In Valeur et monnaie, Turgot coped with an intricate problem in the theory of value: How can a social evaluation - the current price - be the result of individual evaluation? Like several other economists of the period (Graslin, 1911 ; Condillac, 1980 ), Turgot developed a theory of value grounded on utility. First, with the sensualistic conception of man as a bundle of desires, man's relation to wealth is conceived in terms of needs and utility. Secondly, Turgot considers a pure exchange model in which two agents have a fixed initial stocks of two goods, corn and wood: the process begins with the ordering of the goods by each agent according his perception of scarcity (rareté); that is, the utility of the goods balanced by the difficulty of obtaining them. Out of this preference ordering, there appears an estimated value (valeur estimative) with which each agent relates the utility of the good to him and the disutility of obtaining one unit of the good; indeed, the estimated value of one unit of corn (wood) is smaller than the estimated value of wood (corn) for the agent whose initial endowment is in corn (wood). Exchange appears as a social relation, as a result of which agents are better off for two reasons: because they can exchange, which means that they can benefit from the higher productivity related to the division of labor (Turgot, 1913-23, vol. III, p. 93; Groenewegen, 1977, p. 144), and because they exchange less for more, in terms of estimated value. Thirdly, the bargaining process proper takes place: this process, considered as the working of competition, is capable of revealing the true price of the good; that is, the exchange ratio between corn and wood. This ratio, or appreciative value (valeur appréciative), is the social result of two subjective evaluations of the scarcity of goods. Since Francis Y. Edgeworth's formalization of this process, we know that no single solution exists in this pure exchange model; Turgot's own solution introduced something like an equity principle, according to which the difference between each agent's estimated value of the good bought and the good sold is equal. Unfortunately, Turgot's manuscript stops after a programmatic sentence according to which he would have considered the general case involving more than two agents and more than two goods.
Capital theory was Turgot's second major achievement. Turgot considered his Reflections to be a general overview of the subject, while also claiming to have examined in detail the formation and the working of capital and the interest rate. As a matter of fact, while the physiocrats focused on Quesnay's economic table -a tool that Turgot never made use of - he left out algebra, only considering the "metaphysics of the economic table" (Turgot to Dupont; in Turgot, 1913-23, vol. II, p. 519). Quesnay had done much on capital theory, but Turgot's contribution was much more encompassing and accurate, since he considered all the forms of capital involved in the functioning of a commercial society, and because he had a clear concept of profit.
After the various agricultural stages, Turgot examines the commercial stage characterized by market relations; that is, by the value relations between goods and money (ibid., §XXXI-LXVIII). When members of commercial society receive more money than they spend for the satisfaction of their needs, and can spare this extra money, they transform a part of their revenue into capital. With this clear definition Turgot offers a simple explanation of the formation of capital, instead of the physiocratic one which is grounded on imperfections in the competition between farmers and landlords; furthermore, saving is no longer associated with hoarding; that is, a diminution in the circulation. According to his stage theory of progress (Fontaine, 1992), Turgot explains how wealthy people can earn a living out of land or out of money; this means that any amount of accumulated wealth is equivalent to land whenever the revenue that the owner obtains at the end of the period is equal (ibid., §LVIII). How is profit explained? Like any entrepreneur investing capital, the farmer waits for three different elements, apart from the return of the value of the initial capital:
firstly, a profit equal to the revenue they would be able to acquire with their capital without any labour; secondly, the wages and the price of their labour, of their risk and their industry; thirdly, the wherewithal to replace annually the wear and tear of their property. (ibid., §LXII)
Thus profit is different from wages, since it is a revenue associated with the possession and the investment of capital, and has nothing to do with the revenue of labor. As far as rent and profit are concerned, Turgot explains that profit is a necessary part of the fundamental price, which means that profit does not belong to the net product; as in the Ricardian approach, rent becomes a residual category:
the surplus serves the farmer to pay the proprietor for the permission he has given to use his field for establishing his enterprise. This is the price of the lease, the revenue of the proprietor, the net product... and the profits of every kind due to him who made the advances cannot be regarded as a revenue, but only as the return of the expenses of cultivation, considering that if the cultivator did not get them back, he would be loath to risk his wealth and trouble in cultivating the field of another. (ibid., §LXII)
Turgot generalizes his approach to any form of investment, from land to money-lending, and explains that there exists a stable hierarchy of rates of return associated with the risk and the trouble assumed. These rates are in mutual relation, through a process of allocation of resources among the different investment opportunities and the basic mechanism of competition and economic equilibrium:
The different uses of the capitals produce, therefore, very unequal products; but this inequality does not prevent them from having a reciprocal influence on each other, nor for establishing a kind of equilibrium amongst themselves. (ibid., §LXXXVII)
In his paper on the interest rate, Quesnay had made a distinction between merchants and the rest of the population: while the former could lend at a rate that was freely determined by market forces, the rate of interest for the latter should be legally maintained below the rate of rent, in such a way as to make investment in land more attractive than financial activities. Turgot did not endorse such an approach: freely determined by the market forces, the rate of interest is inferior to the rate of profit in manufacture or agriculture because the risk and trouble assumed are less important; and there is no need for state intervention. A low interest rate is a clear indication that capital is abundant in a nation, and that entrepreneurs can expand their businesses since they can easily borrow the capital they need.
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