First Economic Model

Adam Smith (1723-1790) and his concept of “the invisible hand” has been a useful historical reference point in judging how far regulation of affairs should be extended after the banking crisis. For example, see here.

Smith was one of the developers of classical economics, itself probably the first modern school of economic thought. But who influenced Adam Smith, apart from such notables as:-

> Frances Hutcheson (1694- 1746) his professor at Glasgow University
> David Hume (1711-1776)
> Bernard de Mandeville (1670-1733)?

His early career was spent in France with the French Society of Physiocrats. One of their number, Francois Quesnay (1694-1774), outlined in 1759 his "Tableau Economique," the first known economic model. This lay the foundation of the Physiocrats' economic theories and, together with writing and money, they were regarded by Smith as being the three great inventions which had contributed to the stability of political societies.

More recent analyses of the model help in interpreting the "Tableau" and enable the first value exchange system view of an economic model to be constructed as follows (for the value network space).


The diagram shows the three "classes," as role plays as follows:-

> The Proprietary class - as Landowner (also known as Landlord)
> The Productive class - as Farmer and Farmhand
> The Sterile class - as Artisan and Merchant

Two new role plays are introduced to represent "Markets" as a place for the exchange of goods:-

> Manufacturers marketeers and
> Agricultures marketeers

The exchanges of value are shown as transactions with tangible deliverables designated "m" or "g", such that "300 g," for example, means 300 units of goods or services (with further description added as needed) and "300 m" means 300 units of money.

You can also add the sequence of transaction. For example, I have shown the first four (1) to (4), following the assumption made in the model that the Proprietary class spent all they received from renting their land on agricultural and manufactured products, thus keeping the economy working through their "contribution."

Omitted from the value exchanges are the actual stocks of goods and money residing within each group playing the roles. These would be represented, today, in the data tables associated with the work flow implementation of the Value Exchange System (VES).

What the "Tableau" omits is all the informal flow that enables societies to function! What we see here is only the mechanical system at work which could, possibly, have influenced Adam Smith to note that the subdivision of labour induced a certain "stupidity of mind," and spurred him to write the "Theory of Moral Sentiments" before his epic "Wealth of Nations!"

A description of the model can be seen on Wikipedia. I have removed the $ sign!

Having been through this exercise, it is interesting to surmise how both Quesnay and subsequent economists would have benefited from a knowledge of VES in visualising how the economy really worked. Certainly, with its simple handling of system dynamics and centrality of the human element, we may have reached somewhat sooner (by 200 years perhaps) current trends to radically remake economics. The paradigm shift embodied in "Complexity Economics" has paved the way for economists to approach in their own way "Edge-of-Chaos" conditions we now face.

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  • Ian, I found "Sterile" intriguing, also. However, with the mind set of the powerful landowners and their workers (viz: "Productive" ) the Artisan's were, presumably, regarded as attractive / useful add ons whose contributions enriched their Proprietary lives.
    Maybe footballers could be regarded as part of the Sterile class nowadays!
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