Front Page Titles (by Subject) III.: THE PRINCIPLES OF POLITICAL ECONOMY - The Collected Works of John Stuart Mill, Volume II - The Principles of Political Economy with Some of Their Applications to Social Philosophy (Books I-II)
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III.: THE PRINCIPLES OF POLITICAL ECONOMY - John Stuart Mill, The Collected Works of John Stuart Mill, Volume II - The Principles of Political Economy with Some of Their Applications to Social Philosophy (Books I-II) 
The Collected Works of John Stuart Mill, Volume II - The Principles of Political Economy with Some of Their Applications to Social Philosophy (Books I-II), ed. John M. Robson, introduction by V.W. Bladen (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1965).
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THE PRINCIPLES OF POLITICAL ECONOMY
while mill the preacher might doubt the importance of increasing production except in “the backward countries,” Mill the political economist was more realistic and put the problem of production, the causes of productivity and of increasing productivity, at the forefront of his study. Perhaps this was related to his expectation of continued population increase: increasing accumulation and increasing productivity would be necessary even if no further improvement in standards of living were desired; and whatever improvement in the condition of the poor might be achieved by redistribution with a stationary population, the existing standard could not be maintained with increasing population without such increase in productivity. The preacher was contemplating the Stationary State, the political economist was concerned with the practical problems of contemporary society. Increase in the productivity of labour, and accumulation of capital were recognized as urgent necessities. They remain urgently necessary, and modern economists in developing countries, backward or advanced, particularly in countries where population is once again increasing rapidly, do well to reconsider Mill’s treatment if only to stimulate them to develop a modern theory of production.
INVESTMENT IN HUMAN BEINGS
One important element in Mill’s treatment is his emphasis on investment in human beings. After a century of neglect this has come to the fore as a result of the immense investment in education required in backward and advanced countries alike. In discussing “Labour as an Agent of Production” (I, ii) he devotes one section (§7) to “labour of which the subject is human beings” (I.40.35). Much of this labour is “incurred from other motives than to obtain such ultimate return, and, for most purposes of political economy, need not be taken into account as expenses of production” (I.41.6-8). But “technical or industrial education” is generally “undergone for the sake of the greater or more valuable produce thereby attained” and should therefore be treated as “part of what the produce costs to society” (I.41.8-19). Similarly “the labour employed in keeping up productive powers; in preventing them from being destroyed or weakened by accident or disease,” though not generally employed by the individual patients from “economical motives,” must be considered “as part of the advance by which society effects its productive operations” (I.41.19-37). There follows a section on the labour of the inventor and the savant. Again there is the difference between the individual and the social aspect: “these material fruits, though the result, are seldom the direct purpose of the pursuits of savants . . . . But when (as in political economy one should always be prepared to do) we shift our point of view, and consider not individual acts, and the motives by which they are determined, but national and universal results, intellectual speculation must be looked upon as a most influential part of the productive labour of society . . .” (I.43.4-16).
Mill recurs to this theme in the chapter on “Unproductive Labour” (I, iii) where he discusses “utilities fixed and embodied in human beings.” He would have preferred, he says, to “regard all labour as productive which is employed in creating permanent utilities, whether embodied in human beings, or in any other animate or inanimate objects” (I.48.21-3). But he accepted the usage which limited the term to labour which produces “utilities embodied in material objects” (I.49.23). He then broke through this limitation to include as productive, “labour expended in the acquisition of manufacturing skill . . . not in virtue of the skill itself, but of the manufactured products created by the skill” (I.49.28-30). The emphasis is on the “investment” aspect of some part of education: if the labour of the teacher is classed as “unproductive” this is not “derogatory,” but in classing it as “productive” its contribution to increasing future productivity is established. That part of education expense is essentially part of the “accumulation” which is so urgently required. Finally one notes the chapter on the degrees of productiveness (I, vii). “Successful production . . . depends more on the qualities of the human agents, than on the circumstances in which they work . . .” (I.103.13-5). So he discussed as the second of the causes of superior productiveness “the greater energy of labour” (I.103.27). Here the preacher comes back into the picture (the sermon varying somewhat between the editions but remaining essentially the same). In the first edition the essential problem is stated: “An Englishman, of almost every class, is the most efficient of all labourers, because, to use a common phrase, his heart is in his work. But it is surely quite possible to put heart into his work without being incapable of putting it into anything else” (I.105r-r). Mill had, and continued to have, no doubt about the cause of the high productivity: he had serious doubts as to the ultimate “welfare” of people who were productive of material objects but incapable of enjoying them. But if he would “moderate the ardour of their devotion to the pursuit of wealth” (I.105.10), he would hope not to diminish “the strenuous and businesslike application to the matter in hand, which is found in the best English workmen” (I.105.11-3).
The third element determining the productiveness of labour is “the skill and knowledge therein existing” (I.106.6). The effects of increased knowledge in increasing wealth “have become familiar. . . . A thing not yet so well understood and recognised, is the economical value of the general diffusion of intelligence among the people” (I.107.25-8). The scarcity of “persons fitted to direct and superintend any industrial enterprise” (I.107.28-9) is only one aspect of the problem: another is the “connexion between mental cultivation and moral trustworthiness” (I.108.35). Mr. Escher of Zurich is quoted at some length: “The better educated workmen . . . are distinguished by superior moral habits . . . they are entirely sober; they are discreet in their enjoyments . . .; they have a taste for much better society, which they approach respectfully . . .; they cultivate music; they read; they enjoy the pleasures of scenery . . .; they are . . . honest and trustworthy” (I.108.36—109.9). Of the uneducated English Mr. Escher says they are “the most skilful,” but the most “debauched . . . and least respectable and trustworthy”: if treated with “urbanity and friendly feeling” they become “unmanageable and useless.” Mill comments, “As soon as any idea of equality enters the mind of an uneducated English working man, his head is turned by it. When he ceases to be servile, he becomes insolent” (I.109.11-28). Again we are going beyond the theory of productivity: for that theory it is important to recognize with Mill that the “moral qualities of the labourers are fully as important to the efficiency and worth of their labour, as the intellectual” (I.109.29-30). But the plea for moral improvement is not primarily a plea for improving productivity: the whole character of society and the future condition of man is involved. We shall return to the issue when commenting on Mills’ chapters on communism and on the probable futurity of the working class. Appropriately, in view of the emphasis on education and the development of knowledge in the beginning of the book, Mill devotes a section of his final chapter on the limits of the province of government to a plea for provision for scientific research and for the maintenance of a “learned class.” “The cultivation of speculative knowledge, though one of the most useful of all employments, is a service rendered to a community collectively, not individually, and one consequently for which it is, primâ facie, reasonable that the community collectively should pay . . .” (II.968.34-7).
THE THEORY OF FULL DEVELOPMENT
In the neo-classical economics the theory of production was essentially a theory of allocation of resources, of the “right” proportions of factors in the production of the “right” things (“right” interpreted with reference to least cost and conformity to demand). In the Keynesian economics the concern was with full employment of resources. In the classical economics, as in the new economics of growth and development, the full employment and proper allocation of given resources took second place to a concern for the development of new resources. This is perhaps clearer in Adam Smith than in Mill, but I believe that the continued use of the distinction between productive and unproductive labour indicates a continued concern for the liquidation of the primitive sector of the economy in which menial servants were maintained in idleness on a more or less feudal basis, and for the development of “industry,” the advanced sector of the economy in which workers, well equipped, well managed, well disciplined, would probably be employed at wages considerably higher than those prevailing in the primitive sector. I cannot here examine in detail this interpretation of the concept of productive labour and the related theory of development,32 but I propose to quote from Adam Smith and from Malthus to give the necessary background. “We are more industrious than our forefathers,” said Adam Smith, “because in the present times the funds destined for the maintenance of industry are much greater in proportion to those which are likely to be employed in the maintenance of idleness than they were two or three centuries ago.”33 And Malthus: “Three or four hundred years ago, there was undoubtedly much less labour in England in proportion to the population, than at present; but there was much more dependence; and we probably should not now enjoy our present degree of civil liberty, if the poor, by the introduction of manufactures, had not been enabled to give something in exchange for the provisions of the great Lords, instead of being dependent upon their bounty.”34 The idle, be it noted, were not unemployed; the problem was to absorb them into “industry” where they would be more productive.
Much of the difficulty of interpreting, or accepting, the propositions about capital in Mill may be reduced if it is recognized that these chapters are concerned with “development.” As Professor Myint put it in his Theories of Economic Welfare we should not read “our latter-day pre-occupation with the ‘allocative’ problem into the classics through the distorting spectacles provided by the General Equilibrium economists of the Marginal Utility School. It is time we learned to cure ourselves of this theoretical anthropomorphism and to approach the classical economists in the context of their own intellectual climate.”35 In this context the chapters in Mill on capital must be read, not as discussion of the economies of roundabout production, nor even of the employment problems rising from an imbalance of saving and investment, but as discussion of the development of “industry” at the expense of the pre-industrial, quasi-feudal, sector of the economy, with the recruiting of the idle-employed into the ranks of the industrious, with the employment in productive labour of those “whom we shall suppose to have been previously, like the Irish peasantry, only half employed and half fed” (I.56.36-7).
While continuing the theme of development as being a process of expanding the number of productive labourers, Mill added a discussion of the distinction between productive and unproductive consumption. What productive labourers “consume in keeping up or improving their health, strength, and capacities of work, or in rearing other productive labourers to succeed them, is productive consumption. But consumption on pleasures or luxuries, whether by the idle or by the industrious, since production is neither its object nor is in any way advanced by it, must be reckoned unproductive: with a reservation perhaps of a certain quantum of enjoyment which may be classed among necessaries, since anything short of it would not be consistent with the greatest efficiency of labour” (I.52.26-33). From this discussion of unproductive consumption there develops the proposition that there is a more important distinction than that between productive and unproductive labour, “namely, between labour for the supply of productive, and for the supply of unproductive, consumption” (I.53.27-8). If the former were suspended, “the country at the end of the twelvemonth would have been entirely impoverished” (I.54.20-1); if the latter were suspended, “the sources of production would be unimpaired” (I.54.15-6). Mill went on to say that it would be a great error to regret the “large proportion of the annual produce, which in an opulent country goes to supply unproductive consumption” (I.54.22-4). It is rather a matter for congratulation. It is surprising that he does not here press home the point that this fund for unproductive consumption is the basis for that process of accumulation which provides for a spiral of economic development. He underestimated the effect on human productivity of better living and he underestimated the magnitude of the necessary increase in fixed capital. He was right in directing attention to the increase in that “labour which tends to the permanent enrichment of society.” He was right in directing attention to the “fund from which all the wants of the community, other than that of mere living, are provided for” (I.54.26-7); he was right to continue Ricardo’s concern for “net produce,” and to parallel Marx’s concern for surplus value; he was right because he was concerned with growth. Thrift is important, and a study of its causes is important: but we must not forget “that to increase capital there is another way besides consuming less, namely, to produce more” (I.70.15-6). . . . “[W]hatever increases the productive power of labour, creates an additional fund to make savings from, and enables capital to be enlarged not only without additional privation, but concurrently with an increase of personal consumption” (I.70.3-6). In these circumstances “abstinence” is a rather odd description of the basis for capital accumulation.
In this context of “development” the difficulties of interpretation of the chapters on capital, even of the fourth proposition, disappear. Capital must be interpreted as “real capital,” wage goods, materials and instruments to supply “productive labour” with the “pre-requisites of production.” “. . . [I]ndustry is limited by capital” (I.63.9): for there cannot be more persons employed in productive labour than can be supplied with wage goods, materials and instruments. Capital “is the result of saving” (I.68.27-8); for there can be no increase in capital if the “net produce” of productive labour is dissipated in unproductive consumption. Clearly more capital requires either less wage goods used to support unproductive labour and transferred to the use of productive labour, or less production of luxury goods permitting the production of more wage goods, material, and instruments. And since the “industrious” are likely to enjoy more wage goods than the “idle” some reduction in the purchase of luxury goods needs to go along with the reduction in the number of servants. Capital “although saved . . . is nevertheless consumed” (I.70.18-9): the food that the servants would have eaten the industrious eat, the food and materials produced in place of the plate and silks are eaten and worked up by the industrious. “Demand for commodities is not demand for labour” (I.78.26) is the fourth proposition and it has produced an extraordinary variety of comment, most of which, including my own comment in a “Centenary Estimate,”36 is misguided because of the failure to recognize the dynamic context. To Cairnes this proposition was simply “a different mode of stating the third fundamental theorem.” In his very interesting and valuable “Notes on the Principles of Political Economy” (see Appendix H below) Cairnes presented an alternative formulation: “In short to establish the doctrine that ‘demand for commodities is not demand for labour’—i.e. does not benefit the labouring classes—all that is needed is the two assumptions 1. that he who profits by (i.e. enjoys) wealth is he who consumes it, and 2. that productive labourers consume saved wealth, while wealth unproductively spent is consumed wholly by the unproductive consumers.”37 Cairnes then illustrated his argument by a reductio ad absurdum, “if it be equally for the benefit of the poorer classes whether I consume my wealth unproductively or set aside a portion in the form of wages or alms for their direct consumption, then on what ground can the policy be justified of taking my money from me to support paupers.” That Cairnes understood Mill’s intention is indicated by the adaptation of this passage from Cairnes in the 6th edition of the Principles (I.84.10-4). There remains the proposition in Chapter vi, “that all increase of fixed capital, when taking place at the expense of circulating, must be, at least temporarily, prejudicial to the interests of the labourers” (I.93.40-94.2). From this proposition he argues, first, that “All attempts to make out that the labouring classes as a collective body cannot suffer temporarily by the introduction of machinery, or by the sinking of capital in permanent improvements, are . . . necessarily fallacious” (I.96.22-5). He then argues that “as things are actually transacted” improvements are not “often, if ever, injurious, even temporarily, to the labouring classes in the aggregate” (I.97.8-9). This is because improvements are “seldom or never made by withdrawing circulating capital from actual production, but are made by the employment of the annual increase” (I.97.12-4). The ultimate benefit is not in doubt but “this does not discharge governments from the obligation of alleviating, and if possible preventing, the evils of which this source of ultimate benefit is or may be productive to an existing generation” (I.99.2-4). To return to the proposition: is not Mill’s problem that of many modern nations, how to increase fixed capital faster than voluntary savings permit: the modern solution is often by planned reduction in consumption or by inflation-induced reduction of consumption. There remains the old-fashioned solution, to save more: but the “extreme incapacity of the people for personal enjoyment, which is a characteristic of countries over which puritanism has passed” (I.171.27-9) can no longer be relied on, and “the silly desire for the appearance of a large expenditure” still “has the force of a passion” (I.171.33-4).
POPULATION AND PRODUCTIVITY
The problems of population crop up throughout the Principles. The study of production becomes a study of the race between production and population. In the chapter on the “Law of the Increase of Labour” (I, x), it is held that “It is a very low estimate of the capacity of increase, if we only assume, that in a good sanitary condition of the people, each generation may be double the number of the generation which preceded it” (I.155.11-3). That population does not increase at that pace is not “through a providential adaptation of the fecundity of the human species to the exigencies of society” (I.155.20-1) but through “prudent or conscientious self-restraint” (I.157.35-6). An “acceleration of the rate [of population increase] very speedily follows any diminution of the motives to restraint” (I.159.7-8). Thus the problem is posed: “Unless, either by their general improvement in intellectual and moral culture, or at least by raising their habitual standard of comfortable living, they can be taught to make a better use of favourable circumstances, nothing permanent can be done for them; the most promising schemes end only in having a more numerous, but not a happier people” (I.159.14-8). The problem is here posed as an individual one; in Chapter xiii it is posed as a social one. “The return to labour has probably increased as fast as the population; and would have outstripped it, if that very augmentation of return had not called forth an additional portion of the inherent power of multiplication in the human species. . . . [N]othing could have prevented a general deterioration in the condition of the human race, were it not that population has in fact been restrained. Had it been restrained still more, and the same improvements taken place, there would have been a larger dividend. . . . The new ground wrung from nature by the improvements would not have been all used up in the support of mere numbers.” (I.189.36—190.17.)
In Book II there is further discussion of the prospects for prudence. In his discussion of communism (Chapter i) he appears less afraid of the population effect than was Malthus: there would be provided “motives to restraint.” “. . . Communism is precisely the state of things in which opinion might be expected to declare itself with greatest intensity against this kind of selfish intemperance. . . . [O]pinion could not fail to reprobate, and if reprobation did not suffice, to repress by penalties of some description, this or any other culpable self-indulgence at the expense of the community” (I.206.9-19). This sounds more like Orwell’s bad dream of 1984 than the sentiments of the author of the essay On Liberty!
He recurs to the problem in his three chapters on wages (II, xi, xii, and xiii). Again the “motives for restraint” are the primary concern: “No remedies for low wages have the smallest chance of being efficacious, which do not operate on and through the minds and habits of the people” (I.366.6-7). Education might help. “If the opinion were once generally established among the labouring class that their welfare required a due regulation of the numbers of families, the respectable and well-conducted of the body would conform to the prescription . . .” (I.372.16-8). But a more important influence would follow the admission of women “to the same rights of citizenship with men” (I.372.28—373.1). In commenting on “hard-hearted Malthusianism” he said: “as if it were not a thousand times more hard-hearted to tell human beings that they may, than that they may not, call into existence swarms of creatures who are sure to be miserable . . . and forgetting that the conduct, which it is reckoned so cruel to disapprove, is a degrading slavery to a brute instinct in one of the persons concerned, and . . . in the other, helpless submission to a revolting abuse of power” (I.352.6-12). And later: “It is seldom by the choice of the wife that families are too numerous; on her devolves (along with all the physical suffering and at least a full share of the privations) the whole of the intolerable domestic drudgery resulting from the excess. . . . Among the barbarisms which law and morals have not yet ceased to sanction, the most disgusting surely is, that any human being should be permitted to consider himself as having a right to the person of another” (I.372.6-15). To education and a change in the status of women must be added, Mill argued, a dramatic improvement in the condition of the poor. The minor improvement resulting from the repeal of the Corn Laws he did not consider important. “Things which only affect them a very little, make no permanent impression upon their habits and requirements, and they soon slide back into their former state. To produce permanent advantage, the temporary cause operating upon them must be sufficient to make a great change in their condition. . . . Of cases in point, the most remarkable is France after the Revolution” (I.342.21-32). He recurs to this point in Chapter xiii. “For the purpose therefore of altering the habits of the labouring people, there is need of a twofold action, directed simultaneously upon their intelligence and their poverty. An effective national education of the children of the labouring class, is the first thing needful: and, coincidently with this, a system of measures which shall (as the Revolution did in France) extinguish extreme poverty for one whole generation” (I.374.34-9). “Unless comfort can be made as habitual to a whole generation as indigence is now, nothing is accomplished; and feeble half-measures do but fritter away resources . . .” (I.378.11-4). All of this is highly relevant to the problem of the modern world; I propose to underline only one point. With reference to the poorer countries with high fertility one may well ask whether external aid, like poor relief in nineteenth-century England, may simply postpone the necessary adjustment in the birth rate, may be “frittered away,” mere numbers rather than happiness resulting. One may also wonder whether Mill had the answer for his day and for ours. He saw that relief (or aid) must be on a massive scale to permit the dawn of hope. If this is correct, as I believe it to be, we should concentrate our “aid” on a few countries, and those countries must be chosen as most nearly ready for massive improvement. This “hard-hearted Malthusianism” would be hard to practise. The choice of those to be aided would be heart-breaking; and there is the danger that those not chosen will in exasperation and frustration do injury to themselves and us.38
PRODUCTION AND DISTRIBUTION
In the “Preliminary Remarks,” Mill distinguished the laws of production from those of distribution. The “manner in which wealth is distributed in any given society, depends on the statutes or usages therein obtaining” (I.21.17-8). So, at the beginning of Book II, he says: “The laws and conditions of the production of wealth partake of the character of physical truths. . . . It is not so with the Distribution of Wealth. That is a matter of human institution solely” (I.199.4-29). In fact Mill has much to say about the effect on productivity of “human institutions” as I propose to demonstrate. The really important distinction that he made was between the inevitability of the consequences which flow from any given circumstances and the freedom to modify the circumstances. Thus in the “Preliminary Remarks” he says: “though governments or nations have the power of deciding what institutions shall exist, they cannot arbitrarily determine how those institutions shall work” (I.21.18-20). And in Book II: “We have here to consider, not the causes, but the consequences, of the rules according to which wealth may be distributed. Those, at least, are as little arbitrary, and have as much the character of physical laws, as the laws of production. Human beings can control their own acts, but not the consequences of their acts either to themselves or to others” (I.200.20-5). One of these “consequences” is reflected in productivity. It is of great importance to recognize the effect of “institutions” on productivity, and in particular to recognize the effect on productivity of institutions devised with a view to improving the distribution of wealth. The smaller the amount to be divided the more seriously must the effect of redistribution on the size of the dividend be examined. The problem becomes one of identifying “useful injustices” (as Sir Dennis Robertson has called them).39
In the chapter on the “Degrees of Productiveness” the importance of “Security” is emphasized. “This consists of protection by the government, and protection against the government” (I.112.4-5), and much of it seems to be “the effect of manners and opinion rather than of law” (I.114.11-2). The key sentence is this: “the efficiency of industry may be expected to be great, in proportion as the fruits of industry are insured to the person exerting it” (I.114.33-5). This is a recurrent theme. In Chapter ix, when discussing the conduct of large scale enterprise by joint stock, he states two qualifications of the manager: “fidelity and zeal.” The former he thinks it is easy to secure, the latter very difficult. The “directing mind should be incessantly occupied with the subject; should be continually laying schemes by which greater profit may be obtained. . . . This intensity of interest . . . it is seldom to be expected that any one should feel, who is conducting a business as the hired servant and for the profit of another. There are experiments in human affairs which are conclusive on the point. Look at the whole class of rulers, and ministers of state” (I.137.39—138.5). Again, in Chapter xii, the doctrine is applied to agriculture: “Improvements in government, and almost every kind of moral and social advancement, operate in the same manner. Suppose a country in the condition of France before the Revolution: taxation imposed . . . on such a principle as to be an actual penalty on production. . . . Was not the hurricane which swept away this system of things, even if we look no further than to its effect in augmenting the productiveness of labour, equivalent to many industrial inventions?” (I.183.6-14). From taxation we turn to tenure to note the effect in Ireland “of a bad system of tenancy, in rendering agricultural labour slack and ineffective. No improvements operate more directly upon the productiveness of labour, than those in the tenure of farms, and in the laws relating to landed property” (I.183.24-7). So, in Book I, on “Production,” discussion of the expediency of social institutions crept in, and in Book II, on “Distribution,” the problems of justice did not crowd out the problems of expediency through effects on production.
The chapter on “Property” (II, i) underwent very great changes. In the preface to the 2nd edition, Mill says that the objections stated in the 1st edition to “the specific schemes propounded by some Socialists, have been erroneously understood as a general condemnation of all that is commonly included under that name” (I.xcii.35-7). To meet the objection he enlarged the chapter. In the 3rd edition he rewrote it. “The only objection to which any great importance will be found to be attached in the present edition, is the unprepared state of mankind in general, and of the labouring classes in particular; their extreme unfitness at present for any order of things, which would make any considerable demand on either their intellect or their virtue” (I.xciii.12-6). These changes, and his later posthumous Chapters on Socialism, provide scope for long debates about how socialistic Mill was at various points in his career. What is really valuable is not his changing answers, but his continuing questions. The criteria for judging society as it existed, and society as it might be, emerge from the questions. One of the criteria is the degree of motivation to work:
The objection ordinarily made to a system of community of property and equal distribution of the produce, that each person would be incessantly occupied in evading his fair share of the work, points, undoubtedly, to a real difficulty. But those who urge this objection, forget to how great an extent the same difficulty exists under the system on which nine-tenths of the business of society is now conducted. . . . From the Irish reaper or hodman to the chief justice or the minister of state, nearly all the work of society is remunerated by day wages or fixed salaries. A factory operative has less personal interest in his work than a member of a Communist association. . . . Mankind are capable of a far greater amount of public spirit than the present age is accustomed to suppose possible. . . . To what extent, therefore, the energy of labour would be diminished by Communism, or whether in the long run it would be diminished at all, must be considered . . . an undecided question.
This is a more favourable judgment than that in the 1st edition, and is seemingly inconsistent with the general attitude of the Principles on motivation and incentive. The explanation of the change and the “inconsistency” lies in the addition of “two conditions . . . without which neither Communism nor any other laws or institutions could make the condition of the mass of mankind other than degraded and miserable. One of these conditions is universal education; the other, a due limitation of the numbers of the community” (I.208.21-5). He may dream of a utopia where pecuniary incentives are unnecessary; but he has a very realistic recognition of the importance of pecuniary incentives for some time to come: “we may, without attempting to limit the ultimate capabilities of human nature, affirm, that the political economist, for a considerable time to come, will be chiefly concerned with the conditions of existence and progress belonging to a society founded on private property and individual competition” (I.214.5-9).
If productivity is assured under “Communism” there remains the question of “human liberty and spontaneity.” Of liberty as an end in itself I have said something earlier. One sentence has peculiar relevance to the modern world: “No society in which eccentricity is a matter of reproach, can be in a wholesome state” (I.209.33-4). But here the concern is with productivity and I would argue that the atmosphere of liberty and spontaneity is especially conducive to productivity. Indeed I think Mill would so argue, and in support of this view I would cite his attitude to competition as developed in the chapter on the “Probable Futurity of the Labouring Classes” (IV, vii) in a section, be it noted, that was added in the 3rd edition. “To be protected against competition is to be protected in idleness, in mental dulness . . .” (II.795.37-8). Competition, innovation, enterprise, are the fruits of liberty, the complement of spontaneity. Mill’s dissent from the socialists’ declamation against competition comes at the end of his discussion of co-operative societies: communism was a matter of the distant future, co-operatives promised improvement in the immediate future. The co-operative movement promised, not only a new dignity to labour and “the healing of the standing feud between capital and labour” (II.792.7-8), but a great increase in the “productiveness of labour.” This increase would result from the “vast stimulus given to productive energies, by placing the labourers, as a mass, in a relation to their work which would make it their principle and their interest—at present it is neither—to do the utmost, instead of the least possible, in exchange for their remuneration” (II.792.1-5). Yet Mill believed that it would be desirable, “for a considerable length of time,” that individual capitalists should “coexist” with co-operative societies. “A private capitalist, exempt from the control of a body, if he is a person of capacity, is considerably more likely than almost any association to run judicious risks, and originate costly improvements” (II.793.3-5).
Along with his admiration for the co-operative association in industry, Mill had a curiously individualistic attitude to the organization of agriculture. His chapters on “Peasant Proprietors,” “Metayers,” and “Cottiers” all reflect his idealization of the small agriculturists of Wordsworth’s Lakes (I.253n). The theme is essentially motivation to hard work: “ ‘The magic of property turns sand to gold. . . . Give a man the secure possession of a bleak rock, and he will turn it into a garden. . . .’ ” (I.274.19-30.) But it is not just a matter of increased exertion: peasant proprietorship stimulates “mental activity” and is “propitious to the moral virtues of prudence, temperance, and self-control. Day-labourers . . . are usually improvident. . . . [P]easant proprietors . . . are oftener accused of penuriousness than of prodigality” (I.281.28—282.8). Mill indeed recognized the dangers of morcellement and the advantages of grande culture, but he concluded that compared with the English system of cultivation by hired labour peasant proprietorship was “eminently beneficial” and he did not feel “on the present occasion called upon to compare it with the joint ownership of the land by associations of labourers” (I.296.2-4).
Mill proceeded to examine two other systems of tenure: metayers and cottiers. He contrasts the happy stage of Lombardy and its metayers with the miserable condition of the Irish cottiers. “Under a metayer system there is an established mode in which the owner of land is sure of participating in the increased produce drawn from it” (I.316.5-7). Of the cottier he says: “If the landlord at any time exerted his full legal rights, the cottier would not be able even to live. If by extra exertion he doubled the produce of his bit of land, or if he prudently abstained from producing mouths to eat it up, his only gain would be to have more left to pay to his landlord . . . if he is lazy or intemperate, it is at his landlord’s expense” (I.318.30—319.3). Mill watched closely the revolution in Ireland, and Cairnes (as is clear from Appendix H) kept him posted. Repeal of the Corn Laws “would of itself have sufficed to bring about this revolution in tenure” (I.333.2-3), but it was “immensely facilitated and made more rapid by the vast emigration, as well as by that greatest boon ever conferred on Ireland by any Government, the Encumbered Estates Act” (I.332.6-9). The change, however, was toward the English system of capitalist farming; “The truly insular ignorance of her public men respecting a form of agricultural economy which predominates in nearly every other civilized country” made it doubtful whether action would be taken to promote peasant proprietorship; “Yet there are germs of a tendency . . .” (I.334.7-10).
“Happily,” said Mill, “there is nothing in the laws of value which remains for the present or any future writer to clear up; the theory of the subject is complete.” This was injudicious. Professor Schumpeter, commenting on the state of the economic science just before World War I in his Preface to Dr. Zeuthen’s Problems of Monopoly,40 gave one reason for thinking it injudicious:
There was a belief that the great work had been done—a belief very similar to that expressed by Mill in that famous passage. . . . In a sense, this attitude was both right and fruitful. Great work had undoubtedly been done, and it was certainly necessary to bend to the task of defending, expounding and applying it. Yet there was some danger of petrifaction ahead, and the almost immediate rise of anti-theoretic schools of thought . . . is the proof that Theory was about to pay the penalty for that air of finality which was beginning to get on the nerves of the rising generation in very much the same way as it did in the case of Mill.
It appeared injudicious, too, in the light of the new theory of the “neoclassics” which soon emerged as victor (albeit a relatively considerate and co-operative victor) in the “war of the methods.” Because there has been some misunderstanding as to the nature of the advance made from Mill to Jevons, and consequently some misunderstanding of Mill, I propose to state very briefly what I consider to have been the real improvements.
The new analysis of marginal utility seems to me to be the least important element: the solution of the paradox of water and diamonds was academically interesting but little was added, if anything, to the understanding of the role of demand in the process of exchange. The essential notion of elasticity of demand, present in Adam Smith, was clarified in Mill and only waited to be christened by Marshall. The notion of “consumers’ sovereignty,” again without the name, was basic to the economics of Mill, as of Adam Smith: and it might well be argued that this general notion of appropriate economic organization makes more sense than the precision of the demonstrations of the conditions for maximizing utility, having in mind the fact that the utility for any individual is unmeasurable and that interpersonal comparisons are strictly impossible. Edgeworth’s verdict on Mill’s performance, in his article in Palgrave’s Dictionary of Political Economy, is just: “The general theory of demand and supply seems to be stated by Mill as clearly as is possible without the aid of mathematical apparatus.”41 If utility analysis added little to the general theory of demand, the utility theorists did make very important advances. Perhaps the most important advances lay in the clear recognition of the simultaneous pricing of goods and factors of production, and of the generality of the notion of “variable proportions” leading to elucidation of the role of substitution. Closely related was the development of the concept of “alternative opportunity” as the basis of cost. Much of the confusion of the classics in dealing with capital appears to me to have been compounded by the capital theory of Jevons and Bohm Bawerk, but the way out was demonstrated by Walras when he treated the pricing of the services of people and of durable goods as essentially the same and went on to discuss the pricing of the durable goods as the sources of those services. Perhaps equally important with these specific advances lay the advance towards more precision in the specification of models with the promise of more rigorous theory and with the clearer obligation to recognize the difficulty of using such theory in understanding the real economic process, in diagnosing its ills and in prescribing remedies.
When the pricing of the factors of production is seen as part of a whole process of equilibrium, the organization of Mill’s Principles appears very odd. Distribution is the subject of Book II; pricing is left to Book III. It is true that he says that he has not “escaped the necessity of anticipating some small portion of the theory of Value, especially as to the value of labour and of land” (II.455.12-3), but, at the end of Book III, the chapter on “Distribution as Affected by Exchange” is devoted to the thesis that distribution is not affected by exchange. “Wages depend on the ratio between population and capital; and would do so if all the capital in the world were the property of one association, or if the capitalists among whom it is shared maintained each an establishment for the production of every article consumed in the community, exchange of commodities having no existence” (II.695.26—696.2). Similarly, rent: “Exchange, and money, therefore, make no difference in the law of rent” (II.698.9-10). And profits: “Wages and Rent being thus regulated by the same principles when paid in money, as they would be if apportioned in kind, it follows that Profits are so likewise. For the surplus, after replacing wages and paying rent, constitutes Profits” (II.698.18-21). The verdict of Alfred Marshall is found in his Appendix J:
By putting his main theory of wages before his account of supply and demand, he cut himself off from the chance of treating that theory in a satisfactory way. . . . The fact is that the theories of Distribution and Exchange are so intimately connected as to be little more than two sides of the same problem. . . . If Mill had recognized this great truth he would not have been drawn on to appear to substitute, as he did in his second Book, the statement of the problem of wages for its solution: but he would have combined the description and analysis in his second Book, with the short but profound study of the causes that govern the distribution of the national dividend, given in his fourth Book.42
Noting Marshall’s assessment of the profundity of Book IV, perhaps one should remember the limitation, as well as the value, of the new pricing theory: Mill ignored the importance of the pricing process in the theory of distribution but his successors were too readily content with a static solution. Mill may have been unsatisfactory in his explanation of why factor prices were what they were, but he had brilliant insights into the probable trend of change. And his successors were too ready to accept a theory of the pricing of factors as a theory (not just a part of a theory) of distribution ignoring the really exciting problems of why particular people had particular factors for sale at these prices.
To the thesis that distribution is not affected by exchange is added the further thesis that the process of exchange is unaffected by money:
There cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machine for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order.
The introduction of money does not interfere with the operation of any of the Laws of Value laid down in the preceding chapters.
What follows is a sequence of chapters on money, monetary theory, and monetary policy, which indicate that he knew that the “machinery” very easily got out of order, so that money was in fact far from “insignificant.” I do not propose to examine these chapters in detail but I assert that they wear well. They need to be read, however, with patience; an initial dogmatic statement is later qualified. His assertion of the “quantity theory,” for instance, is followed by qualifications which “under a complex system of credit like that existing in England, render the proposition an extremely incorrect expression of the fact” (II.516.32-4). Professor Schumpeter has said of these chapters that “they contain some of Mill’s best work. [They display] indeed some contradictions, hesitations, and unassimilated compromises . . . but even these were not unmixed evils since they brought out, in strange contrast to Mill’s own belief in the finality of his teaching, the unfinished state of the analysis of that time, and thus indicated lines for further research to follow.”43 Of the chapters on international trade the judgment is more universally favourable, the development of the relationship between reciprocal demand and the commodity terms of trade being considered by Professor Viner to constitute “his chief claim to originality in the field of economics.”44 This favourable judgment is related to his performance in the static sphere; it is only in recent years that the dynamic aspect of his trade theory has been revived. When Mill denounced the fallacy of Adam Smith’s “vent for surplus” approach to the benefit of foreign trade, “that it afforded an outlet for the surplus produce of a country” (II.592.12-3), he turned his back on the development aspects of the problem of unproductive labour, and argued on the level of the static theorists. The new concern for the economics of growth has brought new appreciation of the Adam Smith approach. Professor Allyn Young45 and J. H. Williams46 were among the first in this generation to recognize the value of that part of international trade theory that had been considered “crude” and fallacious by the orthodox. Professor Myint47 has shown that “in general, the ‘vent-for-surplus’ theory produces a more effective approach than the comparative costs theory to the international trade of the underdeveloped countries.” He recognized that this theory “does not provide an exact fit to all the particular patterns of development,” but that it is more relevant than a theory which “assumes that the resources of a country are given and fully employed before it enters into international trade.” Professor Myint was concerned with the relatively backward countries: but no countries are “fully developed” and in all it is necessary to consider more than effective allocation of given resources, in all there are some unused productive capacities, some additional resources to develop. We should pay attention therefore to what Mill has to say about the “indirect effects” of international trade “which must be counted as benefits of a high order” (II.593.24-5). One of these indirect effects is “the tendency of every extension of the market to improve the processes of production” (II.593.25-6); another is that the opening of a new market “sometimes works a sort of industrial revolution in a country whose resources were previously undeveloped for want of energy and ambition in the people” (II.593.39—594.2).
OF THE FUNCTIONS OF GOVERNMENT
The “agenda” of government change with changes in the nature of the economy, with changes in the character (particularly the honesty and efficiency) of the government. We do not look at the English prescription for 1848 as likely to be satisfactory for the England of 1965, nor do we look for one prescription appropriate for all countries in 1965. But examination of Mill’s writing on the “influence of government,” on the “economical effects” of the manner in which governments carry on their “necessary” functions and on the proper extension of their optional functions, is not just a matter for the economic historian. As in other parts of the inquiry, questions are raised that still demand answers, and insight may be stimulated to the point where answers relevant to our time may be found. But the answers depend on much more than “economical” effects; liberty and democracy are at issue:
impatient reformers, thinking it easier and shorter to get possession of the government than of the intellects and dispositions of the public, are under a constant temptation to stretch the province of government. . . [and] many rash proposals are made by sincere lovers of improvement, for attempting, by compulsory regulation, the attainment of objects which can only be effectually or only usefully compassed by opinion and discussion . . . .
The itch to interfere, to impose one’s will on others, might seem to need restraining, but Mill had no narrow concept of the function of government: “the admitted functions of government embrace a much wider field than can easily be included within the ring-fence of any restrictive definition, and . . . it is hardly possible to find any ground of justification common to them all, except the comprehensive one of general expediency; nor to limit the interference of government by any universal rule, save the simple and vague one, that it should never be admitted but when the case of expediency is strong” (II.803.42—804.6).
In Book I Mill had emphasized the economic importance of security of person and property, and in Book II he had argued that the rights of property were not absolute. He returns to these matters in Book V. “Insecurity of person and property . . . means, not only that labour and frugality are not the road to acquisition, but that violence is” (II.880.11-7). But there is also the very suggestive qualification: “a certain degree of insecurity, in some combinations of circumstances, has good as well as bad effects, by making energy and practical ability the conditions of safety. Insecurity paralyzes, only when it is such in nature and in degree, that no energy of which mankind in general are capable, affords any tolerable means of self-protection.” (II.881.19-24.) After some discussion of the imperfection of the laws of property, he reverts to the problem of inheritance which he had discussed in Book II. He argues that “no one person should be permitted to acquire, by inheritance, more than the amount of a moderate independence” (II.887.19-21). In Book II he had noted, with scorn, the view that “the best thing which can be done for objects of affection is to heap on them to satiety those intrinsically worthless things on which large fortunes are mostly expended” (I.225.22-4). If restriction of the right to inherit could be made effectual, “wealth which could no longer be employed in over-enriching a few, would either be devoted to objects of public usefulness, or if bestowed on individuals, would be distributed among a larger number” (I.226.4-6). He noted with great approval the endowment of charitable foundations in the United States “where the ideas and practice in the matter of inheritance seem to be unusually rational and beneficial” (I.226.18-9), and he comments that to make similar bequests in England would be to run “the risk of being declared insane by a jury after . . . death, or at the least, of having the property wasted in a Chancery suit to set aside the will” (I.226.n18-21).
The “optional” functions of government are treated in two chapters: one deals with those “grounded on erroneous theories” (V, x), the other discusses in general the “grounds and limits of the laisser-faire or non-interference principle” (V, xi). In the former I would note his discussion of Protectionism, “the most notable” of the false theories. But the “infant industry” plea is recognized:
The superiority of one country over another in a branch of production, often arises only from having begun it sooner. There may be no inherent advantage on one part, or disadvantage on the other, but only a present superiority of acquired skill and experience. A country which has this skill and experience yet to acquire, may in other respects be better adapted to the production than those which were earlier in the field: and besides, it is a just remark of Mr. Rae, that nothing has a greater tendency to promote improvements in any branch of production, than its trial under a new set of conditions. But it cannot be expected that individuals should, at their own risk, or rather to their certain loss, introduce a new manufacture, and bear the burthen of carrying it on until the producers have been educated up to the level of those with whom the processes are traditional.
But if infants are to be protected, they must grow up to compete freely with the world. I would also note his treatment of the Combination Laws. Mill recognized “a limited power of obtaining, by combination, an increase of general wages at the expense of profits” (II.930.2-3). But he argued that the “limits of this power are narrow” (II.930.3-4). He denounced those “aristocratic” unions which were “hedging themselves in against competition, and protecting their own wages by shutting out others from access to their employment” (II.931.27-8). He insisted that it is “an indispensable condition of tolerating combinations, that they should be voluntary” (II.933.16-7). He considered mischievous the opposition to piece work and the insistence on equal pay for all workers of a given grade: mischievous because “they place the energetic and the idle, the skilful and the incompetent, on a level” (II.934.4-5). But he argued the right to free association: “though combinations to keep up wages are seldom effectual . . . the right of making the attempt is one which cannot be refused to any portion of the working population without great injustice, or without the probability of fatally misleading them respecting the circumstances which determine their condition. So long as combinations to raise wages were prohibited by law, the law appeared to the operatives to be the real cause of the low wages. . . .” (II.931.37—932.7.) What Mill did not perceive was the change in the status of the worker which strong unions might achieve: conditions of employment other than wages became a matter of contract, and the development of a “grievance procedure” gave protection against management, especially against the petty tyranny of the lower levels. Perception of this change would have led to a very different chapter on the “Probable Futurity of the Working Class” from that actually written.
The limits of the province of government are discussed in the last chapter of the book. First there is the plea for “privacy”: “there is a part of the life of every person who has come to years of discretion, within which the individuality of that person ought to reign uncontrolled. . . . [T]here is, or ought to be, some space in human existence thus entrenched around, and sacred from authoritative intrusion. . . .” (II.938.4-8.) The second “general objection” is that every increase of the functions “devolving on the government is an increase of its power, both in the form of authority, and still more, in the indirect form of influence” (II.939.14-6). The danger of such power, no less in a democracy than in any other form of government, makes it necessary to develop “powerful defences, in order to maintain that originality of mind and individuality of character, which are the only source of any real progress” (II.940.3-5). A third “general objection” lies in the danger of overloading: “Every additional function undertaken by the government, is a fresh occupation imposed upon a body already overcharged with duties” (II.940.17-9). The final objection is that which Alfred Marshall later stressed in relation to “small business”: “The business of life is an essential part of the practical education of a people . . .” (II.943.1-2). Finally Mill proceeded to discuss some cases of appropriate interference. Public provision of elementary education is defended, but a monopoly of that provision is denounced: “A government which can mould the opinions and sentiments of the people from their youth upwards, can do with them whatever it pleases” (II.950.19-21). Support of research I have already noted as one of his important items of government policy:
The fellowships of the Universities are an institution excellently adapted for such a purpose; but are hardly ever applied to it, being bestowed, at the best, as a reward for past proficiency, in committing to memory what has been done by others, and not as the salary of future labours in the advancement of knowledge. . . . The most effectual plan . . . seems to be that of conferring Professorships, with duties of instruction attached to them. The occupation of teaching a branch of knowledge, at least in its higher departments, is a help rather than an impediment to the systematic cultivation of the subject itself. The duties of a professorship almost always leave much time for original researches; and the greatest advances which have been made in the various sciences, both moral and physical, have originated with those who were public teachers of them. . . .
A generous statement this from a servant of the East India Company who was developing further the economics of the stockbroker Ricardo—but Adam Smith and T. R. Malthus were professors.
[32 ]See my two articles, “Adam Smith on Productive and Unproductive Labour: A Theory of Full Development,” Canadian Journal of Economics and Political Science, XXVI (1960), 625-30; and “L’industrie de l’automobile canadienne et son intégration dans l‘économie mondiale,” Cahiers de l’Institut de Science Economique Appliquée, H.S., CXXVIII (1962), 121-35.
[33 ]Adam Smith, Wealth of Nations, ed. Cannan (London, 1904), I, 318.
[34 ]Thomas Malthus, First Essay on Population (London, 1798). Reprinted for the Royal Economic Society(London, 1926), 293.
[35 ]F. Myint, Theories of Economic Welfare (London, 1948), 13.
[36 ]V. W. Bladen, “John Stuart Mill’s Principles: A Centenary Estimate,” American Economic Review, XXXIX.2 (1949), 1-12. See also the article on this “proposition” by H. G. Johnson, “Demand for Commodities is Not Demand for Labour,” Economic Journal, LIX (1949), 531-6.
[37 ]See Appendix H, II.1043.4-9.
[38 ]See my Preface to Canadian Population and Northern Colonization, ed. V. W. Bladen. Royal Society of Canada, “Studia Varia” series, no. 7 (Toronto, 1962).
[39 ]Sir D. H. Robertson, Utility and All That (London, 1952), 63. “Surely one of the economist’s most obvious duties is to attempt to disentangle useful injustices from useless or harmless ones. . . . If, in the face of his findings, the Sovereign People then deliberately decides that Justice is at all costs to be preferred to Welfare, or even that Soaking the Rich is at all costs to be preferred to both—well, that is that.”
[40 ]J. A. Schumpeter, Preface to F. Zeuthen, Problems of Monopoly (London, 1930), vii-viii.
[41 ]Edgeworth, Dictionary, 760.
[42 ]Marshall, Principles, Appendix J.
[43 ]Schumpeter, History, 689.
[44 ]J. Viner, Studies in the Theory of International Trade (New York, 1957), 535.
[45 ]A. A. Young, “Increasing Returns and Economic Progress,” Economic Journal, XXXVIII (1928), 527-42.
[46 ]J. H. Williams, “The Theory of International Trade Reconsidered,” Economic Journal, XXXIX (1929), 195-209.
[47 ]H. Myint, “The ‘Classical Theory’ of International Trade and the Underdeveloped Countries,” Economic Journal, LXVIII (1958), 317-37.