Article by Matthew Coppola, Client Centric
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The following article studies the opposing and unifying theories of two economists, John Stuart Mill and Thomas Robert Malthus, on the long term dynamics of capitalism, which entail aspects of growth, development and accumulation of a capitalist economy.
The key topics studied by Malthus and Mill include labour, consumption, population growth, agriculture and property rights. These will be discussed from both a theoretical and empirical perspective in the following article.
A major topic discussed by Mill and Malthus is on unproductive and productive labour in contributing to wealth creation in a capitalist economy. According to Malthus, a worker did not have to just produce wealth to be productive, but rather it is the value of what the worker produces that makes them productive. To Malthus, productive labour: “should be susceptible to some sort of definitive valuation” [And] must add to the wealth of the country an amount at least equal to the value paid for such labour” (Malthus, 1836 p.46).
Thus according to Malthus, the worker is not productive unless the worker adds to society more than was paid their services, namely, labour. In comparison to Malthus, the notion of value to the productive process was also adopted by Mill, as he saw value in objects produced by workers. Mill saw workers engaged in the manufacturing sector as being truly productive: “We should regard all labour as productive which is employed in creating permanent utilities, whether embodied in human beings, or in any animate or inanimate objects”[And] labour expended in the acquisition of manufacturing skills, I class as productive” (Mill, 1886 v.1, p.61).
In reverence to human capital, Malthus also put forth the idea that one must produce an object to be productive:
“no small portion of it is employed in acquiring the skill necessary to the production and distribution of material objects, as in the case of most apprenticeships” (Malthus, 1836 p.37).
However unlike Malthus, Mill was ignorant of the idea that unproductive labour has a positive impact on economic growth in capitalist economies. Those individuals in society who are identified as unproductive labour include those who attend to activities in the private service, such as capitalists, landowners, government ministers, executives, musicians, teachers, priests and so on. It also includes those who perform activities in the home, such as menial servants and child rearing. According to Malthus, “unproductive” workers are valuable to the welfare and development of Society: “that kind of labour which highly useful and important…may conduce indirectly to the production and security of material wealth” (Malthus, 1836 p.35).
Therefore, to Malthus, those who perform activities in the home, such as the upbringing of children and the maintenance of the home are valuable to society and have an indirect impact on production and development. Having been a cleric from the Church of England, Malthus appreciated the value religious activities have to the development of society. For instance, the Catholic religion exemplify strong “pro-natalist ideologies” with teachings forbidding artificial forms of contraception and abortion. In particular, studies have shown that religious participation by youths has been linked to “a lower probability of substance abuse and juvenile delinquency [and] a lower incidence of depression among some groups” (Lehrer 2004, p.16). However, Mill was sceptical of the impact religion has on the development of society. Mill is quoted for saying:
“It is…evident that the greater number of missionaries or clergymen a nation maintains, the less it has to expend on other things; while the more it expends judiciously in keeping agriculturalists and manufacturers at work, the more it will have for other purposes” (Mill, 1886 v.1, p.61).
To Mill, spending on the unproductive labour of clergymen will receive no return or benefit to society, whereas maintaining a class of agriculturalists and manufacturers will generate a higher return, which can be allocated to other productive activities, which will again generate a positive return to society.
In terms of the role of government in a capitalist economy, both scholars viewed government as being productive indirectly. In comparison to Malthus, Mill was a right wing economist and believed that the government has an important role to play in society:
“The labour of officers of government…is indispensable to the prosperity of industry, [and] must be classed as productive, even of material wealth, because without it, material wealth, in anything like its present abundance, could not exist. Such labour may be said to be productive indirectly” (Mill, 1886 v.1, p.61).
Thus both acknowledged that some form of Government was critical to the long term dynamics of capitalism. Without government, society would not have been able to generate such high material welfare and gain. Empirical evidence has indicated that non-military government capital is a significant input in the production function and has a high output elasticity of .39 (Karras & Evans 1994).
With respect to labour, both Mill and Malthus distinguished between productive and unproductive (U/P) consumption, including their effects on growth and development in capitalism. Mill made a distinction of productive and unproductive consumption to the labourer being:
“What they consume in keeping up or improving their health, strength, and capacities of work, or in rearing other productive labourers to succeed them, is productive consumption. But consumption on pleasures or luxuries, whether by the idle or by the industrious, since production is neither its object nor is in any way advanced by it, must be reckoned unproductive” (Mill 1848, book 1, chapter 3).
Mill saw unproductive consumption as having an undesirable influence to the wealth creation and growth of society, regarding U/P consumption as being undesirable and will only impoverish society:
“Whether they like it or not, the unproductive expenditure of individuals will pro tanto, tend to impoverish the community, and only their productive expenditure will enrich it” (Mill, 1886 Vol. 1, p.5).
Malthus on the other hand regarded U/P consumption as necessary to capitalism, particularly when productivity and innovation are at their utmost levels, which would ensure value and profit to expand:
“It would at once confound the effects even of production and consumption, as there is certainly no indirect cause of production so powerful as consumption” (Malthus 1836, p.45).
Another major topic studied by both economists was decreasing returns to agriculture and its effect on growth and development in a capitalist nation. This idea that agriculture would be subject to increasing returns, due to rising population unless supported by an increase in productivity, was adopted by Malthus.
Malthus contended that when the less fertile soil is used, the marginal product declines, while the rent increases due to inequality in the lands. Thus, the marginal expansion declines and output increases arithmetically, but at a diminishing rate. Therefore due to decreasing returns to agriculture, and population rising in a geometrical progression without any checks to it, society would not be able to survive in a population-food supply struggle.
In regards to population and food supply, Malthus said: “The power of the population being…so much superior, the increase of the human species can only be kept down to the level of the means of subsistence by the constant operation of the strong law of necessity, acting as a check upon the greater power” (Malthus 1970, p.21).
This “subsistence” level is the minimum level to reach survival. Malthus” population dilemma posed a theoretical question on the checks to population and a practical question concerning solutions to the problem. There were positive and preventative checks. The positive checks to population growth included war, famine and pestilence. These tended to have an adverse impact. According to Malthus, the ultimate positive check to population is limited food supply. In Malthus” own words:
“It has been inferred, that and increase of population in any state, not cultivated to the utmost, will tend rather to augment than diminish the relative plenty of the whole society”a country cannot easily become too populous for agriculture; because agriculture has the signal property of producing food in proportion to the number of consumers” (Malthus 1809 Vol. 2 p. 275).
The preventative checks included moral restraint, contraception and abortion. These tended to have a positive impact on procreation. Mill also believed that contraception needed to be encouraged to keep a hold on population. However, Mill was against abortion or immorality, even having been jailed for distributing birth control pamphlets.
Malthus believed that the tendency to procreate would in fact rule over the cumulative effect of the checks to population growth. Therefore, unless the positive checks were greater than the preventative checks, the human population would thus be brought to a “subsistence level” or just to a means of survival.
In Scandinavia for example, poverty has been eliminated locally, and even death from infectious disease is rare. This would not have occurred without low birth rates that have characterized the region. Not only in Scandinavia, but in other regions, low birth rates and death rates, strong education, a stable population, control of infectious disease and elimination of poverty and war are linked together in a “mutually re-enforcing circle of cause and effect” (Avery 2005, p.25). By contrast in many third world cities, contaminated water, polluted air, high birth rates, increasing population, poverty and resurgence of infectious disease are linked in a “self perpetuating causal loop” (Avery 2005, 25) with the result being a vicious circle.
Malthus failed to look at other checks that may have forestalled his gloomy conclusion. He had failed to separate sex and procreation. In the second half of the 20th century and well into the 21st century, advances have been made in modern birth control. Couples can have less constraint in regards to sexual activities. Therefore these additional checks can reduce the disparity between multiplication of the species and growth of the food supply. Mill also adopted Malthus” population principle, adding further that the population must:
“work harder, or eat less, or obtain their usual food by sacrificing a portion of their customary comforts” (Mill Vol 4, p.109). Mill here was saying the reality is, if society wants to maintain their usual way of living or maintain their “customary comforts” they must sacrifice either their time, consumption of goods, or activities that they have become accustomed to.
Malthus, like other classical economists of his time, was a pessimist. He envisioned that the capitalist system in the long run would face “pressure of population…decreasing response to human effort to increase supply of food and basic materials, limits to technical progress, subsistence wages, and falling profits” (Zweig, 1979 p.511) believing that in the end, technological improvement would not be sufficient to counteract the law of diminishing returns and depletion of natural resources.
Mill however was less sceptical about the capitalist system coming to a means of subsistence. Despite the classical economists such as Malthus and Smith realising that the growth of wealth could not continue indefinitely, only John Stuart Mill believed that a collapse of the system could be avoided and a stationary state achieved.
Economist Adam Smith described the stationary state as a situation of zero growth, in which the stock of goods is always the same, that is the quantity consumed is equal to the quantity supplied in the same time period, and rewards to the factors of production are at a minimum. The idea that the capitalist system would come to an end at the stationary state was feared by many classical economists including Malthus and Smith
According to Mill, once the stationary state was reached:
“every increase in the demand for food, occasioned by increased population”unless there is a simultaneous improvement in production, diminish the share which on a fair division would fall to each individual” (Mill Vol 4, p.109). Here Mill was saying that the demand for food must be balanced with supply. Mill described his ideal stationary state in book 4 of his Principles of Political Economy: “The density of population necessary to enable mankind to obtain all advantages of co-operation and social intercourse has in all the most populous countries been attained. It is no good for a man to be kept perforce at all times in the presence of his species. A world from which solitude is extirpated is a very poor ideal . . . With every rood of land brought into cultivation . . . every hedgerow or superfluous tree rooted out, every flowery waste or dell ploughed up . . . there is no satisfaction in contemplating the world with nothing left to the spontaneous activity of nature. If the earth must lose that great portion of pleasantness which it owes to things that the unlimited increase of wealth would extirpate from it, for the mere purpose of enabling it to support a larger, but not better or a happier population, I sincerely hope, for the sake of posterity, that they will be content to be stationary, long before necessity compels them to it.” (Mill, 1848, book 4, ch.6).
However to reach the stationary state required extensive social changes and reforms, which Malthus and the other classical economists did not realise. Mill is quoted as saying:
“improvement here must be understood in a wide sense, including not only new industrial inventions”but improvements in institutions, education, opinions, and human affairs generally” (Mill, 1886 Vol. 1, p.105). Mill argued that we need to educate society about contraception; that we need social reform and change. He further added:
“It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. . . Only thus can the conquests made from the powers of nature by the intellect and energy of scientific discoverers, become the property of the species and the means of improving and elevating the universal lot” (Mill, 1848, book 4, ch.6). Assuming that the capitalist system keeps a restraint on population, Mill held a relatively optimistic view of the stationary state, in that it would be characterised by technical progress and past capital accumulation, which Mill extends into in his book, further saying:
“I am inclined to believe that the stationary state would be, on the whole, a very considerable improvement on our present condition. I know why it should be a matter of congratulation that persons who are already richer than any one needs to be, should have doubled their means of consuming things which give little or no pleasure except as representative of wealth”It is only in the backward countries of the world that increased wealth is still an important object: In most advanced countries, what is economically needed is a better distribution to relieve poverty, of which one indispensable means is a strict restraint on population” (Mill, 1848, book 4, ch.6).
In his autobiography, Mill admits that this will all require a transformation of society and a character change in all classes of the population (Zweig, 1979 p.519). For instance, Mill was a strong advocate of contraception and safe sex attitudes of society. The only way to change people”s attitudes according to Mill was social change.
An idea that many classical economists held was that supply creates its own demand, known as Say”s Law. Attributed to the French economist, Jean-Baptiste Say, this law states that a market-capitalist economy will tend towards full employment of resources if there are flexible prices, interest rates and wages. Thus, according to Say”s law, it is inherently impossible that there will be long term crises of a market capitalist system.
Malthus rejected the idea of supply creating its own demand, arguing that supply reduces profit:
“It is impossible that the increased quantity of commodities, obtained by the increased number of productive labourers, should find purchasers, without such a fall of price as would probably sink their value below that of the outlay, or, at least, so reduce profits as very greatly to diminish both the power and the will to save” (Malthus, 1836 p.315).
Mill, like most economists, attached great importance to the role of capital and capital accumulation. Mill argued that given Say”s law, increased levels of output and employment depend on the accumulation and investment of capital. The portion of investment in capital, that is, result of saving, is required to tide labour over a “discontinuous production period” (Ekelund & Hebert, 1990 p.170). This was known as the wages-fund doctrine:
“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. They consume what has been produced, not what is about to be produced. Now, of what has been produced, a part is only allocated to the support of productive labour; and there will not and cannot be more of that labour than the portion so allotted (which is the capital of the country) can feed, and provide with the materials and instruments of production” (Mill 1848, p. 64).
Stated simply, it was not a temporary state of affairs, but rather the unemployment of resources, was not considered probable because of Says Law (Ekelund and Hebert, 1990, p.170). Saving would automatically be turned into investment, another form of spending and a general glut would not occur. Thus the saving of those who do not consume all their income will be otherwise utilised by capitalists in purchasing factories, machines and the like to an expansion of value. Saving then becomes net investment:
S = In
So Mill agrees with Say”s Law, that what is saved will be invested. Mill only assumed a system whereby the supply curve was vertical, where we are always at full capacity.
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Author: Matthew Coppola, Managing Director of Client Centric.
Client Centric – Executive Employment Solutions are a boutique employment services company specialising in executive and managerial level roles. We are committed to helping you succeed in your career and to do this we have the best staff on board to help you reach your goals. Our team are highly experienced and knowledgeable in a broad range of areas and expertise, so you get the best advice. We service clients all over Australia including Perth, Brisbane, Melbourne, Adelaide, Sydney and Hobart. We provide Resume Writing Services, Cover Letter Writing, LinkedIn Profiles, Addressing Selection Criteria’s and we also offer a Job Application Service where we apply for jobs on your behalf and all you do is wait for the call. Please visit our website at www.clientcentric.com.au to find out more.
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