This was my self-nomination for the Best Paper Award in the history of economics published during 2015. There are many other excellent papers that were also published so it is a very low probability entry. All the same, I believe the paper has genuine merit, as discussed in the note I sent to the Committee. I should mention that Mill’s Fourth Proposition on Capital states that “demand for commodities is not demand for labour”. If Mill is right, all modern macro is completely false.

Although my article is found in JHET and will therefore be automatically considered for the 2015 Best Paper award, I thought I would call attention to it since there are a number of aspects to it that may not be fully appreciated. The article is:

Kates, Steven. 2015 “Mill’s Fourth Fundamental Proposition on Capital: a Paradox Explained.” JHET. Vol 37, Number 1, March 2015, pp. 39-56.

Purely in terms of HET, the article explains in a completely natural way an issue that had been dealt with by some of the greatest economists of the past who could not fully make sense of what it meant. The proposition was first stated by John Stuart Mill in 1848, was never challenged in his lifetime and was described by Leslie Stephen in 1876 as “the best test of a sound economist”. Yet only fourteen years later, Alfred Marshall could not explain it, nor could Friedrich Hayek in 1941, both of whom tried to defend it in their own way. The proposition was attacked relentlessly by others. Keynes, for example, raises it twice within five pages in The General Theory (359n, 364n). It had last been looked at with any depth in HOPE in 1975 where the sub-title was “A Paradox Revisited”, emphasising the difficulty in making sense of the words. And yet, once the proposition is viewed within the context of the General Glut debate and within a classical understanding of Say’s Law, its meaning is apparent, indeed I would say obvious. It is thus not often that an issue that had remained unresolved since 1876 has been finally brought to an end. I compare Mill’s Fourth Proposition in the article to Fermat’s Last Theorem which, for economists, it is.

Second, the article does what I think HET ought to do – not exclusively, of course – but what it ought to do, at least where it is relevant, is use the economic theory of the past to illuminate economic issues of the present. The question whether increases in aggregate demand will lead to improvements in production and employment is a crucial issue in economics, never more so since the stimulus packages following the GFC have not led to a return to full employment and rapid growth. One does not have to agree with Mill to at least recognise that he has something to add to our contemporary debates. What if it is the case that an increased demand for goods and services does not lead to an increased demand for labour? This was not just Mill’s view, but was repeated as the “Treasury view” as late as the 1930s. Merely because macroeconomic theory today has rejected this conclusion does not mean that it is therefore certainly wrong. Some of the greatest economists who have ever lived accepted this conclusion. What this paper does is revisit this conclusion and puts the alternative perspective back into consideration.

It was also not my only paper published last year since I published two others, both on the role of the entrepreneur in economic theory. But this one was far and away the best.