3. James Mill, Ricardo, and the Ricardian System

0:00Chapter 3. James Mill, Ricardo, and the Ricardian System 1. James Mill, The Radical's Lenin James Mill, 1771-1836, was surely one of the most fascinating figures in the history of economic thought. And yet, he is among the most neglected. Mill was perhaps one of the first persons in modern times who might be considered a true cadre man, someone who in the Leninist movement of the next century would have been hailed as a real Bolshevik. Indeed, he was the Lenin of the radicals, creating and forging philosophical radical theory and the entire philosophical radical movement.

0:50A brilliant and creative, but an insistently number two man, Mill began as a Lenin seeking his Marx. In fact, he simultaneously found two Marxes, Jeremy Bentham and David Ricardo. He met both at about the same time, at the age of 35, Bentham in 1808 and Ricardo around the same date. Bentham became Mill's philosophic Marx, from whom Mill acquired his utilitarian philosophy and passed it on to Ricardo and to economics generally. But it has been largely overlooked that Mill functioned creatively in his relationship with Bentham, persuading the older man, formerly a Tory, that Benthamite utilitarianism implied a political system of radical democracy.

1:46David Ricardo, 1772-1823, was an unsophisticated, young but retired wealthy stockbroker, actually bond dealer, with a keen interest in monetary matters. But Mill perceived and developed Ricardo as his Marx in economics. Until he acquired his post at the East India Company in 1818 at the age of 45, Mill, an An impoverished Scottish emigre and freelance writer in London lived partially off Bentham and managed to keep on good enough formal terms with his patron despite their severe personality conflicts. An inveterate organizer of others as well as himself, Mill tried desperately to channel Bentham's prolific but random scribblings into a coherent pattern.

2:42Bentham, meanwhile, wrote privately to friends complaining of the impertinent interference of this young whippersnapper Mill's publication of his massive History of India in 1818 won him immediate employment to an important post at the East India Company where he rose to the head of the office in 1830 and continued there until his death As for David Ricardo, self-taught and diffident, he scarcely acted as a great man. To the contrary, his admiration for Mill, his intellectual mentor and partly his mentor in economic theory, allowed him to be molded and dominated by Mill.

3:28And so Mill happily hectored, cajoled, prodded and bullied his good friend into becoming The Marx, the great economist that Mill felt for whatever reason he himself could or should not be. He pestered Ricardo into writing and finishing his masterpiece, The Principles of Political Economy and Taxation, 1817, and then into entering parliament to take an active political role as leader of the radicals. Mill was then delighted to become the leading and highly devoted Ricardian in economics. As a Lenin, then, James Mill had a far more active intellectual role than the real Lenin would ever enjoy.

4:16Not only did he integrate the work of two Marxes, he contributed substantially to the system itself. Indeed, in endless conversations, Mill instructed Ricardo on all manner of topics, and Mill looked over, edited, and undoubtedly added to many drafts of Ricardo's principles. We have already seen, for example, that it was Mill who first absorbed and adopted Say's law and passed it on to his pupil Ricardo. Researches indicate that James Mill may have played a far more leading role in developing Ricardo's magnum opus than has been believed, for example, in arriving at and adopting the law of comparative advantage.

5:04Mill's stance is surely unique in the history of social thought. Very often theorists and writers are anxious to proclaim their alleged originality to the in the skies, Adam Smith being an aggravated though not untypical case. But what other instance is there of a man far more original or creative than he liked to claim? How many others have insisted on appearing to be a mere number two man when in many ways they were number one? It is possible, it should be noted, that the explanation for this curious fact is simple and Material-Economic rather than Depth-Psychological. Mill, son of a Scottish shoemaker, was an impoverished Scot without steady employment, trying to make his way and raise a family in London. Bentham was a wealthy aristocrat who functioned as Mill's patron. Ricardo was a wealthy retired stockbroker. It is certainly possible that Mill's posture as devoted disciple was a function of a poor man keeping his wealthy mentor-disciples happy, as well as maximizing the public's reception for their common doctrines.

6:22As a preeminent cadre man, Mill possessed all the strengths and weaknesses of that modern type. Humourless, eternally the didact, but charismatic and filled with prodigious energy and determination, Mill found enough time to carry on an important full-time job at the East India House while yet functioning as a committed scholar activist on many levels. As a scholar and writer, Mill was thorough and lucid, committed strongly to a few broad and overriding axioms, utilitarianism, democracy, laissez-faire. On a scholarly level, he wrote important tomes on the history of British India, on economics, on political science, and on empiricist psychology.

7:12He also wrote numerous scholarly reviews and articles. But strongly committed, as Marx would be, to changing the world as well as understanding it, Mill also wrote countless newspaper articles and strategic and tactical essays, as well as well as tirelessly organizing the philosophic radicals and maneuvering in parliament and in political life. With all that, he had the energy to preach and instruct everyone around him, including his famous and failed attempt to brainwash his young son, John. But it must be noted that Mill's fierce and fervent education of John was not simply the crotchet of a Victorian father and intellectual.

7:58The education of John Stewart was designed to prepare him for the presumptively vital and world-historical role of James' successor as leader of the radical cadre, as the New Lenin. There was a method in the madness. James Mill's evangelical Calvinist spirit was tailor-made for his lifelong cadre role. Mill was trained in Scotland to be a Presbyterian preacher. During his days as a literary man in London, he lost his Christian faith and became an atheist. But, as in the case of so many later evangelically trained atheist and agnostic intellectuals, he retained the grim, puritanical and crusading habit of mind of the prototypical Calvinist firebrand.

8:50As Professor Thomas perceptively writes, this is why Mill, a skeptic in later life, always got on well with Protestant dissenters from the Anglican Church. He may have come to reject belief in God, but some form of evangelical zeal remained essential to him. Skepticism, in the sense of non-commitment, indecision between one belief and another, horrified him. or, perhaps, Mill understood Hume all too well, and therefore revived him.

9:48Mille's Calvinism was evident in his conviction that reason must keep stern control over the passions, a conviction which hardly fitted well with Benthamite hedonism. Cadre men are notorious Puritans, and Mille puritanically disliked and distrusted drama or art. for Art. The actor, he charged, was the slave of the most irregular appetites and passions of his species, and Mill was hardly the one to delight in sensuous beauty for its own sake. Painting and sculpture Mill scorned as the lowest of the arts, only there to gratify a frivolous love of ostentation. Since Mill, in a typically Benthamite utilitarian manner, believed that human action is only rational if done in a prudent, calculating manner.

10:43He demonstrated in his History of British India a complete inability to understand anyone motivated by mystical religious asceticism or by a drive for military glory or self-sacrifice. If Amell Cowder is right and Scottish Calvinism accounts for Smith's introduction of the and the Labor Theory of Value into Economics, then Scottish Calvinism even more accounts for James Mills' forceful and determined crusade for the Labor Theory of Value and, perhaps, for its playing a central role in the Ricardian system. It also might explain the devoted adherence to the Labor Theory by Mills' fellow Scott and student of Dugald Stewart, John R. McCullough, A prime and particularly successful example of Mill the Cadre man at work was his role in driving through Parliament the Great Reform Bill of 1832.

11:46The centerpiece of Mill's political theory was his devotion to democracy and universal suffrage, but he was sensibly willing to settle temporarily for the Reform Bill, which decisively The Theory of Money and Credit was in the offing. But Mill, through friends and allies placed strategically in the press, was able to orchestrate a deliberate campaign of press deception that fooled and panicked the Whigs into passing the bill.

12:44The campaign of lies was engaged in by important sectors of the press, by The Examiner, a leading weekly owned and edited by the Benthamite radical Albany von Blank, by the widely read Morning Chronicle, a Whig daily edited by Mill's old friend John Black, who made the paper a vehicle for the utilitarian radicals, and by The Spectator, edited by the Benthamite S. Rintoul. The Times was also friendly to the radicals at this point, and the leading Birmingham radical, Joseph Parks, was owner and editor of the Birmingham Journal. Not only that, Parks was able to have his mendacious stories on the allegedly revolutionary public opinion of Birmingham printed as factual reports in the Morning Chronicle and the Times.

13:37So well did Mill accomplish his task that most later historians have been taken in as well. Ever the unifier of theory and praxis, James Mill paved the way for this organized campaign of deception by writing in justification of lying for a worthy end. While truth was important, Mill conceded, there are special circumstances in which another man is not entitled to the truth. Men, he wrote, should not be told the truth when they make bad use of it. Ever the Utilitarian. Of course, as usual, it was the utilitarian who was to decide whether the other man's use was going to be good or bad.

14:24Mill then escalated his defense of lying in politics. In politics, he claimed, disseminating wrong information, or as we would now say, disinformation, is not a breach of morality, A decade and a half later, John Arthur Roebuck, one of Mill's top aides in the campaign, and later a radical member of parliament and historian of the drive for reform, John Arthur Roebuck, one of Mill's top aides in the campaign, and later a radical member of parliament and historian of the drive for reform, admitted that to attain our end, much was said that no one really believed.

15:15Much was done that no one would like to own. Often, when there was no danger, the cry of alarm was raised to keep the House of Lords and the aristocracy generally in what was termed a state of wholesome terror. In contrast to the noisy orators who appeared important in the campaign, Robach recalled, were the cool-headed, retiring, sagacious, determined men who pulled the strings in this strange puppet show. One or two ruling minds to the public unknown manipulated and stage-managed the entire movement. They used the others as their instruments, and the most cool-headed, sagacious and determined was the master puppeteer of them all, James Mill.

16:06Although he worked as a high official for the East India Company and could not run for Parliament himself, James Mill was the unquestioned cadre leader of the group of ten to twenty Philosophic Radicals who enjoyed a brief day in the sun in parliament during the 1830s. Mill continued to be their leader until he died in 1836 and then the others attempted to continue in his spirit. While the philosophic radicals proclaimed themselves Benthamites, the aging Bentham had little to do personally with this million group. Most of the parliamentary philosophic radicals had been converted personally by Mill, beginning with Ricardo over a decade earlier, and also including his son, John Stewart, who for a while succeeded his father as radical leader.

17:02Mill, along with Ricardo, also converted the official leader of the radicals in parliament, The Banker and later Classical Historian George Grote, 1794-1871 Grote, a self-educated and humorless man, soon became an abject tool of James Mill, whom he greatly admired as a very profound thinking man. As Mill's most faithful disciple, Grote, in the words of Professor Joseph Hamburger, was is so inoculated, as it were, that for him, all of Mill's dicta assumed the force and sanction of duties. The Millian Circle also had a fiery cadre lady, Mrs. Harriet Lewin Grote, 1792-1873, an imperious and assertive militant whose home became the salon and social center for the parliamentary radicals.

18:02She was widely known as the Queen of the Radicals, of whom Cobden wrote that had she been a man, she would have been the leader of a party. Harriet testified to Mill's eloquence and charismatic effect on his young disciples, most of whom were brought into the million circle by his son, John Stuart. A typical testimony was that of William Ellis, a young friend of John, who wrote in later After years of his experience of James Mill, he worked a complete change in me. He taught me how to think and what to live for. 2. Mill and Libertarian Class Analysis The theory of class conflict as a key to political history did not begin with Karl Marx.

18:54It began, as we shall see further below, with two leading French libertarians inspired by J.B. Say, Charles Comte, Say's son-in-law, and Charles de Noyer, in the 1810s, after the restoration of the Bourbon monarchy. In contrast to the later Marxist degeneration of class theory, the Comte de Noyer view held showed the inherent class struggle to focus on which classes manage to gain control of the state apparatus. The ruling class is whichever group has managed to seize state power. The ruled are those groups who are taxed and regulated by those in command.

19:40Class interest, then, is defined as a group's relation to the state. Interest rule, with its taxation and exercise of power, controls and conferring of subsidies and privileges, is the instrument that creates conflicts between the rulers and the ruled. What we have then is a two-class theory of class conflict, based on whether a group rules or is ruled by the state. On the free market, on the other hand, there is no class conflict, but a harmony of interest between all individuals in society cooperating in and through production and exchange. James Mill developed a similar theory in the 1820s and 1830s.

20:30It is not known whether he arrived at it independently or was influenced by the French libertarians. It is clear, however, that Mill's analysis was devoid of the rich applications to the The History of Western Europe that Comte, Du Noyer and their young associate, the historian Augustin Thierry, had worked out. All government, Mill pointed out, was run by the ruling class, the few who dominated and exploited the ruled, the many. Since all groups tend to act for their selfish interests, he noted, it is absurd to expect the ruling clique to act altruistically for the public good. Like everyone else, they will use their opportunities for their own gain, which means to loot the many and to favor their own or allied special interests as against those of the public.

21:24Hence Mill's habitual use of the term sinister interests as against the good of the public. For Mill and the radicals, we should note, the public good meant specifically laissez-faire of Fair Government, confined to the minimal functions of police, defense and the administration of justice. Hence Mill, the preeminent political theorist of the radicals, harked back to the libertarian commonwealth men of the 18th century in stressing the need always to treat government with suspicion and to provide checks to suppress state power. Mill agreed with Bentham that if not deterred, a ruling elite would be predatory. The pursuit of sinister interests leads to endemic corruption in politics, to sinecures, bureaucratic places and subsidies.

22:19Mill lamented, Think of the end of government as it really is, in its own nature. Never has libertarian ruling class theory been put more clearly or forcefully than in the words of Mill. There are two classes, Mill declared. The first class, those who plunder, are the small number. They are the ruling few. The second class, those who are plundered, are the great number. They are the subject many.

23:05Or, as Professor Hamburger summed up Mill's position, politics was a struggle between two classes, the avaricious rulers and their intended victims. The great conundrum of government, concluded Mill, was how to eliminate this plunder, to take away the power by which the class that plunder succeed in carrying on their vocation has ever been the great problem of government. The subject many, Mill accurately termed the people, and it was probably Mill who inaugurated the type of analysis that pits the people as a ruled class in opposition to the special interests. How then is the power of the ruling class to be curbed? Mill thought he saw the answer.

23:56The people must appoint watchmen. Who are to watch the watchmen? The people themselves. There is no other resource, and without this ultimate safeguard, the ruling few will be forever the scourge and oppression of the subject many. But how are the people themselves to be the watchmen? To this ancient problem Mill provided what is by now a standard answer in the Western world, by all the people electing representatives to do the watching. Unlike the French libertarian analysts, James Mill was not interested in the history and development of state power.

24:41He was interested only in the here and now. And in the here and now of the England of his day, the ruling few were the aristocracy, The English aristocracy was the ruling class. The government of England, Mill charged, was an aristocratical engine, wielded by the aristocracy for their own benefit. Mill's son and ardent disciple at that time, John Stewart, argued in a million manner in debating societies in London that England did not enjoy a mixed government, since a great majority of the House of Lords was chosen by 200 families.

25:31These few aristocratic families therefore possess absolute control over the government, and if a government controlled by 200 families is not an aristocracy, then such a thing as an aristocracy cannot be said to exist. And since such government is controlled and run by a few, it is therefore conducted wholly for the benefit of a few. It is this analysis that led James Mill to place at the center of his formidable political activity the attainment of radical democracy, the universal suffrage of the people in frequent elections by secret ballot. This was Mill's long-run goal, although he was willing to settle temporarily in what the Marxists would later call a transition demand for the reform bill of 1832, which which greatly widened the suffrage to the middle class.

26:30To Mill, the extension of democracy was more important than laissez-faire, for to Mill, the process of dethroning the aristocratic class was more fundamental, since laissez-faire was one of the happy consequences expected to flow from the replacement of aristocracy by the rule of all the people. In the modern American context, Mill's position would aptly be called right-wing populism. Placing democracy as their central demand led the million radicals in the 1840s to stumble and lose political significance by refusing to ally themselves with the anti-corn law league, despite their agreement with its free trade and laissez-faire.

27:19For the millions felt that free trade was too much of a middle class movement and detracted from an overriding concentration on democratic reform. Granted that the people would displace aristocratic rule, did Mill have any reason for thinking that the people would then exert their will on behalf of laissez-faire? Yes, and here his reasoning was ingenious. While the ruling class had the fruits of their exploitative rule in common, the people were a different kind of class. Their only interest in common was getting rid of the rule of special privilege. Apart from that, the mass of the people have no common class interest that they could ever actively pursue by means of the state.

28:09Furthermore, this interest in eliminating special privilege is the common interest of of All, and is therefore the public interest, as opposed to the special or sinister interests of the few. The interest of the people coincides with universal interest and with laissez-faire and liberty for all. But how then explain that no one can claim that the masses have always championed laissez-faire, that the masses have all too often loyally supported the exploitative rule of the few. Clearly because the people in this complex field of government and public policy have suffered from what the Marxists would later call false consciousness and ignorance of where their interests truly lie.

28:59It was then up to the intellectual vanguard, to Mill and his philosophic radicals, to educate and organize the masses so that their consciousness would become correct and they would then exert their irresistible strength to bring about their own democratic rule and install laissez-faire. Even if we can accept this general argument, the million radicals were unfortunately highly over-optimistic about the time span for such consciousness-raising, and political setbacks in the early 1840s led to their disillusionment in radical politics and to the rapid disintegration of the radical movement. Curiously enough, their leaders, such as John Stuart Mill and George and Harriet Grote, while proclaiming their weary abandonment of political action or political enthusiasm, in reality gravitated with astonishing rapidity toward the cozy 3.

30:17Mill and the Ricardian System Much has been recently revealed about James Mill's formative and shaping role over his friend Ricardo's system. How much of Ricardianism is really Mill's creation? Apparently a great deal. One thing is certain. It was Mill who took from J. B. Say the great Say's Law and converted Ricardo to that stand. Mill had developed Say's Law in his important early book Commerce Defended 1808, written shortly before he met Ricardo. Ricardo faithfully followed Say's law, and while in Parliament consistently opposed expenditure on public works during the depressed year of 1819. And we have seen that Mill and Ricardo together managed to kill the publication of Bentham's pre-Keynesian True Alarm in 1811.

31:18In expounding Say's law, Mill was carrying on and developing the important Turgot-Smith insights on saving and investment. But most of the rest of Mill's economic legacy was a disaster. Much of it was the heart and soul of the Ricardian system. Thus in a forgotten early work, The Impolicy of a Bounty on the Exportation of Grain, 1804, Mill sets forth the essence of Ricardianism from the actual content to the characteristic disastrous methodology of brutal and unrealistic oversimplification, and to a holistic concentration of unsound macro-aggregates unrelated to the actions of the individual, whether consumer or businessman, in the real world.

32:10People churns out chunks of alleged interrelations between these macro-aggregates, all seeming to be about the real world, but actually relevant only to deeply fallacious assumptions about the never-never land of long-run equilibrium. The methodology is essentially verbal mathematics, since the statements are only the implicit churning out of what are really mathematical relations, but are never admitted as such. The use of the vernacular language adds a patina of pretend realism that mathematics can never convey. An open use of mathematics might at least have revealed the fallacious assumptions of the model.

32:58Ricardo's exclusive concern with long-run equilibria may be seen from his own declaration of Method. I put those immediate and temporary effects quite aside and fixed my whole attention on the permanent state of things which will result from them. Unrealistic oversimplification compounded upon itself is the Ricardian vice. Both the Ricardian and the say Austrian methodology have been termed deductive, but they are really pulls apart. The Austrian methodology, praxeology, sticks close in its axioms to universally realistic common insights into the essence of human action, and deduces truths only from such evidently true propositions or axioms.

33:51The Ricardian methodology introduces numerous false assumptions, compounded and multiplied into the initial axioms, so that deductions made from these assumptions, whether verbal in the case of Ricardo, or mathematical in the case of the modern Valrassians, or a blend of both as in the Keynesians, are all necessarily false, useless and misleading. Thus, in his essay on a bounty on grain, James Mill introduces the typically Ricardian error The power of melding all agricultural commodities into one, corn, that is, wheat, and claiming corn to be THE basic commodity.

34:38With corn now adopted as a surrogate for all food, Mill makes the sweeping statement that the most scientific principle of political economy is that the money price of corn regulates the money price of everything else. Why? Here Mill introduces a typically and brutally drastic variant of Malthusianism. Not just that there is a long-run tendency for population to press on the means of subsistence so that wage rates are pushed down to the cost of subsistence, but more, in a typically Ricardian confusion of the non-existent long-run equilibrium with constant everyday reality, that wage rates are always set by the price of corn, a surrogate for food or subsistence in general.

35:35Mill lays down the proposition that wage rates are always set directly by the price of corn as so obviously necessary that we need spend no more time proving it. That takes care of that. He concludes, therefore, that the wage rate is entirely regulated by the money price of corn. Mill's extreme version of Malthusianism can be seen in his statement that no one will hesitate to allow that the tendency of the species to multiply is much greater than the rapidity with which there is any chance that the fruits of the earth will be multiplied. Mill even goes so far, in wild extremes, as to say that, raise corn as fast as you please, mouths are producing still faster to eat it. Population is invariably pressing close upon the heels of subsistence, and in whatever quantity food be produced, a demand will always be produced greater than the supply.

36:43Another unfortunate notion contributed to Ricardo by Mill in his 1804 essay is an overriding focus on the behavior of a few aggregate macro shares. Labor was assumed to be of uniform quality, therefore all wages were pushed down to subsistence level by the price of corn. There are only three macro-distributive shares—wages, profits and rents in the Ricardian scheme. There is no discussion whatever of individual prices or wage rates, the proper concern of economic analysis, and no hint of the existence of or the need for the entrepreneur.

37:28Say's brilliant analysis of the entrepreneur's central role is completely forgotten. There is no role for a risk-bearing entrepreneur if all is frozen into a few aggregative chunks in long-run equilibrium, where change is slow or non-existent and knowledge is perfect rather than uncertain. Profits therefore are the net returns aggregatively received by capitalists, which could well be called interest or long-run profits. If wages, profits and rents exhaust the product, then, tautologically and virtually by definition, if one of the three increases and the total is frozen, one or both of the other shares must fall, hence the implicit Ricardian assumption of inherent class conflict between the receivers of the three blocks of distributive shares.

38:30In the mill-ricardian system, wages are fixed by the price of corn, or the cost of food. The cost of food, for its part, is always increasing because of the fixed supply of land and the alleged Malthusian necessity to move to ever less productive land as the population increases and presses on the food supply. Thus, rents are always slowly but inexorably increasing, and money wage rates are always rising in order to maintain the real wage at subsistence level. Therefore, hey presto, aggregate profits must always be falling. Schumpeter's blistering critique of the Ricardian system is highly perceptive and perfectly apt.

39:22He, Ricardo, cut that general system of economic interdependence in the market to pieces, bundled up as large parts of it as possible in cold storage, so that as many things as possible should be frozen and given. He then piled one simplifying assumption upon another, until, having really settled everything According by these assumptions, he was left with only a few aggregative variables between which, given these assumptions, he set up simple one-way relations, so that, in the end, the desired results emerged almost as tautologies. For example, a famous Ricardian theory is that profits depend upon the price of wheat, and upon his implicit assumptions, and in the particular sense in which the terms of While the proposition are to be understood, that is not only true, but undeniably, in fact, trivially so.

40:25Profits could not possibly depend upon anything else, since everything else is given, that is, frozen. It is an excellent theory that can never be refuted and lacks nothing save sense.