Mill’s Original Contributions
The exposition of previous economic theories in J.S. Mill’s Principles must, of course, have included some original elements. A new tone and fresh perspectives were intertwined with new knowledge and insights, which, however, were far from self-evident.
Mill’s style, which did not call attention to his original achievements (see Stigler 1982: 160) and had no regard to parentage (see Stigler 1955: 296), set an obstacle to the assessment of his originality. Nor did the structure of Mill’s treatise, so different from both that of Ricardo and that of Smith, reflect Mill’s originality: the organizing principle was in the main borrowed from the structure of the treatises of Say and James Mill. “Production”, “Distribution”, and “Consumption of wealth” were the subjects of the three books of Say’s treatise; “Production”, “Distribution”, “Interchange”, and “Consumption” were those of James Mill. The first three books of J.S. Mill’s treatise addressed “Production”, “Distribution”, and “Interchange”; the fifth (and last) book basically addressed taxation, like Say’s and J. Mill’s books on “Consumption”. The subject matter of the fourth book, “Influence of the progress of society on production and distribution”, was of course an innovation.In order to assess Mill’s contribution to economics we need to distinguish between progress depending on his social philosophy, on the one hand, and “technical” achievements in pure economic theory, on the other.
Some authors tended to downplay the degree of Mill’s cross-fertilization between economics and social philosophy. Samuelson (1978), for example, plainly placed Mill’s theory in the “canonical model” of Smith, Malthus, and Ricardo, as if Mill’s insistence on the possibility of social progress, conditioned by his sympathy for utopian socialism, was an aside which left his economic theory virtually untouched.
Viner argued that Mill failed in the integration of competition-based economic principles with other social principles based on customs, laws, and other social institutions (see Viner 1949: 380). Similarly, Stigler characterized Mill’s insistence on “the immutability of the laws of production vs. the social plasticity of the laws of distribution” as “at least unhappy” (Stigler 1955: 296).Other commentators, to the contrary, insisted that Mill succeeded in his intent to “humanize” (to use Mitchell’s phrase) economic theory and that his claim that the “Distribution of wealth... is a matter of human institution only” (Mill 1848 [1954]: 199) was quite well reasoned and far reaching. Ashley (1909: xxii) strongly supported the “validity of the distinction between the laws of Production and the modes of Distribution”; Edgeworth (1926: 759) recognized that “there is surely a very intelligible difference, in degree at least, between the two classes of ‘laws’”; Schumpeter (1955: 531) stressed that Mill’s claim was at the basis of the “warm-hearted humanitarianism” which pervaded his book; the excellent exposition of Schwartz (1972) also supports this view.
The principle of competition, so central in any theory of distribution, is explicitly put by Mill into the context of changing habits, laws, and institutions. There was nothing “natural”, in his eyes, in the fact that real wages remained at a subsistence level while rents increased with economic progress. Much depended on the comparative habits of the workers’ families in respect of comfort and in respect of population (see Mill 1848 [1965], II: 341-3). In his essay on The claims of labour (Mill 1967 [1845]), Mill distinguished quite explicitly between two different inferences from Malthus’s population principle: an early, mistaken inference “was at first announced as an inexorable law, which, by perpetuating the poverty and degradation of the mass of mankind, gave a quietus to the visions of indefinite social improvement” (Mill 1848 [1967]: 366); and a later, correct inference “afforded a sure hope, that whatever accelerates [human] progress would tell with full effect upon the physical condition of the labouring classes” (ibid.: 368).
According to Mill, an increase in real wages, however occasioned, could modify workers’ habits in favour of comfort and against fertility (see ibid.: 379). A series of other customs and institutions contributed to this end. School education was fundamental, like the “spontaneous education” brought about by the diffusion of newspapers, lectures, and discussions, as well as by collective deliberations on questions of common interest (Mill 1848 [1965], III: 763-6). Peasant proprietorship was another means by which the general progress of society could be turned permanently in favour of workers, because it led to higher productivity and promoted a sense of independence and self-respect (see Mill 1848 [1965], II: 252-77). A similar effect was produced in trade and industry by the diffusion of co-operatives and profit sharing (see ibid.: 769-98).Mill had a clear vision of the main issues concerning the progress of the working classes which became central in the decades to come (as in Ludlow and Jones 1867 [1973]) and reshaped the problem of the improvability of their living conditions. He recognized that the real wages can be permanently increased by legislation or combination, thus departing from the wage fund doctrine, which he explicitly recanted in 1869 (Mill 1869 [1967]). To say the least, this inspired further theorizing. Marshall borrowed directly from Mill the fundamental aim of economic theory, which he passed on to later generations. Evidence of the Millian origin of Marshall’s keen interest in the living condition of the working classes is his 1873 conference on “The future of the working classes” (Marshall 1876 [1925]). According to Groenewegen, “the problem which guided Marshall’s work throughout the whole of his life [was that of] raising the standards of life of the working class until they had reached those of ‘gentlemen’” (Groenewegen 1994: 278). In his biography of Keynes, Harrod insists that “that vision of the good life... animated his endeavours, of which his readers catch glimpses all through his works” (Harrod 1951: 186).
However, Mill’s application of the theory of distribution bore some theoretical fruits as well. According to him, the possibility of increasing wages depended on how extra wages (and more leisure) were to be used. Marshall applied the same potential self-reinforcing mechanism and asked, “what is the connection between changes in the manner of living and the rate of earnings; how far is either to be regarded as the cause of the other, and how far as the effect?” (Marshall 1920: 689; see Opocher 2010). It would not be too far off the mark even to suggest that modern theories of endogenous growth and evolutionary approaches to growth were anticipated by Mill’s (and Marshall’s) insights into the creation of habits and institutions.In a variety of fields, Mill has also been credited with progress in pure economic theory. According to Marshall, hidden in Mill’s theory of value was a general law of supply and demand of which his “law of cost of production” was a corollary: “he explains this briefly, perhaps too briefly, at the beginning of the third book” (Marshall 1876 [1925]: 127-8). More recently, after a long period of eclipse, some modern authors have re-evaluated Mill as a forerunner of supply and demand theory. Schumpeter (1954: 603) claims that “Mill’s own main contribution was to develop the supply-and-demand analysis so fully that... there remained not so very much to do beyond removing loose ends and adding rigour in order to arrive at something not far distant from Marshallian analysis”; and that in this effort he was second only to Cournot. Stigler (1955: 298) and Samuelson (1962: 10-12) proposed a similar interpretation. A by-product of Mill’s sketch of analysis of demand schedules was his solution to the problem of competitive pricing in the case of commodities produced jointly in fixed proportions (Stigler 1955: 297; also Kurz 1986: 23-5). In this view, Mill is seen as “a figure of transition and, implicitly, as the starting point for the first generation of the ‘moderns’” (Groenewegen 2005: 27).
It should not be forgotten, however, that for Mill the law of supply and demand was relevant only “with respect to all commodities not susceptible of being multiplied at pleasure” and that such commodities were “exceptions”, even though “the principle of the exception stretches wider, and embraces more cases, than at first supposed” (Mill 1848 [1965]: 468). For the generality of commodities, “this point of exact equilibrium may be as momentary, but is nevertheless, as real, as the level of the sea” (Mill 1869 [1967]: 636).Other distinct hints at future developments in economic theory have been stressed, mainly by Stigler (1955). One is Mill’s “recognition of the barriers to mobility erected by the costs of education” (Stigler 1955: 297). The presence of non-competing groups in labour has been considered also by Mitchell as a “characteristic modification of Ricardo’s theory of wages” (Mitchell 1967: 563) and is at the basis of modern theoretical explanations of differential wages. Finally, Mill’s argument that, theoretically, a system of protection under “Corn laws” was inferior to a system of free trade accompanied by a tax indemnifying the landlords has been rightly considered an anticipation of the “compensation principle” of welfare economics (Stigler 1982: 161).