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EC233 Mill_Notes.pdf

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Boston College
ECON 2233

Lecture Notes on John Stuart Mill 1806-1873 Notes on Assigned Reading The following notes are on the assigned readings from Mill’s Principles with the exception of the material assigned in Book III, Chapter XVII dealing with the matter of how values are determined in international trade. In Book II Ch. 1 Distribution Of Property (pp. 335-337) Mill describes the laws of production as physical laws. There are given by nature. Output is a function of accumulation, energy, skill, technology, and labor. Unproductive labor will impoverish the community and productive labor will enrich it. But he regards distribution on the other hand as solely a matter of human institutions. Given the production we can consider the consequences of the institutions, i.e., the laws and customs, governing distribution, and one of these institutions is that of individual property. Private property guarantees to each the fruits of his/her own labor and abstinence (saving), and what renders private property legitimate is if people realize its fruits. Two conditions are necessary for any system – universal education and due limitation of numbers. Which system of property, private or communal ownership is consistent with greater liberty and spontaneity? Mill examines socialism, especially Saint Simonism and Fourierism, and his conclusion is that the improvement of the system of individual private property with the full participation of every member of the community in its benefits is the best solution. In Book II Ch. XI Of Wages Mill deals with the level of wages first. Competition and custom influence it, but competition is the principal regulator. Wages are a function of S and D, that is population and the wages fund. Population is those who work for hire. Capital is the wages fund - circulating capital – the part expended on the direct purchase of productive labor. Wages of productive labor are most of the wages fund. Wages can rise only if wage fund rises or number of workers decreases. In Book IV Ch. VI Book IV on the Stationary state (pp 350-352) Mill addresses the question of to what goal or ultimate point is society tending. His answer is that the stationary state is the final end and he comments that this was an unpleasing vision to the economists of the previous two generations, but that he believed that a conscientious or prudent restraint on population is indispensable if the stationary state is to be an attractive place, and Mill believes that restraint of population is possible. Mill opined that perhaps men will be preoccupied with the struggle for riches until they are educated to better things, but that it isn’t the mere increase of production and accumulation that is important. What is needed is a better distribution and legislation favoring equality of fortunes and sufficient leisure to cultivate the graces of life, and he believed that the stationary state will come long before necessity compels it, and it will bring with it all sorts of scope for mental culture and moral and social progress with just institutions and universal improvement. In Book V Ch XI Mill discusses the grounds and limits of Laissez Faire (pp. 353- 367). It contains the following points. 1. He aims at theoretical principles and mentions advantages and evils of governmental interference, and distinguishes authoritative interference, i.e., thou shall or shall not, from government advice and information i.e., establishing an agency to do this or that but not compelling its use. 2. He discusses the appropriate limits to authoritative interference as in his essay On Liberty. 3. He notes that ways need to be found to limit the authority of the sovereign by being jealous of liberty. 4. He believes that doing too many unnecessary things causes the necessary things to be done poorly and thus functions need to be properly distributed between government and non-government, and not concentrated. In other words take advantage of the division of labor. Skillful organization of the administrative apparatus is also necessary. 5. He believes it must be remembered that government does many things less well than those closest to them would cause them to be done, and a system of individual agency causes things to be more likely to be done by those who also do them best. 6. He believes most importantly in the cultivation among the people of a habit of dealing on their own with the various aspects of life, and not having things done for them. This will maintain intelligence and talent. He believes that to prevent political slavery intelligence, activity, and public spirit among the governed should be kept high. These are Mill’s principal reasons for restricting the compass of government. Those who recommend government interference should have the burden of making the strong case. Laissez-faire should be the general practice. Mill then asked what limits should be put on laissez faire. He notes that the consumer or buyer may not always be the best judge, so on balance the advantage may be in favor of some intervention. He makes these additional points. 1. There should be provision for education. The uncultivated, e.g., cannot be competent judges of cultivation. On the other hand the government should not have a monopoly on education. It must not be able to compel or bribe all to attend its schools. 2. Being a judge of one’s own best interest does not apply in all situations, e.g. to a lunatic, an idiot, an infant, or one immature in years or judgment. But government should ensure for example, that parents do not abuse their authority. Government should restrict child labor and compel education, lower animals should be protected, and women should have the same control. over their persons, property, and acquisitions as men. 3. Persons should have the ability to get out of contracts in perpetuity. Some may have entered into a contract at an early age without full knowledge of what they were binding themselves to. These conditions are eminently applicable to marriage the most important contract of engagement for life. 4. With regard to joint stock associations the defects of government management do not seem to be necessarily much greater, if necessarily greater at all, than those of management of joint stock associations. In circumstances where the work of voluntary agency is not apt to be done as well as by government then it ought not to be left to a voluntary agency that can be as onerous as the government and less responsive. Mill gave examples of public monopolies such as gas and water companies, roads, canals or railways where public regulation, or public operation of some sort might be preferable. 5. Public law may be needed to force or make effective a regulation, e.g. for a nine- hour workday, that would be undercut by those who would take advantage of it. It is a public good or externality question. 6. How is public charity best provided? People in destitution should be helped but there are two consequences of relying on it that should be considered - the first is beneficial but the second is often injurious – how to help without encouraging undue reliance on the help? Energy and self-dependence are impaired both by the absence of help and by its excess. So help should not be overly generous, and the able bodied should be helped by private charity and public charity shouldn’t try to distinguish worthy versus unworthy. 7. Research, lighthouses, buoys are public goods. How are these best provided? Additional Comments on the Principles Production and distribution are covered in the first two Books of Mill’s Principles of Economics. The first part of Book III covers exchange, markets, and price determination. The remainder of the Principles covers other topics, e.g., money and banking, the economics of international trade, public finance, and policies to guide the state and ground the limits of laissez-faire. Mill wrote his Principles to explain all that was known with a new fullness and clarity. But, in doing so he also broke new ground and contributed to the development of economic theory. Unlike his Logic to which he devoted 10 years, he wrote his Principles [1848] in less than a year while working in the India Office from which he retired in 1858. He wrote this book because he believed that Ricardian economics in concentrating on improving the logic, preciseness and rigor of the theory taken from Smith’s Wealth of Nations had narrowed greatly the attention of economists, and left out much on human traits, circumstances, institutions, and social problems that needed further consideration. Joseph Schumpeter in his History of Economic Analysis [1954] remarked that Mill" stressed Ricardian influences unduly at the expense of others," but Schumpeter believed that "Ricardianism can be removed from [Mill’s] Principles without being missed very greatly." It is Schumpeter's judgment that two-thirds of Mill's Principles deals with factual information or practical applications, and although the factual information is not included, it may be because Mill believed the relevant facts would be widely known by readers. The discussion includes practical applications and/or facts dealing with many things. For example, prices, price fixing, competition, custom, monopoly, wages and competition, wage policy, trade unions, poor laws, socialism, cooperatives, the future of the working class, education, population, forms of enterprises, capital, profit, interest, savings, investment, technology, monetary policy, central banking, foreign exchange, paper money, crises, and foreign trade. Mill retained Ricardo's expectation of the eventual arrival of the stationary state, but saw the prospect as pleasant and hopeful rather than gloomy. He believed the actual lives of working class people could be lives of at least frugal comfort and not lived necessarily at the margin of bare physical survival. Laborers could learn to be prudent and regulate births so that wages would rise in a state of enough for all. He believed in human beings as progressive beings, and he believed in the salutary efficacy of education. He also believed that the endless growth of material welfare did not produce true human welfare. True welfare is associated with the improvements of cultural and spiritual life that could follow the end of "rush and scramble." He was among the last great exponents of the old classical economic liberalism of Smith and Ricardo, but he was at the same time a forerunner of modern liberalism, which seeks to make the liberal democratic state an effective instrument of economic welfare for all. Freedom valued as an end is the focus of the classical liberal. Freedom as a means to improved welfare is part of modern liberalism, which with its focus on social and economic welfare views state power differently than does the classical liberal, and is thus less libertarian or individualistic. Mill taught that production follows fixe
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