WEBVTT NOTE 8. John Stuart Mill and the Reimposition of Ricardian Economics 1 00:00:00.000 --> 00:00:07.000 Chapter 8. John Stuart Mill and the Reimposition of Ricardian Economics 2 00:00:08.000 --> 00:00:11.000 1. Mill's Importance 3 00:00:12.000 --> 00:00:18.000 The Mills' father and son had a fateful impact upon the history of economic thought. 4 00:00:18.000 --> 00:00:24.000 If James Mill played a crucial and neglected role in developing Ricardian economics 5 00:00:24.000 --> 00:00:30.760 Economics, and its philosophical ally, Benthamite Utilitarianism, and in foisting them upon 6 00:00:30.760 --> 00:00:33.280 the British intellectual world. 7 00:00:33.280 --> 00:00:39.960 His son John was by far the most important force in re-imposing Ricardian dominance two 8 00:00:39.960 --> 00:00:44.080 decades after it had fallen into decline. 9 00:00:44.080 --> 00:00:49.880 It is ironic that the fate of British intellectual life in the 19th century should depend so 10 00:00:49.880 --> 00:00:57.880 Closely on the Psychological Interplay between Famous Father and Son, ironic since both purported 11 00:00:57.880 --> 00:01:02.120 to be austere scientists above all. 12 00:01:02.120 --> 00:01:07.840 The two men could not have been more different in character and quality of intellect. 13 00:01:07.840 --> 00:01:14.920 James Mill, as we have seen, was a hard-nosed, hard-hitting, self-confident, hardcore cadre 14 00:01:14.920 --> 00:01:22.720 type in Intellect and Action, original in carving out an architectonic system of economics, 15 00:01:22.720 --> 00:01:29.160 philosophy and political theory, and then supremely energetic in organizing people and 16 00:01:29.160 --> 00:01:34.520 institutions around him to try to put them into effect. 17 00:01:34.520 --> 00:01:42.560 James tried to educate John Stewart, 1806 to 1873, to follow him in leadership of this 18 00:01:42.560 --> 00:02:11.680 John Stuart was the quintessence of soft rather than hard-core, a wooly-minded man of mush, 19 00:02:11.680 --> 00:02:22.000 John Stuart Mill was the sort of man who, hearing or reading some views seemingly at 20 00:02:22.000 --> 00:02:28.520 utter variance with his own, would say, yes, there is something in that, and proceed to 21 00:02:28.520 --> 00:02:36.480 incorporate this new, inconsistent strand into his capacious and muddled worldview. 22 00:02:36.480 --> 00:02:43.400 Since Mill's ever-expanding intellectual synthesis was rather a vast kitchen midden of diverse 23 00:02:43.400 --> 00:02:46.640 and contradictory positions. 24 00:02:46.640 --> 00:02:53.280 As a result, Mill has ever since provided a field day for young PhDs caught in the game 25 00:02:53.280 --> 00:02:56.520 of publish or perish. 26 00:02:56.520 --> 00:03:03.200 Dispute over what Mill really believed has become an unending cottage industry. 27 00:03:03.200 --> 00:03:10.200 Is Mill a laissez-faire liberal, a socialist, a romantic, a classicist, a civil libertarian, 28 00:03:10.200 --> 00:03:13.680 a believer in state coerced morality? 29 00:03:13.680 --> 00:03:16.720 The answer is yes, every time. 30 00:03:16.720 --> 00:03:23.360 There is endless fodder for dispute, because in his long and prolific life, Mill was all 31 00:03:23.360 --> 00:03:32.200 of these and none, an ever-changing kaleidoscope of alteration, transformation and contradiction. 32 00:03:32.200 --> 00:03:38.340 John Mills' enormous popularity and stature in the British intellectual world was partially 33 00:03:38.340 --> 00:03:41.940 due to his very mush-headedness. 34 00:03:41.940 --> 00:03:48.240 Here was this person of undoubted intellectual parts, an erudite man growing up in a circle 35 00:03:48.240 --> 00:03:55.040 of distinguished scholars and political activists, and yet here is this eminent man who sees 36 00:03:55.040 --> 00:04:01.680 good in all conceivable positions, even the readers, whoever he may be. 37 00:04:01.680 --> 00:04:09.000 Added to this another unusual note, Mill's felicitous style, for in the history of thought 38 00:04:09.000 --> 00:04:15.900 the style very much reflects the quality of mind, clear-headed thinkers are usually lucid 39 00:04:15.900 --> 00:04:22.080 writers and confused and inchoate thinkers usually write in the same way. 40 00:04:22.080 --> 00:04:29.360 Ricardo's crabbed and tortured style reflected the muddled complexities of his doctrine, 41 00:04:29.360 --> 00:04:36.020 But Mill was unusual in possessing a graceful and lucid style that served to mask the vast 42 00:04:36.020 --> 00:04:39.420 muddle of his intellectual furniture. 43 00:04:39.420 --> 00:04:46.180 Ricardo won at least brief popularity for his very obscurity, though he had the invaluable 44 00:04:46.180 --> 00:04:53.220 aid in spreading his doctrine of such clear writers as James Mill and John McCullough. 45 00:04:53.220 --> 00:04:59.880 John Mill won fame and influence partly through the grace of his writing. 46 00:04:59.880 --> 00:05:05.380 If he had known the full extent of his son's defection of character and intellect, the 47 00:05:05.380 --> 00:05:08.700 elder Mill would surely have despaired. 48 00:05:08.700 --> 00:05:15.180 But he never really found out, for John learned early to disassemble, playing a double game 49 00:05:15.180 --> 00:05:18.900 throughout his twenties while his father was still alive. 50 00:05:18.900 --> 00:05:24.620 Thus, he was perfectly capable of publishing an article praising his father's philosophical 51 00:05:24.620 --> 00:05:31.300 favorite, Jeremy Bentham, while at the same time writing an anonymous article elsewhere 52 00:05:31.300 --> 00:05:34.420 highly critical of Bentham. 53 00:05:34.420 --> 00:05:41.260 Mill's intellectual duplicity proved a sharp contrast to his father's candor. 54 00:05:41.260 --> 00:05:47.900 Oddly enough, however, and weighing the totality of John's career, James might in a sense have 55 00:05:47.900 --> 00:05:50.120 have been truly pleased. 56 00:05:50.120 --> 00:05:55.680 For through all the mush, through all the flabby and soggy moderation that marked the 57 00:05:55.680 --> 00:06:02.060 adult John Mill and still attracts moderate liberals of every generation, in the last 58 00:06:02.060 --> 00:06:06.380 analysis filio-pietism triumphed. 59 00:06:06.380 --> 00:06:13.220 When push at long last came to shove in the mind of John Stuart Mill, he came down, albeit 60 00:06:13.220 --> 00:06:20.280 of course moderately on the side of his father's two idols, Bentham and Ricardo. 61 00:06:20.280 --> 00:06:26.880 In philosophy he abandoned hardcore cadre Benthamism for soft core moderate Benthamite 62 00:06:26.880 --> 00:06:34.820 utilitarianism, and in economics he not only was basically and proclamantly a Ricardian, 63 00:06:34.820 --> 00:06:42.580 he also gladdened his father's ghost by re-establishing Ricardianism on the throne of British economics, 64 00:06:42.580 --> 00:06:48.220 A feat he accomplished through the enormous popularity and dominance of his Principles 65 00:06:48.220 --> 00:06:52.580 of Political Economy, 1848. 66 00:06:52.580 --> 00:06:59.280 So even though John Stewart substituted moderate for full-fledged democracy, and still more 67 00:06:59.280 --> 00:07:05.980 disturbingly moderate statism and socialism for his father's laissez-faire, James Mill 68 00:07:05.980 --> 00:07:11.940 might have been gladdened by his son's ability to re-impose Ricardianism upon the world of 69 00:07:11.940 --> 00:07:12.940 of Economics. 70 00:07:12.940 --> 00:07:21.780 Indeed, the great advances of the anti-Ricardians of the 1820s, 1830s, and 1840s were truly 71 00:07:21.780 --> 00:07:28.980 forgotten in Mill's re-establishment of the cost and, indeed, the labor theory of value, 72 00:07:28.980 --> 00:07:35.460 the Ricardian rent theory, Malthusian wage and population theory, and the remainder of 73 00:07:35.460 --> 00:07:37.960 the Ricardian apparatus. 74 00:07:37.960 --> 00:07:45.000 For not the first or last time in the history of economic and social thought, error displaced 75 00:07:45.000 --> 00:07:49.600 truth from the post of dominance in the intellectual world. 76 00:07:49.600 --> 00:07:55.840 In placing Ricardo back upon the throne of economics, John Stewart was fulfilling perhaps 77 00:07:55.840 --> 00:08:03.400 the most cherished, although one of the most fallacious, of his father's goals and principles. 78 00:08:03.400 --> 00:08:08.520 It should be realized that John Stewart's life in the shadow of his father was not only 79 00:08:08.520 --> 00:08:11.980 psychological or organizational. 80 00:08:11.980 --> 00:08:17.680 At the age of 16, John entered his father's office in the East India Company and assisted 81 00:08:17.680 --> 00:08:25.640 him for many years, succeeding to his father's high position on James' death in 1836. 82 00:08:25.640 --> 00:08:31.200 Mill indeed worked full-time at the East India Company until the liquidation of that company 83 00:08:31.200 --> 00:08:38.320 in 1858 bestowed upon Mill a handsome pension for the remaining 15 years of his life. 84 00:08:41.600 --> 00:08:46.320 2. MILL'S STRATEGY AND THE SUCCESS OF THE PRINCIPLES 85 00:08:47.920 --> 00:08:54.000 The proximate reason for the enormous success and influence of the principles was the remarkable 86 00:08:54.000 --> 00:09:01.560 The best-selling triumph of Mill's first book, A System of Logic, 1843, which caught on 87 00:09:01.560 --> 00:09:07.280 with intellectuals and general readers of the age in a way that no tome on logic and 88 00:09:07.280 --> 00:09:11.640 epistemology has done before or since. 89 00:09:11.640 --> 00:09:17.960 Mill's Principles was shrewdly designed as a comprehensive, massive, two-volume treatise 90 00:09:17.960 --> 00:09:24.400 in the Wealth of Nations mold, accessible to economists and laymen alike. 91 00:09:24.400 --> 00:09:30.380 It went through no less than seven editions in Mill's lifetime, as well as a cheap People's 92 00:09:30.380 --> 00:09:34.920 edition and an abridged version for the American market. 93 00:09:34.920 --> 00:09:40.320 The principles continued to serve as the standard British text in economics through the early 94 00:09:40.320 --> 00:09:43.040 20th century. 95 00:09:43.040 --> 00:09:49.080 In a fascinating article, Professor Demarchi contends that much of the seeming confusion, 96 00:09:49.080 --> 00:09:56.820 muddle and moderation permeating Mill's principles was a deliberate strategy designed to soften 97 00:09:56.820 --> 00:10:03.260 up and conciliate the numerous enemies of Ricardianism, and thereby to win their support 98 00:10:03.260 --> 00:10:08.140 for a covert re-establishment of Ricardian dominance. 99 00:10:08.140 --> 00:10:15.060 To put it far more bluntly than does Professor Demarchi, Mill engaged in a strategy of duplicity 100 00:10:15.060 --> 00:10:21.860 to confuse the enemy and to win their support for at least the essentials of the true Ricardian 101 00:10:21.860 --> 00:10:23.740 doctrine. 102 00:10:23.740 --> 00:10:29.620 If Demarchi is correct, there is far more Machiavelli in Mill's dithering openness 103 00:10:29.620 --> 00:10:33.860 to all points of view than has been supposed. 104 00:10:33.860 --> 00:10:41.040 Demarchi notes that Mill had consciously adopted since 1829 what Mill called the strategy 105 00:10:41.040 --> 00:10:47.900 of practical eclecticism, which amounts to lulling and disarming the opposition and, 106 00:10:47.900 --> 00:10:53.820 by seeming conciliation, to manipulate them into believing that they had spontaneously 107 00:10:53.820 --> 00:11:02.540 arrived at what Mill held to be the truth, in short, a strategy of deception and duplicity. 108 00:11:02.540 --> 00:11:09.500 It is impossible to estimate how much of John Stuart Mill's inveterate and eternal contradictions, 109 00:11:09.500 --> 00:11:16.380 qualifications and alterations were due to honest muddleheadedness and how much to devious 110 00:11:16.380 --> 00:11:20.740 and evasive intellectual broken field running. 111 00:11:20.740 --> 00:11:23.740 Did Mill himself always know? 112 00:11:23.740 --> 00:11:29.700 At any rate, the tactic seems to have worked as enemies from all sides of economic theory 113 00:11:29.700 --> 00:11:35.860 History in general, and of Ricardianism in particular, were charmed by Mill's middle-of-the-road 114 00:11:35.860 --> 00:11:38.840 benevolence to all and sundry. 115 00:11:38.840 --> 00:11:44.700 They might not have been converted to hard or even soft-core Ricardianism, but they were 116 00:11:44.700 --> 00:11:52.620 virtually all impressed by Mill's conceding one point after another to themselves or others. 117 00:11:52.620 --> 00:11:59.680 All of course except Marx, who, as a preeminent cadre type, poured out a proper vial of scorn 118 00:11:59.680 --> 00:12:17.680 One by one, Tories, Romantics, Socialists and Practical Men warmed up to Mill himself and to his alleged achievements. 119 00:12:17.680 --> 00:12:24.360 Thus we have seen how Mill introduced into economics and managed to make dominant the 120 00:12:24.360 --> 00:12:31.680 unfortunate hypothetical methodology of positivism as contrasted to the praxeological system 121 00:12:31.680 --> 00:12:40.480 of deduction from true and complete axioms advocated and employed by Say and Senior. 122 00:12:40.480 --> 00:12:46.720 Ricardo had expressed no methodological views, although his method in practice was deduction 123 00:12:46.720 --> 00:12:51.720 from a few unreal and deeply flawed axioms. 124 00:12:51.720 --> 00:12:57.860 In the course of pursuing this method, Mill introduced the disastrous and fallacious hypothesis 125 00:12:57.860 --> 00:13:04.840 of the economic man, which left economics deservedly open to ridicule as false to the 126 00:13:04.840 --> 00:13:06.980 nature of man. 127 00:13:06.980 --> 00:13:12.760 But Mill's substitution of hypothetical, of at least professedly tentative and humble 128 00:13:12.760 --> 00:13:18.840 Theoretical positivism charmed the enemies of deductive praxeology. 129 00:13:18.840 --> 00:13:26.000 For example, there had grown up at Cambridge University a group of militant Baconian inductivists, 130 00:13:26.000 --> 00:13:34.140 men who angrily rejected as unscientific any sort of abstract theory in the social sciences. 131 00:13:34.140 --> 00:13:40.860 These belligerent anti-theorists who held that proper theory can only be a patient enumeration 132 00:13:40.860 --> 00:13:48.420 and Collection of Countless Empirical Facts, were the ancestors of American institutionalism 133 00:13:48.420 --> 00:13:51.840 and of the German Historical School. 134 00:13:51.840 --> 00:13:58.220 The Cambridge Group of Four, who were originally friends as undergraduates, was headed by William 135 00:13:58.220 --> 00:14:07.580 Hewell, 1794-1866, who became a fellow and then master of Trinity College, an eminent 136 00:14:07.580 --> 00:14:14.060 A mathematician, a professor of mineralogy, and then of moral philosophy at Trinity, and 137 00:14:14.060 --> 00:14:17.940 twice vice chancellor of the university. 138 00:14:17.940 --> 00:14:25.160 Another powerful figure in this group was Richard Jones, 1790 to 1855, who succeeded 139 00:14:25.160 --> 00:14:32.100 Nassau senior as professor of political economy at King's College London, and then succeeded 140 00:14:32.100 --> 00:14:38.260 Malthus as Professor of Political Economy and History at Haley-Berry. 141 00:14:38.260 --> 00:14:45.000 Author of a three-volume History of the Inductive Sciences, 1837, and The Philosophy of the 142 00:14:45.000 --> 00:14:52.380 Inductive Sciences, 1840, Hewell had gushed over Bacon as the supreme legislator of the 143 00:14:52.380 --> 00:15:01.020 modern republic of science and the Hercules and hero of the revolution in scientific method. 144 00:15:01.020 --> 00:15:06.680 In the end, however, Hewell was forced to admit that the inductivist method in economics 145 00:15:06.680 --> 00:15:12.660 did not seem able to go beyond destructive criticism to the constructing of any sort 146 00:15:12.660 --> 00:15:16.060 of body of economic law. 147 00:15:16.060 --> 00:15:22.580 Perhaps that is why Hewell, at least, ended by toying with mathematical Ricardian models, 148 00:15:22.580 --> 00:15:29.380 flirting with the kind of abstract economics he had long professed to despise. 149 00:15:29.380 --> 00:15:36.140 William Hewell was not converted from inductivism to positivism by Mill, but he was moved to 150 00:15:36.140 --> 00:15:40.940 express approval of Mill's principles as a whole. 151 00:15:40.940 --> 00:15:46.900 Others whom Mill charmed were Tory writers long hostile to political economy and to its 152 00:15:46.900 --> 00:15:49.020 free trade conclusions. 153 00:15:49.020 --> 00:15:55.280 Thus, Blackwood's magazine gave the principles a generally favorable review for its authors 154 00:15:55.280 --> 00:16:12.080 And G.F. Young, in the course of a virulent protectionist attack on economics in the Tory 155 00:16:12.080 --> 00:16:18.360 Quarterly Review, hailed Mill as one of the most philosophical and candid of the modern 156 00:16:18.360 --> 00:16:24.600 and School of Economists, specifically for Mill's positivist admission that political 157 00:16:24.600 --> 00:16:33.000 economy was grounded not on correct, but only on partially true assumptions. 158 00:16:33.000 --> 00:16:40.180 Mill's most conspicuous defection from classical political economy in general, and from Ricardianism 159 00:16:40.180 --> 00:16:48.220 in particular, was his numerous concessions to socialism and his apostasy from laissez-faire. 160 00:16:48.220 --> 00:16:53.860 In general, the British classical economists had not exactly been consistent laissez-faire 161 00:16:53.860 --> 00:16:57.140 stalwarts, in contrast to J.B. 162 00:16:57.140 --> 00:17:04.140 Say and his school in France, including such people as Charles Comte, Charles de Noyer, 163 00:17:04.140 --> 00:17:10.180 Frederic Bastiat, Gustave de Molinari and their numerous followers. 164 00:17:10.180 --> 00:17:16.620 In Britain, consistent laissez-faire advocates were to be found rather among writers, intellectuals 165 00:17:16.620 --> 00:17:22.940 Business and Businessmen in Manchester, such as Richard Cobden, John Bright, and the recently 166 00:17:22.940 --> 00:17:26.620 successful Anti-Corn Law League. 167 00:17:26.620 --> 00:17:32.720 They were also to be found in The Economist, edited by James Wilson, particularly in its 168 00:17:32.720 --> 00:17:45.580 editorial staff writers Thomas Hodgkin, 1787-1869, and Young Herbert Spencer, 1820-1903. 169 00:17:45.580 --> 00:17:52.020 But while the classical economists were not hardcore free market men, they at least tended 170 00:17:52.020 --> 00:17:54.660 strongly in that direction. 171 00:17:54.660 --> 00:18:00.940 If not a principle, laissez-faire was for them at least a guide or tendency to which 172 00:18:00.940 --> 00:18:05.480 they could at least partially orient their position. 173 00:18:05.480 --> 00:18:08.540 But Mill sharply broke with all that. 174 00:18:08.540 --> 00:18:14.940 Steeped in a high moral tone at all times, Mill originated the unfortunate intellectual 175 00:18:14.940 --> 00:18:42.940 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. 176 00:18:42.940 --> 00:18:48.540 Small wonder, then, that various wings of socialists hailed Mill's principles. 177 00:18:48.540 --> 00:18:55.240 The Owenite socialists, then the leading socialist group in Great Britain, were highly approving. 178 00:18:55.240 --> 00:19:03.140 In addition to words of commendation from Robert Owen, 1771 to 1858, himself, 179 00:19:03.140 --> 00:19:12.740 the Owenite writer and lecturer George Jacob Holyoke, 1817 to 1906, was particularly enchanted. 180 00:19:12.740 --> 00:19:18.740 The editor of The Reasoner, Holyoke hailed Mill's principles with enthusiasm. 181 00:19:18.740 --> 00:19:24.740 It had been held, he proclaimed, that the people were made for political economy. 182 00:19:24.740 --> 00:19:31.740 But now, with Mill's principles, at length, political economy is being made for the people. 183 00:19:31.740 --> 00:19:41.740 Holyoke also praised Mill for having spoken of communism with more geniality than any political economist had done before. 184 00:19:41.740 --> 00:19:47.420 and he gave his working class readers the benefit of much of that high-priced tome 185 00:19:47.420 --> 00:19:51.420 by printing lengthy extracts in the reasoner. 186 00:19:51.420 --> 00:19:58.380 No doubt Holyoke was also happy with Mill's proclaimed ideal of a commonwealth of cooperatives, 187 00:19:58.380 --> 00:20:06.300 Holyoke being one of the founders and long-term agitators for the cooperative movement in Britain. 188 00:20:06.300 --> 00:20:20.300 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. 189 00:20:20.300 --> 00:20:30.300 Hunt, a believer in communal ownership and control, particularly welcomed Mill's claim that communism was the ideal state. 190 00:20:30.300 --> 00:20:53.300 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. 191 00:20:53.300 --> 00:21:03.300 Ricardo, whose system rested on allegedly iron laws of distribution, must have turned over rapidly in his grave at that remark. 192 00:21:03.300 --> 00:21:11.300 This separation between production and distribution was wholly artificial and totally invalid, 193 00:21:11.300 --> 00:21:21.300 since people earn incomes on the market precisely for participating in production, and the two are intimately intertwined. 194 00:21:21.300 --> 00:21:42.300 But 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. 195 00:21:42.300 --> 00:21:55.300 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. 196 00:21:55.300 --> 00:22:07.300 Of the Troika of young Anglicans who led the Christian socialists, the Rev. Charles Kingsley, 1819-1875, hailed the principles, 197 00:22:07.300 --> 00:22:14.740 as did another of the leaders, the attorney John Malcolm Ludlow in Frazer's magazine. 198 00:22:14.740 --> 00:22:22.460 Frazer's had been purchased in 1847 by John William Parker, who became its de facto editor. 199 00:22:22.460 --> 00:22:27.260 Parker was a friend of Kingsley and a Christian socialist sympathizer. 200 00:22:27.260 --> 00:22:33.380 The fact that he also happened to be the publisher of Mill's Principles scarcely made the peon 201 00:22:33.380 --> 00:22:53.000 Mille's handling of the theory of value was characteristic of the man, a hard core of 202 00:22:53.000 --> 00:22:58.720 filio-pietism wrapped in layers of enigma and muddle. 203 00:22:58.720 --> 00:23:04.880 And so the labor theory, cost of production theory of value was restored to a dominant 204 00:23:04.880 --> 00:23:12.520 place in classical economics, but hedged about with Mill's usual string of evasive and self-protective 205 00:23:12.520 --> 00:23:13.520 qualifications. 206 00:23:13.520 --> 00:23:21.060 Thus Mill accepted Bailey's demolition of Ricardo's search for an impossible, invariable 207 00:23:21.060 --> 00:23:23.400 measure of value. 208 00:23:23.400 --> 00:23:30.560 On the other hand, Mill displayed his contempt for even the idea that consumption and utility 209 00:23:30.560 --> 00:23:37.160 could have any influence upon value by removing consumption from its traditional niche as 210 00:23:37.160 --> 00:23:40.240 a basic part of the economics text. 211 00:23:40.240 --> 00:23:48.480 Instead, Mill's principles was divided into production, distribution, exchange, and government, 212 00:23:48.480 --> 00:23:52.000 with nary a mention of consumption. 213 00:23:52.000 --> 00:23:58.820 But despite Mill's inconsistency and muddle, his stance of humility suddenly dissolved 214 00:23:58.820 --> 00:24:04.880 into his astonishingly arrogant claim that his pronouncements would be the last word 215 00:24:04.880 --> 00:24:09.080 for all time on the theory of value. 216 00:24:09.080 --> 00:24:15.600 In a famous faux pas, Mill proclaimed that, happily, there is nothing in the laws of value 217 00:24:15.600 --> 00:24:20.560 which remains for the present or any future writer to clear up. 218 00:24:20.560 --> 00:24:24.120 The Theory of the Subject is complete. 219 00:24:24.120 --> 00:24:29.660 Now it is true that Mill had the bad luck to be writing these words only two decades 220 00:24:29.660 --> 00:24:35.640 before the marginalist revolution completely overturned value theory. 221 00:24:35.640 --> 00:24:41.600 But even so, it was inexcusable for anyone as knowledgeable as Mill was supposed to be 222 00:24:41.600 --> 00:24:48.720 in scientific method and the history of science to be caught writing this sort of statement. 223 00:24:48.720 --> 00:24:55.440 And Schumpeter tells us that the same sort of hubris had marked Mill's system of logic. 224 00:24:55.440 --> 00:25:02.080 It is an odd paradox indeed to see a thinker habitually changing course and qualifying 225 00:25:02.080 --> 00:25:09.720 every thought and deed, and yet insisting that his is the last conceivable word on any 226 00:25:09.720 --> 00:25:12.640 particular subject. 227 00:25:12.640 --> 00:25:18.600 Upholding and restoring the dominance of Ricardo's theory of profit, Mill insisted 228 00:25:18.600 --> 00:25:25.640 on Returning to the Ricardian Dictum that Profits are Dependent on and Inversely Proportionate 229 00:25:25.640 --> 00:25:31.160 to Wages Cleverly Paying Obeisance to His Friend Nassau 230 00:25:31.160 --> 00:25:38.080 Senior's Concept of Abstinence and Agreeing with Senior that Profits' Interest were the 231 00:25:38.080 --> 00:25:45.220 Remuneration of Abstinence, Mill Managed to Weaken the Concept and to Return Somehow to 232 00:25:45.220 --> 00:25:51.180 To Insisting on Labor as the Sole Cause of Profits 233 00:25:51.180 --> 00:25:58.140 On wages too, Mill returned squarely to Malthus, differing only by holding out the hope of 234 00:25:58.140 --> 00:26:04.420 ameliorating the alleged problem of population growth by enthusiastic and determined use 235 00:26:04.420 --> 00:26:06.660 of birth control. 236 00:26:06.660 --> 00:26:12.040 The change over the half century was the difference between the stern preacher and the progressive 237 00:26:12.040 --> 00:26:14.340 feminist. 238 00:26:14.340 --> 00:26:20.380 Dr. Gray's comment on Mill's passion against what he considered to be excessive births 239 00:26:20.380 --> 00:26:23.780 is both witty and apposite. 240 00:26:23.780 --> 00:26:30.820 In writing on the population question, his, Mill's, voice quivers with a righteous indignation 241 00:26:30.820 --> 00:26:36.840 which leads him to a violence of language nowhere to be found in Malthus. 242 00:26:36.840 --> 00:26:42.340 Excessive procreation is for Mill on the same level as drunkenness or any other physical 243 00:26:42.340 --> 00:26:56.060 One of John Stuart Mill's most famous moves in economic theory was his typically dramatic, 244 00:26:56.060 --> 00:27:03.780 emotional and yet carefully hedged recantation of the wages fund doctrine. 245 00:27:03.780 --> 00:27:09.340 In company with other classical economists, having explained the supply of labor by the 246 00:27:09.340 --> 00:27:26.340 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. 247 00:27:26.340 --> 00:27:31.340 This available amount he called the Wages Fund. 248 00:27:31.340 --> 00:27:37.500 This concept was used, again quite intelligently, to demonstrate that should labor unions be 249 00:27:37.500 --> 00:27:44.700 able to raise wages for one part of the labor force, this rise could only be at the expense 250 00:27:44.700 --> 00:27:48.660 of lowering wages somewhere else. 251 00:27:48.660 --> 00:27:55.420 The wages fund analysis of the demand for labor was, in one important sense, a retreat 252 00:27:55.420 --> 00:28:02.540 from Say and others who emphasized that the demand for and prices of factors of production 253 00:28:02.540 --> 00:28:09.740 are determined by their productivity in producing consumer goods desired and demanded by the public. 254 00:28:10.940 --> 00:28:17.260 For Mill, this retreat was part and parcel of his orchestrated shift back to Ricardo. 255 00:28:18.220 --> 00:28:25.260 On the other hand, the wages fund doctrine was correct as far as it went. At any given time, 256 00:28:25.260 --> 00:28:32.260 On the one hand, there is a certain amount of gross savings to be invested in paying factors of production. 257 00:28:32.260 --> 00:28:43.260 Therefore, paying more in one place because of pressure by suppliers of labor will necessarily reduce demand and payment elsewhere. 258 00:28:43.260 --> 00:28:49.260 On the other hand, the wages fund is clearly only a first approximation. 259 00:28:49.260 --> 00:29:01.260 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. 260 00:29:02.260 --> 00:29:18.260 In 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. 261 00:29:19.260 --> 00:29:26.460 Partly, this came as a needed attempt to bring consumer demand and, notably, expected consumer 262 00:29:26.460 --> 00:29:29.820 demand, back into the analysis. 263 00:29:29.820 --> 00:29:36.340 But Thornton's main thrust was that the capital fund was not only a fund for wages, but also 264 00:29:36.340 --> 00:29:44.500 a fund out of which to pay profits to capitalists and, he might have added, rents on land. 265 00:29:44.500 --> 00:29:50.700 Mill's review of Thornton's book in the fortnightly review was overly dramatic enough to be seized 266 00:29:50.700 --> 00:29:57.620 upon as a recantation and as an indication that unions could indeed raise the average 267 00:29:57.620 --> 00:30:00.660 level of wages for workers. 268 00:30:00.660 --> 00:30:07.500 Actually, Mill, as Schumpeter points out, was simply explaining the doctrine more carefully 269 00:30:07.500 --> 00:30:14.260 and pointing out what should have been obvious, that yes, wages could conceivably increase 270 00:30:14.260 --> 00:30:21.220 set the expense of driving profits to zero, but that in the not too long run the result 271 00:30:21.220 --> 00:30:27.780 would be failure to maintain as well as to expand capital, and hence the impoverishment 272 00:30:27.780 --> 00:30:32.340 of everyone, not least of all the working class. 273 00:30:32.340 --> 00:30:36.900 There is nothing here contradictory to the wages fund doctrine. 274 00:30:36.900 --> 00:30:42.620 It should be added that Colonel Robert Torrens had made the very same concession on the wages 275 00:30:42.620 --> 00:30:56.060 The essence of the misnamed Wages Fund Theory was simply a fundamental part of the solidly 276 00:30:56.060 --> 00:31:01.900 grounded and established Turgot-Smith Theory of Capital. 277 00:31:01.900 --> 00:31:08.180 How little real significance Mill attached to his recantation is demonstrated by his 278 00:31:08.180 --> 00:31:13.940 His Failure to Alter Any of His Discussion of the Wages Fund in the Seventh and Last 279 00:31:13.940 --> 00:31:21.260 Edition of the Principles Published During His Lifetime, 1871, explaining in his new 280 00:31:21.260 --> 00:31:28.140 preface that the discussion had not ripened sufficiently to make such a change. 281 00:31:28.140 --> 00:31:34.240 As Professor Hutt has pointed out in his classic work, the prevalent idea that modifying the 282 00:31:34.240 --> 00:31:41.720 The Wages Fund Theory led straight to economists justifying unionism and collective bargaining 283 00:31:41.720 --> 00:31:47.880 was a canard and a red herring created for the occasion by Mill. 284 00:31:47.880 --> 00:31:53.920 Adam Smith and McCullough had justified collective bargaining on the vague notion of labor's 285 00:31:53.920 --> 00:31:58.680 alleged disadvantage in bargaining in the labor market. 286 00:31:58.680 --> 00:32:08.280 Indeed, Mill himself in the principles, while continuing to hold his original Wages Fund view, offered the same justification. 287 00:32:08.280 --> 00:32:19.880 Plus the Ricardian theme that without such collective bargaining, wages would be driven down to subsistence level, the iron law of wages once more. 288 00:32:19.880 --> 00:32:39.380 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. 289 00:32:39.380 --> 00:32:54.380 On 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. 290 00:32:54.380 --> 00:33:03.260 Mill's persistent adherence to the Turgot-Smith-Ricardo theory of savings and capital is demonstrated 291 00:33:03.260 --> 00:33:09.960 by one of his famous fundamental propositions on capital, that the demand for commodities 292 00:33:09.960 --> 00:33:13.420 is not the demand for labor. 293 00:33:13.420 --> 00:33:19.000 Mill was correct on the fundamental nature of this proposition, on the failure of most 294 00:33:19.000 --> 00:33:25.540 Most economists to grasp it, and inhaling Ricardo and Say as two of the economists to 295 00:33:25.540 --> 00:33:28.120 stress it particularly. 296 00:33:28.120 --> 00:33:34.320 It is no wonder that modern economists, steeped in the fallacies of Keynes, find the proposition 297 00:33:34.320 --> 00:33:36.200 puzzling. 298 00:33:36.200 --> 00:33:42.920 What it means is that at least the proximate demand for labor is supplied by savings, even 299 00:33:42.920 --> 00:33:47.700 though the ultimate demand may be supplied by consumers. 300 00:33:47.700 --> 00:33:54.140 More than that, Mill here had hold of the basic tour-go discovery of the time structure 301 00:33:54.140 --> 00:34:01.980 of capital, the fact that savings pays for the factors ahead of production and sale, 302 00:34:01.980 --> 00:34:06.380 and that the consumers are last down the line of production. 303 00:34:06.380 --> 00:34:13.320 Furthermore, savings builds up a capital structure and increases funds paid to wages and other 304 00:34:13.320 --> 00:34:20.520 Factors, which cannot get paid unless savings are first taken out of income previously supplied 305 00:34:20.520 --> 00:34:23.740 to producers by consumers. 306 00:34:23.740 --> 00:34:28.960 This theory of capital provided the building block for the developed Austrian theory of 307 00:34:28.960 --> 00:34:32.560 the time structure of capital. 308 00:34:32.560 --> 00:34:39.640 It is then not surprising that Mill also supported Say's Law, to which his father had contributed 309 00:34:39.640 --> 00:34:41.420 so much. 310 00:34:41.420 --> 00:34:47.400 In monetary theory, Mill stood squarely in the Ricardian tradition in fervent opposition 311 00:34:47.400 --> 00:34:50.040 to irredeemable paper money. 312 00:34:50.040 --> 00:34:56.480 However, he deserted that tradition, as we have seen, in favor of the banking school. 313 00:34:56.480 --> 00:35:02.840 And while from his banking school mentor, James Wilson, Mill learned of the malinvestments, 314 00:35:02.840 --> 00:35:09.360 especially in fixed capital that occur in business cycle booms, he also adopted the 315 00:35:09.360 --> 00:35:16.060 The disastrous Wilsonian belief that money plays a passive and unimportant role in these 316 00:35:16.060 --> 00:35:19.280 cyclical booms and busts. 317 00:35:19.280 --> 00:35:25.640 In this belief, significantly, he harked back to his father's only difference from Ricardo. 318 00:35:25.640 --> 00:35:33.380 Indeed, he also adopted a pre-Schumpeterian view that these over-investment booms, followed 319 00:35:33.380 --> 00:35:37.880 by corrective recessions, were necessary to economic growth. 320 00:35:39.360 --> 00:35:45.840 4. The Shift to Imperialism 321 00:35:45.840 --> 00:35:52.000 Classical liberalism, whether natural rights or utilitarian, whether English, French or 322 00:35:52.000 --> 00:35:59.520 German, was devoted to a foreign policy of peace. Its firm opposition to war and imperialism 323 00:35:59.520 --> 00:36:05.920 was the libertarian minimal government corollary in foreign affairs to its minimal government 324 00:36:05.920 --> 00:36:08.680 stance at home. 325 00:36:08.680 --> 00:36:14.380 Opposition to big government, high taxes and interventionism abroad was the corollary 326 00:36:14.380 --> 00:36:17.860 of the same opposition at home. 327 00:36:17.860 --> 00:36:23.580 Even when the classical liberals were not totally consistent exponents of laissez-faire 328 00:36:23.580 --> 00:36:30.640 in either domestic or foreign affairs, their basic thrust was in that direction. 329 00:36:30.640 --> 00:36:37.480 Peace and free trade were twin policies, reaching the acme of consistency on both counts in 330 00:36:37.480 --> 00:36:44.040 the policy positions and agitation of Richard Cobden, John Bright, the Manchester School 331 00:36:44.040 --> 00:36:47.880 and the Anti-Corn Law League. 332 00:36:47.880 --> 00:36:55.200 Among the British classical liberals, non-intervention and anti-imperialism were the dominant tradition. 333 00:36:55.200 --> 00:37:01.680 Colonialism and special privileges to investment abroad were properly seen as part of the monopoly 334 00:37:01.680 --> 00:37:10.120 privileges and controls imposed by mercantilism, none of which confers advantage, in fact imposes 335 00:37:10.120 --> 00:37:14.760 considerable disadvantage on the home population. 336 00:37:14.760 --> 00:37:21.360 Jeremy Bentham, James Mill and the others were generally solidly anti-imperialist and 337 00:37:21.360 --> 00:37:26.900 and advocated that Britain give up its colonies and grant them independence. 338 00:37:26.900 --> 00:37:32.900 Bentham originally included India in this emancipation but was talked out of it by James 339 00:37:32.900 --> 00:37:39.660 Mill, a high official in the governing organization of India, the British East India Company. 340 00:37:39.660 --> 00:37:46.320 The James Mill exception for India was based on a utilitarian white man's burden argument 341 00:37:46.320 --> 00:37:53.080 that, even though England was losing economically from governing India, it must continue doing 342 00:37:53.080 --> 00:37:59.140 so for the sake of the Indians, who were too savage to be able to govern themselves. 343 00:37:59.140 --> 00:38:06.200 In that way, James Mill was able to cast an altruist utilitarian patina over England's 344 00:38:06.200 --> 00:38:13.400 often bloody repression in India, and over his own role in that oppression. 345 00:38:13.400 --> 00:38:19.900 Mill also was able to propound his own Ricardian assault on the landlord class. 346 00:38:19.900 --> 00:38:26.360 Following the Ricardian doctrine that landlords were useless and non-productive, Mill advocated 347 00:38:26.360 --> 00:38:29.560 special taxes on ground rent. 348 00:38:29.560 --> 00:38:35.080 Being a high official in India, he believed that he was more likely to influence the tax 349 00:38:35.080 --> 00:38:37.240 and legal system there. 350 00:38:37.240 --> 00:38:47.740 Hence, he advocated British nationalization of Indian land, with the state then renting out the land to Indian peasants as long-term tenants. 351 00:38:47.740 --> 00:38:55.740 Thus, in a pre-George-Georgism, the state would absorb all revenues from land rent. 352 00:38:55.740 --> 00:39:01.240 In his turn, John Stuart Mill was happy to advocate the same scheme. 353 00:39:01.240 --> 00:39:17.240 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. 354 00:39:17.240 --> 00:39:25.240 A strange position to take by two theorists usually fearless in advocating unpopular policies. 355 00:39:25.240 --> 00:39:30.200 We may speculate, however, an alternative explanation. 356 00:39:30.200 --> 00:39:37.000 The English liberal and radical masses throughout the late 18th and 19th centuries were generally 357 00:39:37.000 --> 00:39:44.720 laissez-faire oriented until the Tories were able to stir up the rabid anti-Catholicism 358 00:39:44.720 --> 00:39:51.720 of these dissenter and non-conformist Protestant evangelicals and thereby split the liberal 359 00:39:51.720 --> 00:39:54.720 ranks. 360 00:39:54.720 --> 00:39:59.920 Nationalism long served as the scourge of British liberalism. 361 00:39:59.920 --> 00:40:06.440 But John Stuart Mill in this crucial area, not very filio-pietistic, was able to help 362 00:40:06.440 --> 00:40:10.800 change the face of 19th century British liberalism. 363 00:40:10.800 --> 00:40:17.680 He was able to take a liberal doctrine, generally anti-war and anti-imperialist, though with 364 00:40:17.680 --> 00:40:24.420 a few glaring exceptions, and transform it into an apologia for imperialism and foreign 365 00:40:24.420 --> 00:40:26.620 and Conquest. 366 00:40:26.620 --> 00:40:32.380 Rather than abandon the empire, as his father and other liberals had urged, John Stuart 367 00:40:32.380 --> 00:40:34.980 Mill called for its expansion. 368 00:40:34.980 --> 00:40:41.620 Indeed, Mill became the leading force in destroying the philosophic radical party in Parliament 369 00:40:41.620 --> 00:40:49.180 in 1838 by splitting their ranks and supporting the violent suppression of the Canadian Rebellion 370 00:40:49.180 --> 00:40:51.580 of that year. 371 00:40:51.580 --> 00:40:57.520 The younger Mill continued the altruistic argument of his father on India and expanded 372 00:40:57.520 --> 00:41:01.180 it to all other peoples of the Third World. 373 00:41:01.180 --> 00:41:06.520 They were all barbarous and needed to be subject to a benevolent despotism. 374 00:41:06.520 --> 00:41:12.920 He also expanded this hard line to Ireland, lamenting that Ireland could not be entirely 375 00:41:12.920 --> 00:41:18.540 crushed under heel because it was legally a part of the United Kingdom. 376 00:41:18.540 --> 00:41:25.520 I myself have always been for a good stout despotism for governing Ireland alike India, 377 00:41:25.520 --> 00:41:26.740 Mill proclaimed. 378 00:41:26.740 --> 00:41:32.620 Himself, a high official of the East India Company, John Stuart Mill argued that rule 379 00:41:32.620 --> 00:41:39.540 over barbarous colonies like India was best entrusted to autonomous, public-private bodies 380 00:41:39.540 --> 00:41:45.500 of experts such as the East India Company, rather than to the vagaries of Parliament 381 00:41:45.500 --> 00:41:48.160 and the English public. 382 00:41:48.160 --> 00:41:54.200 After the dissolution of the company in 1854, however, Mill saw no problem in Parliament 383 00:41:54.200 --> 00:42:00.400 appointing commissions of experts, such as himself, and delegating rule over India to 384 00:42:00.400 --> 00:42:02.660 them. 385 00:42:02.660 --> 00:42:08.240 While John Mill grudgingly agreed that the advanced white settler colonies had to be 386 00:42:08.240 --> 00:42:13.320 allowed their independence, he hoped that they would continue to be governed by Great 387 00:42:13.320 --> 00:42:14.820 Britain. 388 00:42:14.820 --> 00:42:21.300 For in contrast to his father and other liberals, Mill believed that colonies conferred positive 389 00:42:21.300 --> 00:42:25.060 economic advantages on the home country. 390 00:42:25.060 --> 00:42:31.540 For a while, Bentham had succumbed to worries about surplus capital at home to be relieved 391 00:42:31.540 --> 00:42:34.300 by imperial expansion. 392 00:42:34.300 --> 00:42:39.100 But James Mill had succeeded in persuading Bentham otherwise. 393 00:42:39.100 --> 00:42:45.660 As an adherent and virtual co-founder of Say's Law, the elder Mill had realized that Say's 394 00:42:45.660 --> 00:42:52.620 Law meant that there would be no gluts from overproduction or excess capital, therefore 395 00:42:52.620 --> 00:42:57.740 no colonial or imperial safety valve was necessary. 396 00:42:57.740 --> 00:43:04.340 John Stuart Mill, however, was converted to the idea of surplus capital by his old friend 397 00:43:04.340 --> 00:43:13.420 Edward Gibbon Wakefield, 1796-1862, son of Edward Wakefield, a philosophical radical 398 00:43:13.420 --> 00:43:17.380 friend of Bentham and James Mill. 399 00:43:17.380 --> 00:43:25.620 Young Wakefield began the heretical pro-imperialist movement with his Letter from Sydney, 1829, 400 00:43:25.620 --> 00:43:31.080 written not from Australia but from an English prison where he had been convicted for the 401 00:43:31.080 --> 00:43:34.780 and the fraudulent kidnapping of a young heiress. 402 00:43:34.780 --> 00:43:41.960 With this tract, Wakefield launched the Colonial Reformer Movement, and John Mill proudly proclaimed 403 00:43:41.960 --> 00:43:45.600 himself Wakefield's first convert. 404 00:43:45.600 --> 00:43:52.160 Mill was much too committed to Say's law to buy the idea of surplus production desperately 405 00:43:52.160 --> 00:43:57.720 needing foreign markets, but he was committed enough to the Ricardian fears of a falling 406 00:43:57.720 --> 00:44:16.720 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 407 00:44:16.720 --> 00:44:46.720 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 408 00:44:46.720 --> 00:44:53.320 stagnation, since this interest or profit rate only reflects the desires and values 409 00:44:53.320 --> 00:44:56.280 of the participants in the market. 410 00:44:56.280 --> 00:45:02.760 And also, since interest rates are not determined by, nor are they inverse to, the stock of 411 00:45:02.760 --> 00:45:09.320 capital, there is no guarantee that these rates will be higher abroad than in home countries 412 00:45:09.320 --> 00:45:11.000 such as England. 413 00:45:11.000 --> 00:45:17.560 Thus, by being converted to Wakefield's fallacy of the inevitable accumulation of surplus 414 00:45:17.560 --> 00:45:24.080 capital in advanced capitalist countries, John Stuart Mill led his great prestige to 415 00:45:24.080 --> 00:45:32.960 the notion that capitalism economically requires empire in order to invest to get rid of allegedly 416 00:45:32.960 --> 00:45:36.320 surplus savings or capital. 417 00:45:36.320 --> 00:45:44.280 In short, Mill was one of the ultimate founders of the Leninist theory of imperialism. 418 00:45:44.280 --> 00:45:47.280 5. 419 00:45:47.280 --> 00:45:49.720 The Millions 420 00:45:49.720 --> 00:45:56.640 If Mill was able to disarm much of the opposition from the original enemies of Ricardian economics, 421 00:45:56.640 --> 00:46:02.320 he was able to establish the dominance of his own muddled version by converting the 422 00:46:02.320 --> 00:46:08.640 Youth, always the first group to adopt an important new trend or system of thought for 423 00:46:08.640 --> 00:46:10.960 good or ill. 424 00:46:10.960 --> 00:46:17.060 At Cambridge, the powerful secret Society of Apostles immediately took up the principles 425 00:46:17.060 --> 00:46:20.620 for extensive study and discussion. 426 00:46:20.620 --> 00:46:30.560 The Apostles of 1848 included James Fitz-James Stephen, 1829-1894, later an eminent journalist 427 00:46:30.560 --> 00:46:39.640 Post and Attorney, E. H. Stanley, later Lord Darby, 1826-1893, a conservative who would 428 00:46:39.640 --> 00:46:48.800 twice become Foreign Secretary, and Vernon Harcourt, 1827-1904, later a liberal member 429 00:46:48.800 --> 00:46:54.600 of Parliament and Huell Professor of International Law at Cambridge. 430 00:46:54.600 --> 00:47:00.780 A little later, in the early 1850s, there came to Cambridge such young millions as Stephen's 431 00:47:00.780 --> 00:47:08.820 brother Leslie, 1832-1904, who would later teach at Cambridge and then retire to write 432 00:47:08.820 --> 00:47:16.780 works of history and philosophy, including his three-volume masterwork, The English Utilitarians, 433 00:47:16.780 --> 00:47:18.620 1900. 434 00:47:18.620 --> 00:47:24.820 This million group also included Henry Fawcett, who, although blinded in a hunting accident 435 00:47:24.820 --> 00:47:31.220 in his mid-twenties, went on to become professor of political economy at Cambridge and to write 436 00:47:31.220 --> 00:47:39.100 his Manual of Political Economy, 1856, as a way of making Mills' principles easier for 437 00:47:39.100 --> 00:47:41.740 students and laymen. 438 00:47:41.740 --> 00:47:47.300 Fawcett's manual was used as a textbook in British and American colleges for many years 439 00:47:47.300 --> 00:47:53.860 and went through six editions. Fawcett later became a member of parliament and postmaster general. 440 00:47:55.460 --> 00:48:00.580 While Mill did not have quite the impact on Oxford as he did on Cambridge, 441 00:48:00.580 --> 00:48:07.540 we are assured that by the early 1850s Mill was already a classic, both as a logician 442 00:48:07.540 --> 00:48:15.380 and as a political economist. Two young economists who hailed the principles in book reviews became 443 00:48:15.380 --> 00:48:18.380 are strongly influenced by Mill. 444 00:48:18.380 --> 00:48:26.400 One was insurance executive William Newmarch, 1820-1882, who collaborated in the last volume 445 00:48:26.400 --> 00:48:30.140 of Thomas Tooke's History of Prices. 446 00:48:30.140 --> 00:48:37.720 And the other was Walter Badgett, 1826-1877, who would become an extremely influential 447 00:48:37.720 --> 00:48:41.420 journalist and financial economist. 448 00:48:41.420 --> 00:48:47.740 It was particularly happy to see Mill weaken the laissez-faire precepts of political economy 449 00:48:47.740 --> 00:48:54.140 by making his mischievous distinction between production and distribution. 450 00:48:54.140 --> 00:49:00.720 It is particularly unfortunate that this cynical semi-statist, an attorney who joined the business 451 00:49:00.720 --> 00:49:07.380 of his banker father, became the son-in-law of James Wilson and succeeded Wilson as editor 452 00:49:07.380 --> 00:49:12.620 of the Economist shortly before he died in 1860. 453 00:49:12.620 --> 00:49:19.180 This change meant a fateful shift from a militant laissez-faire policy to a statist advocacy 454 00:49:19.180 --> 00:49:26.060 of, among other things, the aggrandizement of the Bank of England over the monetary system. 455 00:49:26.060 --> 00:49:31.580 Along with the abandonment of laissez-faire by Baget came an increasing abandonment on 456 00:49:31.580 --> 00:49:40.580 on his part of even million economic theory and a shift toward a nihilistic and historicist institutionalism. 457 00:49:40.580 --> 00:49:50.580 Unfortunately, millionism came to hold sway not only over Cambridge and Oxford, but even over Trinity College Dublin. 458 00:49:50.580 --> 00:49:59.580 For almost two decades, the Wheatley Chair at Trinity had been the great stronghold of utility theory as against Ricardianism. 459 00:49:59.580 --> 00:50:07.620 But first, succeeding William N. Hancock in the five-year Wakely Chair in 1851 was Richard 460 00:50:07.620 --> 00:50:17.300 Hussey Walsh, 1825-1862, who returned to a cost-of-production theory of value while pursuing 461 00:50:17.300 --> 00:50:21.060 his interest in monetary problems. 462 00:50:21.060 --> 00:50:27.780 Walsh had graduated from Trinity in 1846, and his lectures were published as An Elementary 463 00:50:27.780 --> 00:50:32.780 Retreatus on Metallic Currency, 1853 464 00:50:32.780 --> 00:50:38.780 Being a Roman Catholic, Walsh was legally barred from a permanent academic career at home, 465 00:50:38.780 --> 00:50:42.780 and so, after his term as weightly professor was over, 466 00:50:42.780 --> 00:50:48.780 he went to the colony of Mauritius as an administrative and census official. 467 00:50:48.780 --> 00:50:56.780 The important successor to Walsh was John Eliot Cairns, 1824-1875, 468 00:50:56.780 --> 00:51:01.780 who became by far the most important million in academia. 469 00:51:01.780 --> 00:51:08.780 Born in Ireland, Cairns studied at Trinity College and after graduation was admitted to the bar. 470 00:51:08.780 --> 00:51:19.780 He acceded to the Wheatley Chair in 1856 and the following year Cairns won his spurs by publishing his most important work in economics, 471 00:51:19.780 --> 00:51:23.780 the character and logical method of political economy. 472 00:51:23.780 --> 00:51:37.780 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. 473 00:51:37.780 --> 00:51:46.180 In 1859, Cairns was appointed Professor of Political Economy and Jurisprudence at Queen's College, Galway. 474 00:51:46.180 --> 00:51:55.180 Seven years later, he moved to University College, London, until forced to resign by ill health in 1872. 475 00:51:55.180 --> 00:52:01.580 J. E. Cairns has been known as the last of the classical economists. 476 00:52:01.580 --> 00:52:22.580 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. 477 00:52:22.580 --> 00:52:33.580 Cairns was a determined cost-of-production theorist, granting his only significant exception in his well-known theory of non-competing groups. 478 00:52:33.580 --> 00:52:43.580 This theory recognized that where factors of production, in particular labor, did not immediately and fully compete with each other, 479 00:52:43.580 --> 00:52:49.580 the prices of the factors are determined by demand rather than by cost. 480 00:52:49.580 --> 00:52:57.580 Unfortunately, Cairns lifted the theory from Longfield's Lectures on Political Economy without giving him credit. 481 00:52:57.580 --> 00:53:07.580 We know that this was not a case of ignorance of a distinguished predecessor since Cairns assigned Longfield's work in his own classes. 482 00:53:07.580 --> 00:53:16.580 Cairns' work of most lasting value, his character and logical method, while including some million positivism, 483 00:53:16.580 --> 00:53:22.540 Activism was essentially a methodological work in the great Nassau senior praxeological 484 00:53:22.540 --> 00:53:24.580 tradition. 485 00:53:24.580 --> 00:53:30.540 Thus Cairns, after agreeing with Mill that there can be no controlled experiments in 486 00:53:30.540 --> 00:53:36.700 the social sciences, adds the important point that the social sciences nevertheless have 487 00:53:36.700 --> 00:53:44.700 a crucial advantage over the physical sciences, for in the latter mankind have no direct knowledge 488 00:53:44.700 --> 00:53:50.940 Research of the Ultimate Physical Principles The laws of physics are not themselves evident 489 00:53:50.940 --> 00:53:55.340 to our consciousness, nor are they directly apparent. 490 00:53:55.340 --> 00:53:59.940 Their truth rests on the fact that they account for natural phenomena. 491 00:53:59.940 --> 00:54:08.860 But, in contrast, Kearns goes on, the economist starts with a knowledge of ultimate causes. 492 00:54:08.860 --> 00:54:10.340 How? 493 00:54:10.340 --> 00:54:16.380 Because the economist realizes that the ultimate principles governing economic phenomena are 494 00:54:16.380 --> 00:54:23.060 certain mental feelings and certain animal propensities in human beings, and the physical 495 00:54:23.060 --> 00:54:27.000 conditions under which production takes place. 496 00:54:27.000 --> 00:54:34.420 To arrive at these premises of economics, no elaborate process of induction is needed. 497 00:54:34.420 --> 00:54:40.800 For all we need to do is to turn our attention to the subject, and we obtain direct knowledge 498 00:54:40.800 --> 00:54:47.600 of these causes in our consciousness of what passes in our own minds, and in the information 499 00:54:47.600 --> 00:54:52.440 which our senses convey to us of external facts. 500 00:54:52.440 --> 00:54:59.160 Such broad and basic knowledge of motives for action includes the desire for wealth, 501 00:54:59.160 --> 00:55:07.160 And everyone knows that, according to his lights, he will proceed toward his end in the shortest way open to him. 502 00:55:09.160 --> 00:55:19.160 Kearns also demonstrates that the economist uses mental experiments as replacements for laboratory experiments of the physical scientist. 503 00:55:19.160 --> 00:55:27.160 He shows, too, that deduced economic laws are tendency, or if-then laws, 504 00:55:27.160 --> 00:55:34.200 and furthermore that they are necessarily qualitative and not quantitative and therefore cannot 505 00:55:34.200 --> 00:55:39.000 admit of mathematical or statistical expression. 506 00:55:39.000 --> 00:55:45.920 Thus the extent of a rise in price due to a drop in supply cannot be determined since 507 00:55:45.920 --> 00:55:52.160 subjective values and preferences cannot be precisely measured. 508 00:55:52.160 --> 00:55:59.220 In his preface to the second edition of the character, written two decades later in 1875, 509 00:55:59.220 --> 00:56:04.800 Cairns warns against the growing use of the mathematical method of economics, in this 510 00:56:04.800 --> 00:56:09.960 case leveling adjust criticism at writers like Jevons. 511 00:56:09.960 --> 00:56:16.300 For mathematics, in contrast to its use in the physical sciences, cannot yield new truths 512 00:56:16.300 --> 00:56:18.280 in economics. 513 00:56:18.280 --> 00:56:23.800 And further, unless it can be shown either that mental feelings admit of being expressed 514 00:56:23.800 --> 00:56:31.540 in precise quantitative forms, or on the other hand that economic phenomena do not depend 515 00:56:31.540 --> 00:56:38.640 upon mental feelings, I am unable to see how this conclusion can be avoided. 516 00:56:38.640 --> 00:56:44.600 In the course of his methodological inquiries and in his battles against Jevons, John Cairns 517 00:56:44.600 --> 00:56:56.600 Cairns moved closer to Subjective Value Theory and further from Mill than perhaps he realized. 518 00:56:56.600 --> 00:57:02.320 6. Cairns and the Gold Discoveries 519 00:57:02.320 --> 00:57:09.160 Cairns' main contribution to positive economic analysis has been neglected by recent historians, 520 00:57:09.160 --> 00:57:14.240 Although it was once considered a particularly admirable illustration of economic thought 521 00:57:14.240 --> 00:57:21.640 and inquiry, the sudden gold discoveries in California in the late 1840s, followed rapidly 522 00:57:21.640 --> 00:57:29.760 by Australia in 1851, and the consequent enormous increase in gold production, raised important 523 00:57:29.760 --> 00:57:35.660 questions on their economic consequences in Britain, as well as whether or not the gold 524 00:57:35.660 --> 00:57:39.820 gold pound would depreciate in terms of commodities. 525 00:57:39.820 --> 00:57:46.500 Politically, gold standard anti-inflationists tried to minimize the impact of this increased 526 00:57:46.500 --> 00:57:54.860 supply on prices, while the inflationists chortled that at least prices would rise greatly. 527 00:57:54.860 --> 00:58:01.040 Among economists, men such as Mill and Torrens, previously in the forefront of currency and 528 00:58:01.040 --> 00:58:07.600 and banking school struggles displayed remarkably little interest in the entire process. 529 00:58:07.600 --> 00:58:13.360 Most of the interested economists took a primitive proto-Keynesian position that the new gold 530 00:58:13.360 --> 00:58:19.280 money would increase capital and employment and therefore would have little effect on 531 00:58:19.280 --> 00:58:20.800 prices. 532 00:58:20.800 --> 00:58:26.720 It was as if monetary theory had never been discovered. 533 00:58:26.720 --> 00:58:32.440 Perhaps the most banal and absurd peon to the new gold discoveries was emitted by William 534 00:58:32.440 --> 00:58:36.280 Newmarch, the disciple of Thomas Took. 535 00:58:36.280 --> 00:58:42.880 In an address delivered to the British Association for the Advancement of Science in 1853, Newmarch 536 00:58:42.880 --> 00:58:48.960 exalted that in Australia the effect of the new gold has been to add the stimulus of a 537 00:58:48.960 --> 00:58:55.480 very low rate of interest and of an abundance of capital to the other great and manifold 538 00:58:55.480 --> 00:58:58.760 Causes of Rapid Development 539 00:58:58.760 --> 00:59:04.960 Newmarch concluded that generally we are justified in describing the effects of the new gold 540 00:59:04.960 --> 00:59:07.660 as almost wholly beneficial. 541 00:59:07.660 --> 00:59:12.560 It has led to the development of new branches of enterprise, to new discoveries. 542 00:59:12.560 --> 00:59:18.360 In our own country it has already elevated the condition of the working and poorer classes. 543 00:59:18.360 --> 00:59:24.720 It has quickened and extended trade, and exerted an influence which thus far is beneficial 544 00:59:24.720 --> 00:59:27.920 wherever it has been felt. 545 00:59:27.920 --> 00:59:34.480 Newmarch's inflationist, that is, monetary inflationist twaddle, was echoed in the Tory 546 00:59:34.480 --> 00:59:44.200 Blackwoods magazine by Sir Archibald Allison, 1792-1867, a leading Scottish attorney, protectionist 547 00:59:44.200 --> 00:59:46.960 and arch inflationist. 548 00:59:46.960 --> 00:59:52.640 Even Professor Henry Fawcett continued the same line, managing to use the wages fund 549 00:59:52.640 --> 00:59:56.380 and Theory for Inflationist Conclusions. 550 00:59:56.380 --> 01:00:02.800 Blithely assuming that the new gold constitutes new capital, Fawcett concluded that therefore 551 01:00:02.800 --> 01:00:07.020 the wages fund will increase, raising wages. 552 01:00:07.020 --> 01:00:14.300 In fact, it was Fawcett's paper on this question in 1859, his biographer Leslie Stephen tells 553 01:00:14.300 --> 01:00:18.020 us, that led to the discovery of Fawcett. 554 01:00:18.020 --> 01:00:22.700 From his own perspective, Marx agreed with Fawcett's article, lamenting that the new 555 01:00:22.700 --> 01:00:29.020 gold discoveries in California and Australia had lengthened the viability of capitalism 556 01:00:29.020 --> 01:00:32.620 and delayed its revolutionary crisis. 557 01:00:32.620 --> 01:00:39.260 Also excited about Fawcett's discovery was the now-badget-run Economist, which extravagantly 558 01:00:39.260 --> 01:00:45.700 hailed the paper as one of those very rare occasions when an absolutely new truth can 559 01:00:45.700 --> 01:00:49.100 can be propounded to such a body. 560 01:00:49.100 --> 01:00:53.900 On the other hand, there was still a core of economists pointing out the home truths 561 01:00:53.900 --> 01:01:00.100 of the quantity theory, namely that the effect of the new gold discoveries would be a rise 562 01:01:00.100 --> 01:01:07.140 in prices roughly proportionate to the increase in gold production, accompanied by unfortunate 563 01:01:07.140 --> 01:01:13.220 distribution effects, as well as a waste of resources in mining an increased amount of 564 01:01:13.220 --> 01:01:14.220 gold. 565 01:01:14.220 --> 01:01:28.220 The 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. 566 01:01:28.220 --> 01:01:42.220 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. 567 01:01:42.220 --> 01:02:03.220 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. 568 01:02:03.220 --> 01:02:11.220 Bonomy Price, a banking school theorist who had succeeded senior to the chair of political economy at Oxford, 569 01:02:11.220 --> 01:02:17.220 denounced the great city apostasy on gold in 1863, 570 01:02:17.220 --> 01:02:21.220 noting that the dominant financial opinion hailing the gold discoveries 571 01:02:21.220 --> 01:02:28.220 constituted an aberrant reversion to mercantilist inflationist fallacy. 572 01:02:28.220 --> 01:02:45.220 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. 573 01:02:45.220 --> 01:02:50.740 In a series of articles published between 1857 and 1863, 574 01:02:50.740 --> 01:02:56.740 Cairns set forth the quantity analysis, but he also brilliantly went beyond it 575 01:02:56.740 --> 01:03:03.780 to resurrect the scholastic Cantillon process analysis, realizing that the distribution effects 576 01:03:03.780 --> 01:03:09.780 of the monetary change process were important parts of the picture that should not be swept 577 01:03:09.780 --> 01:03:11.780 Under the Rug, 578 01:03:11.780 --> 01:03:16.260 Cairns pointed out that the country with new gold mines will be the first to feel their 579 01:03:16.260 --> 01:03:22.860 bad effects, the price increases and the waste of resources, after which, as the new gold 580 01:03:22.860 --> 01:03:29.260 flows abroad in return for goods, these bad effects become gradually exported to the other 581 01:03:29.260 --> 01:03:31.760 countries of the world. 582 01:03:31.760 --> 01:03:37.620 In contrast to the gushing of the inflationists, Cairns showed that the first country to suffer 583 01:03:37.620 --> 01:03:46.620 The reason for waste of resources from the new gold was Australia, where previously flourishing agriculture was virtually ruined. 584 01:03:46.620 --> 01:03:54.620 The British public and press, however, lost interest in the entire issue by the end of the 1850s. 585 01:03:54.620 --> 01:04:04.620 The reason was that prices, after the financial panic of 1857, fell back to being only a little bit higher than ten years earlier. 586 01:04:04.620 --> 01:04:10.660 Cairns pointed out quite correctly, however, that this slight rise in prices masked what 587 01:04:10.660 --> 01:04:19.300 amounted to a considerable depreciation of the gold pound, perhaps 20 or 25 percent. 588 01:04:19.300 --> 01:04:25.540 For he noted that, considering the propitiousness of the seasons, the action of free trade, 589 01:04:25.540 --> 01:04:32.420 the absence of war, the contraction of credit after the crisis of 1857, and the general 590 01:04:32.420 --> 01:04:57.660 In short, without the gold inflation, there would have been a substantial fall in prices, 591 01:04:57.660 --> 01:05:05.980 The slight rise reflected instead a substantial inflationary depreciation of the gold pound. 592 01:05:05.980 --> 01:05:12.980 Profound and correct indeed, but far too theoretical a consideration for the British public, who 593 01:05:12.980 --> 01:05:19.660 were content to let the problem go so long as the effects of depreciation were not starkly 594 01:05:19.660 --> 01:05:21.700 visible. 595 01:05:21.700 --> 01:05:23.300 7. 596 01:05:23.300 --> 01:05:24.540 7. 597 01:05:24.540 --> 01:05:30.900 The Million Supremacy Thus by the intellectual authority derived 598 01:05:30.900 --> 01:05:38.780 from decades of personal and family prominence and by his work on logic, by force of personality 599 01:05:38.780 --> 01:05:45.700 and by clever stratagems employed in his book, John Stuart Mill was able to make his Principles 600 01:05:45.700 --> 01:05:51.400 of Political Economy the dominant force in British economics from the time of initial 601 01:05:51.400 --> 01:05:59.440 Publication in 1848. For three decades, Mill and his principles bestrowed British economics 602 01:05:59.440 --> 01:06:05.840 like a colossus, and as we shall see in a later volume, England managed to repulse the 603 01:06:05.840 --> 01:06:14.360 marginalist Javonian Revolution in the 1870s, at least in its original undiluted form. Mill 604 01:06:14.360 --> 01:06:21.300 had managed to fasten upon Great Britain a watered down labor, or at least cost of production 605 01:06:21.300 --> 01:06:27.680 and Theory of Value, a muddled positivist method that gave hostage to inductivist or 606 01:06:27.680 --> 01:06:35.060 even organicist critics, a devotion to the gold standard offset by an inflationist banking 607 01:06:35.060 --> 01:06:42.580 school theory of crises and cycles and of gold production, and an adherence to the status 608 01:06:42.580 --> 01:06:50.620 quo of inflationist Bank of England control and manipulation of the British monetary system. 609 01:06:50.620 --> 01:06:58.300 In fact, in every area, John Stuart Mill reimposed the system of Ricardo and his father, but 610 01:06:58.300 --> 01:07:02.180 in a far more muddled and diluted manner. 611 01:07:02.180 --> 01:07:09.860 In public policy, too, the old Ricardian devotion to laissez-faire was replaced by a vague free-market 612 01:07:09.860 --> 01:07:17.020 presumption to which Mill and his followers were always willing to make extensive exceptions. 613 01:07:17.020 --> 01:07:22.020 So free were they of the earlier classical and Ricardian dogmatism. 614 01:07:22.020 --> 01:07:28.460 Intellectually, however wrong-headed most of the Ricardianism had been, its positions 615 01:07:28.460 --> 01:07:34.820 were at least consistent and clear, even if the reasoning supporting those conclusions 616 01:07:34.820 --> 01:07:38.840 was generally tangled and incoherent. 617 01:07:38.840 --> 01:07:43.740 But the new million neo-Ricardianism had no such virtues. 618 01:07:43.740 --> 01:07:50.300 Instead, this system was essentially an elusive and self-contradictory jumble. 619 01:07:50.300 --> 01:07:57.280 There were no clear-cut positions, only vague tendencies, hedged around by backsliding 620 01:07:57.280 --> 01:07:59.340 and qualifications. 621 01:07:59.340 --> 01:08:05.220 But British economics was now slowly becoming more centered in academics rather than in 622 01:08:05.220 --> 01:08:09.660 businessmen, bankers or eccentric army officers. 623 01:08:09.660 --> 01:08:16.060 academics and their constituencies all too often confuse contradictory wavering with 624 01:08:16.060 --> 01:08:20.340 complexity, wisdom, and judiciousness of mind.