was that land constituted the only source of wealth and that wealth itself could be increased only by agriculture because all other economic activities were unproductive and sterile. Even the state’s revenues should come from a single tax on the land rather than the hodgepodge of inequitable taxes and privileges currently in place. In stressing the economic primacy of agricultural production, the Physiocrats were rejecting the mercantilist emphasis on the significance of money—that is, gold and silver—as the primary determinants of wealth (see Chapter 14).

Their second major “natural law” of economics also represented a repudiation of mercantilism, specifically, its emphasis on a controlled economy for the benefit of the state. Instead, the Physiocrats stressed that the existence of the natural economic forces of supply and demand made it imperative that individuals should be left free to pursue their own economic self-interest. In doing so, all of society would ultimately benefit. Consequently, they argued that the state should in no way interrupt the free play of natural economic forces by government regulation of the economy but rather should just leave it alone, a doctrine that subsequently became known by its French name, laissez-faire (less-ay-FAYR) (noninterference; literally, “let people do as they choose”).

The best statement of laissez-faire was made in 1776 by a Scottish philosopher, Adam Smith (1723–1790), in his Inquiry into the Nature and Causes of the Wealth of Nations, known simply as The Wealth of Nations. In the process of enunciating three basic principles of economics, Smith presented a strong attack on mercantilism. First, he condemned the mercantilist use of tariffs to protect home industries. If one country can supply another country with a product cheaper than the latter can make it, it is better to purchase than to produce it. To Smith, free trade was a fundamental economic principle. Smith’s second principle was his labor theory of value. Like the Physiocrats, he claimed that gold and silver were not the source of a nation’s true wealth, but unlike the Physiocrats, he did not believe that soil was either. Rather labor—the labor of individual farmers, artisans, and merchants—constituted the true wealth of a nation. Finally, like the Physiocrats, Smith believed that the state should not interfere in economic matters; indeed, he assigned to government only three basic functions: to protect society from invasion (army), defend individuals from injustice and oppression (police), and keep up certain public works, such as roads and canals, that private individuals could not afford. Thus, in Smith’s view, the state should stay out of the lives of individuals. In emphasizing the economic liberty of the individual, the Physiocrats and Adam Smith laid the foundation for what became known in the nineteenth century as economic liberalism.

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Adam Smith, The Wealth of Nations, selected topics(1776)

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THE LATER ENLIGHTENMENT By the late 1760s, a new generation of philosophes who had grown up with the worldview of the Enlightenment began to move beyond their predecessors’ beliefs. Baron Paul d’Holbach (dawl-BAHK) (1723–1789), a wealthy German aristocrat who settled in Paris, preached a doctrine of strict atheism and materialism. In his System of Nature, written in 1770, he argued that everything in the universe consisted of matter in motion. Human beings were simply machines; God was a product of the human mind and was unnecessary for leading a moral life. People needed only reason to live in this world: “Let us persuade men to be just, beneficent, moderate, sociable; not because the gods demand it, but