I'd like to offer a slightly different, more micro, take on Mill's 
statement: Most investment is replacement investment. But that 
investment can vary greatly in factor proportions, providing different 
rates of employment. For example, we can patch potholes in city 
streets--a fairly labor-intensive process, or we can dig up the streets 
and replace them with new--a fairly capital-intensive process. Public 
policy generally biases investment decisions to greater 
capital-intensity. J. B. Clark squashed such considerations out of 
existence by making everything adjust simultaneously as he 
hypothetically adds labor or capital to the economy. (Clark, 
Distribution of Wealth, Chps 12 & 13, 1902)

On 8/22/2011 10:32 PM, Steve Kates wrote:
> I have taken the liberty of changing the subject line for this thread
> because I think it raises separate issues for HET. I have also been
> chastised in the past for mixing HET and economic advocacy so I will
> steer as clear of this as much as I can.
>
> On strictly HET matters, there is the fact that Mill most indubitably
> wrote in 1848 that “demand for commodities is not demand for
> labour”. This can be contrasted with Marshall’s contention, as
> stated in the marginal note in the Principles that accompanies his
> discussion of Mill’s proposition, that “demand for commodities is
> generally demand for labour” (Marshall [1920 [1947]: 828). With
> Marshall’s original discussion itself dating from 1890 (the marginal
> note came later), and with Leslie Stephen having written as recently as
> 1876 that Mill’s statement is “the best test of a sound
> economist”, something clearly happens inside economic theory
> between 1876 and 1890. Moreover, there was no dissent from Mill’s
> statement during the whole of classical times amongst the mainstream,
> with George Scrope the only candidate for a dissenting view.
>
> My contention is this. Mill’s statement is what we would today
> classify as macroeconomics. If you use up your resources unproductively,
> then those resources cannot be used to employ. If you build factories,
> steel mills, transport networks or whatever which increase an
> economy’s productivity – that is, if you increase the amount of
> capital available – you will increase the ability for that economy to
> employ more employees at the going real wage and even perhaps increase
> the real wage of those who are already working. If instead resources are
> used unproductively, in indulging in various forms of current
> consumption, then the capital base is not extended and an economy’s
> ability to employ is diminished and may even contract. That is my
> interpretation of Mill and it seems perfectly sensible to me. Moreover,
> it does not require a retreat into wages fund or any other now discarded
> item of economic theory. For someone thinking in a micro context,
> however, the demand for cars is a derived demand for car workers. For
> someone thinking in a macro context, the demand for non-productive goods
> and services will diminish the supply of capital and therefore lower the
> demand for labour. I think Mason Gaffney in his post gave a reasonable
> summation of what Mill and the classics may have had in mind.
>
> There are a number of HET issues that arise from this. There is first
> the effect of the marginal revolution on how economists then and since
> have framed issues. The marginal revolution did two things. It firstly
> reoriented economic theory away from macro (“the wealth of nations”)
> to micro (‘the allocation of scarce resources amongst competing
> ends”). It then moved the focus from the supply side – the
> importance of the creation of capital if employment is to grow – to
> the demand side – where the stress was put on marginal utility as the
> driving force in an economy. It may even have made a Keynesian
> Revolution of some kind almost inevitable where the orientation of the
> theory of the business cycle would be moved away from productive supply
> to aggregate demand.
>
> The second HET matter, one which I worry a great deal about, is the way
> in which HET has become a very optional extra as perceived by the
> mainstream. We here on this site can at least discuss Mill’s Fourth
> Proposition with some degree of sympathy and interest. We at least know
> it exists. I would suspect, however, that across the length and breadth
> of the profession generally, and certainly for anyone under the age of
> forty (fifty even), this notion is utterly unknown. And it is more than
> just that they do not know of this proposition. It is that they are more
> or less told that there is nothing in all of the ancient texts of
> economics that is worth a moment of their scarce scholarly time. They
> are very wrong about this, since the fact that in 1848 Mill could for
> all practical purposes state that a stimulus program based on
> non-value-adding forms of expenditure would cost jobs rather than add to
> them is something that really ought to have them look at Mill and the
> classics once again. If we in HET are not able to point this out to the
> mainstream, then there is a problem inside the profession itself. Who
> will do it if not us?
>
>
> Dr Steven Kates
> School of Economics, Finance
>      and Marketing
> RMIT University
> Level 12 / 239 Bourke Street
> Melbourne Vic 3000
>
> Phone: (03) 9925 5878
> Mobile: 042 7297 529
>
>
>
>
> -- 
> Dr. Mary M Cleveland
> Adjunct Professor of Environmental Economics
> Columbia University School of International and Public Affairs
> [log in to unmask]
> hm: 212 873-2982
> 20 West 72nd St #506
> New York NY 10023
> www.mcleveland.org
> www.georgiststudies.org