John Stuart Mill, the eldest son of the philosopher, James Mill,
was born in London on May 20, 1806. His early education was
remarkable. At the age of fourteen he had an extensive knowledge of
Greek, Latin, and mathematics, and had begun to study logic and
political economy. In 1823 he received an appointment at the India
Office, and in the same year he became a member of a small
Utilitarian society which met at Jeremy Bentham's house, and soon
became the leader of the Utilitarian school. Mill's great work on
the "Principles of Political Economy," with some of their
"Applications to Social Philosophy," embodies the results of many
years of study, disputation and thought. It is built upon
foundations laid by Ricardo and Malthus, and has itself formed the
basis of all subsequent work in England. Throughout, it manifests a
belief in the possibility of great social improvement to be
achieved upon individualistic lines. It was begun late in 1845, and
superseded a contemplated work to be called "Ethnology." Mill's
extensive familiarity with the problems of political economy
enabled him to compose the work with rapidity unusual in his
production. Thus, before the end of 1847, the last sheet of the
manuscript was in the hands of the printer, and early in the
following year the treatise was published. Mill died at Avignon on
May 8, 1873.
_I.--The Production of Wealth_
In every department of human affairs, practice long precedes science.
The conception, accordingly, of political economy as a branch of science
is extremely modern; but the subject with which its inquiries are
conversant--wealth--has, in all ages, constituted one of the chief
practical interests of mankind. Everyone has a notion, sufficiently
correct for common purposes, of what is meant by "wealth." Money, being
the instrument of an important public and private purpose, is rightly
regarded as wealth; but everything else which serves any human purpose,
and which nature does not supply gratuitously, is wealth also. Wealth
may be defined as all useful or agreeable things which possess
exchangeable value.
The production of wealth--the extraction of the instruments of human
subsistence and enjoyment from the materials of the globe--is evidently
not an arbitrary thing. It has its necessary conditions.
The requisites of production are two--labour and appropriate natural
objects. Labour is either bodily or mental. Of the other requisite it is
to be remarked that the objects supplied by nature are, except in a few
unimportant cases, only instrumental to human wants after having
undergone some transformations by human exertion.
Nature does more, however, than supply materials; she also supplies
powers. Of natural powers, some are practically unlimited, others
limited in quantity, and much of the economy of society depends on the
limited quantity in which some of the most important natural agents
exist, and more particularly land. As soon as there is not so much of a
natural agent to be had as would be used if it could be obtained for the
asking, the ownership or use of it acquires an exchangeable value. Where
there is more land wanted for cultivation than a place possesses of a
certain quality and advantages of situation, land of that quality and
situation may be sold for a price, or let for an annual rent.
Labour employed on external nature in modes subservient to production is
employed either directly, or indirectly, in previous or concomitant
operations designed to facilitate, perhaps essential to the
possibilities of, the actual production. One of the modes in which
labour is employed indirectly requires particular notice, namely, when
it is employed in producing subsistence to maintain the labourers while
they are engaged in the production. This previous employment of labour
is an indispensable condition to every productive operation. In order to
raise any product there are needed labour, tools, and materials, and
food to feed the labourers. But the tools and materials can be
remunerated only from the product when obtained. The food, on the
contrary, is intrinsically useful, and the labour expended in producing
it, and recompensed by it, needs not to be remunerated over again from
the produce of the subsequent labour which it has fed.
The claim to remuneration founded on the possession of food is
remuneration for abstinence, not for labour. If a person has a store of
food, he has it in his power to consume it himself in idleness. If,
instead, he gives it to productive labourers to support them during
their work, he can claim a remuneration from the produce. He will, in
fact, expect his advance of food to come back to him with an increase,
called, in the language of business, a profit.
Thus, there is necessary to productive operations, besides labour and
natural agents, a stock, previously accumulated, of the products of
labour. This accumulated stock is termed capital. Capital is frequently
supposed to be synonymous with money, but money can afford no assistance
to production. To do this it must be exchanged for other things capable
of contributing to production. What capital does for production is to
afford the shelter, tools, and materials which the work requires, and to
feed and otherwise maintain the labourers during the process. Whatever
things are destined for this use are capital. That industry is limited
by capital is self-evident. There can be no more industry than is
supplied with materials to work up and food to eat. Nevertheless, it is
often forgotten that the people of a country are maintained and have
their wants supplied, not by the produce of present labour, but of past,
and it long continued to be believed that laws and governments, without
creating capital, could create industry.
All capital is the result of saving. Somebody must have produced it, and
forborne to consume it, or it is the result of an excess of production
over consumption. Although saved, and the result of saving, it is
nevertheless consumed--exchanged partly for tools which are worn out by
use, partly for materials destroyed in the using, and by consumption of
the ultimate product; and, finally, paid in wages to productive
labourers who consume it for their daily wants. The greater part, in
value, of the wealth now existing in England has been produced by human
hands within the last twelve months. A very small proportion, indeed,
was in existence ten years ago. The land subsists, and is almost the
only thing that subsists. Capital is kept in existence, not by
preservation, but by perpetual reproduction.
_II.--The Distribution of Wealth_
The laws and conditions of the production of wealth partake of the
character of physical truths. There is nothing optional or arbitrary
about them. It is not so with the distribution of wealth. That is a
matter of human institution solely.
Among the different modes of distributing the produce of land and labour
which have been adopted, attention is first claimed by the primary
institution on which the economical arrangements of society have always
rested--private property.
The institution of property consists in the recognition, in each person,
of a right to the exclusive disposal of the fruits of their own labour
and abstinence, and implies the right of the possessor of the fruits of
previous labour to what has been produced by others by the co-operation
between present labour and those fruits of past labour--that is, the
freedom of acquiring by contract.
We now proceed to the hypothesis of a threefold division of the produce,
among labourers, landlords, and capitalists, beginning with the subject
of wages.
Wages depend mainly upon the demand and supply of labour, or, roughly,
on the proportion between population and capital. It is a common saying
that wages are high when trade is good. Capital which was lying idle is
brought into complete efficiency, and wages, in the particular
occupation concerned, rise. But this is but a temporary fluctuation, and
nothing can permanently alter _general_ wages except an increase or
diminution of capital itself compared with the quantity of labour
offering itself to be hired.
Again, high prices can only raise wages if the producers and dealers,
receiving more, are induced to add to their capital or, at least, to
their purchases of labour. But high prices of this sort, if they benefit
one class of labourers, can only do so at the expense of others, since
all other people, by paying those high prices, have their purchasing
power reduced by an equal degree.
Another common opinion, which is only partially true, is that wages vary
with the price of food, rising when it rises and falling when it falls.
In times of scarcity, people generally compete more violently for
employment, and lower the labour market against themselves. But dearness
or cheapness of food, when of a permanent character, may affect wages.
If food grows permanently dearer without a rise of wages, a greater
number of children will prematurely die, and thus wages will ultimately
be higher; but only because the number of people will be smaller than if
food had remained cheap. Certain rare circumstances excepted, high wages
imply restraints on population.
As the wages of the labourer are the remuneration of labour, so the
profits of the capitalist are properly the remuneration of abstinence.
They are what he gains by forbearing to consume his capital for his own
uses and allowing it to be consumed by productive labourers for their
uses. Of these gains, however, a part only is properly an equivalent for
the use of the capital itself; namely, so much as a solvent person would
be willing to pay for the loan of it. This, as everybody knows, is
called interest. What a person expects to gain who superintends the
employment of his own capital is always more than this. The rate of
profit greatly exceeds the rate of interest. The surplus is partly
compensation for risk and partly remuneration for the devotion of his
time and labour. Thus, the three parts into which profit may be regarded
as resolving itself, may be described, respectively, as interest,
insurance, and wages of superintendence.
The requisites of production being labour, capital, and natural agents,
the only person besides the labourer and the capitalist whose consent is
necessary to production is he who possesses exclusive power over some
natural agent. The land is the principal natural agent capable of being
so appropriated, and the consideration paid for its use is called rent.
It is at once evident that rent is the effect of a monopoly. If all the
land of the country belonged to one person he could fix the rent at his
pleasure. The whole people would be dependent on his will for the
necessaries of life. But even when monopolised--in the sense of being
limited in quantity--land will command a price only if it exists in less
quantity than the demand, and no land ever pays rent unless, in point of
fertility and situation, it belongs to those superior kinds which exist
in less quantity than the demand.
Any land yields just so much more than the ordinary profits of stock as
it yields more than what is returned by the worst land in cultivation.
The surplus is what is paid as rent to the landlord. The standard of
rent, therefore, is the excess of the produce of any land beyond what
would be returned to the same capital if employed on the worst land in
cultivation, or, generally, in the least advantageous circumstances.
_III.--Of Exchange and Value_
Of the two great departments of political economy, the production of
wealth and its distribution, value has to do with the latter alone. The
conditions and laws of production would be unaltered if the arrangements
of society did not depend on, or admit of, exchange.
Value always means in political economy value in exchange, the command
which its possession gives over purchasable commodities in general;
whereas, by the price of a thing is understood its value in money.
That a thing may have value in exchange two conditions are necessary. It
must be of some use--that is, it must conduce to some purpose, and
secondly, there must be some difficulty in its attainment. This
difficulty is of three kinds. It may consist in an absolute limitation
of supply, as in the case of wines which can be grown only in peculiar
circumstances of soil, climate, and exposure; in the labour and expense
requisite to produce the commodity; or, thirdly, the limitation of the
quantity which can be produced at a given cost, to which class
agricultural produce belongs, increased production beyond a certain
limit entailing increased cost.
When the production of a commodity is the effect of labour and
expenditure, there is a minimum value, which is the essential condition
of its permanent production, and must be sufficient to repay the cost of
production, and, besides, the ordinary expectation of profit. This may
be called the _necessary_ value. When the commodity can be made in
indefinite quantity, this necessary value is also the maximum which the
producers can expect. If it is such that it brings a rate of profit
higher than is customary, capital rushes in to share in this extra gain,
and, by increasing the supply, reduces the value. Accordingly, by the
operation of supply and demand the values of things are made to conform
in the long run to the cost of production.
The introduction of money does not interfere with the operation of any
of the laws of value. Things which by barter would exchange for one
another will, if sold for money, sell for an equal amount of it, and so
will exchange for one another, still through the process of exchanging
them will consist of two operations instead of one. Money is a
commodity, and its value is determined like that of other commodities,
temporarily by demand and supply and permanently by cost of production.
Credit, as a substitute for money, is but a transfer of capital from
hand to hand, generally from persons unable to employ it to hands more
competent to employ it efficiently in production. Credit is not a
productive power in itself, though without it the productive powers
already existing could not be brought into complete employment.
In international trade we find that the law that permanent value is
proportioned to cost of production does not hold good between
commodities produced in distant places as it does in those produced in
adjacent places.
Between distant places, and especially between different countries,
profits may continue different, because persons do not usually remove
themselves or their capital to a distant place without a very strong
motive. If capital removed to remote parts of the world as readily, and
for as small an inducement, as it moves to another quarter of the same
town, profits would be equivalent all over the world, and all things
would be produced in the places where the same labour and capital would
produce them in greatest quantity and of best quality. A tendency may
even now be observed towards such a state of things; capital is becoming
more and more cosmopolitan.
It is not a difference in the _absolute_ cost of production which
determines the interchange between distant places, but a difference in
the _comparative_ cost. We may often by trading with foreigners obtain
their commodities at a smaller expense of labour and capital than they
cost to the foreigners themselves. The bargain is advantageous to the
foreigner because the commodity which he receives in exchange, though it
has cost us less, would probably have cost him more.
The value of a commodity brought from a distant place does not depend on
the cost of production in the place from whence it comes, but on the
cost of its acquisition in that place; which in the case of an imported
article means the cost of production of the thing which is exported to
pay for it. In other words, the values of foreign commodities depend on
the terms of international exchange, which, in turn, depend on supply
and demand.
It may be established that when two countries trade together in two
commodities the exchange value of these commodities relatively to each
other will adjust itself to the inclinations and circumstances of the
consumers on both sides in such manner that the quantities required by
each country of the article which it imports from its neighbour shall be
exactly sufficient to pay for one another, a law which holds of any
greater number of commodities. International values depend also on the
means of production available in each country for the supply of foreign
markets, but the practical result is little affected thereby.
_IV.--On the Influence of Government_
One of the most disputed questions in political science and in practical
statesmanship relates to the proper limits of the functions and agency
of governments. It may be agreed that they fall into two classes:
functions which are either inseparable from the idea of government or
are exercised habitually by all governments; and those respecting which
it has been considered questionable whether governments should exercise
them or not. The former may be termed the _necessary_, the latter the
_optional_, functions of government.
It may readily be shown that the admitted functions of government
embrace a much wider field than can easily be included within the
ring-fence of any restrictive definition, and that it is hardly possible
to find any ground of justification common to them all, except the
comprehensive one of general expediency; nor to limit the interference
of government by any universal rule, save the simple and vague one that
it should never be admitted but when the case of expediency is strong.
A most important consideration in viewing the economical effects arising
from performance of necessary government functions is the means adopted
by government to raise the revenue which is the condition of their
existence.
The qualities desirable in a system of taxation have been embodied by
Adam Smith in four maxims or principles, which may be said to have
become classical:
(1) The subjects of every state ought to contribute to the support of
the government as nearly as possible in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively
enjoy under the protection of the state.
(2) The tax which each individual has to pay ought to be certain, and
not arbitrary. A great degree of inequality is not nearly so great an
evil as a small degree of uncertainty.
(3) Every tax ought to be levied at the time or in the manner in which
it is most likely to be convenient for the contributor to pay it. Taxes
upon such consumable goods as are articles of luxury are all finally
paid by the consumer, and generally in a manner that is very convenient
to him.
(4) Every tax ought to be so contrived as to take out and keep out of
the pockets of the people as little as possible over and above what it
brings into the public treasury.
Taxes on commodities may be considered in the following way. Suppose
that a commodity is capable of being made by two different processes.
It is the interest of the community that of the two methods producers
should adopt that which produces the best article at the lowest price.
Suppose, however, that a tax is laid on one of the processes, and no tax
at all, or one of lesser amount, on the other. If the tax falls, as it
is, of course, intended to do, upon the process which the producers
would have adopted, it creates an artificial motive for preferring the
untaxed process though the inferior of the two. If, therefore, it has
any effect at all it causes the commodity to be produced of worse
quality, or at a greater expense of labour; it causes so much of the
labour of the community to be wasted, and the capital employed in
supporting and remunerating the labour to be expended as uselessly as if
it were spent in hiring men to dig holes and fill them up again. The
loss falls on the consumers, though the capital of the country is also
eventually diminished by the diminution of their means of saving, and in
some degree of their inducements to save.
Taxes on foreign trade are of two kinds: taxes on imports and on
exports. On the first aspect of the matter it would seem that both these
taxes are paid by the consumers of the commodity. The true state of the
case, however, is much more complicated.
By taxing exports we may draw into our coffers, at the expense of
foreigners, not only the whole tax, but more than the tax; in other
cases we shall gain exactly the tax; in others less than the tax. In
this last case, a part of the tax is borne by ourselves, possibly the
whole, even more than the whole.
If the imposition of the tax does not diminish the demand it will leave
the trade exactly as it was before. We shall import as much and export
as much; the whole of the tax will be paid out of our own pockets.
But the imposition of a tax almost always diminishes the demand more or
less. It may therefore be laid down as a principle that a tax on
imported commodities, when it really operates as a tax, and not as a
prohibition, either total or partial, almost always falls in part upon
the foreigners who consume our goods. It is not, however, on the person
from whom we buy, but on those who buy from us that a portion of our
custom duties spontaneously falls. It is the foreign consumer of our
exported commodities who is obliged to pay a higher price for them
because we maintain revenue duties on foreign goods.
* * * * *
We now reach the consideration of the grounds and limits of the
principle of _laisser-faire,_ or non-interference by government.
Whatever theory we adopt respecting the foundation of the social union
there is a circle round every human being which no government ought to
be permitted to overstep; there is a part of the life of every person of
years of discretion within which the individuality of that person ought
to reign uncontrolled either by any other individual or by the public
collectively. Scarcely any degree of utility short of absolute necessity
will justify prohibitory regulation, unless it can also be made to
recommend itself to the general conscience.
A general objection to government agency is that every increase of the
functions devolving on the government is an increase of its power both
in the form of authority and, still more, in the indirect form of
influence. Though a better organisation of governments would greatly
diminish the force of the objection to the mere multiplication of their
duties, it would still remain true that in all the advanced communities
the great majority of things are worse done by the intervention of
government than the individuals most interested in the matter would do
them if left to themselves.
Letting alone, in short, should be the practice; every departure from
it, unless required by some great good, is a certain evil.