CHAPTER 4

The Revisionism of John Stuart Mill

John Stuart Mill regarded his writing in economics - which formed only a part of his larger intellectual enterprise - as primarily an exercise in synthesizing the findings of the classical tradition. His professed objective was not to originate, but to consolidate classical analysis as it had evolved since Smith. In fact, however, his contribution to economics went well beyond this stated aim. In the course of his work, he managed - while always protesting his loyalty to the classical tradition - to amend some of its premises and with consequences more far-reaching than he himself realized.

Mill's revision of the premises of classical political economy was parallelled by his revisionist attitude towards the philosophical tradition in which he had been brought up. Schooled originally in the Benthamite tradition of the pleasure-pain calculus, he turned away from the cruder formulations of this doctrine. As he came to view matters, pleasures could not be as readily measured and aggregated as Bentham's version of utilitarianism required. Instead, Mill insisted, qualitative considerations should count fully as much as quantitative ones. He wished to draw attention to the different orders of pleasure, which he did emphatically when he asserted that it is 'better to be Socrates dissatisfied than a fool satisfied'. With this amendment, the props to Benthamite confidence in the felicific calculus as a guide to social policy were shaken.

The economic world Mill observed had also undergone considerable change from the state of affairs with which Ricardo and Malthus had been concerned. Many of the specific policy battles in which the earlier classicists had been engaged had been won, though not always in quite the form they had intended. By 1846 the Corn Laws had been repealed, banking and currency arrangements had been reorganized and effectively tied to gold as the international means of payment, and the Poor Laws had been amended to attack the restraints on labour mobility imposed by the earlier system of parish residence as a condition of eligibility for relief. England was close to becoming a nation dedicated to free trade, both in theory and in fact. Meanwhile the worst disasters of the years of deflation in the immediate post-Napoleonic war decades had passed.

Even so, the quality of life - as well as the means for its full enjoyment - left much to be desired for the bulk of the population. Laissez-faire, whatever its contribution to the growth of international trade and to the enlargement of the national product, seemed not to have meant that a substantial share of the gains were distributed to the benefit of the least advantaged groups in the community. Sensitivity to growing inequalities was clearly part of the political protest of the Chartist movement and it was also reflected in the stirrings of the trade union organizations (relieved after 1824 of many of their former legal disabilities with the repeal of the anti-combination laws) and of the cooperative movement.

1. JOHN STUART MILL (1806-73)

Few economists or political philosophers can ever have had a more thorough preparation for intellectual pursuits than John Stuart Mill. From a tender age he was tutored by his father, James Mill, a political economist of note in his own day, but now remembered more for his close association with Ricardo and Bentham. By the age of eight, the younger Mill was reading Greek classics in the original and at thirteen was set to work on Smith and Ricardo. Later in life John Stuart Mill was to observe that his remarkable education - which covered most branches of knowledge - gave him twenty-five years' head start on most of his contemporaries.

In 1823, after abandoning earlier plans to take up the study of law, Mill entered the employ of the East India Company. He began as an assistant to his father in the examiner's office, the division of the company charged with the conduct of its affairs with the native states. The younger Mill spent the next thirty-five years of his life as an official of the company, ultimately rising to the highest post in the examiner's department, a position held earlier by his father. This connexion was severed only when Parliament relieved the company of its political and administrative responsibilities in 1858.

His involvement in Indian affairs, despite its duration, had little influence on the development of his thought. He did not share his father's zeal for translating Ricardian and utilitarian doctrine into a massive programme of reform in India. For that matter, he never visited India and there is no evidence that he ever expressed a desire to do so. His attitude toward his official duties appears to have had something in common with that held by a few university professors nowadays towards their teaching responsibilities: the latter, however, seldom express themselves so candidly in print. As Mill observed:

I do not know any one of the occupations by which a subsistence can now be gained, more suitable than such as this to any one who, not being in independent circumstances, desires to devote a part of the twenty-four hours to private intellectual pursuits.1

More potent as an influence on the development of his thought was Mill's companionship with Mrs Harriet Taylor, whom he married after the death of her husband. Mill described her as the `inspirer of my best thoughts'.2 Though she shaped the details of his teaching on only one issue - the 'subjugation' of women - he regarded her influence as crucial to his re-assessment of classical postulates and to his attempts to reformulate political economy along lines that offered less cramped prospects for the bulk of mankind. His appraisal of her influence was, perhaps understandably, exaggerated.

Late in life, Mill served briefly as a member of Parliament. During his term, he championed the extension of the franchise to the working classes and to women and called for land tenure reform in Ireland. His attempt to win re-election was unsuccessful.

2. 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. In his view the argument that labour was `productive' only when it produced material objects called for a re-examination. One intangible in particular- the transmission of skills - should be regarded as productive, at least under certain conditions. But Mill was still enough in the classical mould to insist on a qualification: labour involved in training workers was productive, 'provided that an increase of material products is its ultimate consequence'.3

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. He did not grasp the full significance of this matter, but he at least caught the scent of an issue that was later to preoccupy a generation of economists.8

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.

3. THE REVISIONIST VIEW OF THE LAWS OF

PRODUCTION AND DISTRIBUTION

Perhaps the most significant of Mill's modifications in the orthodox classical tradition was his re-interpretation of the laws governing economic activity generally and of income distribution most particularly. At an abstract level Mill shared many of the standard conclusions about the likely redistributional effects of economic growth. He agreed with the classical mainstream that a period of expansion would generate tendencies towards rising rents, falling profits, and rising money (though not real) wages. But he also argued that there might be counteracting forces to relieve the cramp on the working class.

Mill proceeded by distinguishing between two types of economic laws. Those of the first type governed production; they were immutable, fixed by nature and technology. Men could adjust to these laws, but were powerless to amend them. The laws governing the distribution of the social product, however, fell into a different category. In this case the outcome was socially determined and subject to human control.10 In support of this proposition Mill examined at length the different sets of distribution arrangements associated with various types of social organization. His point was not simply that a variety of distributional systems had existed. More important was his assertion that the prevailing distribution of income could be altered.

Mill perceived clearly that the Malthusian population argument - which had been interpreted to mean that the working class could never escape from poverty - provided the basic prop to orthodox classical thinking about the shape of income distribution. He accepted the conclusion that subsistence wages at a meagre level might be sustained if Malthus's gloomiest prognosis was borne out in fact. But this result was by no means the only one possible.

Malthus, of course, had recognized that other outcomes were conceivable, though he placed no confidence in the possibility that the working class would adopt prudential restraint. Mill took quite the opposite position, arguing that the behaviour of the working class was more readily changeable than earlier classicists had allowed and that population growth could indeed be constrained. Widespread and intensive education might be required, but he had no doubt that it would be effective in raising the tastes and aspirations and altering the behaviour of the working class. This confidence, he insisted, was more than a leap of blind faith: it was supported by observable developments. The masses of the population were emancipating themselves from a traditionally dependent status and 'a spontaneous education was going on in the minds of the multitude'.11 The pace of these changes was quickened by the institutes for lectures and discussion and by the formation of trade unions. This led him to conclude:

It appears to me impossible but that the increase of intelligence, of education, and of love of independence among the working classes, must be attended with the corresponding growth of the good sense which manifests itself in provident habits of conduct, and that population, therefore, will bear a gradually diminishing ratio to capital and employment.12

With this elimination of the overtones of inevitability attached to earlier classical interpretations of economic laws, the Malthusian spectre was banished. Brighter prospects for the improvement and perfect ability of mankind could now be seriously entertained. This outlook also implied that a re-definition of one of the basic concepts of classicism was in order. No longer could the net product of society be identified with the profit and rent shares of income; saving to facilitate capital accumulation might also arise from the wage share of income.13

4. THE REVISION OF IMPLICIT GOALS

Mill's re-interpretation of the nature of economic laws was to have notable consequences. Not least among them was a challenge to an implicit value premise that had run through the whole of classical writing: that uninterrupted economic expansion was a goal of such obvious importance that it required no justification. Mill attacked the orthodox position when he wrote:

I know not why it should be matter of congratulation that persons who are already richer than anyone needs to be, should have doubled their means of consuming things which give little or no pleasure except as representatives of wealth. . . It is only in the backward countries of the world that increased production is still an important object . . .14

In his view the stationary state was not necessarily a grave social ill. On the contrary, Mill observed:

I cannot ... regard the stationary state of capital and wealth with the unaffected aversion so generally manifested towards it by political economists of the old school. I am inclined to believe that it would be, on the whole, a very considerable improvement on our present condition. I confess that I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on; the trampling, crushing, elbowing, and treading on each other's heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the most disagreeable symptoms of one of the phases of industrial progress.15

These remarks, of course, were addressed to Mill's contemporaries in England. But affairs in the United States did not escape his notice; indeed his most barbed comment was reserved for the Northern and the Middle States of America. He viewed the population of this area as enjoying the highest stage of economic advance. Poverty had been eliminated, abundance was assured to all who were willing and able to work, and social injustices had been eliminated - at least all 'inequalities that affect persons of a Caucasian race and of the male sex'. But what had this opulence produced? Mill's judgement in 1848 was outspoken '. . , all that these advantages seem to have done for them is that the life of the whole of one sex is devoted to dollar hunting, and of the other to breeding dollar hunters'.16

From the perspective of classical orthodoxy, these assertions amounted to heresy - a point his lay readers were quick to grasp. One reviewer commended the first edition in these words: '. . . here is no indifference to human suffering, no inordinate estimation of wealth, no sordid and groveling morality'.17 Another, noting with approval Mill's attitude toward the dread stationary state, observed: 'It is no little novelty to hear a political economists peak in the following manner of the mere elements of national wealth.’18 Mill was congratulated for demolishing those arguments 'by which his scientific predecessors had attempted to mislead the man of experience or of empirical knowledge'.19

It was not solely a distaste for some of the social manifestations of affluence that led Mill to this conclusion. He was also concerned about tendencies towards instability likely to be associated with the approach of the stationary state and with declining rates of profit. These circumstances would impel some entrepreneurs to reject prevailing rates of profit and to seek out high-risk ventures with the expectation of reaping above-average gains. With arguments like those heard more recently from bankers who voice concern about deterioration in the quality of credit risks during a period of expansion, Mill maintained that these conditions easily generated speculative rashness which, in turn, was likely to be followed by disappointments. The behaviour of those who tried to evade the natural tendency for profit rates to fall could thus lead to oscillations between boom and bust.

Mill was too closely associated with the Say's Law tradition of the classical mentality to press the analysis of this issue very far. Nevertheless, he perceived more clearly than had earlier contributors to the classical mainstream that the approach of the stationary state at a high level of economic activity was likely to increase the sensitivity of the economy to substantial fluctuations. Indeed, tendencies toward instability were inherent within an unregulated economic system.

5. MILL AND ECONOMIC POLICY

In several important respects, Mill's attitude towards questions of economic policy departed substantially from the positions that had characterized orthodox classicism. Perhaps his sharpest break with orthodoxy concerned the economic role of the state. Mill's frame of reference contained at least the outlines of a more active programme of state intervention in economic life than his predecessors would have tolerated. In the first instance he emphasized the economic importance of the state as a `civilizer' - i.e. as the sponsor of improved educational facilities, as well as such cultural amenities as parks and museums. Elevation in popular tastes and aspirations, especially among members of the working class, was vital to the banishment of the Malthusian devil and to the exercise of human control over the distribution of income. Nevertheless, like his classical forebears, Mill was critical of the administration of poor relief on the ground that it had unfortunate effects on the mobility of the labour force and on its allocation to socially most effective uses.

While pursuing their civilizing mission, governments could also perform a significant stabilizing function. Mill, in his revisionist analysis of the onset of the stationary state, had held that falling rates of profit were likely to be associated with speculative rashness which in turn led to unintended wastages of capital. How much better the outcome would be, he maintained, if the state taxed an increasing share of potentially investible funds and used its receipts to finance socially beneficial projects. In this fashion two worthwhile purposes would be served simultaneously: deterioration in rates of return on private capital would be slowed and the volatility of the economic system dampened. But this technique was not the only one available for slowing reductions in the rate of profit as the stationary state was approached. If part of domestic savings were channelled into overseas investment, the erosion of home rates of profit would be slower than would otherwise have been the case. The results would be doubly beneficial if capital exports were directed into the development of low-cost sources of food and raw materials required in the lending country. This interpretation of capital export has much in common with the analysis of imperialism as a prop to the capitalist order that was later devised by Hobson and Lenin.

Mill also placed himself outside the classical mainstream in his attitudes toward private property. Existing social institutions he regarded as `merely provisional', though he reached this position only after a struggle against his early beliefs. In his personal summing up he recorded:

We were now much less democrats than I have been, because so long as education continues to be so wretchedly imperfect, we dreaded the ignorance and especially the selfishness and brutality of the mass: but our ideal of ultimate improvement went far beyond Democracy, and would class us decidedly under the general designation of Socialists. While we repudiated with the greatest energy that tyranny of society over the individual which most Socialist systems are supposed to involve, we yet looked forward to a time when society will no longer be divided into the idle and the industrious; when the rule that they who do not work shall not eat, will be applied not to paupers only, but impartially to all; when the division of the produce of labour, instead of depending, as in so great a degree it now does, on the accident of birth, will be made by concert on an acknowledged principle of justice; and when it will no longer either be, or be thought to be, impossible for human beings to exert themselves strenuously in procuring benefits which are not to be exclusively their own, but to be shared with the society they belong to.20

Despite his sympathy for social change, Mill did not work out carefully the details of a future and happier order of society. But one point was at least clear: his version of socialism was not one in which the state would play a commanding role. He thought more in terms of voluntary cooperative arrangements and of co-partnerships between capital and labour.