Short note on J.S. Mill’s theory of economic development

J.S. Mill’s theory of economic development

J.S. Mill was an economist, concerned with the well-being of men and women in society. He recognised the relevance of political economy to the outcome but judged its role to be limited.

He was a more subtle and original political economist than just refining and updating Smith and Ricardo. Unlike his predecessors, Mill gave a very coherent exposition of the growth process. He defined in a very orderly way the three agents land, labour and capital followed by the degree of productiveness of his three production agents.

Recognising the limited quantity and productiveness of land, he introduced the diminishing returns as the most important proposition in the political economy. However, innovations and inventions are given capable of exercising, “an antagonistic influence on the law of diminishing returns to agricultural labour”.

Among innovations, he argued for the improved education of the working force, improved system of taxation and land tenure and more sold instruction for the rich classes that would increase their mental energy, generate feelings of public spirit in them and qualify them for constructive roles in society.

Mill appears to draw a sharp line between production, determined by scientific principles and distribution, determined by law, customs and other human institutions. There is a kind of paradox in Mill’s treatment of population.

His basic position is rooted in Malthus and Ricardo; however, he puts to himself a question beyond: What permanently might avoid an ‘over peopled state’ with its attendant marginally low wages, poverty, ignorance and degradation particularly acute for women? He favoured a sustained public policy to encourage smaller families, efforts in popular education and ultimately movement to a higher income per capita stationary state.

Mill is known in demographic literature as a neo-Malthusian i.e. a believer in birth control. He argued so strongly for limitation of family size that one expects support for birth control to become explicit.

In examining the forces that determine the productivity of the working force, he introduced the factors of production with which labour must combine i.e. the quality and availability of the soil and sources of raw materials, as well as the scale and quality of capital equipment.

He went further ahead to question: What determines the capacity and willingness of labour to engage in ‘steady and regular bodily and mental exertion’? In what ways the workers differ with respect to skill, adaptability, and moral character?

He also questioned on the future of the working classes: What can be the effect of the education and the movement of women towards equal rights on the size, quality and composition of the working force? What is the ‘ evidence on the relation between labour productivity and profit sharing schemes?

Mill starts his exposition of the role of capital in production with a distinction between fixed and working capital. In dealing with profits, he distinguishes three components: interest, insurance against risk and wages of superintendence and then considers the determinants of the minimum profit rates, variations and the tendency of the profit in various sectors towards equality.

According to him, there is possibility of a decline in unit labour costs with rising wage rates. Mill’s views on investment process were considered incomplete by economists like Schumpeter. Mill had more to say on business cycles. His concept of the business cycle was firmly anchored in a theory of irrational expectations.

He believed that since the calculations of the producers and traders being imperfect, there are always some commodities which are more or less in excess and some are in deficiency.

The reason for this being the rising prices, which dupes the producers of riches. But when the illusion vanishes, the commodities are in excess supply and there is a glut of commodities.

Thus Mill had a clear sense that an almost periodical cyclical process had been under way in which investment decisions made by individuals operating without full knowledge of the investment decisions of the others and acting in response to the same signals of future loss and profit.