Lincoln Academy has just finished the graduation ceremonies for the Class of 2014. These were enjoyable, inspiring, well-attended, and well-received. A good number of these graduates excelled in a host of areas, including traditional academics, performing and visual arts, sports, and trade skills.
I would imagine that some of these budding scholars might feel as though their parents were relentless, perhaps to the point of overbearing, in their encouragement to stay on task during the four years of high school. For those who might feel this way, may I introduce you to the great 19th century economist, John Stuart Mill?
Mill’s father, James Mill, had very specific ideas regarding the education of children. He felt that nothing should separate a child from his or her studies. As a result, John Stuart Mill began his study of Greek at age 3. By age 7 he had digested most of Plato. In the following four years, to age 12, Mill was schooled in all of the major classics, including Virgil, Horace, Aristotle, Sophocles, and many others, as well as algebra and calculus.
A now-famous letter was discovered among his writings:
July 18, 1812
My Dear Sir,
Mr. Walker is a very intimate friend of mine who lives at No. 31 in Berkeley Square. I have engaged him, as he is soon coming here, first to go to your house, and get for me the 3rd and 4th volumes of Hooke’s Roman history. But I am recapitulating the 1st and 2nd volumes, having finished them all, except a few pages of the 2nd. I will be glad if you will let him have the 3rd and 4th volumes.
I am yours sincerely,
John Stuart Mill
Is there something remarkable here? Perhaps not, until one considers that Mill had just turned 6 years old! We parents of LA students do not look so overbearing now, do we?
By the age of 20, Mill was at least a quarter-century ahead of his peers with regard to academic learning. Unfortunately he had been deprived of any understanding of people and social relationships. This resulted in severe difficulties, from which Mill was fortunately able to recover.
Why does history, and especially economic history, remember and revere John Stuart Mill? This highly educated scholar brought a few simple, yet powerful ideas into the world of economics.
First among these was his insight into price theory. Prior to Mill, economists generally understood prices through the Labor Theory of Value. According to this theory, the price of goods and services was equal to the value of the labor required to produce them.
This postulate began to show its weaknesses once David Ricardo introduced his theories of international trade. If the U.K. price of corn were equal to 80 shillings per hundred-quarter weight, and the price in France were 50 shillings, what would the price be once trade were opened? The Labor Theory of Value, which focused on supply, could not answer this basic and important question.
Mill was the first to introduce, in a formal model, the concept of demand, and integrate it with supply to arrive at a general equilibrium price. While this may seem elementary today, it required a brilliant mind to observe it, understand it, and model it for the first time.
While some might argue that the interactions of supply and demand were Mill’s greatest contributions to the science of economics, I would suggest that another simple idea of his has had an even greater effect on the world. It was John Stuart Mill who first proposed the idea that the production of goods and services was an activity which could be separated from the distribution of those same goods and services.
To Mill, the actual manufacturing of products was based on science, i.e., predicated on immutable laws of nature. New technologies were simply the discovery of more of these laws. Production, he believed, was independent of how those products were divided among the citizens of the nation.
The separation of production and distribution was a radical concept. It implied that a society could redistribute its goods and services in any way which seemed to fit that society’s values. This idea had some interesting effects on the world.
First, once absolved from the need to make value judgments about distribution, economists were freed to pursue theories of maximization, efficiency, trade, and prices, without bothering to investigate the welfare effects of such theories. After all, if the competitive economy produced unfavorable distributions of income and wealth, politicians could rectify the dilemma through taxes, wage policies, and so forth.
In pointing out the (somewhat) independent nature of production and distribution, it is doubtful that Mill intended to spawn generations of economists who would ignore distribution. He lived in an age in which private property ownership had resulted in a distribution of wealth and income almost completely inverse to the effort of workers.
The largest portion of income and wealth went to those who never worked at all. The next largest portion went to the nominal workers, followed by a descending pay to workers with rising efforts. Those who were consigned to the most fatiguing jobs could not count on their efforts even providing the bare necessities of life.
Mill was willing to give private enterprise a chance, to see whether it would, in time, produce a more egalitarian distribution of income. At the same time, he understood why some might well prefer the collectivism of 19th century communism (as opposed to the 20th century failed experiment of the same name).
Mill was truly ahead of his time. Many of the economists to follow were able to build, only after Mill had erected the foundations of modern economics. Even today, his ideas of production and distribution are debated in political circles.
One could credibly argue that Mill’s insights have profoundly influenced the most successful economies of the world, including the nations of northern Europe, and others whose so-called “mixed” economies have produced some of the lowest levels of inequality, highest levels of average income, and greatest levels of citizen contentment. Do we owe a nod of gratitude to a pushy father, James Mill, for this?
(Marcus Hutchins, MA, M. Phil, Economics, Columbia University, NYC, is a former economist, treasury bond arbitrage trader and hedge fund manager. He retired to Southport in 1997 where he resides with his wife Andrea and his youngest daughter Abbey. He welcomes feedback at coastaleconomist@me.com.)
