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THE THEORY OF FULL DEVELOPMENT - 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) [1848]

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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).

Part of: Collected Works of John Stuart Mill, in 33 vols.

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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).

[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.