In this article we will discuss about John Stuart Mill:- 1. Life Sketch of John Stuart Mill 2. Sources of Influences on Mill’s Writings 3. Mill’s Restatement of Classical Ideas 4. Critical Estimate.
Biography of John Stuart Mill:
John Stuart Mill was one of the builders of classical school. He appeared at a time when political economy required a restatement. The principles given by A. Smith, D. Ricardo, T.R. Malthus, required revision and modification in the context of new problems. Mill’s work heralded the end of one and the beginning of another epoch in economic development.
J.S. Mill, the son of James Mill, was born on May 5th, 1806 in London. He was an extremely brilliant boy and studied Greek, Latin, Logic, History, Literature, Political Economy, Roman and English Law at the age of 15. He served in the office of the East India Company and worked for the economic betterment of the working classes and women suffrage from 1823 to 1868. He died in France in 1873.
He wrote a number of books in various fields, viz., philosophy, political science and economics. His principal works are “The Principles of Political Economy”, seventh edition in 1871. It was divided into five books-production, distribution, exchange, influence of the progress of society in production and distribution, and the influence of the Government.
He did not add anything to the classical economic theory but he recast the theories of his predecessors. His other works include “Essays on Unsettled Questions in Political Economy” (1844); “System of Logic” (1842) “Liberty of Thoughts on Parliamentary Reform” (1859); “Representative Government”. 1861; ‘Utilitarianism’ (1863); “Comte and Positivism” (1864); “Subjection of Women” (1869); etc.
Sources of Influences on Mill’s Writings:
Mill as an economist was largely influenced by the fundamental ideas of Adam Smith and Ricardo. He believed in Bentham’s principles of utility. He supported individual freedom, liberty and laissez-faire ideas of Physiocrats and Adam Smith. Mill agreed with the Ricardian theory of rent and the Malthusian theory of population. He was treated as a Reformist or as a Philosophical Radicalist, because he advocated the reform of the existing institutions and stood for Government interference in child education and employment.
Mill was influenced by John Rae’s idea on capital accumulation; on division of labour he relied upon Babbage; in the treatment of value he depended upon Quincey’s Logic of the Political Economy, and from Bailey and Senior he derived the Abstinence Theory of Profits. Other writers, for whom Mill had a great regard, were Coleridge, Carlyle, Maurice, Saint Simonian, John Locke, David Hume and Mrs. Taylor.
Mill’s Restatement of Classical Ideas:
Hedonistic Principle: Hedonistic Principle or law of self-interest means that every individual desires wellbeing and each man knows what is good for himself. It has led to individualism. According to classical writers, self-interest was the main motive behind human activity. Every individual tried to gain the maximum pleasure.
This law based on human psychology, was the most rational form of self-preservation. Mill said that individualism never implied egoism and a normal individual was always prepared to give pleasure to others. Once individualism and liberty are realised then there is no clash of interest. But it needed education.
1. Nature and Scope of Economics:
Mill defined economics as the science dealing with “the nature of wealth and the laws of the production and distribution, including, directly or remotely, the operation of all the causes by which the condition of mankind, or of any society of human beings, in respect of this universal object of human desire, is made prosperous or the reverse.
He studied not only the laws governing the production and distribution but also the causes by the operation of which society is made prosperous or reverse. Mill restated that the laws governing the production and distribution are closely related as well as different from each other.
Therefore the study of both these types of laws is essential for economics. The classical writers did not believe in offering advice but Mill wanted economics to be more practical. That is why he distinguished between the laws of production and the laws of distribution.
2. Scope of Economics:
According to classical economists, economics was both a science and an art, that is, the science of economics and art of policy. He made it an art because he aimed at bettering the economic lot of human beings. He was a social reformer. He widened the scope of political economy, so as to include both the positive and negative aspects. It should be supplemented with other social sciences.
3. Method of Study:
He adopted the deductive method of study as had been done by the classical economist. But later on he understood that this method was dangerous for a social science. He, therefore, adopted the concrete deductive method that is a combination of deductive and inductive methods.
4. Nature of Laws:
The classical economists believed that the nature of economic laws were universal. But Mill differed from them. He distinguished between the nature of the laws of production and distribution. The laws of production were based on physical truths and were natural.
The laws of distribution resided within the realm of human institutions. This was man made and could be changed. The problem of distribution is the most difficult question in economics. He based the possibility of his socialistic programme on this belief.
According to Mill, labour and natural objects are the two agents of production. He defined Labour as the mental, bodily, muscular or nervous application; and natural object is those which grew up spontaneously. These two are the primary factors in all types of production. He says that, “labour is always and solely employed in putting objects in motion, the properties of matter, the laws of nature do the rest”.
Some of the natural powers were limited and others unlimited in quantity. For example, water on the banks of rivers or lakes is unlimited; but in cities where people want it for consumption, it is limited. Mill stated that the part played by nature in any work done by a man was indefinite and incommensurate.
When nature and labour were required to produce a commodity, it was meaningless to say how much was produced by each one of them. “It is like attempting to decide which half of a pair of scissors has most to do in the act of cutting”.
He considered J.B. Say’s views that the function of labour is that of creating utilities. There are three types of utilities; those which are fixed and embodied in outward objects; those which are fixed and embodied in human beings; those which are fixed or embodied in any object. Mill held that in many cases labour may be of indirect application.
There are five ways in which labour operates indirectly in production:
(1) Labour employed in extractive industries;
(2) Labour employed in the making of tools and implements;
(3) Labour employed for the protection of industry;
(4) Labour employed in the transport and distribution of the produce;
(5) Labour of the inventors of industrial processes.
6. Productive and Unproductive Labour:
Mill defined productive labour as that, “which is employed in creating permanent utilities, whether embodied in human beings or in any other animate or inanimate objects”. These objects he meant only material objects. He included more occupations under productive labour than Smith. It effected an increase of material products ultimately and directly. Cotton spinner, plough man were productive by the direct result of labour.
Mill defined unproductive labour as that “which ends in immediate enjoyment, without any increase of the accumulated stock of permanent means of enjoyment”. Unproductive labourer might receive for his labour from those who derived pleasure or benefit from it.
7. Division of Labour:
Mill supported Adam Smith’s idea on division of labour and its merits and demerits. To him, the extent of division of labour was limited by the extent of market. He gave different causes like high population, poverty, deficiency of roads and waterways, lack of combination of labour, for unemployment. He quoted M. Say who had written that the manufacture of playing cards was divided into 70 operations in which 30 workers were employed.
Again he supported Babbage who had pointed out that the work of watch making was divided into 102 distinct operations. Every individual was given only that part of the work for which he/she was best suited. In this connection he wrote that production was most efficient when the precise quantity of skill and strength which was required for each part of the process was employed in it or no more.
8. Future of Labouring Classes:
Mill propounded two conflicting theories—Theory of Dependence and Protection and Theory of Self-Dependence. The first theory stated that the lot of poor labourers should be regulated for them; and it is the duty of high classes to think for them. The second theory explained that in a new country, they find work as hired labourers, after a few years they begin to work on their own account, employing others.
Mill predicted that in near future workers, with their increasing powers, would organise themselves into associations which were not meant for the benefit of the individuals but for the promotion of the interest of the cooperative cause. He supported the role of labour associations and their participation in the profits of industries.
Mill appreciated the Malthusian law of population and said that no betterment in the economic condition of workers was possible unless they placed a check on their multiplication. The peasant proprietor class was in a better position as a result of less rapid growth. It was in vain to say that all mouths which were called into existence brought with them hands also, because the new mouths required as much food as the old ones, but the hands did not produce as much.
He thought that women were not responsible for too big families, so he suggested that women should have full liberty to decide whether to have more children. Mill supported a legislative measure to prohibit the marriage of the poor.
He wrote that the laws forbidding marriage unless the parties could show that they had the necessary means of supporting the family were within the powers of the state, without violating the liberty. This law was followed by many countries of the European Continent.
Mill assigned a secondary place to capital. He defined capital as the accumulated stock, resulting from industry, which is devoted to reproductive employment.
He gave four fundamental propositions for capital:
(1) Industry is limited by capital; but does not reach this limit and that every increase in capital provides additional employment to labour.
(2) It is the result of saving;
(3) It is used for further production;
(4) Capital supports labour and employs it.
According to Mill, capital does not possess any productive powers as possessed by labour and natural agents. The only function of capital is to feed and maintain the labourers during the process of production. He distinguished between two types of capital-fixed and circulating capital.
Fixed capital is that portion of capital which consisted in the instruments of production. It is more or less permanent in nature. The effectiveness was not exhausted by a single use viz., buildings, machinery and implements. But it required periodical renewals.
Circulating capital was that capital which after being used once, existed no longer as capital of rendering any service to production viz., alkali used in the preparation of soap, wages to workers etc. Mill analysed that all capital was the product of saving i.e., of abstinence from present consumption.
It depends on two things:
(a) The amount of net product from which saving could be effected and
(b) The strength of depositions.
The greater the net product, the greater the savings. The profit motive provides stimulus to accumulation. But the desire to save is different from individual to individual. Accumulation depended upon the desire for expenditure also.
11. Cost of Production:
Mill believed that unless the value of a commodity was sufficient to repay the cost of production, it would not be produced permanently because the producer would not bear the loss. According to him, there are three components of cost of production: labour, capital and differential tax. For example cloth manufacturing, he said that, its cost of production included the wages of weavers, spinners, yarn makers, brick makers and builder, who erected the factory building, machine makers and carrier who transported the appliances and product.
Capital is another element which must be paid its due share i.e., profit. He said that the more largely would profits enter into the cost of production because the greater the proportion of the whole capital which consisted of machinery or building or material or anything else which must be produced before the immediate labour could commence.
12. Causes of Productive Efficiency:
The degree of productive efficiency of a community depended upon several factors like abundance of natural resources, energy of labour, skill and knowledge, moral trust worthiness, division of labour. Among the natural resources, Mill included soil, climate, minerals, natural water, power, navigable rivers and good harbours.
As far as energy of labour, he considered when workers worked, they should work with all their might and mind. Further he added that the knowledge of natural powers and properties of objects, intelligence and manual dexterity were highly conducive for inventions, division of labour promoted the cooperative spirit, and moral trust worthiness improved the efficiency of organisation.
There are two causes for productive efficiency:
Firstly, the better educated workmen were entirely sober, discreet, on their enjoyments, had taste for a better society, organised excursions, were economical, honest and trust worthy.
The second causes were two:
(1) Security or protection to be given to the members of community and
(2) The enactment of laws.
13. Scale of Production:
Regarding scale of production, he discussed the advantages and disadvantages which accrue from the scale of production.
The advantages of large scale production are:
(1) Cooperation among the workmen.
(2) Division of labour.
(3) Sale of goods at lower rate than small scale production.
(4) Economise the cost of superintendence.
According to Mill, the production of a large scale system, was again limited by the extent of the market—either the community should be populous and prosperous or there should be the possibility of exports. He said that small scale peasant farming suffered from inferiority in skill and knowledge, which did not exist as a general rule.
14. Private Property:
Mill described that the distribution of wealth depended upon the laws and customs of the society. He examined the institution of private property, under which no injustice would be done to anybody who could follow his line of production independently. It would guarantee to the individuals the fruits of the labour.
According to Mill, the landlord owned labour, under this system, the entire produce belonged to him. Nothing should be possessed by the slaves. They were provided only food and other necessaries. The ancient Romans played with the lives of slaves; but the condition of slaves was much less bad in ancient times than that in modern colonies.
During long period, slaves obtained full rights of citizenship: both legal rights and property rights. But as far as serfdom is concerned, it was the mildest form of slavery. England was the first country which abolished slavery followed by Denmark, France and the United States. But Mill supported complete personal freedom.
Mill recognised classical law of wages depended upon the demand for and supply of labour and the natural or subsistence wages. In the short run, these wages are determined by the number of labourers and in the long run wages were determined by the cost of rearing. Worker’s wages were paid not according to their economic needs and to him, trade unions were helpless in increasing their wages.
Mill wrote that, “wages depend, then, on the proportion between the number of the labouring population and the capital or other funds devoted to the purchase of labour, and cannot under the rule of competition be affected by anything else”.
There are two ways for increasing the wages, either by increasing the wage fund or by limiting the population of workers. The first alternative is beyond the control of workers. Whereas the second is within their power, they should not multiply too fast. Mill suggested that workers must be learnt that the demand for labour grew faster than its aggregate supply, for increasing wages.
Again he had suggested measures for the improvement of the wages of workers. Mill did not support the fixation of minimum wages unless work was found for all the workers who wanted to work. It was the duty of the state or the rich people to see that all poor people found work.
Mill offered the following measures to improve the conditions of the workers:
(1) Restrictions should be placed on marriages or those people who cannot support their children should be punished severely.
(2) Small plots of land may be given to workers on fair rent so that they may not wholly depend upon work for hire.
(3) Workers should restrict their numbers.
(4) An effective national system of education should be devised for the children of the labouring classes.
(5) A rational policy of colonization should be adopted so that a considerable fraction of agricultural population might emigrate.
Mill explained that profits are the “remuneration of abstinence”. He analysed gross profit and differences in the rates of profits in different industries and at different places. There are three elements of gross profits, i.e., the remuneration for abstinence, indemnity for risks and remuneration for the labour and skill required for superintendence.
According to Mill, rates of profits in different industries and at different places are different owing to the circumstances which render one employment more attractive or more repulsive than another and also under monopoly.
Mill said that remuneration for superintendence does not vary much from employment to employment but it varies frequently from individual to individual. Mill did not separate profits from interest, but maintained that the rate of profits generally exceeded to rate of interest.
The conditions under which profits differed were risk, nature of employment and time. The two main elements upon which profits depended were-the productive power of labour and the amount of productivity invested for supporting the workers. But the real cause of profit was the fact that labour produced more than was required for its maintenance.
He supported David Ricardo’s views the “the rate of profit depended upon wages; rising as wages fall and falling as wages rise”. But he did not accept Adam Smith’s version that the tendency of the profit was to fall as a result of competitive capital; and said that, that theory was unsound and incorrect.
Mill accepted Ricardo’s law of rent and believed that rent arose because of differences in fertility of land. He further said that rent as a differential surplus. Like Adam Smith, he considered rent as the effect of monopoly because the landlord had “exclusive power” over his land. Mill has gone a step further in stating that rent also accrues as a result of personal abilities or superior business talent.
19. Rate of Interest:
Mill followed the footsteps of Smith and Ricardo regarding rate of interest. Mill said that the rate of interest is determined at a point where demand for loans is equal to their supply. The market rate of Interest fluctuates widely and oscillates round the natural rate.
The natural rate of interest depends upon:
(a) The accumulation of capital and
(b) Comparative taste of the people for active participation in industry, leisure, eases etc.
The average rate of interest is determined by the total demand for loans and the general loan fund in the country. He does not accept the view that the rate of interest and the quantity of money in circulation are related to each other. The rate of interest may fluctuate with changes in the demand for and supply of loan. Mill said that the rate of interest may be affected permanently by alterations in the proportion of interest receiving and profit receiving capitalists.
20. Determination of Value:
Mill introduced the concept of margin, that is, the value of a commodity was fixed at the margin or at the point of equilibrium at which demand and supply were equal. He said that demand and supply theory of value was simply a vicious circle. He gave two types of value, viz., normal value and market value.
Under perfect competition, normal value tended towards the cost of production; but the market value fluctuated towards this fixed point or normal value, in the same way as the sea tends to a level but it never is at one exact level. He extended the classical theory of value.
21. Value of Money:
Mill realised the inconvenience of barter economy and explained the advantages of the introduction of money. He enumerated the qualities which a money-material, gold or silver, should possess in order to serve as money. He defined money as “the medium through which the incomes of the different members of the community are distributed to them and the measure by which they estimate their possessions”.
According to Mill, money was a commodity and its value depended upon its purchasing power. There is an inverse relationship between value of money and price level. He also recognised the velocity of money. He pointed out that money which was hoarded, cash balance in the hands of people, money in the banks or reserve by private bankers, could not influence prices. The value of money conformed permanently and in a state of freedom, to the value of the metal of which it was made.
22. Law of Free Competition:
The classical writers considered free competition as a supreme natural law. According to Mill, “every restriction of competition is an evil” and “every extension of it is always an ultimate good”. Mill said that those people who acted upon the principle of laissez faire were nearer the truth 19 times out 20 times than those who opposed it.
It was to be adopted as a practical rule where a better one had not been found. It people found fault with the working of free trade, it was due to imperfect competition. Even though, he had socialistic thinking, yet as socialism suppressed liberty and free trade, he vehemently oppose it.
23. Criticism of Protection:
Like David Ricardo, Mill was a staunch free trader. He believed that to prohibit the importation of foreign goods or to impose protective duties on them was to render the labour and capital of the country less efficient in production than they would otherwise be.
At the same time, the difference between labour and capital in the production of two commodities in the two countries would go to waste. He argued that a country which had adopted protection, was destroying the general gain which was to accrue to the world. He defended protective duties only when they were imposed temporarily, particularly in a new country.
24. Theory of International Trade:
Mill developed Ricardian Theory of international trade. Like Ricardo he concluded that it was differences in comparative cost and not differences in absolute cost that gave rise to international trade. He introduced the law of supply and demand into the field of international values. Mill believed that in the case of foreign commodities, the law of permanent value determined by cost of production will not hold good.
Mill said that trade equilibrium between two countries found each one exporting just enough to cover its imports. This was the Equation of International Demand or The Law of International values. He never supported protection, but he suggested that the taxes on imports and exports might be so adjusted so that the former could bear the burden of taxes to a certain extent.
Mill examined the system of taxation, contributed by Adam Smith and David Ricardo. First of all he reproduced the canons of taxation propounded by the Father of the science. He considered taxation as the means with the help of which greater inequalities of wealth could be reduced. He suggested the imposition of taxes was not for earned fortunes but on unearned incomes.
He further suggested that the amount which an individual could acquire by gift, inheritance, shall be fixed by law. He objected to the graduated tax system and permanent incomes were taxed several times. Tax should be levied only once to meet some national emergency.
The state should appropriate the whole or part of the income earned without exertion for sacrifice. The incidence of taxes should fall on incomes, not on capital. He added that all savings which had been invested should not be taxed.
26. Stationary State:
Mill wrote a separate chapter on ‘Stationary State’ in his book. According to him, sometimes the increase in wealth would come to an end; as a result of improvement in the technique and accumulation of capital and competition, profits would decline to zero. Naturally, economic activity and population must come to a standstill position. Under such circumstances rents would rise and wages would remain constant.
The stationary state would witness a real moral advancement. If the working population were restrained, an improvement in the economic conditions of workers might be visible. There would be more even distribution of wealth as the result of individual skillfulness and of legislative measures. This would automatically solve many economic problems.
Critical Estimate of John Stuart Mill:
Mill was a great utilitarian philosopher, a staunch free trader and an unparalled exponent of liberalism. Mill supported the fundamental laws of self-interest, free competition, rent and international trade, recast them. He introduced the concept of margin in the theory of value. He showed a little divergence as far as the nature of economic laws, scope and functions of the Government concerned.
He widened the scope of the subject by discussing both the positive and negative aspects. He distinguished between the laws of production and law of distribution. He accepted state intervention in the activities which serve the greatest good of the greatest number.
He was the first English economist to use the phrase Laissez Faire and the term unearned advantage. But he failed to develop the marginal analysis in consumption and production. He did not fully appreciate utility and failed to relate the laws of production and distribution. He did not complete the theory of value. His search for a compromise between the classical economists and the socialists ideal life had many logical inconsistencies.
Despite his weakness and failures, Mill can be regarded as a great expositor of classical economic doctrines. Haney said that, “His claim to greatness in economics, however not in his doctrinal contribution, but in his thought concerning the postulates and assumptions of economics and its relation to the social policy. To conclude, in the words of Newman, “Mill did for Ricardo what J.B. Say did for Adam Smith—a job of systematization and popularization”.