18th Century French philosophers. Emphasis on agricultural interpretation shows new technique of isolating economic problems and then abstracting solutions. Though this approach was criticised by Smith, he and later economists build on this technique in their own analysis. Physiocratic thought emphasises a belief in a 'natural order', with recent research suggesting political aims. Along with Petty and Cantillon, the Physiocrats discard the mercantilist idea that wealth arises from exchange and postulate that it arises from production. Identifying the source of increased wealth (surplus), termed 'produit net', becomes their central objective, and thereafter an analysis of the circulation of such wealth in society.

Labour is divided into the two classes of: a) productive labour that creates a surplus (amount in excess of that required to live); and, b) sterile labour that does not create a surplus. This introduces one of the most important questions of classical thinking, namely what constitutes productive labour?

No clear idea of use-value and exchange value exists in Physiocratic thought. Surplus is held to arise from the difference between use-values consumed and those produced. Produit net was thus a surplus of material wealth of useful goods. The most easily seen example of this is in agriculture where the surplus is what is produced less what is consumed and used as seed. This example avoids exchange value altogether, and is therefore very convenient, but ignores industrial surplus and assumes that the only form of surplus that can arise is in nature and not in labour. Merchant-fostering policies are therefore seen by the Physiocrats to be pointless. Similarly, no tax on industry is advocated because industry does not create a surplus, and only agriculture should be taxed through a single tax on the land. Also, the state should not regulate because this only adds burdens to life. Human society is ruled by natural laws and the state should not interfere. Thus, whilst extolling land, the Physiocrats propose laissez-faire and thereby actually encourage industry.

Quesnay
Founder of the Physiocrats. Writes Maximes Generales de Gouvernement Economique d'un Royaume Royale, Dialogues sur les Travaux des Artisans, 3e Droit Naturel. Tableau Economique 1758 attempts to show in tabular format the circulation of wealth and is an early example of the scientific approach to economic thought. Tableau assumes a simple social structure of landlords, sterile merchants and artisans and productive tenant farmers. Here, the produit net of the tenant farmers must meet the requirements of the other two classes, plus the farmers' own consumption above subsistence level. Tableau then shows circulation of the produit net, itself comprised of raw materials and food. Rent money goes to landlords. Food goes to landlords and the sterile class. Raw materials go to the sterile class who convert them to manufactured goods of no more value than the constituting raw material inputs. Farmers receive money for these sales and end up with same amount of money as they started with initially. This analysis is thus concerned with the circulation of non-monetary items. Quesnay proposes the 'natural order' being the right to enjoy property, to work, to have freedom so long as it does not conflict with the rights of others to follow their self-interest.

Turgot
Reflection sur la Formation et la Distribution des Richesses 1766, Valeur et Monnaies (date unknown). Politically, Turgot is the most important of the Physiocrats. He states the law of diminishing returns. Rent received allows landowners to accumulate capital over time, and thus to sponsor growth. He also considers factors affecting exchange-value without departing from the main physiocratic tenets. Buyers and sellers make judgements as to estimated value of an item based on scarcity, ability to satisfy a want etc. and exchange value is average of the two estimated values.