Markets and firms
Anne-Robert-Jacques Turgot (1727–81)
1759 French economist François Quesnay publishes Economic Table—a model that demonstrates the physiocrats’ economic theories.
1760s French physiocrat Guérineau de Saint-Péravy’s essay on the principles of taxation argues that the ratio of outputs to inputs is fixed.
1871 Austrian Carl Menger argues in Principles of Economics that price is determined at the margin.
1956 In A Contribution to the Theory of Economic Growth, US economist Robert Solow applies the idea of diminishing marginal returns to the growth prospects of countries.
Frenchman Anne-Robert-Jacques Turgot was one of a small group of thinkers known as the physiocrats, who believed that national wealth was created from agriculture.
Turgot’s twin interests in tax and the output of land led him to develop a theory that explains how the output of each extra worker changes as successive workers are added to the production process. A fellow physiocrat, Guérineau de Saint-Péravy, had said that for each extra worker on the land, the amount of additional output is constant; in other words each extra worker adds the same to production as the last. But in 1767, Turgot pointed out that unprepared soil produces very little when sowed. If the soil is plowed once, output increases; plowed twice, it might quadruple. Eventually, however, the extra work begins to increase output less and less, until additional workers add nothing further to production, because the fertility of the soil is exhausted.
"The earth’s fertility resembles a spring that is being pressed downward… the effect of additional weights will gradually diminish."
A R J Turgot
Turgot’s idea is that adding more of a variable factor (workers) to a fixed factor (land) will lead to the last worker adding less to output than the first. This has become known as “diminishing marginal returns,” and it is one of the most important pillars of modern economic theory. It explains not only why it costs more to produce more, but also why countries struggle to get richer if their population expands without improvements in technology.