This paper revisits the work of Richard Cantillon and Francois Quesnay in order to conceptualise the dynamics between rural and urban areas in an economy. Concepts of social surplus and economy as a circular flow are presented in order to highlight the interrelationship between the growth processes in the rural as well as urban areas. The paper concludes by pointing out the significance of the works of Cantillon and Quesnay.Economic growth; Cantillon; Quesnay; Urban; Rural

Thomas, Alex M

English

Research Papers in Economics

Conceptualising Rural-Urban Dynamics
Alex M. Thomas
Research Scholar (M Phil Economics)
University of Hyderabad
Modern economic theory begins in 1776, with the publication of Adam Smith's Wealth of 
Nations. This period also coincides with the Industrial Revolution, which took place in large 
parts of Europe. In his book, Smith gives reasons for promoting manufacturing sector. He 
posits that this sector enjoys possibilities of unlimited division of labour, which would 
contribute   to   raising   both   production   as   well   as   productivity.   Subsequent   economists 
formulated theories, which neglected the role of agriculture, as a crucial sector in economic 
growth. However, once we take a look at the works of authors who wrote before Smith, we 
notice that the process of urbanisation did not take place without any strong dissent 
whatsoever. One such strong dissent came from a group of French economists known as 
'Physiocrats', of whom, Francois Quesnay was the leader and the most prominent. An inquiry 
into their work attains significance, for modern economic theory does not know how to 
accommodate dichotomies in an economy, such as the rural-urban divide or the formal-
informal separation, in a comprehensive manner. Therefore, this article tries to clarify the 
distinct yet interrelated roles both the rural areas and the urban areas play in economic 
growth by revisiting the two major pre-Smithian economists – Richard Cantillon and Francois 
Quesnay. 
Richard Cantillon, writing around the 1730s, systematically analysed the emergence 
and role of villages, market towns and cities. This account survives in his only work – Essai 
1sur la Nature du Commerce en General – which was published posthumously in 1755. His 
economic analysis is tethered to the concept of social surplus, which refers to the produce that 
is left over after necessary costs (of cultivation) are deducted. An increase in quantity and/or 
quality of land or an increase in quantity and/or quality of labour would increase the social 
surplus. Alternatively, a reduction in the costs would also lead to a rise in the social surplus. 
Another perspective, which Cantillon provides, is that of social division of labour. He points 
out that the entire population in a country is socially divided between villages (rural) and 
towns (urban). Largely, the rural population engaged in agricultural activities and the urban 
population involved in manufacturing activities. 
As long as adequate land and labour was available, agricultural production would go 
unhindered. Also, an increase in agricultural surplus meant that there was more raw materials 
available for the manufacturing sector. That is, it is the agricultural surplus which sustained 
the output of the manufacturing sector. More importantly, it is the agricultural sector which 
provides food for the entire populace of a country, assuming that imports of food is a 
negligible amount. In addition, an increase in agricultural surplus also contributed to an 
increase in the  extent of the market  (to borrow Adam Smith's term), of both agricultural 
products as well as manufactured items. For, an increase in agricultural surplus meant that 
the incomes of the agricultural labour, who mainly resided in rural areas, rose, which was 
spent on consumption. Similarly, the increased production of manufactured items facilitated 
by an increase in agricultural surplus, would provide additional incomes to the labour in the 
urban areas which also would be spent on consumption. In this manner, an increase in 
agricultural surplus would foster economic growth via increases in income and consumption, 
which would motivate an increase of production (of both agricultural and manufactured 
2articles) in the following period. In short, the presence of a sizable agricultural surplus was 
necessary for market towns and cities to grow, i.e. for urbanisation. However, it will be shown 
below that the presence of agricultural surplus alone is not sufficient for growth to take place 
in the rural areas. Next, we briefly go over Quesnay's political economy.
When Quesnay was writing (1756 to 1767), French agriculture was in a state of ruin. 
This   was   due   to   rapid   urbanisation   which   was   orchestrated   by   government   policies 
Consequently, it led to large scale migration of people from the countryside to the towns. In 
fact, as the historian, Fernand Braudel reminds us, the interaction between the villages and 
towns signify one of the “oldest and most revolutionary division of labour: the fields on one 
hand and the activities described as urban on the other” (Braudel 1974, 373). Such migration 
of people and the disproportionate attention received by the towns led to a drain of wealth 
from the countryside to the towns. This policy measure was based on the state's notion of a 
peasant. As Quesnay writes, “The peasant is looked upon as a slave of the state. Rural life is 
made out to be the hardest, most troublesome and contemptible possible because rural 
dwellers are reserved for work only fit for animals. When a peasant tills the soil himself, it is a 
token of his poverty and his usefulness (Quesnay 1756, 22). Because of such a negative view 
the state had of rural dwellers/agriculture, Quesnay argued that “of all the occupations by 
which gain is secured, none is better than agriculture, none more profitable, none more 
delightful...”(Quesnay 1759, 15). In fact, the primary objective of Quesnay, was to demonstrate 
the importance of agriculture as an important sector in economic growth.
With the aid of Tableau Economique, which is considered to be the prototype of an 
input-output table, Quesnay was able to convincingly show the demerits of a growth policy 
3which favours a particular class – in this case, it was the urban manufacturers. One of the 
primary contributions of Quesnay to economic theory, was his depiction of the economy as a 
circular flow. This implied that the economy was an interconnected system. Therefore, a 
disproportionate flow of wealth in one sector at the cost of the other sectors would ultimately 
result in economic ruin. As Braudel highlights, the “town-country confrontation is the first 
and   longest   class   struggle   history   has   known”   (Braudel   1974,   373).   Hence,   Quesnay 
maintained that it was essential for wealth, contained in the urban or manufacturing sector, to 
flow back into agriculture, so that production of food and raw materials could take place in the 
following   period   of   production.   By   highlighting   the   interdependence   in   an   economy, 
specifically in the production process, Quesnay was able to show that, the neglect of rural 
sectors/agriculture would prove detrimental to the entire economy in the long run. In fact, as 
even Smith notes, “The inhabitants of a city, it is true, must always ultimately derive their 
subsistence, and the whole materials and means of their industry from the country” (Smith 
1776, 405).
From the preceding discussion, it becomes clear that agricultural surplus, which arises 
mainly from the rural sector, is a necessary condition for overall economic growth and 
prosperity. However, Quesnay points out that sustained growth can only take place if the 
social surplus which is produced by the agricultural sector, in the form of landlords' rents and 
entrepreneurs' profits, flow back to the rural areas. However, as pointed out earlier, the 
presence of a large agricultural surplus is not sufficient to attain, what is now known as 
“inclusive growth”. From the works of Cantillon and Quesnay, it becomes clear that we need to 
examine the channels through which the rising incomes of the urban populace flow into the 
rural sector. In other words, it calls for a detailed study of the way in which the commodities 
4as well as the people circulate between the rural and urban sector – the location of markets, 
the availability of good infrastructure, the number of intermediaries, the nature of production 
undertaken, the structure of earnings, the employment situation – which has been attempted 
at through the concept of the inter-sectoral terms of trade. However, this interaction or 
“struggle” between the rural and urban areas is much more complex that it calls for a far 
richer analysis.
In contrast to the economics of Cantillon, Quesnay and even Smith, who had pointed 
out the interdependence in the production structure of an economy, the prevalent economic 
theory divides the economy into smaller parts, and studies them in isolation. That is, 
agricultural economics, industrial economics, urban economics, etc are considered to be 
legitimate areas of independent inquiry. This is one cause for concern. Another cause for 
concern is that the mainstream neoclassical/marginalist theory ascribes undue importance to 
the sphere of exchange, at the cost of almost a complete neglect of production structures and 
conditions. Whereas, only a study of production will throw light on the actual producers, their 
relation to the employer, the conditions of work, the compulsion to work, their incomes, etc. 
Production structure, in mainstream economic theory, pertains to market structure. Issues 
pertaining to property rights, role of gender, role of caste, environment, common property 
resources, technological change, unorganised markets, etc are not incorporated in the core 
study of microeconomics and macroeconomics; instead, these extremely significant aspects of 
economies are extensively taught and researched separately – law and economics, feminist 
economics, social exclusion, environmental economics, growth theory, etc. Basically, the 
crucial element of interdependence present in an economy, at various levels, have been 
neglected by mainstream economic theory. Owing to such misguided tools, it becomes 
5extremely difficult to  understand  an economy where around 60% of the population is 
employed in agricultural activities and where around 90% of the economy falls under the 
unorganised sector, let alone frame policies!
So, what is the way forward? The major change has to occur in the way economics is 
taught across India. A narrow focus on microeconomics and macroeconomics does not aid in 
making sense of the changes nor does it help in understanding the structure of the Indian 
economy. First, the curriculum should be tailored in such a way that non-mainstream 
approaches to economics are included. Secondly, research should adjust to the problems 
thrown up by the Indian society and economy at large; for, India cannot afford to do research 
which merely copies the West. Third, economics education should pay more attention to tools 
such as village studies and case studies, which aid in understanding the production process 
and   consumption   structure   in   a   context-dependent   manner.   Last   of   all,   it   must   be 
remembered that economic theory is and should ultimately be a servant of economic policy.
References
Cantillon, Richard (1755), Essai sur la Nature du Commerce en General, English translation, 
Henry Higgs (ed), London: Royal Economics Society/Macmillan, 1931.
Braudel, Fernand (1973) [1974],  Capitalism and Material Life 1400-1800, translated by 
Miriam Kochan, London: Fontana/Collins.
Quesnay,   Francois   (1759),  Tableau   Economique  ('Third   Edition'),   as   translated   in   M 
Kuczynski and R L Meek, Quesnay's Tableau Economique, with new material, translations 
and notes, New York: Augustus Kelly, for the American Economic Association, 1972.
Quesnay, Francois (1756), 'Fermiers', as translated in P D Groenewegen, Quesnay: Farmers 
1756 and Turgot: Sur la Grande et la Petite Culture, Reprints of Economic Classics, Series 2, 
No 2, Sydney: University of Sydney.
Smith, Adam (1776) [1976], An Inquiry into the Nature and Causes of the Wealth of Nations, 
Vol 1, R H Campbell and A S Skinner (eds), Indianapolis: Liberty Fund.
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(1755), Essai sur la Nature du Commerce en General, English translation, Henry Higgs (ed), London: Royal Economics Society/Macmillan,

Conceptualising rural-urban dynamics

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