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Anne-Robert-Jacques Turgot (1727-1781)

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 Anne-Robert-Jacques Turgot
(1727-1781)

Gilbert Faccarello ∗

Anne-Robert-Jacques Turgot was born on 10 May 1727 in Paris,

where he died on 18 March 1781. He was the youngest son of Michel-
Étienne Turgot, Marquis of Sousmont, a magistrate and “Prévost des
marchands” (Lord Mayor) of Paris. While first destined by his family to
an ecclesiastical estate — he studied theology and was admitted to the
Maison de Sorbonne — Turgot devoted his career to serving the State.
Already during his lifetime he acquired the status of an emblematic figure
as the grand reforming civil servant of the Ancien Régime, particularly
through two important positions: first as Intendant of the Généralité of
Limoges (1761–74), that is, representative of the King in some of the
poorest provinces in France (Limousin, Marche and Angoumois); and
then as Contrôleur général des Finances (minister of the economy and

∗
Panthéon-Assas University, Paris. Email: [email protected]. Home-
page: http://ggjjff.free.fr/. To be published in Gilbert Faccarello and Heinz D. Kurz
(eds), Handbook on the History of Economic Analysis, vol. 1, Cheltenham: Edward
Elgar, 2016.

1
Turgot 2

finance, August 1774–May 1776). In this last position, during less than
two years, he tried to progressively implement free trade; to put an end
to traditional structures limiting the establishment in trades — such as
“jurandes” (craft-guilds) — or regulating the labour force; and to abolish
hurtful and inefficient obligations like the “corvée royale” (royal chore).
He was also aiming at reforming the political regime of France and had
a project of transferring some powers held by the King into the hands
of a pyramid of elected assemblies — municipal, provincial and national.
(On all these points, see the many developments by Gustave Schelle in
Turgot 1913–23.)

Turgot had a serious philosophical training. He was a follower of

the sensationist approach proposed by John Locke and developed in
France by Étienne Bonnot de Condillac (1714–1780) and he approved
of Rousseau’s Contrat social. He also had an encyclopedic mind like
many French philosophes of the time. While he published relatively little
during his lifetime — some of his writings circulated and were known
from various sources — his influence proved to be huge and lasting.

Texts and Themes

Among his youthful works, his two 1750 discourses in Sorbonne — “Les
avantages que la religion chrétienne a procurés au genre humain”, and
“Tableau philosophique des progrès successifs de l’esprit humain” — are
well known. They introduced important themes like a philosophy of his-
tory based on a development of societies in three stages, the unbounded
perfectibility of the human mind and the notion of progress. A 1749 let-
ter to the abbé de Cicé on paper-money and his “Plan d’un ouvrage sur
le commerce, la circulation et l’intérêt de l’argent, la richesse des États”
(c. 1753–54) are also indicative of his early interest in money and trade.
During this period he also contributed to volumes 6 (1756) and 7 (1757)
of Diderot and d’Alembert’s Encyclopédie ou dictionnaire raisonné des
sciences, des arts et des métiers with the entries “Étymologie”, “Exis-
tence”, “Expansibilité”, “Foire” and “Fondation”. He was a member of
Turgot 3

the group of young intellectuals gathered around Jacques-Claude-Marie

Vincent, Marquis of Gournay (1712–1759), Indendant du commerce, who
played an important role in the translation and/or circulation in France
of some significant writings by Richard Cantillon, David Hume, Josiah
Child, and so on, and in the “acclimatization” of the British “science of
trade”. Turgot himself translated two writings by Josiah Tucker, one of
which — the 1751 Reflections on the Expediency. . . — was published
under the title Questions importantes sur le commerce. . . (1755). Some
developments in this literature — for example on the importance of the
level of the interest rate, or on money — are to be found later in Turgot’s
thought. He wrote his celebrated “Éloge de Vincent de Gournay” (1759)
after the death of the Intendant du commerce: he attributed to him how-
ever some of his own ideas on free trade, thus distorting the perception
that posterity had of Gournay (Tsuda 1983).

Having made the acquaintance of Quesnay, Turgot adopted some of

his views. This is probably the reason why his approach was for a long
time either confused with physiocracy or seen as a “dissenting” view of
it. He developed in fact a powerful approach of his own which can be
termed “sensationist political economy” (Faccarello 1992, 2006). His the-
oretical principles are presented in five fundamental texts: (1) a short
treatise, Réflexions sur la formation et la distribution des richesses, writ-
ten c. 1766 and published by instalments in 1769–70 by Pierre Samuel
Dupont (1739–1817) in Éphémérides du citoyen; (2) his 1767 comments
on two memoirs on indirect taxation respectively written by Jean-Joseph-
Louis Graslin and Guérineau de Saint-Péravy; (3) the uncompleted entry
“Valeurs et monnaies” (c. 1769) intended for André Morellet’s Diction-
naire du commerce; (4) Mémoire sur les prêts d’argent (c. 1770) against
the Scholastic doctrine of usury; and (5) “Lettres au Contrôleur général
sur le commerce des grains” (1770) reassessing the necessity of a free grain
trade — which forms also an implicit critique of Ferdinando Galiani’s
1770 Dialogues sur le commerce des blés (Faccarello 1998). Important
aspects of his theories are also to be found in his correspondence and in
other writings.
Turgot 4

Shortly after Turgot’s death, both Dupont and M.J.A.N. Caritat de

Condorcet (1743–1794) — his most outstanding disciple — published a
life of Turgot (Dupont 1782; Condorcet 1786). Condorcet’s Vie de M.
Turgot greatly contributed to maintain and develop Turgot’s legend in
France and abroad. It was translated into English as early as 1787 and
appreciated by British reformers. In his Autobiography John Stuart Mill
noted how Condorcet’s book — which he compared to Plutarch’s Lives —
deeply impressed him and induced him to abandon all sectarian attitude
and spirit (Mill 1873: 115–17).

It is important to keep in mind the peculiar status of Turgot’s texts.

First, the greatest part of his writings are just first — and sometimes
incomplete — drafts. This is even the case for the 1766 Réflexions. This
treatise was published in the Éphémérides on the insistence of Dupont,
but Turgot had the intention to use a special offprint to thoroughly re-
vise and expand the piece — yet he did not find the time for this re-
vision. This probably explains some fluctuations in the vocabulary and
in the presentation of some themes, for example the rate of return on
capital. Secondly, Dupont modified some texts to make them match bet-
ter with the physiocratic doctrine. This is the case for the Réflexions:
Turgot had to demand him to print a separate edition of the original
manuscript. Thirdly, a great number of Turgot’s writings were published
after his death, from sometimes undated manuscripts — their dating is
thus occasionally uncertain.

A first edition of Turgot’s work, by Dupont, was published in 1808–10

but this edition is unfaithful because of the changes made by the editor
— in particular he reprinted his faulty version of the Réflexions. Three
decades later two volumes of the “Collection des principaux économistes”,
published in 1844 with Guillaumin and edited by Eugène Daire and Hip-
polyte Dussard, are also devoted to Turgot’s writings and correspon-
dence, but they mainly reproduce Dupont’s versions (Schelle, in Turgot
1913–23, I: 3–4). The most comprehensive edition is, to date, the one pre-
pared by Gustave Schelle (Turgot 1913–23) — all the references hereafter
refer to this edition. Whenever it was possible, the texts were based on
Turgot 5

the manuscripts or some reliable documents — but some manuscripts

having disappeared, Dupont’s version remained occasionally the only
source. Yet even Schelle’s edition is not totally reliable (see, for ex-
ample, Meek 1973: 3–4; van den Berg 2014). A new edition of Turgot’s
works and correspondence is certainly needed, which at long last is pos-
sible since the French Ministry of Culture bought Turgot’s manuscripts
in February 2015 (the previous owners had denied access to them).

Turgot’s contribution to political economy is decisive. He powerfully

developed Boisguilbert’s free-trade approach, reinforcing at the same
time its foundations. Elaborating upon the hitherto common — but
rather vague — supply and demand framework, he developed, on the
supply side, a systematic approach in terms of capital competition and,
on the demand side, a subjective theory of value and prices — what al-
lowed him also to reconsider the doctrine of usury and propose the first
economic theory of the rate of interest. He also proposed some views
on the successive stages of development of societies and on the origin
and effect of the division of labour (Meek 1971, 1973); he put forward
the main themes of what was to be called public economics, based on
market failures and on the quid pro quo approach (Faccarello 2006); and
he engaged in a polemic with Galiani on how to efficiently reform a soci-
ety and implement a transition from a regulated to a free-trade economy
(Faccarello 1998). The secondary literature is abundant. For the above-
quoted and other aspects of his work and some divergent interpretations,
see, for example, Groenewegen (1970, 1971, 1983), Brewer (1987), Fac-
carello (1991, 1992), Ravix and Romani (1997). In this entry, the focus
will be on competition, value and the rate of interest.

Competition, Capital and Profit

Turgot shared many views with Quesnay, notably the belief in the ef-
ficiency of free trade, the hypothesis of the exclusive productivity of
agriculture and the fundamental importance of the “avances” (capital)
in production and trade. However by systematically referring to the con-
Turgot 6

cepts of competition, he distanced himself from the “sect”. As he wrote

to Dupont, criticizing the Physiocrats: “I find that . . . you do not make
sufficient use of this less abstract principle, but . . . more enlightening,
more fruitful or at least forceful for its simplicity and without exception
because of its generality: the principle of competition and of free trade”
(Turgot 1913–23, II: 507). In this respect the 1766 Réflexions marked
a watershed. The most important paragraphs are those concerned with
capital, its definition, forms, origin and logic.

While insisting there, like Quesnay, on the need to invest large sums
of capital in agriculture, Turgot generalizes this idea and applies it to
all kinds of activities. He focuses on the word “capital” — defined as a
quantity of value which can be embodied in all sorts of objects and adopt
any form. This is a first polemical position against the Physiocrats since
it establishes an equivalence between all sorts of “accumulated value”:
land ownership is only one of many forms of capital, and the landowner
a capitalist.

Quesnay and his disciples struggled with the question of the origin of
capital. While restating the usual Physiocratic arguments — savings by
the landowners, lack of competition which allows entrepreneurs to appro-
priate part of the “produit net” — Turgot, more importantly, emphasizes
an alternative explanation. Breaking with the prevailing approach which,
from Boisguilbert to Quesnay, put a stress on the necessity of “expense”
to maintain prosperity, he develops a vibrant apology of savings and the
“esprit d’économie” as the main source of the accumulation of capital
and wealth (see also his comments on Saint-Péravy, Turgot 1913–23, II:
649 ff.). He insists on the fact that savings in no way cause a decrease
in global demand: while they are not a simple “expense” — that is, a
purchase of final goods for consumption — they are no hoarding either
but a formation of capital. Whether they are spent directly or indirectly
on the means of production, this produces beneficial effects for growth,
productivity and employment. Furthermore, Turgot claims, savings are
made by entrepreneurs themselves, out of their profits, and profits are
earned in all activities.
Turgot 7

The motive for investment and capital accumulation is “income or

annual profit”. Why would an individual invest in agricultural, industrial
or commercial enterprises if he did not in return receive his expenses and
the amortization of fixed capital, a compensation for his effort and the
risks incurred, and — Turgot insists — a surplus equivalent to that which
he would have received, without work and risk, had his capital been used
to buy land? The logic of the argument is clear. The particular branch of
production is of little importance: individuals invest in it if the return is
not less than the minimal expected remuneration. If this return is higher
elsewhere, movements of capital take place: capital leaves trades in which
the rate of return is relatively low towards those activities where it is
more attractive. The mobility of capital, through its action on relative
supplies and demands, modifies relative prices and the rates of return
tend to be equalized throughout the economy, all things being equal:
“the products of the different employments limit themselves each other,
and are maintained . . . in a kind of equilibrium” (Turgot 1913–23, II:
591).

[A]s soon as profits which result from any employment of

money, increase or decrease, capitals are withdrawn from
other employments and directed to it — or withdrawn from
it and directed to the other employments — what necessarily
changes, in each employment, the ratio between the capital
and the annual product . . . [B]ut regardless of how money is
employed, its return cannot increase or decrease without all
the other employments experiencing a proportionate increase
or decrease. (ibid.: 592)

A situation of equilibrium is thus defined by this equalization of the

rates of return, or, more precisely, by a stable hierarchy of global rates
of return, if we take into account the elements of risk proper of each
activity, and the contribution of the entrepreneur. The lowest rate is the
rate on land that is, the rent rate calculated on the value of the land
— Turgot evidently thought that he could thereby eliminate differences
in land quality because the best pieces of land are more expensive. The
Turgot 8

highest rates are the profit rates for agricultural, industrial and com-
mercial enterprises. The rate of interest lies in between: as a result of
the risk incurred by the lender, it is higher than the rent rate; but it is
lower than the rates related to employments which, apart from risk, also
include work. It is important to note here that the hierarchy and levels
of the rates of return is established at equilibrium — contrary to what
Eugen von Böhm-Bawerk asserts (1884: ch. 3), this is not an explana-
tion of the rent and profit rates through the interest rate and Turgot’s
explanation is not “an explanation in a circle” (ibid.: 65).

This approach will later form the core of classical political economy.
But it also seemingly undermines physiocratic theory: the emphasis on
the existence of profits in all activities poses the problem of the compati-
bility of this perspective with the dogma of the exclusive productivity of
agriculture and the assertion that all the “produit net” is appropriated by
the landowners. Turgot seems to be aware of the problem but his texts
do not present a clear solution. The answer to this question however
appears clearly in the work of one of his followers, Pierre-Louis Rœderer
(1754–1835), in 1787, and is developed in Rœderer’s subsequent writings
(Faccarello 1991). Rœderer (1787: 14–26) explains that the net product
of the economy, while generated in agriculture, has to be distributed eq-
uitably among all the amounts of capital in the economy, whatever form
they take and in proportion to the amounts invested. This is what he
calls “le droit des capitaux” or “la loi du niveau” — “the rights of capi-
tals” and “the law of the level”. The general profit rate is thus given at
the aggregate level by the value of the “produit net” divided by the total
value of the capital invested in all activities, including land. It is strik-
ing that Marx later adopted a similar approach in book III of Capital
for resolving the problem of the transformation of values into production
prices.

Some significant consequences are to be drawn from this analysis. A

first consequence is the modification of the class structure of the econ-
omy. While Turgot first started from the physiocratic triad of a land-
owning class, a productive class and a sterile class, he ended with another
Turgot 9

threefold division based on the ownership of land, capital and labour —

because, while the land-owning class is homogeneous, the productive and
sterile classes are not: each of them is divided “in two categories of men,
that of the entrepreneurs or capitalists who make all the advances, and
that of the simple wage-earning workers” (Turgot 1913–23, II: 572). As
Turgot insists in his comments on Graslin: “These are . . . two very dif-
ferent categories of men who contribute in a very different way to the
grand work of the annual reproduction of wealth” (ibid.: 633). It could
be asserted, however, that Turgot could also have ended with only two
classes, the landowners being only, in his view, a sub-group among the
owners of capital. J.C.L. Simonde de Sismondi was later to draw this
consequence.

A second consequence is the determination of a sort of minimal price

for each commodity — a cost of production lato sensu — beneath which
the agents decrease their production or stop producing altogether. In his
comments on Saint-Péravy (Turgot 1913–23, II: 655–6) and in a letter to
David Hume (25 March 1767; ibid.: 663) Turgot calls it “prix fondamen-
tal” (fundamental price). Under the effect of the action of competition
and the migrations of capital, the “prix courant” or market price, directly
determined by supply and demand, tends towards this fundamental price
— in the above-mentioned letter to Hume, Turgot extends this analysis
to the labour market (Turgot 1913–23, II: 663–4). This theme was to
be developed later in classical economics as the gravitation of market
prices around natural prices (for an interpretation of Turgot as a clas-
sical economists, see Brewer 1987; Ravix and Romani 1997). However,
Turgot’s interest is almost exclusively directed to the determination of
“prix courant” which only exist in trade (Turgot 1913–23, III: 176). More-
over, the elements of the “prix fondamental” are themselves determined
by supply and demand.

Another consequence was to be clearly stated by Condorcet and

Rœderer: the theory of capital helps explaining the hierarchy of wages.
The minimum wage is what is necessary to sustain the worker and his
Turgot 10

family. Any additional amount is just the remuneration of the capital

invested in the person, through education, training, and so on.

Note finally that, in addition to this path-breaking approach, Tur-

got’s texts include other innovative aspects. For example, in his 1767
comments on a memoir by Saint-Péravy, and in searching for the op-
timal quantity of “avances” — the number of units of labour — to be
employed with a given quantity of a fixed factor in agriculture — a cer-
tain quantity of seed employed on a given piece of land — Turgot clearly
states the law of non-proportional returns: the physical marginal product
of the variable factor is first increasing and then diminishing. He clearly
distinguishes between intensive and extensive diminishing returns and
also points out the fact that it is always advantageous, in physical terms,
to go beyond the point of maximal average product till the marginal
product becomes nil (Turgot 1913–23, II: 643–5).

Utility, Value and Prices

A person is “merely a bundle of needs”, Turgot states in “Plan d’un mé-

moire sur les impositions” (Turgot 1913–23, II: 293). Satisfying these
needs brings about utility; the effort spent on this goal involves a pain
(disutility). On the basis of this sensationist approach, Turgot developed
a theory of subjective value, which allows him to determine equilibrium
prices, which, in the short period, equilibrate supply and demand. This
is a remarkable step, which also makes him embark on two genuine tours
de force. (1) In the first place, while retaining the whole edifice of the free
trade approach developed by Boisguilbert, he gave it a different founda-
tion. Sensationist philosophy now explains the selfish and maximizing
behaviour of agents in markets, in place of the theological dogma of the
Original Sin and the Fall of Man. (2) In the second place, he showed
that the traditional debates about usury were misconceived and that the
problem of the nature and the determination of the rate of interest can
easily be solved on the basis of his theory of value and price.
Turgot 11

The question of value is investigated at some length in the 1766 Re-

flections but a more extensive analysis is formulated in the c. 1769 un-
completed text “Valeurs et monnaies”. What is value? To answer this
question, Turgot, probably on the celebrated model of the statue Condil-
lac developed in his 1754 Traité des sensations, first imagines a man
alone facing nature. This “savage” has to produce the goods he requires
to satisfy his needs, but he must first determine the value each of these
goods has for him. This “valeur estimative” or “esteem value” is the sub-
jective “degree of esteem which he attaches to the different objects of
his desires” (Turgot 1913–23, II: 87) — the “degree of utility” as Turgot
puts it in the 1770 Mémoire sur les prêts d’argent (Turgot 1913–23, III:
175). The isolated individual thus establishes a preference-ordering —
“order of utility” (ibid.: 86, 97) — on all of the goods, taking into account
(1) the ability of each object to satisfy a kind of need, (2) the tempo-
ral element generated by foresight, and (3) the scarcity of the desired
object. As a result of this calculation, he attributes a certain “esteem
value” to each quantity of each object: this reflects the proportion of his
“faculties” which he is prepared to devote to obtaining it, all other things
being the same. He also distributes all of his faculties in such a way
as to procure the different goods “according to their importance for ...
his well-being” (1913–23, III: 87), that is, by searching for the greatest
possible well-being. It should be noted that Turgot poses the question
of the measuring of values, and opts for a purely relative understanding
of these. The reason for this is that the unity — the “faculties” — to
which the values refer cannot be evaluated. However, the text sometimes
presupposes this measurement, that is, cardinality, as it is the case in the
determination of the equilibrium price.

Turgot then supposes that there are two agents and two goods, in
absence of production. Each agent has an initial endowment of a good
and needs part of the quantity of the good owned by the other agent;
the situation is thus of a bilateral monopoly in a pure exchange economy.
The two agents engage in a bargain under the following assumptions: (1)
each agent determines for himself the “esteem values” he attributes to
Turgot 12

the different parts of the endowment he wishes to exchange, as well as

to the parts of the other agent’s endowment which he could receive in
exchange; (2) the agents do not reveal their preferences: these values are
kept a secret by each individual; (3) on this basis, each agent determines
the states of indifference, in other words, the reservation price from which
the exchange is possible; (4) each of them follows a maximizing behaviour,
that is, is animated by “the interest to keep the largest quantity possible
of his own good and to acquire in exchange the largest quantity of the
other’s good” (Turgot 1913–23, II: 90) — a typical eighteenth-century
formulation of the mathematical problem of “maximis et minimis”.

In order for a transaction to take place, it is necessary for each agent

to attribute to the quantity of the object received a higher “esteem value”
(say λ) than that which he assigns to the quantity of the good given in
exchange (λ∗ ): λ > λ∗ . As Turgot states: “each would stay as he is unless
he finds an interest, a personal profit, to exchange; unless he estimates
more what he receives than what he gives” (Turgot 1913–23, II: 91). The
gains from exchange are clear: (1) free exchange implies an increase in
total utility for both parties; (2) moreover, whenever production is pos-
sible, exchanges also allow a division of labour and result in an increase
of the quantities of goods available to the agents (ibid.: 93).

Turgot assumes that the bargaining process converges towards a price

on which both agents agree, in between the reservation prices of the two
agents. This equilibrium price — called by Turgot “valeur appréciative”
— is unique and is determined simultaneously with the quantities ex-
changed. The final agreement is defined as a situation in which the
difference of the “esteem values” of the quantity of the received good over
that of the quantity of the good given in exchange is equal for both parties
— which could be symbolized, for two agents i and j : λi − λi ∗ = λj − λj ∗ .
This is the reason why this equilibrium price is termed “average esteem
value”.

This solution, however, could not be satisfactory for those who note
that there is a priori no unique solution in the case of a bilateral monopoly.
Turgot 13

But this approach is nevertheless remarkable for its originality and rigour:
it was probably inspired by the celebrated pages on justice and exchange
in Aristotle’s Nicomachean Ethics and finds an interpretation in terms of
cooperative games (Dos Santos Ferreira 2002). The explanation given by
Turgot remains however questionable: this “valeur appréciative” is nec-
essarily attained because, he notes, should the differences between the
“esteem values” of the goods be different between agents, it would be in
the interest of one of the two agents to continue the bargaining process.
But how could the agents know each other’s differences when preferences
are not revealed — and moreover utilities are not comparable?

Having established his argument for two contracting parties, Turgot

intended to generalize it to a large number of agents and goods. The
article “Valeurs et monnaies” unfortunately concludes after taking into
consideration a larger number of agents in a two goods context; Turgot
assumes that as a result of competitive arbitrages a single price would
be established. The general situation (many agents and goods) is only
dealt with incidentally in Mémoire sur les prêts d’argent and the 1770
“Lettres” to Terray. Turgot simply reaffirms his conviction in the real-
ization of a general equilibrium. Nevertheless, two remarks formulated
on these occasions are of interest. First, the process by which equilib-
rium is achieved is explicitly described in the “Lettres” as a process of
“tâtonnement” (Turgot 1913–23, III: 326). It is however a real “tâton-
nement” since exchanges are made outside equilibrium: but according
to Turgot, no one’s interest would really be damaged — at least sta-
tistically — since, given that the variations are made by “imperceptible
degrees”, the “losses” and “gains” would compensate for each other in the
end. Secondly, Turgot stresses in the Mémoire, while prices are actually
determined from a subjective basis, they acquire in the end a misleading
“objective” appearance in markets. It is this illusion which has given rise
to a belief in the existence of an “intrinsic value”, “real value” or “natural
price”: but nothing of the like exists in reality (ibid.: 175–6).
Turgot 14

The Rate of Interest and the Problem of Usury

One important aspect of Turgot’s work relates to the rate of interest. In

some sections of the Réflexions (Turgot 1913–23, II: 577–86) and partic-
ularly in the 1770 Mémoire sur les prêts d’argent (Turgot 1913–23, III:
154–202) his line of thought is double. On the one hand, taking up tra-
ditional arguments for and against usury, he shows the “frivolity” of the
latter and the possibly correct, but not truly decisive, aspect of the for-
mer. On the other hand, he supplies his own reasons, the most important
of which displaces the controversy. The question of usury, he stresses,
is traditionally badly posed. Once the terms are correctly defined, it
becomes a simple problem of economic theory and more specifically an
application of the theory of value (ibid.: 174–80).

One of the traditional arguments in favour of the prohibition of usury

was that — founded in Roman law — of the fungible and consumable
character of some objects, money included: destroyed by the use which
is made of them, they cannot be lent at interest because their transfer to
the borrower necessarily involves a transfer of property. This argument,
Turgot stresses, supposes that the transaction is about the physical object
— for example a quantity of coins, or a given weight of a precious metal
— and it cannot but lead to the above-mentioned conclusion. However,
the transaction relates instead to a quantity of value and implies the
utilities of the contracting parties: “where have our quibblers seen that
the only thing to be considered in the loan is the weight of the metal
borrowed and returned, and not its value and its utility for the lender
and the borrower?” (Turgot 1913–23, III: 177) The interest rate is just a
price like any other and its determination falls in the field of the theory
of value. Two principles are essential here: (1) an exchange can only be
implemented if the utility of the quantity of the commodity received is
higher, for each agent, than the utility of the quantity of the commodity
given up in exchange; (2) time preference: the depreciation, in terms of
“esteem value”, of a good available in the future compared to the same
good available now (ibid.).
Turgot 15

At the time of the transaction the lender compares the utility of the
sum of money he owns with a promise of reimbursement in the future.
If no interest is stipulated, and as the lender estimates the promise to
reimburse tomorrow to be worth less than the identical sum today, an
agreement in these conditions is impossible because it would involve a
loss of utility for the lender. In order that the transaction takes place,
it is therefore necessary that the promise of reimbursement in the fu-
ture be for a higher amount than the sum which is lent, so that the
“esteem value” the lender attributes to it be higher than the value he
attributes to the sum in question. If the elements of risk and disutil-
ity are reintroduced, then this difference — the interest — measures (1)
time preference, (2) the risks incurred and (3) the disutility experienced
because of the momentary unavailability of the amount of money. This
analysis is obviously novel and path-breaking: the link with the theory
of value, in particular, is fundamental. Turgot’s studies at the Sorbonne
could have been of some help here, because a similar development had
been made, more than a century and a half before, by the Flemish Jesuit
Leonard de Leys (Lessius): his “carentia pecuniae” already referred to a
kind of time preference. However in Lessius’ writings this element was
just an empirical fact observed in the market (van Houdt 1998). Tur-
got instead linked it to his subjective theory of value. It is also to be
noted that the reasoning in terms of time preference seems to have been
widespread among confessors and casuists during the 17th century be-
cause Pope Innocent XI, in 1679, had to condemn the proposition that a
present sum of money being “more precious” than the same sum available
in the future, “the lender may demand from the debtor something more
in addition to the loan, and on that title can be excused from usury”
(quoted in Delumeau 1990: 118).

Two last points must be mentioned to conclude. The first regards

the interest rate; it is definitely not a monetary variable. While a type
of monetary quantitativism prevails — probably a legacy of Cantillon
and Hume — the interest rate is subject to the logic of the loanable
funds market and, being a price like any other, must be determined
Turgot 16

freely between agents. The second point concerns money as a measure

of value and a medium of exchange. As noted above, values cannot be
expressed as such. In particular the “valeur appreciative” of a commod-
ity is essentially relative. It is thus expressed, in an isolated transaction,
by the quantity of the good against which it is exchanged; or in gen-
eral by each of the quantities of every other commodity against which it
can be exchanged. Turgot deduces from this the money form properly
speaking: thanks to its intrinsic qualities, related to the requirements of
the functions of measure of values and medium of exchange, one com-
modity detaches itself from the rest, and all the other commodities, by
convention, express their value in terms of this good, which therefore
becomes the unique form of expression of value, “gage universel” (Turgot
1913–23, II: 554). This analysis is to a great extent taken up and devel-
oped by Morellet in his “Digression” on money which he included in his
1769 Prospectus d’un nouveau dictionnaire de commerce, and from there
probably handed over to Condillac in his 1776 Le commerce et le gou-
vernement considérés relativement l’un à l’autre. Above all, Karl Marx
later adopted and developed it in his analysis of the “forms of value” in
book I of Capital.

See also:

Daniel Bernoulli; Pierre Le Pesant de Boisguilbert; Classical economics; Marie-

Jean-Antoine-Nicolas Caritat de Condorcet; French enlightenment; François
Quesnay.

Note

Translating Turgot is not an easy task. Modern English translations of some of

Turgot’s writings are by Ronald L. Meek (Precursors of Adam Smith, London:
Dent, 1973, and Turgot on Progress, Sociology and Economics, Cambridge:
Cambridge University Press, 1973) and Peter Groenewegen (The Economics of
A.R.J. Turgot, The Hague: Martinus Nijhoff, 1977). Some of them, completed
with older translations of other texts, are republished in The Turgot Collection
Turgot 17

(David Gordon, ed., 2011, Auburn: Ludwig von Mises Institute). In this entry,
however, we use our own translations. The references are to the Schelle edition
(Turgot 1913–23).

References and further reading

Böhm-Bawerk, E. von (1884), Kapital und Kapitalzins: I. Geschichte und Kri-

tik der Kapitalzinstheorien; English trans. (1890), Capital and Interest. A
Critical History of Economical Theory, London: Macmillan.

Bordes, C. and J. Morange (eds) (1981), Turgot, économiste et administrateur,

Paris: Presses Universitaires de France.

Brewer, A. (1987), ‘Turgot: founder of classical economics’, Economica, 54

(November), 417–28.

Condorcet, M.-J.-A.-N. Caritat de (1786), Vie de M. Turgot, [London].

Delumeau, J. (1990), L’aveu et le pardon. Les difficultés de la confession,

XIIIe-XVIIIe siècle, Paris: Fayard.

Dos Santos Ferreira, R. (2002), ‘Aristotle’s analysis of bilateral exchange: an

early formal approach to the bargaining problem’, European Journal of the
History of Economic Thought, 9 (4), 568-90.

Dupont [de Nemours], P.-S. (1782), Mémoires sur la vie et les ouvrages de M.
Turgot, ministre d’Etat, [Philadelphia].

Faccarello, G. (1989), ‘L’évolution de la pensée économique pendant la Révolu-

tion: Alexandre Vandermonde ou la croisée des chemins’ in Französische Rev-
olution und Politische Ökonomie, Trier: Schriften aus dem Karl-Marx-Haus,
pp. 75–121.

Faccarello, G. (1991), ‘Le legs de Turgot : aspects de l’économie politique sen-

sualiste de Condorcet à Roederer’, in G. Faccarello and P. Steiner (eds), La
pensée économique pendant la Révolution française, Grenoble: Presses Univer-
sitaires de Grenoble, pp. 67–107.

Faccarello, G. (1992), ‘Turgot et l’économie politique sensualiste’, in A. Béraud

and G. Faccarello (eds), Nouvelle histoire de la pensée économique, vol. 1, Des
scolastiques aux classiques, Paris: La Découverte, pp. 254–88.
Turgot 18

Faccarello, G. (1998), ‘Galiani, Necker and Turgot: a debate on economic

reform and policy in 18th century France’, in G. Faccarello (ed), Studies in the
History of French Political Economy, London: Routledge, pp. 120–95.

Faccarello, G. (2006), ‘An “exception culturelle”? French Sensationist political

economy and the shaping of public economics’, European Journal of the History
of Economic Thought, 13 (1), 1–38.

Grœnewegen, P. (1970), ‘A reappraisal of Turgot’s theory of value, exchange

and price determination’, History of Political Economy, 2 (1), 177–96.

Grœnewegen, P. (1971), ‘A reinterpretation of Turgot’s theory of capital and

interest’, The Economic Journal, 81 (2), 327–40.

Grœnewegen, Peter (1983), ‘Turgot’s place in the history of economic thought:

a bicentenary estimate’. History of Political Economy, 15 (4), 585–616.

Meek, R.L. (1971), ‘Smith, Turgot and the “four stages” theory’, History of
Political Economy, 3 (1), 9-27. Also in R.L. Meek (1977), Smith, Marx and
After, London: Chapman and Hall, pp. 18-32.

Meek, R.L. (1973). ‘Introduction’, in R.L. Meek (ed.), Turgot on Progress,

Sociology and Economics, Cambridge: Cambridge University Press, pp. 1–40.

Mill, J.S. (1873). Autobiography, in Collected Works of John Stuart Mill, in

J.M. Robson and J. Stillinger (eds), vol. 1, Toronto: University of Toronto
Press, pp. 1–290.

Ravix, J.-T. and P.-M. Romani (1997), ‘Le système économique de Turgot’, in
A.R.J. Turgot, Formation et distribution des richesses, Paris: GF/Flammarion,
pp. 1–63.

Rœderer, P.-L. (1787), Questions proposées par la commission intermédiaire

de l’Assemblée provinciale de Lorraine, concernant le reculement des barrières,
et observations pour servir de réponse à ces questions, n.p.

Tsuda, T. (1983), ‘Un économiste trahi: Vincent de Gournay (1712-1759)’, in

T. Tsuda (ed), Traités sur le commerce de Josiah Child et remarques inédites
de Vincent de Gournay, Tokyo: Kinokuniya, pp. 445–85.

Turgot, A.-R.-Jacques (1913–23). Œuvres de Turgot et documents le concer-

nant, avec biographie et notes par Gustave Schelle, 5 vols, Paris: Félix Alcan.
 Turgot 19

Van den Berg, R. (2014), ‘Turgot’s Valeurs et monnaies: our incomplete knowl-
edge of an incomplete manuscript’, European Journal of the History of Eco-
nomic Thought, 21 (4), 549–82.

Van Houdt, T. (1998), ‘ “Lack of money”: a reappraisal of Lessius’ contribu-

tion to the scholastic analysis of money-lending and interest-taking’, European
Journal of the History of Economic Thought, 5 (1), 1–35.

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