Mill Neoclassical Contributions

Mill's "Neoclassical" Contributions

While Mill was unquestionably the "grand master" and repository of earlier classical thought, his role as a creative theorist who pointed the way to neoclassical economic analysis has often been totally neglected. His high performance in demand theory, including the "peculiar" case of joint supply and demand, places him in a direct line to Alfred Marshall. Indeed, the issues raised by conditions of joint supply have formed the basis of important contemporary branches of eco­nomic theory, including the theory and practice of economic regulation and the conditions surrounding the demands for public goods.

But Mill's purely theoretical achievement goes even beyond Marshallian economics. His verbal model of reciprocal demand in the theory of interna­tional trade, which has been depicted here graphically, was an outstanding and unique theoretical achievement. The role of price adjustments in establishing conditions of reciprocal equilibrium in several markets simultaneously was not a central theme in economic analysis until the neoclassical period and beyond. This advance places Mill one step ahead of Leon Walras, who later built a sys­tem of economic analysis upon this simple and profound idea. In conception (if not in formalization and development) general equilibrium theory could justly be termed "Millian" as well as "Walrasian." In short, Mill's incisive contri­butions to value theory mark him as a bold and original pioneer during the high time of classical economics. Rather than view him as a slavish imitator/ synthesizer of classical economics, Mill might justly be viewed as an important transitional figure from the classical age to the era of Marshallian and Walra-sian neoclassicism.

Mill's Normative Economics

Although he is most frequently regarded as the last great classical economist, Mill lived through the period of nineteenth-century intellectual and socialist criticism of classical economics. Being the sensitive, humane individual and fiercely independent thinker that he was, Mill could not help but be affected by this criticism. In fact, he often took even the most bizarre socialist critics more seriously than they deserved. For a time, he was almost a Saint-Simonian, although in his later life he found difficulties in the Saint-Simonian doctrine too elusive to resolve. Nevertheless, Mill was sympathetic to the ideals of socialism, if not the critical analysis of the socialist writers. In a word, John Stuart Mill was a zealot in the matter of social reform, but in a way that would preserve and enhance individual freedom and dignity as much as possible.

It is this humanistic concern for greater equality of wealth and opportunity that sets Mill apart from other classical economists. Once again, Mill per­formed a delicate balancing act. His deftness as a theoretician is keenly dis­played in the first three books of the Principles; his elan as a reformer perme­ates the last two books. The last two books emphasize applications of political economy for the improvement of humanity, and Mill made it clear where he stood on the relation of theory versus practice in economics. He once wrote to a friend: "I regard the purely abstract investigations of political economy... as of very minor importance compared with the great practical questions which the progress of democracy and the spread of socialist opinions are pressing on" (Letters, I, seminar 170). It should be noted, however, that Mill never lost sight of the importance of theory as the proper foundation, or framework, for issuing policy statements.

The last two books of the Principles, then, unlike the first three, are teleo-logical (goal-oriented). They reveal Mill's concern for such social reforms as wealth redistribution, equality of women, rights of laborers, consumerism, and education.

The Stationary State

Part of the teleological orientation of Books IV and V of the Principles was the concept of the stationary state, which Mill viewed as a precondition for lasting social reform. Here Mill broke with the Ricardian tradition. Ricardo viewed the stationary state primarily as a theoretical con­struct and thus as useful in demonstrating the possible outcome of certain an­alytical principles in the theory of economic growth. But to Mill, the stationary state became almost a kind of Utopia, in which, having achieved affluence, the state could get on with solving the problems that really matter—namely, equal­ity of wealth and opportunity.

In Book IV, Mill attacked the idea of wealth accumulation for the mere sake of accumulation, and he announced his break from the classical tradition:

I cannot... regard the stationary state of capital and wealth with the unaffected aver­sion so generally manifested towards it by political economists of the old school. I am inclined to believe that it would be, on the whole, a very considerable improve­ment on our present condition. I confess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on... (Principles, p. 748).

In other places, too, Mill sounds remarkably modern; almost in league with those economists who denounce economic growth for its own sake. There is also a word of caution from Mill's pen for those who would "improve" society by first tearing it down:

It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution, of which one indispensable means is a stricter restraint on population. Levelling institutions, either of a just or unjust kind, cannot alone accomplish it; they may lower the heights of society, but they cannot, of themselves, permanently raise the depths (Principles, p. 749).

The above passage indicates, at the end, Mill's conviction that true social re­form does not consist merely in the destruction of oppressive institutions. Rather it consists in.. .the joint effect of the prudence and frugality of individuals, and of a system of legislation favoring equality of fortunes, so far as is consistent with the just claim of the individual to the fruits, whether great or small, of his or her own industry (Prin­ciples, p. 749).