Mill, John Stuart (1806–73)

JOHN STUART MILL WAS ONE of those outstanding 19th-century scholars of towering intellect, making contributions in several fields, including philosophy, logic, and economics. He is, perhaps, the quintessential classical economist. Mill's chief work in economics is his 1848 book, Principles of Political Economy, a book that became highly regarded as the authority throughout the world for many years afterward.

Mill's main contribution in economics can be divided into several parts: production, distribution, value, growth, and methodology. One must always keep in mind, however, Mill's intellectual background when examining his economics. First, Mill was trained in the Benthamite tradition—utility plays a crucial role along with social utility. Second, the Romantic writers of the latter half of the 18th century and early 19th century influenced Mill.

Third, Mill held a high regard for the positivism of Auguste Comte. These intellectual influences channeled the direction of Mill's economics. David Ricardo, however, as acknowledged by Mill himself, exerted the primary influence on Mill's economics, and his economic analysis is a refinement, extension, and elaboration of Ricardian principles.

In the theory of production and distribution, Mill made the distinction between laws of production, given by technical factors, and the laws of distribution, given by social factors. Mill made it clear that the factors that govern the production of goods can be separated from [Page 716]their distribution. A key element of this apparatus is the wages fund doctrine, in which the wages of workers were treated as an investment, and therefore, in some sense, as a capital stock. Since production occurs over time, a certain advance to workers has to be provided until the output is able to be consumed. This advancement of wages to workers is rightly treated by Mill as investment and therefore capital.

John Stuart Mill shaped the course of economics not only by his own theoretical contributions but also by his analytical apparatus.

On the theory of value, Mill subscribed to a cost of production long-run price and a short-run price determined by the interaction between supply and demand. Mill advanced Ricardo's theory of rent by extending it to any supply that is limited, so that the price of a good with an inelastic supply curve is wholly determined by demand conditions. It is to Mill's credit that he not only understood the interaction between supply and demand but also grasped the difference between a schedule and a movement along a schedule, something that classical writers often failed to notice.

In international trade, Mill's contribution was at once original and an extension of Ricardo's principle of comparative advantage. Mill approached the subject of international values by using his supply-and-demand analysis. In his theory of reciprocal demand, Mill constructed a two-good, two-country model. Although Mill made only a verbal presentation of his theory, it is easily shown that his reciprocal demand curves are offer curves as later constructed.

Another one of the fundamental features of Mill's economics was the stationary state and the progress toward it. Through the construct of a stationary state, Mill was able to provide a rationale and foundation for his interests in social reforms, such as equality among the various classes and groups of people, education, and other matters. In the stationary state, having solved the matters of provision of basic economic needs, the government can then devote its energies to social matters such as poverty.

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