JOHN STUART MILL

Lecture 8
 JOHN STUART MILL
Philosopher & economist, led the
utilitarianism in the 1800s
Questioned unregulated
capitalism
Believed it was wrong that
workers led deprived lives and
often starved to death
Wished to help ordinary through
governmental policies that would
create an equal division of profits

ECON-220
 Mill's training in economics began at an early
age when at his father's fireside he used to
listen to discussions between Ricardo and
others and when in his daily walks with his
father those discussions, and the writings of
Adam Smith, Ricardo, and the other
economists, were reviewed and the boy was
required to answer penetrating questions
concerning them.
 While he believed in individual freedom, he argued that
government needed to improve the harsh life of the working class
 Favored cooperative systems of agriculture
 Supported women’s rights
 Suffrage: argued workers and women should have the right to
vote
 These groups could then use their political power to win

reforms.
 Pushed for governmental reforms in the following areas:
 the legal system, including prison systems
 education reform
 class system: he wished the government would abolish the

great disparity between the rich and the poor.

 Mill's work represented a significant revision
of classical economic theory as well as its
culmination because saving Ricardian theory
was contingent upon repairing its major
flaws.
These included:
First, there was increasing evidence of a disparity
between Ricardian doctrine and the empirical
evidence gathered from the operation of the
English economy. Contrary to the Malthusian
population theory, which was an essential premise
of Ricardo's system, there was growing evidence
that real per capita income was increasing, not
decreasing, as population increased; and with
rapidly developing technology, agriculture was
experiencing increasing, not diminishing, returns.
 Second, the discipline of economics was
becoming increasingly professionalized and
consequently more critical of received
doctrine. Academies began to work through
Ricardo's theoretical structure, particularly
his labor theory of value, and found his
treatment of demand and of the role of
profits in the determination of prices to be
wanting.
 Third, a number of humanist and socialist
writers, ignoring the technical content of
economic thinking, delivered broadsides
attacking the foundations of the emerging
capitalistic economy that Ricardo's
theoretical structure represented.
ON LIBERTY
 The right to be an individual

 Mill wrote that people should be allowed to

do what they pleased as long as they were
not hurting themselves or anyone else
REJECT’S BENTHAM VIEWS AS ‘TOO
NARROW”

1. He believes that the quality of human

actions matter.

• some pursuits are morally superior to others

even if they give the individual the same
happiness.

• “It is better to be a Socrates dissatisfied than

a fool satisfied.”
For Bentham, as long as a given set of choices
produces equal amounts of pleasure, then we
can be indifferent in our choices between them.

For Mill, utilitarianism should aim not at

simply satisfying wants, but satisfying
“better” wants

Should society value all actions equally?

Or should the government intervene to direct
human behaviour.
Tax cigarettes and subsidize education?
 Mill went on to acknowledge another
criticism of Bentham’s Utilitarianism: people
are inherently selfish, so it is practically
impossible to act in an utilitarian manner,
which demands that people be selfless.

 Mill wrote that most people do not always

need to think about the happiness of the
entire world’s population when they act, but
they should take into consideration how their
actions could effect those around them.
UTILITY AND VALUE
 Mill was the last scholar to retain a mix of
both utility and labor theory of value
perspectives within the same body of
economic doctrine.
 As a disciple of both Ricardo and Bentham,

Mill was considered somewhat inconsistent.

He was an advocate of reform and
government intervention, yet at the same
time he claimed to be a utilitarian.
Although Mill had utilitarian tendencies, he did
not believe in Bentham's notion that self-
interest toward pleasure was the basis for all
motives.
Mill believed that self-interest was essentially a
product of competition and strongly believed
that people could have altruistic and noble
motives.
 Mill felt that the institution of private property of
means of production was the source of all
inequality. Unlike J.B. Say, he did not believe that
God instituted private property. For him, the law of
private property, which affected the distribution of
wealth, was strictly a human institution.
Therefore, this institution could be changed in the
future just as it had been changed in the past. Mill
believed that private property acquisition came
from violent conquest.
 Mill was aware that free market capitalism
stimulated unequality. To reduce tensions
among the classes, Mill suggested avoidance
of the monopolistic structure in the economy
and to increase protection of the rights of
working classes.
CONCLUSION OF UTILITARIANISM
 Bentham and Mill’s Utilitarianism stated that
people should act in a way that was the most
beneficial for their community, country, etc.
PRODUCTION-LABOUR
 Agents of Production—Labour, Capital, and
Land
 Labour
 Distinction between direct and indirect labour
 Indirect labour includes production of raw
materials, tools, buildings, transportation, and
skill and knowledge (human capital)
 Productive and unproductive labour
 Productive labour produces wealth (tangible
goods or human capital)
 Unproductive labour produces services that
cannot be accumulated
PRODUCTION-CAPITAL
 Capital
 Accumulated stock from the products of labour
applied previously (indirect labour)
 Buildings, machinery, stocks of raw materials,
stocks of finished goods, stocks of money or
goods for the support of labour
 Stocks of goods or money for the employer’s
own consumption are not a part of capital
PRODUCTION-CAPITAL
 Fundamental Propositions concerning capital
 Industry is limited by capital
 Capital is the result of saving
 Although the result of saving it is consumed --
spent on fixed capital or used to support labour
 The demand for labour is the capital expended on
it (the wage fund) and not the demand for
commodities
 Circulating and fixed capital
 Introduction of machinery
PRODUCTIVITY OF FACTORS
 Natural Advantages of Soil and climate
 Skill and knowledge, including machinery

 Division of labor

 Scale of production
 Increasing returns to scale
 Take division of labour further
 Use more specialized machinery
 Possibility of natural monopoly
 Use of joint-stock companies
LAWS OF INCREASE-LABOUR
 Labour
 Power of population to increase is indefinite
 Constrained by lack of subsistence
 Or constrained by foresight, by fear of want
 Subsistence level at which population remains
constant is a “habitual standard”
 Habitual standard might be raised with progress
of civilization
LAWS OF INCREASE-CAPITAL AND LAND
 Capital
 Increased by saving and thrift
 Depends not just on interest rate but on the
“effective desire of accumulation”
 Where the effective desire is high there is capital
accumulation even at low interest rates
 Land
 Law of increase of production from land, land in
quantity and productive quality is limited.
 Diminishing returns the “universal law of
agricultural industry”
CONSEQUENCES OF THE LAWS OF
PRODUCTION
 Constraints on the increase of production
 Capitalaccumulation
 Diminishing returns in Agriculture
 Condition of the people will depend on whether
population is increasing faster than “progress
of improvement” or “improvement” than
population
 If population is increasing faster we can import
food or encourage emigration of population
DISTRIBUTION
 Laws of Distribution are of human
institution
 In this respect the laws of property are
of prime importance
 Private property did not owe its
existence to calculations of utility
DISTRIBUTION
 Complete equality—Communism
 Principle of just distribution-Socialism

 Communist Schemes
 Problem of lack of individual incentive, but
problem of incentives also exists for hired
labour
 Lack of constraint on population growth, but
public opinion would oppose self indulgence
at the expense of the community
 Problem of allocation of occupations, difficult
but not insuperable
DISTRIBUTION
 Communist Schemes
 Ifthe choice was between communism and
the existing system (in which income is
apportioned almost in an inverse ratio to
labour), then choose communism
 But system of private property does not have
to be as it is
 Private property is in principle supposed to
provide one with the fruits of one’s own
efforts—not of the efforts of others
 With universal education and limitation on
numbers, poverty could be eliminated from a
system of private property
DISTRIBUTION
 System of private property likely to
continue
 Improvements to the existing system
 Limitation of inheritance
 Limitation of right of property in land.
State may expropriate land if it pays
compensation
 No property rights in other persons—no
slavery
 No basis for exclusive monopoly rights or
property rights in public trusts
 Tenancy laws
WAGES
 Wage Fund Doctrine
 Wage rate determined by capital and population
 Subsistence wage a sociological or “moral”
minimum not a physiological minimum
 Role of education and advance of civilization
 Role of emigration and of colonies
 Different Employments
 Non-competing groups
MILL’S “RECANTATION” OF THE WAGE
FUND
 In
a Review of an article by W. T.
Thornton “On Labour” 1869
 Size of wage fund not pre-determined
 Wage fund continually being advanced and
replaced
 Wage fund could be increased by Capitalists
taking less profit
 “According to the wages he has to pay, the
employer has more or less for his own use”
 Provides a role for trade unions
RENT AND PROFIT
 Rent
 Ricardian rent theory
 Profit
 Profita reward for abstinence, as saving involves
abstaining from current consumption
EXCHANGE
 Market Price
 Demand and supply
 Natural Price
 Cost of production (wages and profit, but not
including rent)
 Cost of production of the “most costly portion” of
the supply
PROGRESS
 Progress—capital accumulation and
technological change
 Costs of production in manufacturing tend
to fall
 Costs of production in agriculture tend to
rise due to diminishing returns
 Relative price of food must rise
 Ricardian model of long run trend to a
stationary state
 Mitigated but not avoided by technological
improvement in agriculture
 Stationary state not necessarily a bad thing
GOVERNMENT
 Necessary Functions
 Protection of person and property
 Justice system
 Optional Functions
 Public goods
 Education and information
 Protection of children
 Health and safety standards
 Regulation of natural monopoly
 Poor relief
 Colonies
 Presumption of laissez-faire but intervention if a
social benefit can be demonstrated (based on
utility)