THE MODIFICATION OF THE APPROACH TO VALUE

From an early stage in his work, it was apparent that Mill was prepared - to re-define some familiar classical terms. One of his first essays on economic theory was addressed to the definition of 'productive' and 'unproductive' labour.

Mill quarrelled more seriously with orthodox definitions when he protested that standard classical terminology conveyed an unfortunate impression that the functions discharged by governments were essentially unproductive. In principle, he maintained, there was little to distinguish the protective works on a farm (such as hedges and ditches) from those supplied by governments when they financed police officers and courts of justice.4 He carried the critique a step further by arguing that some types of labour, though embodied in material objects, might still be unproductive. Indeed, productive labour might 'render a nation poorer' if the wealth it produces, that is, the increase it makes in the stock of useful or agreeable things be of a kind not immediately wanted....'5 There was more than a hint in this attitude that the conventional classical approach to problems of value did less than justice to considerations of utility and demand. But this was not the only limitation from which it suffered. Labour might also be wasted if it produced material outputs with outmoded techniques. Though Marx was also to emphasize this point (arguing that only 'socially necessary' labour should count in the calculation of value), it had been given little attention by earlier classicists, largely because they assumed that the extension of the market would be a sufficient antidote to inefficiency.

While adding qualifications to familiar classical distinctions, Mill nevertheless accepted the basic point stressed by earlier classical writers. He, as much as they, saw the importance of isolating that part of society's product likely to give rise to subsequent increases in the national output from that less likely to do so. If in practice the dividing line might involve more than a pinch of arbitrariness, the basic concept was both clear and significant.

Mill moved further away from the tradition of his orthodox classical predecessors in his formulation of the specific ingredients of value. When explaining the difference in value of two commodities, for example, he observed:

If one of two things commands, on the average, a greater value than the other, the cause must be that it requires for its production either a greater quantity of labour, or a kind of labour permanently paid at a higher rate; or that the capital, or part of the capital, which supports that labour must be advanced for a longer period; or lastly, that the production is attended with some circumstance which requires to be compensated by a permanently higher rate of profit.6

This view took into account the exceptions Ricardo had observed to his labour-input account of value, but it also severed the earlier classical link between labour and value. None of Smith's concern to use a labour measurement to solve the index-number problem remained; Mill, in fact, devoted a chapter in his Principles to demonstrating that the search for an invariant measure of value was misguided on both logical and empirical grounds.

At the same time Mill retained the classical terminology of 'natural' and 'market' prices. The former, he held, represented market prices in long-period equilibrium and - barring the case of monopoly - would normally be adjusted to the cost of production. He noted, however, that competition could not always be relied upon as an effective force in the pricing process. In some instances - particularly in the case of public utilities - 'competitors are so few that they always end by agreeing not to compete'.7 Moreover, this problem was likely to become more serious as economies of large-scale operations increased the size and reduced the number of sellers.

Mill summed up his position with a judgement that was rashly immodest. 'Happily', he wrote in 1848, '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.'9 Later strands of economic theory were to offer a completely different account of this problem. But within a tradition bearing any resemblance to classicism, Mill's conclusion was largely correct. The territory bounded by classical presuppositions had been fully explored. New departures required another analytical framework.

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