John Stuart Mill and the market economy

I have posted my own final note on the Liberty Fund website where I have had the great honour of writing the lead article and in which I have been joined by three great scholars: Richard Ebeling, Nicholas Capaldi and Sandra Peart. The entire discussion may be found here. One seldom has the opportunity of having one’s own work put before such an informed group and I cannot tell you how privileged I feel in having had such an intense discussion about issues that for the most part hardly anyone has any genuine understanding of. It has also given me an opportunity to focus wider attention on Mill, who is still to my mind the greatest economist who has ever lived.

And what may be the most astonishing thing I may have learned during this last month is that one of the greatest Mill scholars is now president of the Mont Pelerin Society. I read Pedro Schwartz’s New Economics of John Stuart Mill (1973) quite a while back and then Nicholas Capaldi’s intellectual biography of Mill (2005) when it came out. I felt I was dealing with kindred spirits with each yet never thought there was much else to it other than a similar regard. A a result of this symposium I appreciate that Nicholas and I have a similar understanding of the economics of Mill in much the same way for many of the same reasons. But I have also just found out, only yesterday in fact, that Pedro Schwartz is the recently elected President of the Mont Pelerin Society. I cannot tell you how astonished I am.

My assumption had always been that those with free market beliefs would shun Mill because of his promotion of economic experiment and his willingness to see “socialism” of some kind or other in a positive light. I would say to others that Mill has provided the best defence of the free market and the deepest understanding amongst anyone I have ever read. No one is exactly right about everything, or even if they were, since no two people see everything the same way, there will be differences that must come up. I only now feel an ability to insist even more than before, because of the example they have set, that if you would like to understand the nature of the market system, it is to John Stuart Mill you must go. Go through the posts on the Liberty Fund first to get you familiar with what you will find. But it is with Mill that you will find the best appreciation of the way an economy works and how it can be made to grow, than from any other of the great economists of the past. And for my own pale understanding of what he wrote, the second edition of my Free Market Economics is the closest attempt there is to bring the economics of Mill into the twenty-first century.

John Stuart Mill explaining what is wrong with Keynesian theory

I have just posted an article on “Mill’s Defence of Say’s Law and Refutation of Keynes” as part of the Liberty Fund discussion on “Reassessing the Political Economy of John Stuart Mill”. If you are interested in knowing how far economic theory has gone wrong since the Keynesian Revolution, you ought to have a look at this thread which includes not just me, but also Richard Ebeling, Nicholas Capaldi and Sandra Peart. However, my latest post is due to the editor at the Liberty Fund picking up an offhand comment of mine and asking me to expand. Why this did not occur to me on my own, I cannot say, but this is the first time in which I have written a condensed version of what is wrong with Keynesian macro using Mill’s Principles as the basis for understanding pre-Keynesian theory. This is the final para but I do encourage you to read it all.

Reading the three sections of the Principles together we find Mill arguing:

  • recessions do occur and when they do the effect on the labor market is prolonged and devastating;
  • recessions are not caused by oversaving and demand deficiency;
  • recessions cannot be brought to an end by trying to increase aggregate demand.

That is as complete a rejection of Keynesian economics as one is likely to find, and it was stated in 1848. These propositions and their supporting arguments were with near unanimity accepted by the entire mainstream of the economics profession through until the publication of The General Theory in 1936. Since then they have almost entirely disappeared resulting in a loss in our ability to understand the nature of recessions or what needs to be done to bring recessions to a timely end.

Mill is not hard to understand unless you have learned Keynesian macro first. And then it is very difficult indeed. But if your interest is in understanding things such as why the stimulus was such a catastrophe, I cannot think where better to go to find out than from Mill. And if you are interested in Mill, then you should read this Liberty Fund discussion first.

My lead article on John Stuart Mill at the Liberty Fund

It has been a great honour for me to have been asked to write the lead article for the Liberty Fund online discussion forum for July 2015, which is on the economics of John Stuart Mill. The article has now been published and may be found here. It will be followed by commentaries from three of the world’s great scholars on Mill, after which there will then be open discussion thread from readers. The following is the Liberty Fund’s introduction to my article and the three commentaries:

In this month’s Liberty Matters online discussion we reassess the economic ideas of John Stuart Mill as found in his classic work Principles of Political Economy (1st ed. 1848, 7th ed. 1871) and other writings. In the Lead Essay by Steven Kates of the Royal Melbourne Institute of Technology it is argued that in the light of the evident failures of Keynesian economics to solve the problems of the boom and bust cycle, and that of ongoing high unemployment and economic stagnation, that we should go back to Mill’s “Four Propositions on Capital” for enlightenment. In Kates’s view there is “more insight into the operation of an economy than any of the Samuelson clones that have been published to explain what Keynes meant in trying to raise aggregate demand.” The commentators are Nick Capaldi, the Legendre-Soulé Distinguished Chair in Business Ethics at Loyola University New Orleans; Richard M. Ebeling, the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina; and Sandra J. Peart, who is dean of the Jepson School of Leadership Studies at the University of Richmond.

If nothing else, this article and the three commentaries should alert you to the virtual certainty that modern economic theory is not even near being the best economics there has ever been.