8. John Stuart Mill and the Reimposition of Ricardian Economics

0:00Chapter 8. John Stuart Mill and the Reimposition of Ricardian Economics 1. Mill's Importance The Mills' father and son had a fateful impact upon the history of economic thought. If James Mill played a crucial and neglected role in developing Ricardian economics Economics, and its philosophical ally, Benthamite Utilitarianism, and in foisting them upon the British intellectual world. His son John was by far the most important force in re-imposing Ricardian dominance two decades after it had fallen into decline. It is ironic that the fate of British intellectual life in the 19th century should depend so Closely on the Psychological Interplay between Famous Father and Son, ironic since both purported to be austere scientists above all.

1:02The two men could not have been more different in character and quality of intellect. James Mill, as we have seen, was a hard-nosed, hard-hitting, self-confident, hardcore cadre type in Intellect and Action, original in carving out an architectonic system of economics, philosophy and political theory, and then supremely energetic in organizing people and institutions around him to try to put them into effect. James tried to educate John Stewart, 1806 to 1873, to follow him in leadership of this John Stuart was the quintessence of soft rather than hard-core, a wooly-minded man of mush, John Stuart Mill was the sort of man who, hearing or reading some views seemingly at utter variance with his own, would say, yes, there is something in that, and proceed to incorporate this new, inconsistent strand into his capacious and muddled worldview.

2:36Since Mill's ever-expanding intellectual synthesis was rather a vast kitchen midden of diverse and contradictory positions. As a result, Mill has ever since provided a field day for young PhDs caught in the game of publish or perish. Dispute over what Mill really believed has become an unending cottage industry. Is Mill a laissez-faire liberal, a socialist, a romantic, a classicist, a civil libertarian, a believer in state coerced morality? The answer is yes, every time. There is endless fodder for dispute, because in his long and prolific life, Mill was all of these and none, an ever-changing kaleidoscope of alteration, transformation and contradiction.

3:32John Mills' enormous popularity and stature in the British intellectual world was partially due to his very mush-headedness. Here was this person of undoubted intellectual parts, an erudite man growing up in a circle of distinguished scholars and political activists, and yet here is this eminent man who sees good in all conceivable positions, even the readers, whoever he may be. Added to this another unusual note, Mill's felicitous style, for in the history of thought the style very much reflects the quality of mind, clear-headed thinkers are usually lucid writers and confused and inchoate thinkers usually write in the same way.

4:22Ricardo's crabbed and tortured style reflected the muddled complexities of his doctrine, But Mill was unusual in possessing a graceful and lucid style that served to mask the vast muddle of his intellectual furniture. Ricardo won at least brief popularity for his very obscurity, though he had the invaluable aid in spreading his doctrine of such clear writers as James Mill and John McCullough. John Mill won fame and influence partly through the grace of his writing. If he had known the full extent of his son's defection of character and intellect, the elder Mill would surely have despaired.

5:08But he never really found out, for John learned early to disassemble, playing a double game throughout his twenties while his father was still alive. Thus, he was perfectly capable of publishing an article praising his father's philosophical favorite, Jeremy Bentham, while at the same time writing an anonymous article elsewhere highly critical of Bentham. Mill's intellectual duplicity proved a sharp contrast to his father's candor. Oddly enough, however, and weighing the totality of John's career, James might in a sense have have been truly pleased. For through all the mush, through all the flabby and soggy moderation that marked the adult John Mill and still attracts moderate liberals of every generation, in the last analysis filio-pietism triumphed.

6:06When push at long last came to shove in the mind of John Stuart Mill, he came down, albeit of course moderately on the side of his father's two idols, Bentham and Ricardo. In philosophy he abandoned hardcore cadre Benthamism for soft core moderate Benthamite utilitarianism, and in economics he not only was basically and proclamantly a Ricardian, he also gladdened his father's ghost by re-establishing Ricardianism on the throne of British economics, A feat he accomplished through the enormous popularity and dominance of his Principles of Political Economy, 1848.

6:52So even though John Stewart substituted moderate for full-fledged democracy, and still more disturbingly moderate statism and socialism for his father's laissez-faire, James Mill might have been gladdened by his son's ability to re-impose Ricardianism upon the world of of Economics. Indeed, the great advances of the anti-Ricardians of the 1820s, 1830s, and 1840s were truly forgotten in Mill's re-establishment of the cost and, indeed, the labor theory of value, the Ricardian rent theory, Malthusian wage and population theory, and the remainder of the Ricardian apparatus.

7:37For not the first or last time in the history of economic and social thought, error displaced truth from the post of dominance in the intellectual world. In placing Ricardo back upon the throne of economics, John Stewart was fulfilling perhaps the most cherished, although one of the most fallacious, of his father's goals and principles. It should be realized that John Stewart's life in the shadow of his father was not only psychological or organizational. At the age of 16, John entered his father's office in the East India Company and assisted him for many years, succeeding to his father's high position on James' death in 1836.

8:25Mill indeed worked full-time at the East India Company until the liquidation of that company in 1858 bestowed upon Mill a handsome pension for the remaining 15 years of his life.

8:412. MILL'S STRATEGY AND THE SUCCESS OF THE PRINCIPLES The proximate reason for the enormous success and influence of the principles was the remarkable The best-selling triumph of Mill's first book, A System of Logic, 1843, which caught on with intellectuals and general readers of the age in a way that no tome on logic and epistemology has done before or since. Mill's Principles was shrewdly designed as a comprehensive, massive, two-volume treatise in the Wealth of Nations mold, accessible to economists and laymen alike. It went through no less than seven editions in Mill's lifetime, as well as a cheap People's edition and an abridged version for the American market.

9:34The principles continued to serve as the standard British text in economics through the early 20th century. In a fascinating article, Professor Demarchi contends that much of the seeming confusion, muddle and moderation permeating Mill's principles was a deliberate strategy designed to soften up and conciliate the numerous enemies of Ricardianism, and thereby to win their support for a covert re-establishment of Ricardian dominance. To put it far more bluntly than does Professor Demarchi, Mill engaged in a strategy of duplicity to confuse the enemy and to win their support for at least the essentials of the true Ricardian doctrine.

10:23If Demarchi is correct, there is far more Machiavelli in Mill's dithering openness to all points of view than has been supposed. Demarchi notes that Mill had consciously adopted since 1829 what Mill called the strategy of practical eclecticism, which amounts to lulling and disarming the opposition and, by seeming conciliation, to manipulate them into believing that they had spontaneously arrived at what Mill held to be the truth, in short, a strategy of deception and duplicity. It is impossible to estimate how much of John Stuart Mill's inveterate and eternal contradictions, qualifications and alterations were due to honest muddleheadedness and how much to devious and evasive intellectual broken field running.

11:20Did Mill himself always know? At any rate, the tactic seems to have worked as enemies from all sides of economic theory History in general, and of Ricardianism in particular, were charmed by Mill's middle-of-the-road benevolence to all and sundry. They might not have been converted to hard or even soft-core Ricardianism, but they were virtually all impressed by Mill's conceding one point after another to themselves or others. All of course except Marx, who, as a preeminent cadre type, poured out a proper vial of scorn One by one, Tories, Romantics, Socialists and Practical Men warmed up to Mill himself and to his alleged achievements.

12:17Thus we have seen how Mill introduced into economics and managed to make dominant the unfortunate hypothetical methodology of positivism as contrasted to the praxeological system of deduction from true and complete axioms advocated and employed by Say and Senior. Ricardo had expressed no methodological views, although his method in practice was deduction from a few unreal and deeply flawed axioms. In the course of pursuing this method, Mill introduced the disastrous and fallacious hypothesis of the economic man, which left economics deservedly open to ridicule as false to the nature of man.

13:06But Mill's substitution of hypothetical, of at least professedly tentative and humble Theoretical positivism charmed the enemies of deductive praxeology. For example, there had grown up at Cambridge University a group of militant Baconian inductivists, men who angrily rejected as unscientific any sort of abstract theory in the social sciences. These belligerent anti-theorists who held that proper theory can only be a patient enumeration and Collection of Countless Empirical Facts, were the ancestors of American institutionalism and of the German Historical School. The Cambridge Group of Four, who were originally friends as undergraduates, was headed by William Hewell, 1794-1866, who became a fellow and then master of Trinity College, an eminent A mathematician, a professor of mineralogy, and then of moral philosophy at Trinity, and twice vice chancellor of the university.

14:17Another powerful figure in this group was Richard Jones, 1790 to 1855, who succeeded Nassau senior as professor of political economy at King's College London, and then succeeded Malthus as Professor of Political Economy and History at Haley-Berry. Author of a three-volume History of the Inductive Sciences, 1837, and The Philosophy of the Inductive Sciences, 1840, Hewell had gushed over Bacon as the supreme legislator of the modern republic of science and the Hercules and hero of the revolution in scientific method. In the end, however, Hewell was forced to admit that the inductivist method in economics did not seem able to go beyond destructive criticism to the constructing of any sort of body of economic law.

15:16Perhaps that is why Hewell, at least, ended by toying with mathematical Ricardian models, flirting with the kind of abstract economics he had long professed to despise. William Hewell was not converted from inductivism to positivism by Mill, but he was moved to express approval of Mill's principles as a whole. Others whom Mill charmed were Tory writers long hostile to political economy and to its free trade conclusions. Thus, Blackwood's magazine gave the principles a generally favorable review for its authors And G.F. Young, in the course of a virulent protectionist attack on economics in the Tory Quarterly Review, hailed Mill as one of the most philosophical and candid of the modern and School of Economists, specifically for Mill's positivist admission that political economy was grounded not on correct, but only on partially true assumptions.

16:33Mill's most conspicuous defection from classical political economy in general, and from Ricardianism in particular, was his numerous concessions to socialism and his apostasy from laissez-faire. In general, the British classical economists had not exactly been consistent laissez-faire stalwarts, in contrast to J.B. Say and his school in France, including such people as Charles Comte, Charles de Noyer, Frederic Bastiat, Gustave de Molinari and their numerous followers. In Britain, consistent laissez-faire advocates were to be found rather among writers, intellectuals Business and Businessmen in Manchester, such as Richard Cobden, John Bright, and the recently successful Anti-Corn Law League.

17:26They were also to be found in The Economist, edited by James Wilson, particularly in its editorial staff writers Thomas Hodgkin, 1787-1869, and Young Herbert Spencer, 1820-1903. But while the classical economists were not hardcore free market men, they at least tended strongly in that direction. If not a principle, laissez-faire was for them at least a guide or tendency to which they could at least partially orient their position. But Mill sharply broke with all that. Steeped in a high moral tone at all times, Mill originated the unfortunate intellectual Pro-capitalists who begin by conceding the moral ground to their opponents are bound to lose the long-run war, if not the short-run battle, to socialism.

18:42Small wonder, then, that various wings of socialists hailed Mill's principles. The Owenite socialists, then the leading socialist group in Great Britain, were highly approving. In addition to words of commendation from Robert Owen, 1771 to 1858, himself, the Owenite writer and lecturer George Jacob Holyoke, 1817 to 1906, was particularly enchanted. The editor of The Reasoner, Holyoke hailed Mill's principles with enthusiasm. It had been held, he proclaimed, that the people were made for political economy. But now, with Mill's principles, at length, political economy is being made for the people.

19:31Holyoke also praised Mill for having spoken of communism with more geniality than any political economist had done before. and he gave his working class readers the benefit of much of that high-priced tome by printing lengthy extracts in the reasoner. No doubt Holyoke was also happy with Mill's proclaimed ideal of a commonwealth of cooperatives, Holyoke being one of the founders and long-term agitators for the cooperative movement in Britain. Also delighted with the principles was the socialist Thornton Hunt, 1810-1873, editor of the weekly Leader, the main socialist paper in England after 1850.

20:20Hunt, a believer in communal ownership and control, particularly welcomed Mill's claim that communism was the ideal state. But even more important a boost to statism and socialism in Mill's principles was his most un-Ricardian proclamation that while the processes of production were subject to the iron laws of political economy, distribution, on the other hand, was up for grabs, subject to human will and man-made arrangements. Ricardo, whose system rested on allegedly iron laws of distribution, must have turned over rapidly in his grave at that remark. This separation between production and distribution was wholly artificial and totally invalid, since people earn incomes on the market precisely for participating in production, and the two are intimately intertwined.

21:21But in making this distinction, Mill gave birth to the calamitous and still prevalent notion that distribution can be changed virtually at will through tax, subsidy or other statist schemes, while the market would still continue to function and produce undisturbed. It is certainly not surprising that Mill's moral obeisances to cooperatives and communism met warm applause at the hands of the newly burgeoning Christian socialist movement. Of the Troika of young Anglicans who led the Christian socialists, the Rev. Charles Kingsley, 1819-1875, hailed the principles, as did another of the leaders, the attorney John Malcolm Ludlow in Frazer's magazine.

22:14Frazer's had been purchased in 1847 by John William Parker, who became its de facto editor. Parker was a friend of Kingsley and a Christian socialist sympathizer. The fact that he also happened to be the publisher of Mill's Principles scarcely made the peon Mille's handling of the theory of value was characteristic of the man, a hard core of filio-pietism wrapped in layers of enigma and muddle. And so the labor theory, cost of production theory of value was restored to a dominant place in classical economics, but hedged about with Mill's usual string of evasive and self-protective qualifications.

23:13Thus Mill accepted Bailey's demolition of Ricardo's search for an impossible, invariable measure of value. On the other hand, Mill displayed his contempt for even the idea that consumption and utility could have any influence upon value by removing consumption from its traditional niche as a basic part of the economics text. Instead, Mill's principles was divided into production, distribution, exchange, and government, with nary a mention of consumption. But despite Mill's inconsistency and muddle, his stance of humility suddenly dissolved into his astonishingly arrogant claim that his pronouncements would be the last word for all time on the theory of value.

24:09In a famous faux pas, Mill proclaimed that, happily, there is nothing in the laws of value which remains for the present or any future writer to clear up. The Theory of the Subject is complete. Now it is true that Mill had the bad luck to be writing these words only two decades before the marginalist revolution completely overturned value theory. But even so, it was inexcusable for anyone as knowledgeable as Mill was supposed to be in scientific method and the history of science to be caught writing this sort of statement. And Schumpeter tells us that the same sort of hubris had marked Mill's system of logic.

24:55It is an odd paradox indeed to see a thinker habitually changing course and qualifying every thought and deed, and yet insisting that his is the last conceivable word on any particular subject. Upholding and restoring the dominance of Ricardo's theory of profit, Mill insisted on Returning to the Ricardian Dictum that Profits are Dependent on and Inversely Proportionate to Wages Cleverly Paying Obeisance to His Friend Nassau Senior's Concept of Abstinence and Agreeing with Senior that Profits' Interest were the Remuneration of Abstinence, Mill Managed to Weaken the Concept and to Return Somehow to To Insisting on Labor as the Sole Cause of Profits On wages too, Mill returned squarely to Malthus, differing only by holding out the hope of ameliorating the alleged problem of population growth by enthusiastic and determined use of birth control.

26:06The change over the half century was the difference between the stern preacher and the progressive feminist. Dr. Gray's comment on Mill's passion against what he considered to be excessive births is both witty and apposite. In writing on the population question, his, Mill's, voice quivers with a righteous indignation which leads him to a violence of language nowhere to be found in Malthus. Excessive procreation is for Mill on the same level as drunkenness or any other physical One of John Stuart Mill's most famous moves in economic theory was his typically dramatic, emotional and yet carefully hedged recantation of the wages fund doctrine.

27:03In company with other classical economists, having explained the supply of labor by the and the Quantity of Population, Mill then went on to explain the demand for labor, rather sensibly, as the sum of gross savings or circulating capital available for paying workers until the product was produced and sold. This available amount he called the Wages Fund. This concept was used, again quite intelligently, to demonstrate that should labor unions be able to raise wages for one part of the labor force, this rise could only be at the expense of lowering wages somewhere else. The wages fund analysis of the demand for labor was, in one important sense, a retreat from Say and others who emphasized that the demand for and prices of factors of production are determined by their productivity in producing consumer goods desired and demanded by the public.

28:10For Mill, this retreat was part and parcel of his orchestrated shift back to Ricardo. On the other hand, the wages fund doctrine was correct as far as it went. At any given time, On the one hand, there is a certain amount of gross savings to be invested in paying factors of production. Therefore, paying more in one place because of pressure by suppliers of labor will necessarily reduce demand and payment elsewhere. On the other hand, the wages fund is clearly only a first approximation. The fund of circulating capital at any given time is not only used to pay wages, but also to pay rent to landlords and interest, profit to capitalists.

29:02In 1869, Mill's friend and fellow high official at the East India Company, William Thomas Thornton, 1813-1880, wrote a book entitled On Labor, critical of Mill's wages fund doctrine. Partly, this came as a needed attempt to bring consumer demand and, notably, expected consumer demand, back into the analysis. But Thornton's main thrust was that the capital fund was not only a fund for wages, but also a fund out of which to pay profits to capitalists and, he might have added, rents on land. Mill's review of Thornton's book in the fortnightly review was overly dramatic enough to be seized upon as a recantation and as an indication that unions could indeed raise the average level of wages for workers.

30:00Actually, Mill, as Schumpeter points out, was simply explaining the doctrine more carefully and pointing out what should have been obvious, that yes, wages could conceivably increase set the expense of driving profits to zero, but that in the not too long run the result would be failure to maintain as well as to expand capital, and hence the impoverishment of everyone, not least of all the working class. There is nothing here contradictory to the wages fund doctrine. It should be added that Colonel Robert Torrens had made the very same concession on the wages The essence of the misnamed Wages Fund Theory was simply a fundamental part of the solidly grounded and established Turgot-Smith Theory of Capital.

31:01How little real significance Mill attached to his recantation is demonstrated by his His Failure to Alter Any of His Discussion of the Wages Fund in the Seventh and Last Edition of the Principles Published During His Lifetime, 1871, explaining in his new preface that the discussion had not ripened sufficiently to make such a change. As Professor Hutt has pointed out in his classic work, the prevalent idea that modifying the The Wages Fund Theory led straight to economists justifying unionism and collective bargaining was a canard and a red herring created for the occasion by Mill.

31:47Adam Smith and McCullough had justified collective bargaining on the vague notion of labor's alleged disadvantage in bargaining in the labor market. Indeed, Mill himself in the principles, while continuing to hold his original Wages Fund view, offered the same justification. Plus the Ricardian theme that without such collective bargaining, wages would be driven down to subsistence level, the iron law of wages once more. And, indeed, Henry Fawcett, 1833-1884, professor of political economy at Cambridge and a devoted million, continued to cling to the original version of the wages fund theory as well as Labour's disadvantage argument for trade unions.

32:39On the other hand, for example, Mountafort Longfield, a proto-marginal productivity theorist, took the hard line in opposing unions as never being able to affect a general wage increase. Mill's persistent adherence to the Turgot-Smith-Ricardo theory of savings and capital is demonstrated by one of his famous fundamental propositions on capital, that the demand for commodities is not the demand for labor. Mill was correct on the fundamental nature of this proposition, on the failure of most Most economists to grasp it, and inhaling Ricardo and Say as two of the economists to stress it particularly.

33:28It is no wonder that modern economists, steeped in the fallacies of Keynes, find the proposition puzzling. What it means is that at least the proximate demand for labor is supplied by savings, even though the ultimate demand may be supplied by consumers. More than that, Mill here had hold of the basic tour-go discovery of the time structure of capital, the fact that savings pays for the factors ahead of production and sale, and that the consumers are last down the line of production. Furthermore, savings builds up a capital structure and increases funds paid to wages and other Factors, which cannot get paid unless savings are first taken out of income previously supplied to producers by consumers.

34:23This theory of capital provided the building block for the developed Austrian theory of the time structure of capital. It is then not surprising that Mill also supported Say's Law, to which his father had contributed so much. In monetary theory, Mill stood squarely in the Ricardian tradition in fervent opposition to irredeemable paper money. However, he deserted that tradition, as we have seen, in favor of the banking school. And while from his banking school mentor, James Wilson, Mill learned of the malinvestments, especially in fixed capital that occur in business cycle booms, he also adopted the The disastrous Wilsonian belief that money plays a passive and unimportant role in these cyclical booms and busts.

35:19In this belief, significantly, he harked back to his father's only difference from Ricardo. Indeed, he also adopted a pre-Schumpeterian view that these over-investment booms, followed by corrective recessions, were necessary to economic growth. 4. The Shift to Imperialism Classical liberalism, whether natural rights or utilitarian, whether English, French or German, was devoted to a foreign policy of peace. Its firm opposition to war and imperialism was the libertarian minimal government corollary in foreign affairs to its minimal government stance at home.

36:08Opposition to big government, high taxes and interventionism abroad was the corollary of the same opposition at home. Even when the classical liberals were not totally consistent exponents of laissez-faire in either domestic or foreign affairs, their basic thrust was in that direction. Peace and free trade were twin policies, reaching the acme of consistency on both counts in the policy positions and agitation of Richard Cobden, John Bright, the Manchester School and the Anti-Corn Law League. Among the British classical liberals, non-intervention and anti-imperialism were the dominant tradition.

36:55Colonialism and special privileges to investment abroad were properly seen as part of the monopoly privileges and controls imposed by mercantilism, none of which confers advantage, in fact imposes considerable disadvantage on the home population. Jeremy Bentham, James Mill and the others were generally solidly anti-imperialist and and advocated that Britain give up its colonies and grant them independence. Bentham originally included India in this emancipation but was talked out of it by James Mill, a high official in the governing organization of India, the British East India Company. The James Mill exception for India was based on a utilitarian white man's burden argument that, even though England was losing economically from governing India, it must continue doing so for the sake of the Indians, who were too savage to be able to govern themselves.

37:59In that way, James Mill was able to cast an altruist utilitarian patina over England's often bloody repression in India, and over his own role in that oppression. Mill also was able to propound his own Ricardian assault on the landlord class. Following the Ricardian doctrine that landlords were useless and non-productive, Mill advocated special taxes on ground rent. Being a high official in India, he believed that he was more likely to influence the tax and legal system there. Hence, he advocated British nationalization of Indian land, with the state then renting out the land to Indian peasants as long-term tenants.

38:47Thus, in a pre-George-Georgism, the state would absorb all revenues from land rent. In his turn, John Stuart Mill was happy to advocate the same scheme. Bentham and James Mill also made an exception to their overall anti-imperialism for Ireland, here not indulging in attacks on savagery, but simply asserting that freeing Ireland would be politically impossible. A strange position to take by two theorists usually fearless in advocating unpopular policies. We may speculate, however, an alternative explanation. The English liberal and radical masses throughout the late 18th and 19th centuries were generally laissez-faire oriented until the Tories were able to stir up the rabid anti-Catholicism of these dissenter and non-conformist Protestant evangelicals and thereby split the liberal ranks.

39:54Nationalism long served as the scourge of British liberalism. But John Stuart Mill in this crucial area, not very filio-pietistic, was able to help change the face of 19th century British liberalism. He was able to take a liberal doctrine, generally anti-war and anti-imperialist, though with a few glaring exceptions, and transform it into an apologia for imperialism and foreign and Conquest. Rather than abandon the empire, as his father and other liberals had urged, John Stuart Mill called for its expansion. Indeed, Mill became the leading force in destroying the philosophic radical party in Parliament in 1838 by splitting their ranks and supporting the violent suppression of the Canadian Rebellion of that year.

40:51The younger Mill continued the altruistic argument of his father on India and expanded it to all other peoples of the Third World. They were all barbarous and needed to be subject to a benevolent despotism. He also expanded this hard line to Ireland, lamenting that Ireland could not be entirely crushed under heel because it was legally a part of the United Kingdom. I myself have always been for a good stout despotism for governing Ireland alike India, Mill proclaimed. Himself, a high official of the East India Company, John Stuart Mill argued that rule over barbarous colonies like India was best entrusted to autonomous, public-private bodies of experts such as the East India Company, rather than to the vagaries of Parliament and the English public.

41:48After the dissolution of the company in 1854, however, Mill saw no problem in Parliament appointing commissions of experts, such as himself, and delegating rule over India to them. While John Mill grudgingly agreed that the advanced white settler colonies had to be allowed their independence, he hoped that they would continue to be governed by Great Britain. For in contrast to his father and other liberals, Mill believed that colonies conferred positive economic advantages on the home country. For a while, Bentham had succumbed to worries about surplus capital at home to be relieved by imperial expansion.

42:34But James Mill had succeeded in persuading Bentham otherwise. As an adherent and virtual co-founder of Say's Law, the elder Mill had realized that Say's Law meant that there would be no gluts from overproduction or excess capital, therefore no colonial or imperial safety valve was necessary. John Stuart Mill, however, was converted to the idea of surplus capital by his old friend Edward Gibbon Wakefield, 1796-1862, son of Edward Wakefield, a philosophical radical friend of Bentham and James Mill. Young Wakefield began the heretical pro-imperialist movement with his Letter from Sydney, 1829, written not from Australia but from an English prison where he had been convicted for the and the fraudulent kidnapping of a young heiress.

43:34With this tract, Wakefield launched the Colonial Reformer Movement, and John Mill proudly proclaimed himself Wakefield's first convert. Mill was much too committed to Say's law to buy the idea of surplus production desperately needing foreign markets, but he was committed enough to the Ricardian fears of a falling The Worry About Surplus Capital That Could Not Be Invested At Home Should Have Been Put To Rest If Mill Had Been Truly Committed To Say's Law As for the falling rate of profit, Mill couldn't transcend the Ricardian framework to realize, first, that there is nothing inevitable about a falling rate of profit, that is, interest, since wages do not inevitably press upon profits, and second, to the extent that profit rates fall over time, it is due to falling time preference rates, and then it is scarcely a tragedy, nor does it cause a depression or stagnation, since this interest or profit rate only reflects the desires and values of the participants in the market.

44:56And also, since interest rates are not determined by, nor are they inverse to, the stock of capital, there is no guarantee that these rates will be higher abroad than in home countries such as England. Thus, by being converted to Wakefield's fallacy of the inevitable accumulation of surplus capital in advanced capitalist countries, John Stuart Mill led his great prestige to the notion that capitalism economically requires empire in order to invest to get rid of allegedly surplus savings or capital. In short, Mill was one of the ultimate founders of the Leninist theory of imperialism.

45:445. The Millions If Mill was able to disarm much of the opposition from the original enemies of Ricardian economics, he was able to establish the dominance of his own muddled version by converting the Youth, always the first group to adopt an important new trend or system of thought for good or ill. At Cambridge, the powerful secret Society of Apostles immediately took up the principles for extensive study and discussion. The Apostles of 1848 included James Fitz-James Stephen, 1829-1894, later an eminent journalist Post and Attorney, E. H. Stanley, later Lord Darby, 1826-1893, a conservative who would twice become Foreign Secretary, and Vernon Harcourt, 1827-1904, later a liberal member of Parliament and Huell Professor of International Law at Cambridge.

46:54A little later, in the early 1850s, there came to Cambridge such young millions as Stephen's brother Leslie, 1832-1904, who would later teach at Cambridge and then retire to write works of history and philosophy, including his three-volume masterwork, The English Utilitarians, 1900. This million group also included Henry Fawcett, who, although blinded in a hunting accident in his mid-twenties, went on to become professor of political economy at Cambridge and to write his Manual of Political Economy, 1856, as a way of making Mills' principles easier for students and laymen.

47:41Fawcett's manual was used as a textbook in British and American colleges for many years and went through six editions. Fawcett later became a member of parliament and postmaster general. While Mill did not have quite the impact on Oxford as he did on Cambridge, we are assured that by the early 1850s Mill was already a classic, both as a logician and as a political economist. Two young economists who hailed the principles in book reviews became are strongly influenced by Mill. One was insurance executive William Newmarch, 1820-1882, who collaborated in the last volume of Thomas Tooke's History of Prices.

48:30And the other was Walter Badgett, 1826-1877, who would become an extremely influential journalist and financial economist. It was particularly happy to see Mill weaken the laissez-faire precepts of political economy by making his mischievous distinction between production and distribution. It is particularly unfortunate that this cynical semi-statist, an attorney who joined the business of his banker father, became the son-in-law of James Wilson and succeeded Wilson as editor of the Economist shortly before he died in 1860. This change meant a fateful shift from a militant laissez-faire policy to a statist advocacy of, among other things, the aggrandizement of the Bank of England over the monetary system.

49:26Along with the abandonment of laissez-faire by Baget came an increasing abandonment on on his part of even million economic theory and a shift toward a nihilistic and historicist institutionalism. Unfortunately, millionism came to hold sway not only over Cambridge and Oxford, but even over Trinity College Dublin. For almost two decades, the Wheatley Chair at Trinity had been the great stronghold of utility theory as against Ricardianism. But first, succeeding William N. Hancock in the five-year Wakely Chair in 1851 was Richard Hussey Walsh, 1825-1862, who returned to a cost-of-production theory of value while pursuing his interest in monetary problems.

50:21Walsh had graduated from Trinity in 1846, and his lectures were published as An Elementary Retreatus on Metallic Currency, 1853 Being a Roman Catholic, Walsh was legally barred from a permanent academic career at home, and so, after his term as weightly professor was over, he went to the colony of Mauritius as an administrative and census official. The important successor to Walsh was John Eliot Cairns, 1824-1875, who became by far the most important million in academia. Born in Ireland, Cairns studied at Trinity College and after graduation was admitted to the bar.

51:08He acceded to the Wheatley Chair in 1856 and the following year Cairns won his spurs by publishing his most important work in economics, the character and logical method of political economy. So far, he followed the pattern of Wheatley chairholders, but then he broke the mold by being the first of the Wheatley professors to follow with a lifelong career in university teaching. In 1859, Cairns was appointed Professor of Political Economy and Jurisprudence at Queen's College, Galway. Seven years later, he moved to University College, London, until forced to resign by ill health in 1872.

51:55J. E. Cairns has been known as the last of the classical economists. After Mill's death he assumed the mantle of outstanding British economist in the minds of the public and in 1874 he lashed out in incomprehension at the revolutionary marginal utility theory of William Stanley Jevons in Cairns' Some Leading Principles of Political Economy. Cairns was a determined cost-of-production theorist, granting his only significant exception in his well-known theory of non-competing groups. This theory recognized that where factors of production, in particular labor, did not immediately and fully compete with each other, the prices of the factors are determined by demand rather than by cost.

52:49Unfortunately, Cairns lifted the theory from Longfield's Lectures on Political Economy without giving him credit. We know that this was not a case of ignorance of a distinguished predecessor since Cairns assigned Longfield's work in his own classes. Cairns' work of most lasting value, his character and logical method, while including some million positivism, Activism was essentially a methodological work in the great Nassau senior praxeological tradition. Thus Cairns, after agreeing with Mill that there can be no controlled experiments in the social sciences, adds the important point that the social sciences nevertheless have a crucial advantage over the physical sciences, for in the latter mankind have no direct knowledge Research of the Ultimate Physical Principles The laws of physics are not themselves evident to our consciousness, nor are they directly apparent.

53:55Their truth rests on the fact that they account for natural phenomena. But, in contrast, Kearns goes on, the economist starts with a knowledge of ultimate causes. How? Because the economist realizes that the ultimate principles governing economic phenomena are certain mental feelings and certain animal propensities in human beings, and the physical conditions under which production takes place. To arrive at these premises of economics, no elaborate process of induction is needed. For all we need to do is to turn our attention to the subject, and we obtain direct knowledge of these causes in our consciousness of what passes in our own minds, and in the information which our senses convey to us of external facts.

54:52Such broad and basic knowledge of motives for action includes the desire for wealth, And everyone knows that, according to his lights, he will proceed toward his end in the shortest way open to him. Kearns also demonstrates that the economist uses mental experiments as replacements for laboratory experiments of the physical scientist. He shows, too, that deduced economic laws are tendency, or if-then laws, and furthermore that they are necessarily qualitative and not quantitative and therefore cannot admit of mathematical or statistical expression.

55:39Thus the extent of a rise in price due to a drop in supply cannot be determined since subjective values and preferences cannot be precisely measured. In his preface to the second edition of the character, written two decades later in 1875, Cairns warns against the growing use of the mathematical method of economics, in this case leveling adjust criticism at writers like Jevons. For mathematics, in contrast to its use in the physical sciences, cannot yield new truths in economics. And further, unless it can be shown either that mental feelings admit of being expressed in precise quantitative forms, or on the other hand that economic phenomena do not depend upon mental feelings, I am unable to see how this conclusion can be avoided.

56:38In the course of his methodological inquiries and in his battles against Jevons, John Cairns Cairns moved closer to Subjective Value Theory and further from Mill than perhaps he realized. 6. Cairns and the Gold Discoveries Cairns' main contribution to positive economic analysis has been neglected by recent historians, Although it was once considered a particularly admirable illustration of economic thought and inquiry, the sudden gold discoveries in California in the late 1840s, followed rapidly by Australia in 1851, and the consequent enormous increase in gold production, raised important questions on their economic consequences in Britain, as well as whether or not the gold gold pound would depreciate in terms of commodities.

57:39Politically, gold standard anti-inflationists tried to minimize the impact of this increased supply on prices, while the inflationists chortled that at least prices would rise greatly. Among economists, men such as Mill and Torrens, previously in the forefront of currency and and banking school struggles displayed remarkably little interest in the entire process. Most of the interested economists took a primitive proto-Keynesian position that the new gold money would increase capital and employment and therefore would have little effect on prices. It was as if monetary theory had never been discovered.

58:26Perhaps the most banal and absurd peon to the new gold discoveries was emitted by William Newmarch, the disciple of Thomas Took. In an address delivered to the British Association for the Advancement of Science in 1853, Newmarch exalted that in Australia the effect of the new gold has been to add the stimulus of a very low rate of interest and of an abundance of capital to the other great and manifold Causes of Rapid Development Newmarch concluded that generally we are justified in describing the effects of the new gold as almost wholly beneficial. It has led to the development of new branches of enterprise, to new discoveries.

59:12In our own country it has already elevated the condition of the working and poorer classes. It has quickened and extended trade, and exerted an influence which thus far is beneficial wherever it has been felt. Newmarch's inflationist, that is, monetary inflationist twaddle, was echoed in the Tory Blackwoods magazine by Sir Archibald Allison, 1792-1867, a leading Scottish attorney, protectionist and arch inflationist. Even Professor Henry Fawcett continued the same line, managing to use the wages fund and Theory for Inflationist Conclusions. Blithely assuming that the new gold constitutes new capital, Fawcett concluded that therefore the wages fund will increase, raising wages.

1:00:07In fact, it was Fawcett's paper on this question in 1859, his biographer Leslie Stephen tells us, that led to the discovery of Fawcett. From his own perspective, Marx agreed with Fawcett's article, lamenting that the new gold discoveries in California and Australia had lengthened the viability of capitalism and delayed its revolutionary crisis. Also excited about Fawcett's discovery was the now-badget-run Economist, which extravagantly hailed the paper as one of those very rare occasions when an absolutely new truth can can be propounded to such a body. On the other hand, there was still a core of economists pointing out the home truths of the quantity theory, namely that the effect of the new gold discoveries would be a rise in prices roughly proportionate to the increase in gold production, accompanied by unfortunate distribution effects, as well as a waste of resources in mining an increased amount of gold.

1:01:14The most important voice warning of the price inflationary consequences of the gold discoveries was the prominent French economist and free trader Michel Chevalier, 1806-1879. Chevalier raised his voice on the issue throughout the 1850s, his book, On the Probable Fall in the Value of Gold, being translated by Richard Cobden and published in 1859. The veteran and devoted Ricardian essayist and poet Thomas de Quincey, 1785-1859, denounced California and the gold-digging mania in 1852, charging that every ounce of Australian gold should locally be so much more than is wanted.

1:02:03Bonomy Price, a banking school theorist who had succeeded senior to the chair of political economy at Oxford, denounced the great city apostasy on gold in 1863, noting that the dominant financial opinion hailing the gold discoveries constituted an aberrant reversion to mercantilist inflationist fallacy. The most important response to the gold discoveries was that of John Cairns, whose interest in the problem was piqued in 1856 by the ignorant and preposterous assertions by William Newmarch and other inflationists. In a series of articles published between 1857 and 1863, Cairns set forth the quantity analysis, but he also brilliantly went beyond it to resurrect the scholastic Cantillon process analysis, realizing that the distribution effects of the monetary change process were important parts of the picture that should not be swept Under the Rug, Cairns pointed out that the country with new gold mines will be the first to feel their bad effects, the price increases and the waste of resources, after which, as the new gold flows abroad in return for goods, these bad effects become gradually exported to the other

1:03:29countries of the world. In contrast to the gushing of the inflationists, Cairns showed that the first country to suffer The reason for waste of resources from the new gold was Australia, where previously flourishing agriculture was virtually ruined. The British public and press, however, lost interest in the entire issue by the end of the 1850s. The reason was that prices, after the financial panic of 1857, fell back to being only a little bit higher than ten years earlier. Cairns pointed out quite correctly, however, that this slight rise in prices masked what amounted to a considerable depreciation of the gold pound, perhaps 20 or 25 percent.

1:04:19For he noted that, considering the propitiousness of the seasons, the action of free trade, the absence of war, the contraction of credit after the crisis of 1857, and the general In short, without the gold inflation, there would have been a substantial fall in prices, The slight rise reflected instead a substantial inflationary depreciation of the gold pound.

1:05:05Profound and correct indeed, but far too theoretical a consideration for the British public, who were content to let the problem go so long as the effects of depreciation were not starkly visible. 7. The Million Supremacy Thus by the intellectual authority derived from decades of personal and family prominence and by his work on logic, by force of personality and by clever stratagems employed in his book, John Stuart Mill was able to make his Principles of Political Economy the dominant force in British economics from the time of initial Publication in 1848. For three decades, Mill and his principles bestrowed British economics like a colossus, and as we shall see in a later volume, England managed to repulse the marginalist Javonian Revolution in the 1870s, at least in its original undiluted form. Mill had managed to fasten upon Great Britain a watered down labor, or at least cost of production and Theory of Value, a muddled positivist method that gave hostage to inductivist or even organicist critics, a devotion to the gold standard offset by an inflationist banking

1:06:35school theory of crises and cycles and of gold production, and an adherence to the status quo of inflationist Bank of England control and manipulation of the British monetary system. In fact, in every area, John Stuart Mill reimposed the system of Ricardo and his father, but in a far more muddled and diluted manner. In public policy, too, the old Ricardian devotion to laissez-faire was replaced by a vague free-market presumption to which Mill and his followers were always willing to make extensive exceptions. So free were they of the earlier classical and Ricardian dogmatism.

1:07:22Intellectually, however wrong-headed most of the Ricardianism had been, its positions were at least consistent and clear, even if the reasoning supporting those conclusions was generally tangled and incoherent. But the new million neo-Ricardianism had no such virtues. Instead, this system was essentially an elusive and self-contradictory jumble. There were no clear-cut positions, only vague tendencies, hedged around by backsliding and qualifications. But British economics was now slowly becoming more centered in academics rather than in businessmen, bankers or eccentric army officers.

1:08:09academics and their constituencies all too often confuse contradictory wavering with complexity, wisdom, and judiciousness of mind.