Liberty Matters

    1. Mill and the Transition to Modern Economics

Steve Kates’s provocative essay asks us to think about what we have lost in the transition to 20th century – or more specifically, Keynesian-style – economic analysis.  His reference point, and mine, is the economics of John Stuart Mill.  Accordingly, in what follows I shall describe a number of instances in which economists have moved from nuanced to overly simplified analyses, with less than stellar results. While Kates focuses on the macroeconomy, my essay will draw heavily on Mill’s notion of individual behavior. The two are not entirely independent. Once we appreciate the institutional framing that is so important to Mill’s work, we can better appreciate the cyclical adjustment mechanisms Kates discusses in his essay.
Let us first consider what sort of individual populates Mill’s analysis.  The policy implications of this will become immediately apparent: if the individual or groups of individuals are incapable, then policy at the macro level needs to account for this, to prod or stir people to the proper sort of economic activity. Quite the opposite, in Mill’s view.  His Principles of Political Economy made clear in every edition beginning with his first in 1848 that subject to rich education and information contexts, all people are capable of making economic and political choices. In his time a key question was whether Ireland was doomed to economic stagnation because the people there would never work hard or become productive; Mill rejected inherent racial, national, or ethnic “explanations” of outcomes specifically with reference to the Irish. He attacked statements that relied on “natural differences” in the course of discussing the impact of property rights on incentives in Ireland:
Is it not, then, a bitter satire on the mode in which opinions are formed … to find public instructors of the greatest pretensions, imputing the backwardness of Irish industry, and the want of energy of the Irish people in improving their condition, to a peculiar indolence and insouciance in the Celtic race? Of all vulgar modes of escaping from the consideration of the effect of social and moral influences on the human mind, the most vulgar is that of attributing the diversities of conduct and character to inherent natural differences. [1848, p. 319].[24]
Later, W. R. Greg criticized Mill’s position in the Quarterly Review; in Greg’s view, the problem was an inherent inferiority that newly established property rights would fail to correct:
“Make them peasant-proprietors,” says Mr. Mill. But Mr. Mill forgets that, till you change the character of the Irish cottier, peasant-proprietorship would work no miracles.... Mr. Mill never deigns to consider that an Irishman is an Irishman, and not an average human being — an idiomatic and idiosyncratic, not an abstract, man. [Greg 1869, p. 78].[25]
Additional evidence of Mill’s position as it relates to the rights of all people consists in his response to the controversy sparked by an administrative massacre in Jamaica. Shortly after, Mill was chosen to head the investigation into the violence, and his views on natural differences came to the attention of the founders of the new discipline of anthropology. The controversy then moved from the Irish to Africans.[26]
There is, in addition, Mill’s position as it relates to women.  Here again we find Mill articulating a clear position that institutional arrangements, rather than natural inferiority, had destined women to inferior outcomes, poverty, and dependence. Change institutions, he wrote, and women would advance to much different and superior outcomes. This position is sometimes attributed to the influence of his longtime friend and coauthor, Harriet Taylor, whom Mill married in 1851.  There is, however, textual evidence that Mill came to this view before he and Taylor began their collaboration.  Mill's early manuscript on the subject -- reprinted in full as chapter three of Hayek on Mill: The Mill-Taylor Friendship and Related Writings[27] -- confirms what Mill claimed in his Autobiography, that it was “so far from being the fact” that his views on the equality of the sexes were in any way influenced by Harriet Taylor.[28] On the contrary, Mill believed that his views on the subject attracted Harriet to him: “those convictions were among the earliest results of the application of my mind to political subjects, and the strength with which I held them was, I believe, more than anything else, the originating cause of the interest she felt for me.”[29]  Decades before Mill and Taylor worked on The Subjection of Women, Mill maintained that education was the means by which women would achieve independence:
It is not law, but education and custom which make the difference [between men and women].  Women are so brought up, as not to be able to subsist in the mere physical sense, without a man to keep them:  they are so brought up as not to be able to protect themselves against injury or insult, without some man on whom they have a special claim, to protect them: they are so brought up, as to have no vocation or useful office to fulfil in the world, remaining single; for all women who are educated [for anything except to get married, are educated] to be married, and what little they are taught deserving the name useful, is chiefly what in the ordinary course of things will not come into actual use, unless nor until they are married.[30]
The question of “what woman ought to be[31] would be greatly altered by institutional change, including access to education and property.  Mill's radical egalitarianism prevailed:  “If nature has not made men and women unequal, still less ought the law to make them so.”[32]
The foregoing suggests that amongst the “what was lost” category Kates’s has so aptly put together for readers of these essays, one must also include something akin to institutions, the rules by which we govern ourselves and which constrain and influence our economic and other choices.  Indeed, Kates’s focus on the Production Possibility Curve drives home this point.  As he writes, the PPC is “astonishingly abstract” and “profound.”  Absolutely.  As economists in the 20th century collapsed the economic possibilities confronting a collectivity into a two-dimensional diagram, they removed from consideration much of the institutional structure that so preoccupied Mill and his fellow travelers, Adam Smith, James Mill, and T. R. Malthus. In so doing they allowed themselves to neglect the principle that rules governing economic and social activity also affect well-being and economic growth. They abstracted from the overarching institutional questions that preoccupied Mill and began instead to pursue only efficiency. To a large degree they neglected the idea that institutional arrangements affect where an economy locates relative to the abstraction of the production possibilities frontier.  As they followed the logic of choice, they confidently predicted year after year and in spite of countervailing evidence that, because it was investing more and consuming less, the Soviet economy must be growing faster than and would soon overtake that of the United States.[33]
Adding institutions into the mix, one is led to the key set of debates in the 19th century concerning population growth and well-being.  Not surprisingly, Mill was much preoccupied with population growth, first as it was greatly affected, in his view, by marriage arrangements and the ability of women to leave an ill-conceived marriage with property intact.  In addition to his position on this question, for which Mill was sometimes harshly criticized (see the image below), the key question was what sorts of institutional arrangements – private versus communal property – would induce and enable the laboring classes to restrict their family size and thereby reduce human misery and want.
Mill closely examined the different distributional systems proposed by the Saint-Simonians and Charles Fourier. In his view, the current state of human nature and the consequent improbability of limiting population growth presented a key stumbling block to socialist schemes.  In a market economy, where the cost of children was borne by parents, the material inducements to limiting numbers were strong.  Under communism and the social arrangements advocated by Fourier and the Saint-Simonians, Mill believed these inducements would be much weakened. He concluded in favor of small-scale and voluntary experimentation – experiments, he wrote, that were “capable of being tried on a moderate scale”: 
It is for experience to determine how far or how soon any one or more of the possible systems of community of property will be fitted to substitute itself for the “organization of industry” based on private ownership of land and capital.  In the meantime 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.[34]
In the event that private property persisted, Mill called for institutional changes, some rather vast (property rights extending to women) and some less so but nonetheless significant (restrictions on the amount one might inherit), alongside education to afford to all the means by which one might successfully exercise individual agency.
How do these remarks on Mill’s economics relate to the statement about the demand for labour on which Steve Kates has focused? For Mill, any analysis of economic growth must be situated in the context of the institutional setting:  the rate of growth of the demand for labor is determined in part by the rules and institutions that influence expected rates of return on any investment. For Mill, too, any attempt to solve a problem, such as the impoverishment of women or the Irish that fails to change the institutional setting, will be doomed to fail.
[24.] 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), ed. John M. Robson, introduction by V.W. Bladen (Toronto: University of Toronto Press; London: Routledge and Kegan Paul, 1965).
[25.] Readers of the Econlib columns that David Levy and I have written will recall that Mill collided with the historian Thomas Carlyle over the issue of race; see Levy and Peart 2001, for a full account: On the administrative massacre in Jamaica see, <>.
[26.] For more detail, see Levy and Peart 2005, pp. 174-79.
[27.]Hayek on Mill: The Mill-Taylor Friendship and Related Writings, edited by Sandra J. Peart.  Volume 16 of The Collected Works of F. A. Hayek, Bruce J. Caldwell, General Editor (Chicago: University of Chicago Press, 2015).
[28.] John Stuart Mill, The Collected Works of John Stuart Mill, Volume I – Autobiography and Literary Essays [1824], ed. John M. Robson and Jack Stillinger, introduction by Lord Robbins (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1981),  p. 253.  The correspondence between Harriet Taylor and Mill demonstrates that they agreed on these issues; in 1848 Taylor wrote to their friend and colleague, the editor of the Monthly Repository, W. J. Fox, that the “women question” was more significant than the “labour question” as it “goes deeper into the mental and moral characteristics of the race than the other & it is the race for which I am interested” (to W. J. Fox, 12 May 1848, Hayek on Mill, p.120).
[29.] Mill, Autobiography, p. 253.
[30.]Hayek on Mill, p. 62; on Harriet’s influence on J. S. Mill, see the discussion in my editor’s introduction to the volume, pp. xxxv-vi.
[31.] Ibid., p. 62.
[32.] [9] Ibid.
[33.] For a full account, see David M. Levy and Sandra J. Peart, “Soviet Growth and American Textbooks: An Endogenous Past.”
[34.] Mill, Political Economy, pp. 213-14.