This is a tweet sent out by Oxford University Press Economics.
“Demand for commodities is not demand for labour.” – John Stuart Mill
From Oxford University Press with Mill’s fourth proposition on capital – demand for commodities is not demand for labour – just thrown out for comment. So I commented:
The statement is true, much to the shame of modern economics. I have written an article on just this: “Mill’s Fourth Proposition on Capital: a Paradox Explained”, published in the March 2015 JHET. Ever wonder why no stimulus has ever led to recovery? Mill explained it in 1848.
As I wrote to my friend and colleague who had spotted the OUPE tweet and forwarded it to me:
From out of nowhere, really, that OUP should suddenly bring forward that quote of all quotes from Mill. Wondrous that you even saw it and thank you for sending it along. I have now added my own tweet to the rest. The destructiveness of Keynesian economics ought to be perfectly evident everywhere except that it’s not. Sad and yet funny that virtually no one today can even work out what Mill had meant even though it had been the universal view of every economist right up to the publication date of the General Theory. And I don’t mean that people disagree with Mill. I mean that no one can even explain why Mill and all of his contemporaries thought this was true so just end up befuddled but leave it alone.
Need I add that Leslie Stephen thought that Mill’s Fourth Proposition was “the best test of a sound economist”? Well, of course I don’t need to, but I will, and also add that Stephen was right and it is.
LET ME ALSO ADD THIS: From The Oz today, via David Uren:
“Average household incomes have not improved significantly since the global financial crisis in 2008-09.”
We are talking about a decade in which real incomes have not risen and during which the unemployment rate has hardly budged. I wrote this in 2008 (and published Feb 2009).
What is potentially catastrophic would be to try to spend our way to recovery. The recession that will follow will be deep, prolonged and potentially take years to overcome.
Mill’s fourth proposition is pure macro (or theory of the business cycle if you want to think in classical terms). You cannot generate a recovery from the demand side is how you might say it today. In the 82 years since The General Theory was published there has not been a single instance where this has been shown to be untrue.