I suspect it will doubtless surprise few people on this list that Leslie 
Stephen's remark about Mill's Fourth Proposition was frequently 
mentioned approvingly by Hayek.
On another topic, this is just an additional example of the intricacies 
of the Hayek-Mill relationship!
Bruce

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


-- 
Bruce Caldwell
Research Professor of Economics
Director, Center for the History of Political Economy

"To discover a reference has often taken hours of labour, to fail to discover one has often taken days." Edwin Cannan, on editing  Smith's Wealth of Nations

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