John Stuart Mill: Principles of Political Economy

IN Mill's Principles of Political Economy, with Some of Their Applications to Social Philosophy, the author aimed at producing a treatise that might replace Adam Smith's Wealth of Nations, which he pronounced' in many parts obsolete and in all imperfect.' Mill's work is built upon foundations laid by Ricardo and Malthus, and although it failed of being 'a modern Adam Smith,' it is still indispensable for the study of the subject. Throughout it manifests a belief in the possibility of great social improvement to be achieved upon individualistic lines. The work was published early in 1848.


IN every department of human affairs, practice long precedes science. The conception, accordingly, of political economy as a branch of science is extremely modern; but the subject with which its inquiries are conversant--wealth--has, in all ages, constituted one of the chief practical interests of mankind. Everyone has a notion, sufficiently correct for common purposes, of what is meant by 'wealth.' Money, being the instrument of an important public and private purpose, is rightly regarded as wealth; but everything else which serves any human purpose, and which nature does not supply gratuitously, is wealth also. Wealth may be defined as all useful or agreeable things which possess exchangeable value.

The production of wealth--the extraction of the instruments of human subsistence and enjoyment from the materials of the globe--is evidently not an arbitrary thing. It has its necessary conditions.

The requisites of production are two--labour and appropriate natural objects. Labour is either bodily or mental. Of the other requisite it is to be remarked that the objects supplied by nature are, except in a few unimportant cases, only instrumental to human wants after having been transformed by human exertion.

Nature does more, however, than supply materials; she also supplies powers. Of natural powers, some are practically unlimited, others limited in quantity, and much of the economy of society depends on the limited quantity in which some of the most important natural agents exist, and more particularly land. As soon as there is not so much of a natural agent to be had as would be used if it could be obtained for the asking, the ownership or use of it acquires an exchangeable value.

Where there is more land wanted for cultivation than a place possesses of a certain quality and advantages of situation, land of that quality and situation may be sold, or let for rent.

Labour employed on external nature in modes subservient to production is employed either directly, or indirectly, in previous, or con-comitant, operations designed to facilitate, perhaps essential to the possibilities of, the actual production. One of the modes in which labour is employed indirectly requires particular notice--namely, when it is employed in producing subsistence to maintain the labourers while they are engaged in the production. This previous employment of labour is an indispensable condition to every productive operation. In order to raise any product there are needed labour, tools, and materials and food to feed the labourers. But the tools and materials can be remunerated only from the product when obtained. The food, on the contrary, is intrinsically useful, and the labour expended in producing it, and recompensed by it, needs not to be remunerated over again from the produce of the subsequent labour which it has fed.

The claim to remuneration founded on the possession of food is remuneration for abstinence, not for labour. If a person has a store of food, he has it in his power to consume it himself in idleness. If, instead, he gives it to productive labourers to support them during their work, he can claim a remuneration from the produce. He will, in fact, expect his advance of food to come back to him with an increase, called, in the language of business, a profit.

Thus, there is necessary to productive operations, besides labour and natural agents, a stock, previously accumulated, of the products of labour. This accumulated stock is termed capital. Capital is frequently supposed to be synonymous with money, but money can afford no assistance to production. To do this it must be exchanged for other things capable of contributing to production.

What capital does for production is to afford the shelter, tools and materials which the work requires, and to feed and otherwise maintain the labourers during the process. Whatever things are destined for this use are capital. That industry is limited by capital is self-evident. There can be no more industry than is supplied with materials to work upon and food to eat. Nevertheless, it is often forgotten that the people of a country are maintained and have their wants supplied, not by the produce of present labour, but of past, and it long continued to be believed that laws and governments, without creating capital, could create industry.

ALL capital is the result of saving. Somebody must have produced it, and forborne to consume it, or it is the result of an excess of production over consumption. Although saved, and the result of saving, it is nevertheless consumed--exchanged partly for tools which are worn out by use, partly for materials destroyed in the using, and by consumption of the ultimate product; and, finally, paid in wages to productive labourers, who consume it for their daily wants. The greater part, in value, of the wealth now existing in England has been produced by human hands within the last twelve months. A very small proportion, indeed, was in existence ten years ago. The land is almost the only thing that subsists. Capital is kept in existence, not by preservation, but by perpetual reproduction.


THE laws and conditions of the production of wealth partake of the character of physical truths. There is nothing optional or arbitrary about them. It is not so with the distribution of wealth. That is a matter of human institution solely.

Among the different modes of distributing the produce of land and labour which have been adopted, attention is first claimed by the primary institution on which the economical arrangements of society have always rested--private property.

The institution of property consists in the recognition, in each person, of a right to the exclusive disposal of the fruits of their own labour and abstinence, and implies the right of the possessor of the fruits of previous labour to what has been produced by others by the co-operation between present labour and those fruits of past labour--that is, the freedom of acquiring by contract.

We now proceed to the hypothesis of a three-fold division of the produce, among labourers, capitalists and landlords, beginning with the subject of wages.

Wages depend mainly upon the demand and supply of labour, or, roughly, on the proportion between population and capital. It is a common saying that wages are high when trade is good. Capital which was lying idle is brought into complete efficiency, and wages, in the particular occupation concerned, rise. But this is only a temporary fluctuation, and nothing can permanently alter general wages, except an increase or diminution of capital itself compared with the quantity of labour offering itself to be hired.

Again, high prices can only raise wages if the producers and dealers, receiving more, are induced to add to their capital, or, at least, to their purchases of labour. But high prices of this sort can only benefit one class of labourers at the expense of others, since all other people, by paying those high prices, have their purchasing power reduced by an equal degree.

Another common opinion, which is only partially true, is that wages vary with the price of food, rising when it rises and falling when it falls. In times of scarcity, people generally compete more violently for employment and lower the labour market against themselves. But dearness or cheapness of food, when of a permanent character, may affect wages. If food grows permanently dearer without a rise of wages, a greater number of children will prematurely die, and thus wages will ultimately be higher; but only because the number of people will be smaller than if food had remained cheap. Certain rare circumstances excepted, high wages imply restraints on population.

As the wages of the labourer are the remuneration of labour, so the profits of the capitalist are properly the remuneration of abstinence. They are what he gains by forbearing to consume his capital for his own uses and allowing it to be consumed by productive labourers for their uses. Of these gains, however, a part only is properly an equivalent for the use of the capital itself--namely, so much as a solvent person would be willing to pay for the loan of it. This, as everybody knows, is called interest. What a person expects to gain who superintends the employment of his own capital is more than this. The surplus is partly compensation for risk and partly remuneration for time and labour.

The requisites of production being labour, capital and natural agents, the only person besides the labourer and the capitalist whose consent is necessary to production is he who possesses exclusive power over some natural agent. The land is the principal natural agent capable of being so appropriated, and the consideration paid for its use is called rent.

IT is at once evident that rent is the effect of a monopoly. If all the land of the country belonged to one person he could fix the rent at his pleasure. The whole people would be dependent on his will for the necessaries of life. But even when monopolised--in the sense of being limited in quantity--land will command a price only if it exists in less quantity than the demand, and no land ever pays rent unless, in point of fertility and situation, it belongs to those superior kinds which exist in less quantity than the demand.

Any land yields just so much more than the ordinary profits of stock, or capital, as it yields more than what is returned by the worst land in cultivation. The surplus is what is paid as rent to the landlord. The standard of rent, therefore, is the excess of the produce of any land beyond what would be returned to the same capital if employed on the worst land in cultivation, or, generally, in the least advantageous circumstances.

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