Mill’s Principles of Political Economy was first published in 1848, and it went through various editions; the final edition was the seventh, which appeared in 1871. Political Economy is the term nineteenth-century writers use to refer to the study of what we today call macroeconomics, though its practitioners, such as Adam Smith, Mill, David Ricardo, and Karl Marx, were more philosophical and less empirical in their methods than modern economists. In this book, Mill examines the fundamental economic processes on which society is based: production, the distribution of goods, exchange, the effect of social progress on production and distribution, and the role of government in economic affairs.
Book I deals with production and begins by identifying the basic requisites that enable production to exist: labor and natural objects. Labor may be defined as an agent of production, though not all labor leads to the production of a material object. Labor produces three types of utilities. The first is the creation of objects for human use, wherein labor invests external material things with properties that make these things usable. Second, some labor renders human beings serviceable to society and to themselves, such as the labor of teachers and doctors. The third utility is the labor of giving pleasure or entertainment, which does not make other people more productive or result in a tangible product. In addition to labor and natural objects, production requires capital, without which it would cease. In essence, capital is the accumulated stock of the products of labor. After discussing such aspects and manifestation of capital, such as fixed versus circulating capital, Mill examines the social forms of production, such as cooperation, combination of labor, production on a small and large scale, and the increase of labor, which results in the increase of capital as well as production. Last, Mill examines production from land and recognizes that such production is markedly different from the one achieved through labor and capital, since production from land is limited and not likely to greatly increase.
Book II examines distribution as it is manifested in the allocation of property and produce. Mill discusses the effect on distribution of such factors as competition; customs; slavery; ownership by peasants; and the various types of laborers, wages, profits, and rents. Mill acknowledges the difference between workers and capitalists (he includes landowners in this category), both of whom share the products of labor. In book III, Mill addresses the topics of exchange and value, defining the latter in terms of supply and demand. Mill sees value as relative, since it depends on the quantity of another thing or things. There is no general rise and fall of value, for it rises only when a fall is supposed and it falls when a rise is supposed. Mill considers money and its relationship to supply and demand, cost of production, and credit (which is a substitute for money). Further, he looks at the influence of credit on prices, the function of currency, international trade and values, and rates of interest.
Book IV deals with the relationship between a society’s progress and its economic affairs. Mill defines social progress in terms of the increase of knowledge, the improved protection of citizens and property, the transformation of taxes so they are less oppressive, the avoidance of war, and the increase in the prosperity of the people brought about by improvements in business capacities, including the more effective employment of the citizens through education. Mill notes that social progress is not infinite and that a given state of affairs may become stationary if production does not improve and if the overflow of capital from the affluent to the less affluent countries becomes suspended. This recognition of a state of stagnation leads Mill to speculate on the future of the laboring classes, which he foresees rising beyond the patriarchal values of society and becoming emancipated through education. The newly empowered working class will generate massive change in society.
Book V analyzes the influence of government on society, arguing that the functions of government can be divided into the necessary and the optional. The necessary is that which is inseparable from the very of idea of government, such as security, protection, and taxation. Everything else that government does is optional and subject to question. Mill concludes by considering the question of a government’s interference with individual liberty. Mill asserts that government should always restrict itself to doing only what is necessary. First, a government should prohibit and punish individual behavior that harms other people, such as force, fraud, or negligence. Second, a government should work to limit or even eliminate the great amount of energy being spent on the harming of one nation by another. Third, a government should turn such destructive behavior into bettering human faculties, namely, transforming the powers of nature so they serve the greatest physical and moral good. Finally, Mill proposes that governments should adopt a laissez-faire policy, in that they would abstain from interfering with individual choice and grant unconstrained freedom to people, who should be able to pursue their happiness without restrictions.
In Principles, Mill turns economics into a viable philosophical area of inquiry by exploring what people really want and what economics can measure and assess. Mill’s approach to economics is based on his belief in the superiority of socialism, in which economic production would be driven by cooperatives owned by the workers. To this end, Mill argues that the laws of production may be natural laws, but the laws of distribution are created and enacted by human beings. In other words, wealth is the natural end product of labor, but the distribution of wealth is determined by the decisions and the will of actual people (the elite) and is not simply part of the order of nature. Mill carries this view quite far, maintaining that human laws and institutions can and should determine how wealth is distributed. Thus, for Mill, economics is closely tied to social philosophy and politics.
Mill believes that society will continue to grow and change, but he recognizes that such change is limited by the capabilities of the land and of labor, both of which have to be handled with care since neither can continue to produce an increasing amount in order to satisfy a growing demand. Mill agrees with Thomas Malthus that population must be controlled so that it does not outgrow its food supply.
Mill does discuss the benefits of free competition and the useful and favorable social energies that competition releases. He goes so far as to note that if a society becomes too entrenched in protecting its members from competition, the result is stagnation and mental inertia in its citizens. Therefore, it is important to encourage self-initiative and individual responsibility, and government policy should never weaken or discourage this positive force. Although this does not free the state from its responsibilities of providing security and well-being for its citizens, Mill does modify his generally laissez-faire stance by stating that private monopolies must be prevented, the poor must be properly looked after, and the education of children must be suitably available. Mill firmly believes that it is only the well educated and therefore enlightened citizen who can help society grow, change, and progress. Moreover, education allows the lower classes to become more socially active and responsible.
One of the most remarkable facets of Principles is its call for equal rights for women. Just as the poor need to be emancipated from their dependence on the vicissitudes of a class-structured society, which reflect a patriarchal orientation, women need to be freed from the dependence on men. Thus, Mill advocates that women not be barred from seeking employment in areas traditionally the preserve of men.
The most important aspect of Principles is the use of a scientific method in the analysis of politics, thus giving a practical application to theoretical ideas. This gave a fresh impetus to liberal thought by placing its various concepts and ideals firmly within the realm of social and political action, grounded in the rigor of science.