This page looks at the work of authors who followed and built upon the foundations of Classical Political Economy, built by Adam Smith and David Ricardo.
It will almost exclusively describe the thought and publications of John Stuart Mill. Most modern writers seem to feel he was the predominant political economist of this time, even though he was not the only or the last of the period’s contributors.
Introduction
Robbins (1998) provides a lengthy introduction of Mill, and will be the source of what follows (219 to 222).
J S Mill was born in1806, and died in 1873. He was very important in the cultural history of England in mid 19th Century. He was an economist, a logician, a philosopher, a writer on morals and political science. He dominated the radical wing of the Whig party and also dominated the life of the Universities.
Robbins sees him as one of the great writers on political economy.
His upbringing was very peculiar as his father James Mill had strange ideas about the way children should be brought up. Very early in his life J S Mill was learning Greek and Latin, and when he was seven or eight he was giving instruction to other members of his family.
He never went to school, and was educated by his father who set him a very rigid set of exercises. His father also taught him as he took him for walks. The young Mill made notes of his father’s teaching during those walks; and those notes became the source of his Father’s publication in 1826, called ‘Elements of Political Economy’.
Although he was greatly educated in this way Mill, at the same time, was starved of emotional development. The result of all this was that in his twenties, and the rising hope of his father, and Jeremy Bentham and other philosophical radicals, he suffered a nervous breakdown.
This occurred as he helped Bentham edit his ‘Rationale of Judicial Evidence’ (1827). According to Robbins, Mill asked himself if all Bentham’s proposed social reforms were realised, would people be any happier; to which he answered ‘no’, and which set him on a downward spiral of despair that resulted in his breakdown.
Robbins continues that Mill got over his breakdown, partly by reading poetry by Wordsworth and Coleridge that opened up a view of emotional experience. But also he fell in love with a young married woman, Harriet Taylor –whose husband was much older than she. Robbins stresses that their relationship was strictly platonic and above board. Eventually Mr Taylor died and J S Mill and Harriet married.
Robbins goes into the arguments that biographers have had about Harriet’s influence on Mill, but settles for a view that by querying Mill’s ideas, and by pushing him further, Harriet became an important influence in his life.
In the event, Harriet died after seven years of marriage, and while Mill took it very badly Robbins feels that Mill went on to write some of his most outstanding work. He cites Liberty (1859), Utilitarianism (1877), Representative Government (1861) and his ‘immortal work’ The Subjugation of Women (1870).
J S Mill’s Contribution to Economics
Staying with Robbins (222 – 226), he mentions Professor Bladen of Toronto University who argues that Mill’s economic work should still be used in economic education. Robbins doesn’t quite agree with that, but he does say that Mill’s Principles (first published in1848) is far more interesting than the current dominant economic texts used in education, and much more profound on the fringe questions of the two centuries concerned.
A selection of Mill’s Unsettled Questions of Political Economy (1844) will be referred to later. The work contains a number of important essays as follows; ‘On the laws of Interchange between Nations’ – which made contributions to international trade – ‘Of the Influence of Consumption upon Production’ – which made unnecessary the arguments between followers of Say and neo-Keynesians – ,‘On the Words Productive and Unproductive Labour’ –which Robbins doesn’t rate very highly, ‘On Profits and Interest’ – which contains the plainest statement on the theory of forced saving.
Robbins does not present a detailed examination of Mills Principles, but he does pick out several important aspects of Mills approach.
First he points out that Mill separated out Production and Distribution; production he argued was subject to laws that were applicable universally, whereas distribution he thought was to an extent guided by institutional arrangements. The inference being, of course, that distribution could be changed.
He goes on to say that Mill was not a complete Malthusian, but he did broadly agree with Malthus that in any society if population was not restrained in some way or other, then sooner or later that society would find itself in trouble as large parts of society would be subject to the misery of poverty.
Next he mentions that Mill, under the influence of Auguste Comte, adopted the distinction between “statics” and “dynamics” in political economy. This idea was used in Sociology, and Mill picked up the concept and applied it to economics – and it is still used in modern economics. Eventually Mill distanced himself from Comte due to the latter’s attitudes towards women.
Robbins then turns to Stigler’s Essays in the History of Economics (1965) where Stigler identifies several original contributions made by Mill.
First regarding wages, Mill innovated the idea of non competing groups that affected wage levels.
Stigler then found Mill to have been the originator, in the theory of value, of the treatment of joint products, an aspect not dealt with at any length by any one of Ricardo or Mills predecessors.
Next, Stigler found that Mill had seen through Ricardo’s notion that rent did not enter into the costs of production. Mill realised that if the land had more than one use, then there would be opportunity costs for the use of the land, and these costs could well have entered into the costs of production.
Stigler then found that Mill was the first economist to treat the economics of the firm at any reasonable length in his Principles.
Fifthly Mill, in his essays of Unsettled Questions, treated supply and demand as functions of price and set out arithmetic illustrations of that relationship.
Finally Stigler, found that Mill wrote a masterly tract on Says Law that illuminated all the arguments on that issue in Mill’s time and until quite modern times.
Robbins then added a few issues of his own, before turning to Mill’s views on Socialism which will be dealt with below when considering the work of Taylor.
The issues identified by Robbins were as follows.
First Mill believed in peasant proprietorship and in their ‘magic’ that turns sand into fertile soil; and he urged government to foster peasant proprietors.
Secondly, as regards corporations, he was in favour of limited joint stock companies, even though there was a tremendous debate at the time about this issue among the classical economists.
Next, Mill had views on the ancient universities. He favoured the disregarding of the original deeds of trust – hundreds of years old – supporting those universities and diverting the funds to more socially suitable corporations.
Finally, regarding taxation, he was against what is now called progressive taxation, which he saw as penalising the more enterprising. Although he did favour small exemption amounts before tax kicks in, and this does have a small progressive effect.
As mentioned above the remainder of Robbins coverage of Mill focuses on his Socialist views, and this will be covered more fully by the work of Taylor below.
Before leaving Robbins, though, elsewhere in his lectures he examines J S Mill’s contributions in two areas; firstly so called Say’s Law and secondly the concept of a Wage Fund in production.
Says Law
Robbins deals with this in a prior lecture where he examines ‘Overall Equilibrium’ in the economic system (201 – 209). While this is a rather modern phrase Robbins incorporates a good deal to do with Say.
He starts by noting that many modern contributors have made reputations by denouncing the simple version of Say’s views. The simple version of Say was that ‘supply creates its own demand’, and therefore there can be no general glut.
But Say’s actual views, Robbins notes, were much more complicated than that simple version. Later Robbins adds, in defence of Say, that he was considering the long run possibilities of economic growth; not the possibilities of short run congestion in the capital markets resulting from failures to spend savings.
The view of Say was taken up in England by James Mill – the father of John Stuart Mill – who wrote the following , by way of an answer to doubtful others,
“No proposition . . . in political economy seems to be more certain than this which I am going to announce, how paradoxical so ever it may at first sight appear; and if it be true, none undoubtedly can be deemed of more importance.
The production of commodities creates, and is the one and universal cause which creates a market for the commodities produced. . . . When goods are carried to market what is wanted is somebody to buy.
But to buy, one must have wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation that constitute the entire market of the nation. But wherein consist the collective means of payment of the whole nation? Do they not consist in its annual produce, in the annual revenue of the general mass of its inhabitants?
But if a nation’s power of purchasing is exactly measured by its annual produce, as it undoubtedly is; the more you increase the annual produce, the more by that very act you extend the national market, the power of purchasing and the actual purchases of the nation. . . . [T]he demand of a nation is always equal to the produce of a nation (203).”
O’Brien (‘2004’ p.160) includes a similar passage and quotation from James Mill; and he makes this comment.
“Now what Mill and Say were stressing was the circularity of the economic system. Indeed the discovery of this circularity, although rooted in eighteenth-century French economics, involved a major analytical insight. Moreover, in so far as the proposition related to the impossibility of a failure of aggregate demand, it was a proposition directed against writers such as Malthus who were arguing that economic growth brought about a capital stock adjustment problem.”
However, with the passage of time, economic growth has caused the most profound threat to human society, that of global Climate Change.
We now go back to Robbins, although O’Brien will be picked up again later.
Robbins (203), while pointing out that Mill took the long period into consideration, felt that Ricardo having read Mill’s pamphlet derived the view that this law of markets was universally applicable. This contrasted with Malthus who thought that overinvestment was the cause of unemployment and of economic depression.
In the event Ricardo and Malthus exchanged endless letters about this subject in the early 1800s. Overall Malthus lost out to Ricardo. Malthus held to his notion that overinvestment led to economic depressions, but he was very vulnerable to Ricardo use of Mill’s simplified version of Say’s proposal.
Robbins then says (205) that despite Ricardo’s dominance Malthus was right to suspect that something was wrong in the economy, but he gave the wrong reason for it.
However J S Mill was worried by this disagreement between Ricardo and Malthus, and he actually felt that the two points of view that they were arguing about could in fact be reconciled.
To show this J S Mill wrote an essay in late 1820 or early 1830 but he didn’t publish it until the mid 1840’s. The essay was one of those in Mill’s pamphlet on ‘Unsettled Questions of Political Economy (1844)’; it was called ‘On the influence of Consumption on Production’.
There follows a string of comments Robbins made about Mill’s essay (205 -207);
“… he breaks through the sterile logic of the simplified interpretation of Say’s Law and shows how holding back expenditure may produce the appearance of a general glut…
…. He recognises that business is liable to alterations of prosperity and depression, so that general eagerness to buy and general reluctance to buy succeed one another at brief intervals …
and that In the case of depression,
… it is commonly said that there is a general superabundance…
And of his father and of Say,
… the proposition that supply is at the same time demand … evidently founded on the supposition of a state of barter. . . . When two persons perform an act of barter, each of them is at once a seller and a buyer. One cannot sell without buying …
… If, however, we suppose that money is used, these propositions cease to be true …
… the effect of the employment of money is, that it enables this one act of interchange to be divided into two separate acts or operations … Although he who sells, really sells only to buy, he needs not buy at the same moment when he sells; and he does not therefore necessarily add to the immediate demand for one commodity when he adds to the supply of another … there may be . . . a very general inclination to sell with as little delay as possible, accompanied with an equally general inclination to defer all purchases as long as possible…
… the over simple formulations of Say and the still more simple formulations of James Mill, Ricardo, and so on were certainly wrong in the short period.”
There now follows a direct quote from Mill’s paper ‘On the influence of Consumption on Production’ (1844, Page ?).
“In the present state of the commercial world, mercantile transactions being carried on upon an immense scale, but the remote causes of fluctuations in prices being very little understood, so that unreasonable hopes and unreasonable fears alternately rule with tyrannical sway over the minds of a majority of the mercantile public; general eagerness to buy and general reluctance to buy, succeed one another in a manner more or less marked, at brief intervals. Except during short periods of transition, there is almost always either great briskness of business or great stagnation; either the principal producers of almost all the leading articles of industry have as many orders as they can possibly execute, or the dealers in almost all commodities have their warehouses full of unsold goods.
In this last case, it is commonly said that there is a general superabundance; and as those economists who have contested the possibility of general superabundance, would none of them deny the possibility or even the frequent occurrence of the phenomenon which we have just noticed, it would seem incumbent on them to show, that the expression to which they object is not applicable to a state of things in which all or most commodities remain unsold, in the same sense in which there is said to be a superabundance of any one commodity when it remains in the warehouses of dealers for want of a market.
This is merely a question of naming, but an important one, as it seems to us that much apparent difference of opinion has been produced by a mere difference in the mode of describing the same facts, and that persons who at bottom were perfectly agreed, have considered each other as guilty of gross error, and sometimes oven misrepresentation, on this subject.
In order to afford the explanations, with which it is necessary to take the doctrine of the impossibility of an excess of all commodities, we must advert for a moment to the argument by which this impossibility is commonly maintained.
There can never, it is said, be a want of buyers for all commodities; because whoever offers a commodity for sale, desires to obtain a commodity in exchange for it, and is therefore a buyer by the mere fact of his being a seller. The sellers and the buyers, for all commodities taken together, must, by the metaphysical necessity of the case, be an exact equipoise to each other; and if there be more sellers than buyers of one thing, there must be more buyers than sellers for another.
This argument is evidently founded on the supposition of a state of barter; and, on that supposition, it is perfectly incontestable. When two persons perform an act of barter, each of them is at once a seller and a buyer. He cannot sell without buying. Unless he chooses to buy some other person’s commodity, he does not sell his own.
If, however, we suppose that money is used, these propositions cease to be exactly true. It must be admitted that no person desires money for its own sake, (unless some very rare cases of misers be an exception,) and that he who sells his commodity, receiving money in exchange, does so with the intention of buying with that same money some other commodity. Interchange by means of money is therefore, as has been often observed, ultimately nothing but barter. But there is this difference—that in the case of barter, the selling and the buying are simultaneously confounded in one operation; you sell what you have, and buy what you want, by one indivisible act, and you cannot do the one without doing the other. Now the effect of the employment of money, and even the utility of it, is, that it enables this one act of interchange to be divided into two separate acts or operations; one of which may be performed now, and the other a year hence, or whenever it shall be most convenient. Although he who sells, really sells only to buy, he needs not buy at the same moment when he sells; and he does not therefore necessarily add to the immediate demand for one commodity when he adds to the supply of another. The buying and selling being now separated, it may very well occur, that there may be, at some given time, a very general inclination to sell with as little delay as possible, accompanied with an equally general inclination to defer all purchases as long as possible. This is always actually the case, in those periods which are described as periods of general excess. And no one, after sufficient explanation, will contest the possibility of general excess, in this sense of the word. The state of things which we have just described, and which is of no uncommon occurrence, amounts to it.
For when there is a general anxiety to sell, and a general disinclination to buy, commodities of all kinds remain for a long time unsold, and those which find an immediate market, do so at a very low price. If it be said that when all commodities fall in price, the fall is of no consequence, since mere money price is not material while the relative value of all commodities remains the same, we answer that this would be true if the low prices were to last for ever. But as it is certain that prices will rise again sooner or later, the person who is obliged by necessity to sell his commodity at a low money price is really a sufferer, the money he receives sinking shortly to its ordinary value. Every person, therefore, delays selling if he can, keeping his capital unproductive in the mean time, and sustaining the consequent loss of interest. There is stagnation to those who are not obliged to sell, and distress to those who are.
It is true that this state can be only temporary, and must even be succeeded by a reaction of corresponding violence, since those who have sold without buying will certainly buy at last, and there will then be more buyers than sellers. But although the general over-supply is of necessity only temporary, this is no more than may be said of every partial over-supply. An overstocked state of the market is always temporary, and is generally followed by a more than common briskness of demand.
In order to render the argument for the impossibility of an excess of all commodities applicable to the case in which a circulating medium is employed, money must itself be considered as a commodity. It must, undoubtedly, be admitted that there cannot be an excess of all other commodities, and an excess of money at the same time.”
It is clear that Mill’s statement confirms most of Robbins comments that immediately preceded it. For example Mill states that,
‘business is liable to alterations of prosperity and depression’
‘In this case of depression, … it is commonly said that there is a general superabundance’
‘the proposition that supply is at the same time demand … evidently founded on the supposition of a state of barter’
‘the effect of the employment of money is, that it enables this one act of interchange to be divided into two separate acts or operations … Although he who sells, really sells only to buy, he needs not buy at the same moment when he sells’
All these statements are present in Robbins comments. To conclude this section it is appropriate to repeat Robbins point that the over simple formulations of Say and the even more simple statements of James Mill (that the production of goods creates its own demand) is certainly wrong in the short period, even though it may be true, given the use of money, in the long period.
The Wage Fund
Both Robbins and O’Brien cover the wage fund, but while Robbins is briefer he make some important points regarding J S Mill. O’Brien’s coverage is much longer but he relates the wage fund to all the classical economists and not just to J S Mill.
This quote from Robbins introduces the idea,
“In the short run, the general level of wages, given mobility and all that
sort of thing, was determined by the size of the funds destined for the
maintenance of labour in relation to the labourers offering themselves for
contract services. This is another complicated way of saying the wage fund
theory, but the actual term wage fund was only invented, was only used, by
John Stuart Mill. But the conception dates from Adam Smith. And you
should realise that it was used in this connection as regards the possible
raising of wages. It was not used by the classical economists, whatever may
have been its use by popular writers, against the labouring classes. It was
not used to any extent against the unions” (197).
Here Robbins makes it clear that Adam Smith first spoke of funds for the wages of labourers, but that it was J S Mill who invented the term ‘Wage Fund’ and that he was the only economist to use the term. Also none of the classical economists used the idea against the working classes and it was only rarely used against the trades unions.
A few pages later Robbins adds more information about Mill’s idea of the wage fund. He adds that Mill indicated a pretty tight upper limit to the wage fund which in turn meant a tight upper limit to the wages of the involved employees (231).
Robbins (232 -233) then adds a description of how in 1869 a colleague and friend of Mill in the India Office – named Thornton – published a book, ‘On Labour: Its Wrongful Claims and Rightful Dues’.
Mill wrote a friendly review of the book, although he was critical of some of the arguments of demand and supply – but when he came to consider the book’s theory of the labour market he made a confession of error regarding his views of the Wage Fund.
In short, without providing any alternative, Mill admitted that his theory of the Wage Fund had included too rigid a limit on the wages going to employees.
This admission by Mill, who had been most authoritative on this topic, created quite a controversy for those who had accepted his previous view.
Then in 1871 when his last edition of his principles came out he had hardly changed his text on the Wage Fund, although he did discuss the controversy in the preface to the book.
Another highly thought of economist, Cairnes (1874), protested unsuccessfully with Mill for abandoning the Wage Fund theory.
A highly thought of economics writer, Taussig (1897), declared that he could not understand Mill’s change of view on the matter; and he suggested that the Fund could be reformulated to be rather elastic, and still be a part of the theory of capital.
Despite such remonstrations the Wage Fund theory dropped out of economics from then on.
O’Brien (1978) also covers the work of John Stuart Mill – who he sees as the most important of the later political economists – and his focus is more on Mill’s economic work.
Here we will briefly cover his thoughts on the Wage Fund theory (111 -117).
He starts by noting that almost all classic wage theories stemmed from Smiths Wealth of Nations, Book1 Chapter 8. He adds that most classic wage theories settled onto two issues.
First was the short run Supply and Demand or Wage Fund theory.
Second was the long term subsistence theory.
Clearly we concentrate on the first of these. He says that in essence Wage Fund theory was merely a theory of the demand for labour; it was essentially about pre-accumulated capital, that supported labour during production.
In the best works, he says wage capital was distinguished from total capital, and the working population from total population.
He adds that Wage Fund theory was a theory of the demand for labour that provided a view of the ‘general wage level in the community in the short run’ (113).
However O’Brien identifies a number of problems with the theory. First taxes on wage goods raised wages in the short run sufficient to pass on the tax – but this made the fund indeterminate.
Second, how did this cover the wages paid to unproductive workers? J S Mill was aware of this issue but he just ignored it. Other problems were to do with economic considerations too complex to go into.
O’Brien then adds that the size of the fund was not at all clear. Most writers felt it depended on the size of the total product and the share of that going to the capitalists; but the question was left without a precise answer.
We can conclude O’Brien’s views by noting that he felt that the wage fund theory, despite its problems, can be seen as being an aggregate theory of the demand for labour, and being ‘the precursor of modern aggregate analysis’ (113).
Turning away from the Wage Fund we can now consider O’Brien’s more general views of J S Mill.
O’Brien on J S Mill
Mill, says O’Brien (45-46), drew his theory from a range of sources, but at the same time made significant contributions. For example, he lists contributions of Mill, similar to that of Stigler. These are the theory of reciprocal demand in international trade, the theory of non competing groups, the problem of joint products, advances in the theory of supply and demand, and the clarification of Say’s Law including improvements in the circularity of economic systems.
O’Brien continues that from his eclectic approach of theoretical sources Mill incorporated Ricardo’s work into his own, but tended to negate the inputs when doing so. For example he started with Ricardo’s idea of diminishing returns in agriculture but changed it so much by the effects of technical progress that the original proposition lost its relevance.
Mill still had the inverse relationship of wages and profits, but without Ricardo’s invariable measure. However he distinguished between wages and the cost of labour, and destroyed the meaning of the relationship. For Mill wage cost per unit of output need not rise in step with rising population as wage costs depend on money wages, labour efficiency and the cost of wage goods. So again he adopts the basic Ricardian theory, but does not regard it as a determinate relationship. But regarding Trade Theory O’Brien feels that Mill contributed important theoretical aspects built entirely on Ricardo’s foundations.
And Mill did disagree with previous economic writers too. For example he differed with Adam smith about the cause of lowered profits – the lack of viable investment opportunities – and the subsequent Stationary State, about which he disagreed about its nature; whereas his predecessors saw it as an undesirable disaster Mill saw it as a happy opportunity, as is outlined below in this account.
In his book O’Brien described the overall position of political economists on a number of areas, one by one. Here three of these areas will be described, as follows; Methodology, International Trade, Economic Growth.
Methodology
When discussing classic methodology O’Brien finds that there was a dichotomy of approaches. On one hand some of the economists used an inductive approach, whilst others used a deductive method – although neither group were methodological purists.
It will be plainer to explain this difference by looking at a modern account of the two approaches, drawing on an account from 2016 by Michael Hammond of the University of Warwick.
Induction is described as working from first principles and drawing general conclusions from individual instances or observations. The benefits of this approach are that it allows flexibility, attends to context and supports the generation of new theory.
By contrast deduction has had considerable appeal in social research, and is ‘associated with a kind of classical and logical positivism’. In its purest from it is associated with the hypothetico-deductive approach, where specific hypotheses are generated from existing practical and theoretical knowledge; the hypotheses are then tested under experimental conditions.
The hypothetico-deductive approach is associated with scientific methodology, and also supports desk bound research such as meta-analysis and systematic reviews.
O’Brien describes considerable disagreement among classical political economists in this area. Many seemed content to use inductive methods without bothering about testing results. Mill, as O’brien describes him, seems to have used a hybrid approach; where he wrote on methodology a good deal of ambiguity can be found, and in his work he seems to have switched from one approach to the other.
On the other hand though, examination of his Principles is described by Schumpeter as excessively deductive. Mill’s readers also got, again according to Schumpeter, factual material making up about one sixth of the book. This was less than Adam Smith’s WoN, but much more than Ricardo’s work which contains hardly any facts at all.
International Trade
O’Brien (182-184) notes that Ricardo’s formulation of how in comparative advantage the translation into money prices, left unsolved the determination of the terms of trade and of relative price levels.
Several economists – including JS Mill’s father, James Mill– made individual attempts to solve this problem. However, whilst it became recognised that the solution depended on reciprocal demand, all their solutions were unfortunately incomplete.
The correct solution was provided by James Pennington and J S Mill. Pennington made it clear that the terms of trade ‘must settle between the different comparative cost ratios’.
But it was J S Mill who showed that where the terms of trade settled depended on the reciprocal demand of each country for the products of the other.
Obrien calls this ‘one of the greatest performances in the history of economics’. (Emphasis added).
Marshall eventually drew a diagram of this showing the necessary elasticity in the curves involved. Although J S Mill didn’t draw such curves O’Brien quotes a passage that shows that Mill was perfectly in command of the properties of the matters concerned.
Economic Growth and Development
The classical economists based their views of growth from those of Adam Smith. Smith was concerned throughout with growth, but, according to O’Brien he concentrated on growth per head rather than growth of the whole nation.
Smith saw the economy growing in an upward spiral, that consisted of two elements. These were basic economic phenomena, that can be arranged in an approximate model; secondly was a set of institutional arrangements. Taking them in turn, from O’Brien,
There were two basic determinants of wealth, given the background circumstances; the first was the effectiveness of the application of labour; the second was the proportion of the labour force that were employed in productive work (that is work that produces something that ensured the continuation of production).
The effectiveness of labour depended on the extent to which the division of labour has been achieved. Productive labour depended on the amount of capital invested in the different economic sectors available.
The basic model produced from the above runs like this; first accumulated capital supports the division of labour, which increases the total product by increasing productivity. This increases accumulated capital for investment; wages were then bid up and population increases ensuring increased demand for the final product.
The sectors of investment were ranked by Smith as follows. Capital invested in Agriculture set in motion the greatest quantity of productive labour; the next sector was that of Manufacturing where workers were employed and the capital of farmers and miners, who supplied raw materials, was replaced. Below manufacturing came Trading, where merchants capital employed sailors and carriers. Finally came Distribution, where the retailer only employed himself.
As regards the institutional arrangements needed, the first was of course the security of property needed for the supply of effort and of capital. Second was control over primogeniture to ensure the line of succession of the large estates. Next the Metayer System – where the peasant tenant extracts his own wages and subsistence from the soil; the landlord supplies him with the land and also the stock that assists the peasants labour – should be removed and security of tenure introduced.
Freedom of trade both nationally and internationally was necessary for the productive powers of resources to be used properly.
Finally the infrastructure of roads, canals etc should be provided by the state.
O’Brien then looks at the use made of Smiths opinions by first Malthus, then by the economist McCullock.
Malthus, a growth economist, essentially used a system very like that of Smith. But he differed regarding a few aspects. He argued for landed property to be divided to ensure a demand pattern suitable for development. He also stressed that internal and external commerce was necessary to maintain a high enough level of demand. Thirdly he argued that an adequate proportion of unproductive workers in personal services should be maintained to stimulate economic development.
McCullock (another notable economist) was in some ways more Smithian than Malthus, but he thought Smiths distinction between capital and revenue was somewhat lacking. He argued that the role of capital – both fixed and circulating – was to increase labour’s productivity. Circulating capital enabled commodities needing time or machinery to be produced.
He also disagreed with Smith and others that the factory system dulled the intelligence of the workers. Mcullock also argued for greater and wider institutional arrangements to be put in place. He also disagreed with the division of large estates.
He argued too for better systems of education of the workers. He disagreed that agriculture was of primary importance, stressing the interdependence of economic sectors where growth in one stimulated the others. He also doubted the falling rate of profit and the inevitability of the stationary state.
Finally he recognised that economic growth did not benefit everybody.
O’Brien then turns to the ‘great figure’ of J S Mill (218 -. In writing his Principles, says O’Brien, Mill had attempted to write a Wealth of Nations now that capitalism was more developed than in Smith’s time. He also aimed to produce a work on economic growth covering the complete range of factors affecting the country’s growth performance.
He drew on 5 major sources; mainly Adam Smith, also Compte (covered above), and Charles Babbage, Professor of Mathematics who had written on the economy of machinery and manufacture, also John Rae a Scottish inventor and writer, and finally Ricardo.
Babbage dealt with the technology of industrial advance and the ways in which advanced countries organised their economic activity. Mill accepted the importance of Babbage’s work, and the latter’s influence in Mills work is most notable in the areas of scale and organisation. Mill held the economics of scale very important, though the extent of the market was important here too.
Mill supported joint stock companies which gave access to capital and made economies of scale easier.
Mill was advised to Read John Rae by Nassau Senior, another economist. Rae’s book influenced Mill in three ways; first was provision for the future, next was knowledge which was important in making provision for the future, and finally was the level of motivation, which varied widely between and within nations.
Mill was also influenced By Rae on time preference (the ease with which producers could be persuaded to sacrifice now) which depended on affection for others and habits of prudence. O’Brien feels that Mill leant heavily on Rae’s influence in the areas of social conditions, time preference and affection for others.
Finally on Rae, Mill was influenced by Rae’s treatment of inventions and his views on the division of labour. The argument was that the division of labour meant that capital equipment and inventions could be used more fully and returns gathered more quickly. To an extent then the division of labour was a result of invention and capital accumulation rather than a cause.
Mill was also influenced by Ricardo who saw the inevitability of diminishing returns in agriculture. Mill started from this position but more and more saw that returns could stay high by the advances in agricultural technology. He finally recognised that the price of corn had fallen due to agricultural improvements since about 1830. Despite this Mill still anticipated the stationary state (see next section) which he saw as a beneficial situation.
Jumping ahead a little, Mill saw the installation of new inventions and machinery, and the conversion of circulating capital into fixed capital. As machinery did not wear out within a year he saw this as being against the interests of the workers. But he eventually saw that historical improvements had been introduced gradually using new capital, and that circulating and fixed capital had risen together. Such improvements though could push back the stationary state.
He finally saw that capital was overflowing that would not affect the wage fund, but that government would have to intervene to slow down the introduction of improved machinery.
O’Brien sees this as an issue that is still relevant in modern times.
“The essential question is whether income (or the voluntary and widespread taking of leisure) grows as fast as the growth of productivity (228).
We now turn to Quentin Taylor (2016)
Taylor (2016) argues that Mill’s economic reputation is based mainly on his ‘Principles of Economy’ first published in 1848, but with seven published editions when he died in 1873. The Principles, says Taylor, was seen to be on a scale with Adam Smith’s ‘Wealth of Nations’; it saw Mill become the dominant economist of the age until it was overtaken by Alfred Marshals economic works in 1890.
Taylor adds that today Mill is best known as a social philosopher with works on Liberty, the rights of Women and on Utilitarianism; and his economic thought stays relevant among scholars. He was the leading 19th Century liberal and his analysis still relates in modern liberal societies. Moreover, as Mill used political economy as a contributor to wider ideas of social reform, he stays alive in current debates on social justice, equality, the welfare state and the future of capitalism.
On the other hand, says Taylor, many observers fail to confront his actual teaching. It is recognised that Mill explored socialist ideas and favoured co-operative arrangements for societies of the future. But no one seems to see him as an actual socialist (although he identified himself as such in his Autobiography) however it is defined. Despite his socialist ideas Mill was in fact a defender of free markets, and his socialist ideas were limited to ideas of the welfare state.
After reviewing the views of many economists on this matter (74 to 76) Taylor found a dominant view of Mill as a proponent of political economy. But there has been confusion of Mill’s position as just described, or as a believer in some sort of socialism. Such confusion Taylor argues, stems from a neglect of relevant texts in Mill’s third edition of his Principles. He cites the essay on ‘Claims of Labour’ (1845), his speech on co-operation (1864), and his posthumously published ‘Chapters on Socialism’ (1879).
Taylor (2016) describes (pages 73 -77) the way in which Mill’s work is assessed by most modern economists. Mill’s Principles, first published in 1848, with seven following published editions, are seen to be on a par with Smith’s Wealth of Nations, and Mill became the dominant economist of his time until the 1890 works of Alfred Marshall.
Today Mill is best known as a social philosopher who covered Liberty, the rights of women and Utilitarianism, and whose ideas are still relevant to current debates on social justice and equality, the welfare state and the future of capitalism.
These views though, argues Taylor, fail to confront his actual teaching and the fact that he identified himself as a socialist in his autobiography. Also neglected are relevant texts in Mill’s third edition of his Principles, his ‘Claims of Labour’ (1845), his speech on co-operation (1864), and his posthumously published ‘Chapters on Socialism’ (1879).
Together these sources vary starkly from the scholarly image of Mill as a great exponent of Classical Political Economy.
Taylor goes on (pages 77 -81) to describe Mill as a social reformer dedicated to the ‘progress of humanity’, a vocation he followed for half a century. He attacked privilege, ignorance, oppression and injustice whenever he found them – and aristocratic Britain gave him many targets.
He went much further than the democratic and market reforms pursued by the Benthamites. He aimed to transform part feudal Britain into an egalitarian, post capitalist cooperative nation; his interest in applied economics in the 1840’s became a decisive stage in this vision.
His Principles ‘Chapter on Property’ emphasised the social nature of property and its subordination to the will of the community. Production, he argued, may be subject to ‘laws’, but distribution of products is solely of human will, permitting much variance in practice. Although wealth has historically been used in the interests of the ruling classes, people should be free to distribute it however they choose.
Mills ideas were underlain by utilitarian thought, and he saw property as a social right, not a natural right. These views, argues Taylor, of distribution and property led him to serious consideration of socialist arrangements.
In fact Mill examined both socialist and communist views in the third edition of his Principles. He argued that a worker in communism would perform as well or better than a wage earner in capitalism; and with the advantage of education that communist worker would outperform the efforts of salaried officers in the middle or upper classes.
Mill attributed any hostility to such ideas to prejudice and lack of imagination.
Taylor (78) quotes Mill as follows, in support of communism.
‘History bears witness to the success with which large bodies of human beings may be trained to feel the public interest their own. And no soil could be more favourable to the growth of such a feeling, than a Communist association, since all the ambition, and the bodily and mental activity, which are now exerted in the pursuit of separate and self-regarding interests, would require another sphere of employment, and would naturally find it in the pursuit of the general benefit of the community’
Taylor then covers Mill’s thought as he weighed up the relative merits of socialism and communism. In terms of moral values he saw Communism as highest, Socialism as second highest and Capitalism as lowest.
But while Communism has the highest moral position how could such a higher moral condition of human conduct be reached; how could selfishness be eradicated?
The answer to all such questions lay in education – but only after the education system had been completely regenerated. Such a new education system could also answer Malthus’s concerns about reproduction; people could be educated and trained in moral restraint and social responsibility to make unwise reproduction far less of a problem.
But, he reasoned – even without communism – education and restraint could end poverty under the present social institutions.
He thus began to see socialism as a transition towards communism; in socialism education could be regenerated with all its benefits; and in socialism monetary rewards could be used as an incentive to better performance. At the same time Mill’s version of socialism could keep the value of competition among co-operatively organised firms.
So thinking in such a way took hold, while communism could be the ultimate goal, Mill’s socialism could be a useful stepping stone. Mill also began to be drawn to the ideas of Fourier who seemed to have drawn together the superior forms of all the socialist proposals.
Among other things Fourier argued that labour would become more attractive and pleasurable once extreme poverty was eradicated; and his system would need little or no change to the general laws influencing human action in the society of that time. This made Fourier’s system very capable of success.
In the latter parts of the chapter Mill began to call for limits on the rights of inheritance and bequests, as a means to achieve greater equality; he also distinguished between private property in land and property in movables.
Although he saw capital, savings and past labour as other sources of value, he saw active labour as the source of private property.
Mill proposed that all property rights should be subject to fairness and utility. Regarding inheritance, he felt that it could give advantage to the idle and undeserving, often leaving more industrious people with nothing. He therefore argued that the unlimited right to inherit should be curtailed.
Bequests too he wanted to limit, seeing them more as a privilege rather than a right. He strongly favoured the French system of restricting the power of bequests to end primogeniture and the amassing of large fortunes.
He thus wanted limits on the amounts that people could inherit. He viewed inheritance as a concession to private property resulting in large inequalities. Even with such controls though, greatly reduced inequalities would persist, and he realised these would have to be accepted (82).
He clearly wanted limits on what a person might inherit. He saw inheritance as a concession to the principle of private property with its resultant inequalities. However, once this is accepted, inequalities of wealth – greatly reduced by his proposals – are something that must be put up with (82).
Mill saw that his proposals would result in a levelling of wealth in society and he expected his ideas would be savaged when they appeared in his Principles. As it turned out though, his proposals were largely ignored by the reviewers of his work.
He looked forward to the breakup of large fortunes and the spreading of wealth if his ideas were introduced. He also believed like Bentham that the fortunes of those who died without a will should go to the state to finance socially useful projects.
He saw that the spreading of wealth would allow the advantages of leisure and would multiply the real enjoyments of a much wider population; and the remaining socially permitted leisure class of well off people could be expected to behave much better than previously, and could also be expected to provide ‘services’ to aid larger society (82 – 83).
Mill continued to distinguish between wealth in movables and wealth in land. Movables, such as chattels and liquid wealth could be lost and were subject to taxation. But Land, a gift from nature for the whole of mankind, could not be lost, and its ownership by a few was the result of violence and injustice.
Nowhere, he argued, whatever the practice of landowners, could the ownership of land by a few living off the labour of their tenants, be justified. He therefore argued strongly for the conversion of large estates into peasant properties; and as the state could become the ‘universal landlord’ with tenant landlords (previously peasants) using the land productively.
Mill favoured wholesale conversion of land on the grounds of justice and expediency. The new proprietor tenants would sub lease from the state, subject to proper and productive use of the land, and would become in effect wardens of a conservancy.
In this way no individual could have exclusive ownership of land, as it is the common possession of the species (83 – 84).
Taylor turns to Mills Views on the future of the working people (84 -86). He saw that property was indispensible to political economy, but that it was treated well beyond what was needed for the economy.
He also considered the approach of the stationary state. This was seen as a great negative by almost all political economists, but Mill saw it as great opportunity. He saw that in the stationary economy production and distribution would merge, opening opportunities for the status of labour to be raised and the creation of a situation where capitalism could be transformed into socialism. He therefore didn’t envisage a positive future for working people, except through the arrival of the stationary state.
He saw that the smallest increase in production would raise the extent of distribution, creating material security for the whole population. He knew that government and philanthropists would not be interested in increased production, but that capitalists and shareholders certainly would be.
Mill was not concerned with the interests of these two latter groups, their days being numbered. In the coming crisis of capitalism it is the workers themselves – the most numerous class – who must determine their future.
But while their material conditions improves their immediate status, without an improvement in their mental cultivation overpopulation and poverty would persist. It would therefore be essential that workers opinions and habits should develop to support the virtues of prudence, restraint and moderation.
Only in this way would the workers achieve genuine security and well being.
When considering how this change in workers education could be achieved, Mill realised that there was already a spontaneous education beginning amongst the workers which could be greatly accelerated by outside aids.
These could include cheap newspapers, lectures, and self study alongside political agitation. Mill also called for universal schooling to awaken the public spirit and spread a variety of ideas among the working class and to stimulate ideas and reflection amongst the more advanced.
While this could lead to mistakes in practice it could do away with the old outmoded authority. And he argued that the spirit of independence goes along with a respect for superior intellect and knowledge, meaning that emancipated workers would accept guidance and leadership from experts.
But Mill realised that higher wages and better conditions along with intellectual growth, although benefiting most of the people, were only preconditions for a thorough transformation of society.
In this transformed society, if the many eventually predominate, a type of association between workers themselves would develop featuring equality, collective ownership of capital, and work directed by managers, elected by the many, and who would be removable if necessary (85).
Thus workers can only advance so far under a reformed capitalism; eventually they will demand ownership and control, resulting in a multitude of worker owned and managed cooperative enterprises; that is a cooperative society of industrial democracy.
To reach this last step Mill envisaged the funds needed coming from the stepping stones of worker controlled individual firms, and even from money loaned by the old capitalists, who would find it prudent, seeing the way that society was going.
Eventually he thought, perhaps not too far in the future, guided by the cooperative spirit, a changed society combining the freedom and independence of the individual, with the moral intellectual and economic advantages of cooperative aggregate production – without violence or sudden turnover of existing habits – would be achieved.
Such a society would feature the best aspects of democracy, and leave behind all the old damaging divisions of the old society (86).
Taylor adds that Mill’s desire for ‘a steady, peaceful transformation of society based on consensus’ stemmed from his character as a positive radical reformer seeking the improvement of humanity while avoiding class conflict and violence.
But for all Mill’s emphatic support for socialism, he never rejects aspects of a market economy and of competition; and it was, Taylor thinks, his aversion to violence etc that gave his thought a provisional character.
And Mill did say that a worker owned and managed society would be the nearest and most beneficial form of industrial arrangement for universal good that it was possible to foresee at the time (86).
In making the above claims Taylor points out that Mill has moved from political economy to social philosophy, and in doing so he accepted the inevitability of the approaching stationary state. Like Smith, Malthus and Ricardo before him, he saw that the progression of the British economy would end in stagnation, but he did not argue that means could be found to avoid that stagnation.
Taylor (87) wonders how Mill’s thought could have differed so much from the way things actually turned out; but he adds this quote from Mill regarding the latter’s hopes for the future,
‘I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other’s heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of industrial progress’
In his conclusion (92) Taylor sees that the tendency of modern scholars to downplay Mill’s socialist views may have been attempts to save him from himself, given that the experience of Soviet Communism has been stigmatized as crushing individualism, democracy, and the open society. Mill, though, saw socialism as just the opposite, the system under which individualism, democracy and the open society would thrive.
Concluding Remarks
It is interesting that all contributors to this page thought so highly of J S Mill as a classical economist. Apart from Taylor only Robbins devoted time to describing Mill’s thoughts regarding inheritance and bequests.
Taylors description of Mill’s ideas regarding Communism, Socialism and the stationery state as opportunities for the emancipation of the mass of the population, vary widely from the ideas of classical economists.
Taylor is puzzled though why Mill’s ideas did not materialise. Well, of course, those ideas were a hybrid form of socialism that saw the survival of a market economy and competition between worker operated firms. The weakest aspect of his ideas were of course that Mill’s scheme was a top down form of socialism. There would be nothing wrong in seeing socialism as a stepping stone to the ultimate society of communism – but only if the mass of the population voted for it and became the drivers of the whole process. But Mill of course thought through how workers would have to be educated, how the education system would have be revamped – all top down measures designing things for people who are perfectly capable of designing their own strategies.
Despite these criticisms, Mill did write that eventually the workers ‘will demand ownership and control’.
Also Mills last quote just above, repeated here, shows his deep dislike of the way in which capitalism treats the mass of the people: and it also shows he knew that capitalism is not the highest and final form of human development, and that is just one step in human arrangements..
‘I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other’s heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of industrial progress’.
Mill’s quote is a powerful description of life under capitalism, just as relevant today as it was then.
One wonders how Mill would have reacted if he was alive to see Capitalism creating; two World Wars that both saw untold numbers of people killed; the development and spread of nuclear weapons that could kill the whole world of human beings; the repeated famines that occur in the poorest countries; the growth of the inequality between the super rich and the mass of the employed workers; and finally the growth of Climate Change caused by the need of the Capitalist system to continuously grow and to ravage the planet as a consequence.
Profit, Wealth and Value 