ECON 307 - Outline Fifteen

John Stuart was educated by his father (James Mill). He was given an extremely rigorous, some would say harsh, upbringing, and was deliberately shielded from association with children his own age other than his siblings. His father, a follower of Bentham had as his explicit aim to create a genius intellect that would carry on the cause of utilitarianism. This intensive study however had injurious effects on Mill's mental health, and state of mind. At the age of 21 he suffered a nervous breakdown. Nevertheless, this depression eventually began to dissipate, as he began to find solace in the poetry of William Wordsworth.

Mill refused to study at a university. Instead he followed his father to work for the British East India Company until 1858. Between the years 1865-1868 he served as Lord Rector of the University of St. Andrews. During the same period, 1865-8, he was an independent Member of the Parliament. During his time as an MP, Mill advocated easing the burdens on Ireland, and became the first person in parliament to call for women to be given the right to vote.

In 1851, Mill married Harriet Taylor after 21 years of an intimate friendship (while she was still married). Taylor was married when they met, and their relationship was close but chaste during the years before her first husband died. Brilliant in her own right, Taylor was a significant influence on Mill's work and ideas during both friendship and marriage. His relationship with Harriet Taylor reinforced Mill's advocacy of women's rights. He cites her influence in his final revision of On Liberty, which was published shortly after her death, and she is referenced in The Subjection of Women. Taylor died in 1858, only seven years into her marriage to Mill.

He died in France in 1873 and is buried alongside his wife (in France).

Biographical Information from Wikipedia.

He wrote on method, utility, individual freedom and representative government, etc.

According to Mill, in the social sciences the empirical, or inductive, method could not be relied on solely – since causes of social phenomena are often complex and interwoven and effects not easily distinguishable from one another (going from specific to general).

So deduction was a check on the errors of causal empiricism (general to specific).

Ceteris Paribus: J.S. Mill also showed the importance of the ceteris paribus clause as an instrument of deductive reasoning which enabled the student to determine separately the effects of one cause out of a number of conflicting causes.

Benthamite utilitarian philosophy was strengthened by J.S. Mill through the introduction of the concept of “economic man” – (which linked human behavior to the economy) an individual who is “determined by the necessity of his nature to prefer a greater portion of wealth to a smaller” and is “able of judging of the comparative efficacy of means of obtaining the possession of wealth.”

A maximization principle. But he was aware of the purely hypothetical nature of his concept. How can an economist know if another has maximized? Indeed, how can the “economic man” know?

Mill’s Principles of Political Economy was his most influential work in Economics.

But the laws of distribution were a matter of changing values, mores and social philosophies and tastes…. Therefore malleable and need history as well as economics to understand them.

Capital and capital accumulation were very important as with other classical economists.

Given Say’s Law, employment and increased levels of employment and output are dependent on capital accumulation and investment of capital.

Unemployment of resources – except in the short run – was not possible because of Say’s Law.

Therefore, as long as it was flexible S = I in the long run and there would not be a leakage to the system.

Mill asks, "Did the government, by its loan operations, augment the rate of interest? . . . So long as the loans do no more than absorb this surpluls [of capital accumulation], they prevent any tendency to a fall of the rate of interest, but they cannot occasion any rise."

If interest rates do increase: Mill says, " . . . this is positive proof that the government is a competitor for capital with the ordinary channels of productive investment . . . "

2. Capital would not have been used in productive investment (opportunity cost low).

Like Ricardo – the economy went from a progressive state to a stationary state. But he did not believe this stationary state was undesirable – once it is reached, problems of distribution could be evaluated and social reforms put in place.

“It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the Art of Living, and much more likelihood of its being improved, when minds ceased to be engrossed by the art of getting on” (Principles p. 751).

To Mill this stationary state in economics became kind of a “utopia” – having achieved affluence, the state could get on with solving the problems that really matter – equality of wealth and opportunity.

Supply and demand - -the first clear British contribution to static equilibrium price formation was developed by Mill. Using verbal analysis, however.

Here we get the formulation of D and S schedules showing the functional relation between Price and Quantity D and Quantity S, ceteris paribus.

“A ratio between demand and supply is only intelligible if by demand we mean quantity demanded, and if the ratio intended is that between the quantity demanded and the quantity supplied. But again, the quantity demanded is not a fixed quantity, even at the same time and place; it varies according to the value; if the thing is cheap, there is usually a demand for more of it than when it is dear.” (Principles p. 446).

“The idea of a ratio, as between demand and supply, is [therefore] out of place, and has no concern in the matter: the proper mathematical analogy is that of an equation. Demand and supply, the quantity demanded and the quantity supplied, will be made equal. If unequal at any moment, competition equalizes them, and the manner in which this is done is by an adjustment of the value. If the demand increases, the value rises; if the demand diminishes, the value falls; again, if the supply falls off, the value rises; and falls if the supply is increased” (Principles p. 448).

He was “in direct line to Alfred Marshall” who is the father of Neo-Classical analysis.

With his price adjustments that establish conditions of reciprocal equilibrium….markets adjusting to each other and all achieve equilibrium.

J.S. Mill was a zealot in the matter of social reform, but in a way that would preserve individual freedom.

“The only purpose for which power can be rightfully exercised over any member of a civilized community against his will” is to prevent harm to others.

“After the means of subsistence are assured, the next in strength of personal wants of human beings is liberty.”

There was much socialist criticism at this time and Mill often answered his critics.

Mill was very concerned with greater equality of wealth and opportunity: thus he wrote with great concern on issues such as wealth redistribution, equality of women, rights of laborers, consumerism and education.

Were I framing a code of laws according to what seems to me best in itself, without regard to existing opinions and sentiments, I should prefer to restrict…what any one should be permitted to acquire, by bequest or inheritance. Each person should have power to dispose by will of his her whole property; but not to lavish it in enriching some one individual, beyond a certain maximum, which should be fixed sufficiently high to afford the means of comfortable independence. The inequalities of property which arise from unequal industry, frugality, perseverance, talents, and to a certain extent even opportunities, are inseparable from the principles of private property, and if we accept the principle [as Mill did] we must bear with these consequences of it; but I see nothing objectionable in fixing a limit to what any one may acquire by the mere favour of others; without any exercise of his faculties, and in requiring that if he desires any further, he shall work for it (Principles, pp. 227-229).

Mill attacked wealth accumulation for its own sake – breaking from the other classical economists to a point – economic distribution is as important or more so than economic growth.

To Mill social reform was not simply the destruction of oppressive institutions –

Rather it consists in …”the joint effect of the prudence and frugality of individuals, and of a system of legislation favoring equality of fortunes, so far as is consistent with the just claim of the individual to the fruits, whether great or small, of his or her own industry” (Principles, p. 749)

So he wanted to: distinguish between income and wealth: limit the size of bequests and inheritances.

What marriage may be in the case of two persons of cultivated faculties, identical in opinions and purposes, between whom there exists that best kind of equality, similarity of powers and capacities with reciprocal superiority in them---so that each can enjoy the luxury of looking up to the other, and can have alternately the pleasure of leading and of being led in the path of development---I will not attempt to describe. To those who can conceive it, there is no need; to those who cannot, it would appear the dream of an enthusiast. But I maintain, with the profoundest conviction, that this, and this only, is the ideal of marriage; and that all opinions, customs, and institutions which favour any other notion of it, or turn the conceptions and aspirations connected with it into any other direction, by whatever pretences they may be coloured, are relics of primitive barbarism. The moral regeneration of mankind will only really commence, when the most fundamental of the social relations is placed under the rule of equal justice, and when human beings learn to cultivate their strongest sympathy with an equal in rights and in cultivation.

As you saw in the reading, equality was also an issue with Mill with respect to taxes. Following Smith, he said that taxes should be:

Necessary – power to tax, coin money, est. system of weights and measure, protection against force and fraud, contract enforcement, protect property rights, provide of “public goods.”

He did say that laissez-faire should be the rule – any departure from it “unless required by some great good, is a certain evil.” But his exceptions are many.