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