Adam Smith Versus the Physiocrats: British Empiricism Versus French Rationalism
July 10, 2025
“Economics is a theoretical science…its cognitive value depends entirely on the correctness of the underlying philosophical principles of human action.” —Ludwig von Mises, Epistemological Problems of Economics (1933)
We rarely hear today the claim that sciences like economics, politics, or sociology rest on fundamental premises in metaphysics, epistemology, and ethics. Since the rise of Pragmatism in the late 19th century, a demand for uncompromising consistency in principle is often dismissed as "extremism."
Ludwig von Mises, shaped by a different intellectual world, clearly saw that knowledge, human volition, and society shaped the economic conflicts of his time. The founding of economics during the Enlightenment demonstrates this: Adam Smith's economics and French Physiocracy reflect British empiricism and French rationalism, respectively.
Today, Physiocracy is largely “history.” Henry Higgs in his 1879 London lectures on the Physiocrats writes:
It is sometimes supposed that the French Revolution destroyed the influence of the Physiocrats. But in truth their reputation in France had in 1789 long been on the wane. The year 1776 struck it three blows from which it never entirely recovered. The fall of Turgot [from government]…publication of the Wealth of Nations [which] more slowly but effectually destroyed their authority by sapping the scientific basis on which it reposed…the scandalous dissemination of lies and libels by [Victor de Riqueti, Marquis de] Mirabeau's wife and children which shook…[him] from his pedestal of popularity, and dragged him through the mire as a hideous impostor, whose private life, at hopeless variance with his public precept, would show the teacher of morality unmasked as a monster of hypocrisy…
By contrast, Adam Smith’s works and principles remain influential to this day.
Smith as an Empiricist
Adam Smith's modeled his “science of economics” on Isaac Newton’s empiricism. By the time Smith published An Inquiry into the Nature and Causes of the Wealth of Nations in 1776, British empiricism had shaped scientific method for 150 years. Francis Bacon’s Novum Organum (1620) laid the groundwork: observation, testing, and falsifiability. Together, they broke the monopoly of the scholasticism, the philosophy that had dominated Catholic education across Europe for centuries (even into the eighteenth century) at universities at Oxford, Cambridge, Bologna, Paris, Salamanca, Edinburgh, St. Petersberg, and Göttingen. Aristotle, the greatest philosopher in history, who discovered and defined the principles of the science of logic, was adored by centuries of Catholic scholars who believed that his philosophy fully and finally described this world and taught for centuries in universities in across Europe that this philosophy held all answers and that the role of logic (deduction of conclusions from accepted premises) was to clarify its implications for all questions. In fact, however, Aristotle was also the greatest biological scientist of the ancient world who used observation and generalization to lay for foundations of science.
Newton's monumental synthesis of physics gave the method of empiricism unparalleled prestige across Europe. John Locke's Essay Concerning Human Understanding (1689) carried this tradition into philosophy. Locke grounded all knowledge in sense perception, building toward scientific method itself. Smith's influential contemporary, Adam Ferguson, also warned against excessive abstraction in social thought.
Smith thus inherited a powerful tradition: Bacon, Locke, Newton. Smith’s empiricism shaped not only The Wealth of Nations but also The Theory of Moral Sentiments (1759), which grounds ethics in observed human sympathy. Moral Sentiments may be seen as the culminating philosophical work of a century of British Enlightenment exploration and elaboration of the concept of a “moral sense” first defined by the third Earl of Shaftesbury.
French Rationalism and the Physiocrats
Meanwhile, Enlightenment France embraced rationalism, rooted in the work of Rene Descartes. His method was to identify and begin with “clear and distinct ideas”—like cogito ergo sum—and deduce conclusions through logic. Rationalist successors included Baruch Spinoza and Wilhelm Leibniz.
While Smith worked empirically and often alone, the Physiocrats formed a robust school. Their influence was real, especially in France, and was peaking when Smith visited and conversed with both François Quesnay and Anne-Robert-Jacques Turgot, baron de l’Aulne, during his research for Wealth of Nations.
Contrasts in Method and Doctrine
Adam Smith's method: meticulous observation, historical detail, case studies, and inductive generalization. His writing style is dense but accessible. Each idea is elaborated through evidence with consideration of example after example.
Key Smithian ideas:
- Division of labor leads to productivity.
- Individuals pursuing self-interest unintentionally benefit society.
- Free markets create wealth; monopolies distort outcomes.
- Value includes both utility and market exchange.
- Government has a limited role: defense, justice, infrastructure.
- Wages are shaped by demand, skills, and subsistence needs.
The Physiocrats began with a core axiom: Nature governs best. Economic intervention disturbs natural harmony.
Key Physiocratic ideas:
- Only agriculture creates net wealth.
- All economic classes depend on Nature.
- Minimal government is ideal.
- Laissez-faire ensures optimal outcomes.
- All non-agricultural labor is "sterile." [1]
Quesnay’s Tableau Économique modeled the economy as circular flow, deriving policy implications deductively. Turgot was more empirically inclined but still rooted in rationalist logic.
Smith and the Physiocrats both attacked aspects of the prevailing system of mercantilism. Higgs explains:
The Mercantilists, it is true, come first in order of time, but they are not in any proper sense of the term “a school” at all. There is no personal link between the different writers who, for more than a century, support what is called “the mercantile system”—an indiscriminate phrase covering proposals so different that their authors can only be said to have had a common tendency and not a common doctrine any more than a common acquaintance.
Smith's Response
Smith respected the Physiocrats, adopting and adapting some ideas. But on empirical grounds, he disputed their core axioms. He argued that manufacturing and trade also create value. His detailed examples—from carriage costs to colonial trade to pin factories—demonstrate his empirical bent. [8]
Smith opposed mercantilism, the slave trade, and colonial monopolies. He saw government-backed monopolies as betrayals of Enlightenment liberty. His moral judgments are pointed:
- Mercantilism: "fruitless care."
- Balance of trade: "embarrassing and equally fruitless."
- False legislators: "crafty animals...directed by momentary fluctuations."
Empiricism vs. Rationalism in Say and Mises
Jean-Baptiste Say, who popularized Adam Smith in France, nevertheless adopted a rationalist method: deduce from axioms, avoid statistics, scorn empirical "momentary truths." He called Smith’s work an "irregular mass" of speculations and truths and set out to clean it up.
Austrian economists like Murray Rothbard and von Mises follow in Say's rationalist footsteps. Mises's "praxeology" deduces economic laws from the axiom that humans act. Rothbard argues that Turgot and Cantillon, not Smith, founded true economic science. It is not surprising, given the empiricism of the British approach and the rationalism of the French approach, that Murray Rothbard expresses strong approval for two of the era’s French economists, as compared with Adam Smith. (See Rothbard’s massive two-volume An Austrian Perspective on the History of Economic Thought.)
The defining methodological approach of Austrian economics, Rothbard’s school, is praxeology. What could be more “rationalist” than this statement by Rothbard:
In short, praxeological economics is the structure of logical implications of the fact that individuals act. This structure is built on the fundamental axiom of action, and has a few subsidiary axioms, such as that individuals vary and that human beings regard leisure as a valuable good….Furthermore, since praxeology begins with a true axiom, A, all the propositions that can be deduced from this axiom must also be true. For if A implies B, and A is true, then B must also be true.
Conclusion: The Scientific Legacy
Adam Smith believed economics was a science akin to Newtonian physics: rooted in observation and logic, not proceeding by pure deduction. It develops coherence and system at the end, not the start. Say and Rothbard saw Smith as inconsistent and overly empirical. But Smith aimed not for a tight logical system, but for a science illuminating reality. His method endures because it aligns with human complexity. It withstands ideological fads because it reflects the world we live in. And when confusion reigns, it is to empiricism—not deductive dogma—that we return. It is to science.
References
[1] “Sterile” was a term that became among the most controversial in the Physiocratic vocabulary. Adam Smith writes in the Wealth of Nations that the notion of a “barren or unproductive class” was used by the Physiocrats to “degrade” merchants, manufacturers, and other nonagricultural workers…”