John Stuart Mill and the theory of value

I have just posted this note onto the Societies for the History of Economics website in regard to François Quesnay, an eighteenth century French economist.

I found this, from Spencer Banzhaf, the most astonishing sentence I may have seen in quite some time, and I could not agree more.

“One cannot possibly discuss what happened to the role of agriculture/nature in value between Quesnay and today without talking about what happened to the meaning of “value,” conceived of as a moving target.  Rival theories of surplus value from Quesnay to Jevons will have to come into play.”

I often go on about the disastrous effect on economic theory of the Keynesian Revolution, but almost equally disastrous was the Marginal Revolution which undermined the classical theory of value, which was outlined comprehensively by John Stuart Mill in Book III Chapter VI of his Principles. Before I state my conclusion, I will just mention this, which comes from the brief profile of Mill that is on the HET website:

“John Stuart Mill’s greater economic performance was his magnificent 1848 Principles of Political Economy, a two-volume extended restatement of the Classical Ricardian theory.  He believed  Ricardo’s labor theory of value to be so conclusive that, in the beginning of a discussion on the theory of value, Mill confidently notes that:

‘Happily, there is nothing in the laws of Value which remains for the present or any future writer to clear up; the theory of the subject is complete: the only difficulty to be overcome is that of so stating it as to solve by anticipation the chief perplexities which occur in applying it.’ (J.S. Mill, Principles, 1848: Book III, Ch. 1).

“Thus putting a stone on the matter, and burying supply-and-demand theory for another quarter-century.  When Jevons’s later grumbled at the ‘noxious influence of authority’ preventing the development of economics, there is little doubt he was referring to J.S. Mill.”

That is all we think we know about the classical theory of value and it could not be more completely wrong. Mill did not restate “Classical Ricardian theory”. He explicitly discussed supply and demand. If you go to Mill, the first two of the seventeen elements in his theory of value are firstly, that the issue is not price as such, but relative prices, and then secondly, that the “temporary or market value” of something can be determined by supply and demand. There is no labour theory of value to be found anywhere. This is what Mill wrote:

“I. Value is a relative term. The value of a thing means the quantity of some other thing, or of things in general, which it exchanges for. The values of all things can never, therefore, rise or fall simultaneously. There is no such thing as a general rise or a general fall of values. Every rise of value supposes a fall, and every fall a rise.

II. The temporary or Market Value of a thing, depends on the demand and supply; rising as the demand rises, and falling as the supply rises. The demand, however, varies with the value, being generally greater when the thing is cheap than when it is dear; and the value always adjusts itself in such a manner, that the demand is equal to the supply.

The shallow reasoning and lack of depth in a modern textbook is a scandal, but is kept from most of us because no one knows what the economic theory of the past actually consisted of. If Spencer Banzhaf intends to be stating that “rival theories of value from Quesnay to Jevons” will need to be examined, then that is absolutely the case. What astonishes me is that both macro (which has replaced the classical theory of the cycle) and micro were much more profound among the later classical economists than amongst the majority of the economics profession today. We have more diagrams, they had a deeper understanding.


And this from “The Physiocrats and Say’s Law of Markets. I” by Joseph J. Spengler.

The physiocrats always expressed their theory of circular flow in interclass, rather than in interindividual, terms. Notwithstanding, their theory of circular flow forced upon them several conclusions of importance. They looked upon money as an instrument whose essential function it is to facilitate the circulation of goods and services, to serve as a medium of exchange. In consequence, they recognized that commerce consists, not in buying and selling, but in the ex- change of goods and services for goods and services. They thus laid the ground- work for the formulation of Say’s law of markets and evoked its actual statement by their treatment of consumption and expenditure. They recognized, too, that if money ceases to perform its function, the nexus between potential purchasers and potential sellers is broken, thus anticipating Keynes; but they did not develop this theory, for they supposed that in a healthy economy founded upon their principles money would always perform its proper function.

1 thought on “John Stuart Mill and the theory of value

  1. Pingback: Mill and marginalism | Law of Markets

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