Principles of Political Economy

Summary

Principles of Political Economy, with Some of Their Applications to Social Philosophy, is the treatise John Stuart Mill published in London in 1848, the year of revolutions across Europe. Mill wrote it in under two years, intending to do for his own generation what Adam Smith had done in 1776: present the whole science of economics, brought up to date, together with its bearing on the practical questions of the day. The work is organized in five books. Book I, on Production, discusses labour, capital and land, the advantages of cooperation and large-scale industry, and the laws governing the growth of population, capital and agricultural output. Book II, on Distribution, opens with Mill's best-known distinction: the laws of production resemble physical truths, but the distribution of wealth is a matter of human institutions and can be changed. He examines private property and the arguments of socialists and communists, slavery, peasant proprietorship and tenancy in Europe and Ireland, and the determination of wages, profits and rent. Book III, on Exchange, sets out the classical theory of value, money, credit and international trade, including Mill's own contribution, the theory of international values, which explains how the gains from trade are divided between nations by reciprocal demand. Book IV considers the influence of progress. Here Mill argues that a stationary state of capital and population need not be feared and might bring more leisure and moral improvement, and he predicts that partnerships of workers and cooperative associations will gradually replace the relation of master and hired labourer. Book V, on Government, treats taxation, public debt and the proper functions of the state, concluding that non-interference should be the general rule while defending exceptions such as education, protection of children and some public works. Mill revised the book through seven editions to 1871, growing more sympathetic to socialist experiments without abandoning competition and private property. It remained the standard textbook of economics in English-speaking universities until Alfred Marshall's Principles of 1890. Readers have found in it both a defence of free markets and an early case for reform, which reflects the balance Mill tried to keep.

Plot or Argument

• Preliminary Remarks

  A historical survey of wealth from hunting peoples to modern commercial nations, defining wealth as useful or agreeable things with exchange value.

• Book I: Production

  The requisites of production are labour and natural objects, aided by capital, which is the result of saving. Mill discusses productive and unproductive labour, the division and combination of labour, large and small production, and the laws of increase of labour, capital and the produce of land.

• Book II: Distribution

  Distribution is a matter of human institution. Mill examines private property and socialist and communist proposals, slavery, peasant proprietors, metayers and cottiers, and the laws of wages, profits and rent, with remedies for low wages.

• Book III: Exchange

  Value depends on demand and supply and, for most goods, on cost of production. Mill treats money, credit, paper currency, the alleged excess of supply, and international trade, adding his theory of international values based on reciprocal demand.

• Book IV: Influence of progress

  The effects of growing wealth and population on prices, wages, profits and rent; the tendency of profits to a minimum; the stationary state as a possible good; and the probable future of the labouring classes in cooperative association.

• Book V: Government

  The functions of government, the principles of taxation, direct and indirect taxes, the national debt, and interferences grounded on mistaken theories such as protection, ending with the grounds and limits of the principle of non-interference.

Lessons

• What can be changed and what cannot

  Mill separates the technical limits of production from the social rules for distribution. The distinction invites readers to ask which economic outcomes are fixed by nature and which are choices a society makes and can revise.

  • Give an example of a law of production and an example of a rule of distribution.
  • Do you agree that distribution is a matter of human institution solely? What limits might Mill be overlooking?

• A presumption for liberty with exceptions

  Mill makes non-interference the general rule but defends state action in cases such as education and the protection of children. The book shows how a single author can combine market principles with reform.

  • What reasons does Mill give for making laisser-faire the general rule?
  • Which exceptions does he accept, and why?

• Is more always better?

  In the chapter on the stationary state Mill questions the assumption that ever-increasing production is the goal, and suggests that a society might use wealth to make room for leisure, culture and the enjoyment of nature.

  • Why does Mill think a stationary state might be an improvement?
  • How would an economist who values growth answer him?

• Cooperation and the future of work

  Mill predicted that associations of workers owning their capital would increasingly replace wage labour. His hopes show how a classical liberal thinker approached the labour question through voluntary association rather than state control.

  • Why did Mill think cooperative associations would improve workers' character as well as their pay?
  • What happened to his prediction in the century after he wrote?

Context

The book appeared in 1848, as revolutions shook France, the German states and Austria, the Communist Manifesto was published, and Britain debated the condition of the working classes after the repeal of the Corn Laws in 1846 and the Irish famine. Mill wrote as heir to Smith, Ricardo and his father James Mill, but also as a reader of French socialist writers.

Composition

Mill began the book in the autumn of 1845 and had it ready for the press before the end of 1847; John W. Parker published it in two volumes in 1848. Mill revised it through seven editions, the last in 1871, enlarging his discussion of socialism and of the future of the working classes. In 1909 the economic historian W. J. Ashley edited the seventh-edition text with an introduction and bibliographical appendix, the edition used here.

Reception

The Principles quickly became the standard treatise of economics in Britain and the United States and was widely abridged for schools and colleges. It was eventually displaced by Alfred Marshall's Principles of Economics (1890) and by the marginalist revolution, but historians of economics regard it as the culminating work of the classical school, and both liberals and moderate socialists have claimed it.

Comparisons

• On the Principles of Political Economy and Taxation

  Mill builds on Ricardo's theories of rent, wages and comparative advantage, adding his own theory of international values and a broader treatment of distribution.

• The Wealth of Nations

  Mill explicitly modelled his book on Smith's, combining economic principles with practical applications to the social questions of its age.

• A Treatise on Political Economy

  Mill defends Say's law of markets in his chapter on excess of supply, while differing from Say on value and other questions.

• Capital, Volume I

  Published nineteen years apart, both books ask how industrial capitalism shares its product; Mill looks to reform and voluntary cooperation, Marx to the overthrow of capitalist production.

• The Communist Manifesto

  Published the same year; Mill's chapter on property weighs communist and socialist schemes calmly on their merits, while the Manifesto calls for revolution.

• On Liberty

  Mill's own essay on individual freedom develops the presumption against state interference that ends the Principles.

• Capitalism and Freedom

  Friedman's list of legitimate government functions a century later echoes Mill's discussion of the grounds and limits of laisser-faire, including his case for supporting education.

• Principles of Economics

  Menger's subjective theory of value, published the year of Mill's last revision, broke with the cost-of-production theory that Mill thought complete.

Quotes

For Students

A reading companion for classical Christian high school students. See the student guide.

Reading Guide

Watch for

• The opening of Book II, where production and distribution are separated.
• How fairly Mill presents the arguments for communism and socialism in the chapter on property.
• His treatment of Irish tenancy and peasant proprietors as practical cases.
• The chapters on the stationary state and the future of the labouring classes in Book IV.
• The exceptions Mill allows to laisser-faire in the last chapter.

Key terms and names

Production and distribution

Mill's two divisions of economics: the making of wealth, bound by natural laws, and its sharing, governed by human institutions.

Wages fund

The classical idea that wages are paid out of a fixed stock of capital set aside for labour, so that average wages depend on that fund and the number of workers; Mill later doubted it.

Stationary state

A condition in which capital and population stop growing; feared by earlier economists, welcomed by Mill if accompanied by moral progress.

Reciprocal demand

Mill's explanation of how the terms of trade between two countries are set by each country's demand for the other's goods.

Laisser-faire

The principle that government should not interfere in economic life except where some great good requires it.

Peasant proprietorship

Ownership of land by the families who farm it, which Mill praised as encouraging industry and prudence.

Seminar Questions

1. Comprehension What is the difference, for Mill, between the laws of production and the laws of distribution?
2. Comprehension What advantages does Mill expect from cooperative associations of workers?
3. Comprehension What exceptions to laisser-faire does Mill list in Book V?
4. Interpretation Why does Mill treat socialism seriously while still preferring private property under existing conditions?
5. Interpretation In what sense does Mill call money an insignificant thing, and is he right?
6. Interpretation How does Mill's view of the stationary state reflect his idea of human happiness?
7. Big Question Should a society aim at ever-greater wealth, or are there better goals once basic needs are met?

Faith Connections

• Exodus 20:8-10 (Scripture)

  The Sabbath command builds rest into the economy; Mill's stationary state likewise imagines a society that ceases striving for more in order to make room for higher things.

• Acts 4:32-35 (Scripture)

  The early Jerusalem church's sharing of goods is the voluntary community of property that Mill's chapter on property and socialist schemes invites readers to compare with compulsory plans.

• Leo XIII, Rerum Novarum (1891) (Great Conversation)

  The encyclical, like Mill, defends private property while urging that workers be able to acquire property and form associations.

Logic and Rhetoric

Central argument: The production of wealth is bound by natural laws, but its distribution depends on human institutions, which may be judged and reformed. Private property and competition are justified by their results, not by nature, and should be improved by measures such as peasant ownership, cooperation and limited state action, while non-interference remains the general rule.

Rhetorical device: concession and qualification. Mill states the strongest case for communism before explaining why, under present conditions, he still prefers a reformed system of private property.

Debate: Resolved: that the distribution of wealth is a matter of human institution and may rightly be changed by law.

Memory Work

It is not so with the Distribution of wealth. That is a matter of human institution solely.

It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement.

Writing Prompts

Essay: Explain Mill's distinction between production and distribution and evaluate whether it holds up, using one example from Mill's book and one from the present day.

Comparison with The Communist Manifesto: Both books appeared in 1848. Compare Mill's treatment of property and the future of the working classes with the Manifesto's, and argue which offers the more realistic path to improving workers' lives.

Creative Prompts

• Essay

  Mill thought a stationary state might be a very considerable improvement on his own society. Write an essay imagining what such a state would look like today and whether you would want to live in it.

• Dialogue

  Stage a conversation in 1848 between Mill and a young Karl Marx, both in London, about whether cooperatives or revolution offer the better future for working people.

• Classroom

  Sort a list of present-day economic rules (property titles, minimum wage, inheritance tax, the laws of supply and demand, weather and harvests) into Mill's two categories of production and distribution, and discuss the hard cases.

Further Reading

• Autobiography, John Stuart Mill

  Mill's own account of his education and of writing the Principles.

• On Liberty, John Stuart Mill

• Chapters on Socialism, John Stuart Mill

  Unfinished essays published after Mill's death.

• The Worldly Philosophers, Robert L. Heilbroner