Mill discussed all the factors which are essential for economic development in present times.
He emphasized the importance of such factors like rate of saving, the profit rate, the rate of capital accumulation, technical improvements, expansion of foreign trade, equitable distribution, institutional changes etc.
Prof. Stigler has rightly observed, “Mill was not trying to build a new system but only to add improvements here and there to be Ricardian system”.
He tried to improve the Ricardo fundamentally in two respects viz. the stationary state and the wage fund doctrine.
Despite all this, Mill’s theory is criticized on the following grounds:
1. Malthusian Theory is wrong:
Mill was unduly pessimistic about the growth of population in terms of the Malthusian theory. But this theory has no relevancy in the capitalist countries of the world.
2. Laissez-Faire not Practical Policy:
‘Mill favours the policy of laissez faire in economic affairs. But this theory is impractical. In fact, there is no economy in which there is perfect competition and no economy can proceed without the help of state in one form or the other.
3. Stationary State not Reality:
Prof. Ricardo believed that when a stationary state is reached then there is no accumulation of capital. Mill advocated that in advanced countries, increased production is not needed but it requires better distribution. Thus, a stationary state, for Mill, is not a gloomy and undesirable state but is indicative of pleasant situation of growth and hope. Stationary state of production and accumulation does not mean a stationary state of human improvement.
4. Law of Diminishing Return not operative:
The law of diminishing returns is the ultimate limiting for in Mill’s system, which reflects the limited supply of land. It limits the increase of production which in turn, limits capital accumulation and the population growth in an economy.
5. Wrong Notion of Wage Fund:
Mill believed that the wage fund depends upon the aggregate fund of capital and the wages that were paid out of capital as advances. He argued that trade unions can raise wages. Several economists have criticized Mill’s wage fund theory. Prof. Cannon called it, “the biggest blunder made in the economic theory in modern times”. Marshall called it “the vulgar form of the wage fund theory”. The reason being that he related wage fund to capital rather than national dividends.