Mill on Political Economy
Mill’s first writings in the economic field, the Essays on Some Unsettled Questions of Political Economy, were written in 1829-30 but only published in 1844. Here (p. 112) Mill defined political economy as ‘the science which treats of the production and distribution of wealth, so far as they depend upon the laws of human nature’. The Essays also contained a crucial contribution to the theory of international trade, namely the theory of reciprocal demand utilised to determine the exchange ratios between imports and exports. Furthermore, in these essays Mill developed an important critical evaluation of Say’s law, by assigning to the economic agents’ state of confidence a leading role in accounting for economic vicissitudes.
After a deservedly famous treatise on logic (Mill 1843), Mill produced what was for more than forty years (up to the publication of Marshall’s Principles of Economics in 1890) to remain the standard text for the study of political economy, at least in the Anglo-Saxon world, namely the Principles of Political Economy (1848). This was essentially an exposition of Ricardian thought, but it also incorporated some ideas developed by anti-Ricardian economists, such as Senior’s theory of abstinence, and Mill’s own version of the positivism expounded by Auguste Comte (1798-1857; the Cours de philosophie positive, in six volumes, is dated 1830-42), who advocated a ‘general science of society’ able to capture the interdependences linking up all social phenomena. Mill tackled the problem of interpreting human societies from different vantage points by utilising a substantially inductive discipline (Comte’s sociology) together with a substantially deductive discipline, political economy, and with a science still to be formed, namely ethology, or the science of national character. A supporter of cooperativism, Mill - foreshadowing in this modern environmental thinking - considered the stationary state not as a menace but as a state of affairs leaving room for moral and cultural progress of society.
The Principles were divided into five books: production, distribution, exchange, economic development and the role of the government. The theory of value made its appearance only in book three, dealing with exchange; this choice marks the distance between Mill and the subsequent marginalist theories, the latter considering income distribution as an instance of the problem of value. The distinction between production and distribution is also to be noted: the former is considered the field of natural laws, independent of the institutions, which by contrast are held to be relevant for the latter, subject to historically relative laws. The theory of production builds on the Smithian analysis of the division of labour; Mill proposed the thesis of a tendency to industrial concentration, pointing out the issue of natural monopolies (the remedy for which is nationalisation), while in the case of agriculture small-scale peasant farming is favoured.
Book two, on distribution, opens with a chapter on property and a balanced discussion of the pros and cons of different institutional frameworks. The judgement on private property depends on whether it is organised in such a way as to avoid excessive and arbitrary inequalities; Mill was also favourable to progressive inheritance taxation and to safeguards against the abuse of property rights. Communism, identified with realisation of generalised equality, is considered inferior to socialism, which allows for individual differences according to merit. Cooperatives and profit-sharing, discussed in detail in book four, represent Mill’s favoured solution.
As for income distribution itself, profits are identified with abstinence, following Senior, and are thus determined by society’s evaluation of the present compared to the future. Malthus’s population principle looms large in the discussion of wages: Mill insists on the need to contain population growth as priority for improving the conditions of the working classes. Elements of a wage fund theory are also present but not in the rigid form sometimes attributed to the whole of classical political economy. The theory of the wage fund stated that the wage rate is determined by the ratio between two magnitudes: the amount of capital available for the maintenance of the workers and the number of workers employed; in its rudimentary form, but not in Mill’s treatment, the numerator is taken as a given datum of the problem, while it is clear that the amount of capital available for the maintenance of the workers (the wage fund) not only varies in the course of time as a consequence of accumulation but can also vary at a given moment in time if the maintenance of productive workers involves making use of goods previously utilised for other purposes, such as luxury consumption (or, we can add nowadays, if additional production is provided by previously unemployed workers).
Together with acceptance of Senior’s theory of abstinence, Mill’s theory of value, particularly with the transformation of the notion of market prices into a theoretical variable determined by supply and demand, represents a transitional stage from the classical to the Marshallian approach, although Mill kept his feet firmly in the classical field, rejecting any idea of bringing to the centre of the theory of value those elements - scarcity and utility - upon which the subjective approach relied.
