What is the economy for? – Thoughts from J.S. Mill

I know not why it should be 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 – J.S. Mill

hundred dollar billsWatching economics become untethered from its origins in political economy could almost be amusing if the consequences for public policy were not so serious. Modern Western economics arguably starts with Adam Smith, the moral philosopher.  Smith painted a rich picture of the economy as a facet of human society and political economy. (To the extent that there is a modern economist in the tradition of Smith, that distinction goes to Amartya Sen).

John Stuart Mill is perhaps the last great economist to have been a philosopher by training. Mill’s Principles of Political Economy first appeared in 1848, and went through seven editions, ending in 1909. Among other things, Mill clearly asks about the overall purpose of economic growth. Even in the first edition in 1848 Mill argues that economic growth is not the answer to social ills:

It is only in the backward countries of the world that increased production is still an important object: in those most advanced, what is economically needed is a better distribution

This, of course, is quite the contrast from the infamous claim of economics Nobel laureate Robert Lucas, “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.”

This article of faith that all social ills can be cured by growth is of course, the subject of both environmental critique and criticism from behavioral economics. As it turns out, economic growth and well-being are not very correlated past certain levels – and in fact, a focus on health, social trust, and equality may have more to offer in terms of direct benefits to society.

However, what interests me in this posts is Mill’s 1848 discussion of the “stationary state in Book IV.VI. In it, Mill starts with suggestions for achieving a better distribution of property (hint: inheritance tax), and then argues that with this distribution we could see a widespread increase in leisure, leaving time for moral and social progress:

On the other hand, we may suppose this better distribution of property attained, by the joint effect of the prudence and frugality of individuals, and of a system of legislation favouring equality of fortunes, so far as is consistent with the just claim of the individual to the fruits, whether great or small, of his or her own industry. We may suppose, for instance (according to the suggestion thrown out in a former chapter*26), a limitation of the sum which any one person may acquire by gift or inheritance to the amount sufficient to constitute a moderate independence. Under this twofold influence society would exhibit these leading features: a well-paid and affluent body of labourers; no enormous fortunes, except what were earned and accumulated during a single lifetime; but a much larger body of persons than at present, not only exempt from the coarser toils, but with sufficient leisure, both physical and mental, from mechanical details, to cultivate freely the graces of life, and afford examples of them to the classes less favourably circumstanced for their growth. This condition of society, so greatly preferable to the present, is not only perfectly compatible with the stationary state, but, it would seem, more naturally allied with that state than with any other.

It is scarcely necessary to remark that a stationary condition of capital and population implies no stationary state of human improvement. There would be as much scope as ever for all kinds of mental culture, and moral and social progress; as much room for improving the Art of Living, and much more likelihood of its being improved, when minds ceased to be engrossed by the art of getting on. Even the industrial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, industrial improvements would produce their legitimate effect, that of abridging labour.

All of this is before any environmental concerns about limits to economic growth. Mill instead makes a philosophical point about the lack of desirability of continual and unevenly shared growth in wealth. Instead, Mill suggests a society focused on improving the Art of Living. Setting public policy requires difficult philosophical discussions about the appropriate goals of society. Simply relying on economic growth to sort it all out is not an option.

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