(Critical Survey of Literature for Students)

John Stuart Mill’s central concern in Principles of Political Economy is the production and distribution of wealth, which he defines as everything that serves human desires that is not provided gratuitously by nature. The most important elements in wealth are goods currently produced.

Production requires labor and appropriate natural objects. The labor devoted to a product is rewarded out of its sale proceeds, but before these sales are realized, advances to workers are required, which come from capital. Productive labor is what yields an increase in material wealth.

Capital consists of wealth used for productive activity. Capital provides the tools and materials needed to carry on production, as well as subsistence for the laborers while the production process is going on. The quantity of a nation’s industry is limited by its stock of capital. Increased capital means increased ability to hire workers, and thus increased employment and output. The accumulation of capital results from saving. It is not from demand for commodities, but from capital, that demand for labor arises, although the demand for commodities determines in what productive activities workers can find employment.

Differences in the productivity of nations may arise from geographic factors such as climate and the fertility of soil. There are also important differences in labor quality: in physical vigor; in ability to persevere in pursuit of distant objectives; in skill, knowledge, and trustworthiness. Productivity is enhanced by legal and social institutions favoring security of person and property, and by effective cooperation as manifested in division of labor. As a result of greater specialization of workers and equipment, large-scale productive establishments are often more efficient than small ones.

The rate at which production grows depends on the rate of growth of labor, capital, and land, and on improvements in productive technique. Increases in population tend to raise the total quantity of production by increasing the labor supply but may, by increasing the number of consumers, keep down the living standards of the working class. Unless birth rates are limited, increases in population and labor supply must continually tend to force wages to low levels.

The rate at which capital increases, reflects the flow of saving, which depends on the level of income and the desire to accumulate rather than to consume. Willingness to save is encouraged when the expected profits of investment are high and when uncertainty and insecurity are at a minimum. Whether a society is progressive or backward depends in large degree on the level of saving it achieves.

The real limits to production growth arise from the limited quantity and limited productiveness of land. Cultivation of land is subject to diminishing returns—that is, increased application of labor and capital by any given proportion will increase total output only in some lesser proportion. Tendencies toward diminishing return can be counteracted by improvements in methods of production, but these are more likely to produce decreasing costs in industry than in agriculture. The pressure of population growth against diminishing returns is the principal cause of widespread poverty.

Although the laws of production are essentially physical, the principles of distribution are social; once the goods are produced, they can be distributed as people wish. An important determinant of income distribution is the nature and distribution of private property. Some critics find much fault with the institution of private property and propose socialist systems involving democratic management of productive operations and equal division of the product. Such schemes cannot be dismissed as impracticable. Some people might shirk their responsibilities to work, but this is also a serious defect of other property and wage arrangements. A communitarian society would have to guard against an excessive birthrate and might encounter problems in determining who should perform which tasks. Practices relating to private property have not conformed to the ideal of assuring to each person the fruits of his or her labor or abstinence. The best system will be one that is consistent with the greatest amount of human liberty and spontaneity.

The produce of society is divided among the three classes who provide productive agents: labor, capital, and land. Wages are determined by the proportion between population (supply) and capital (demand); thus high birthrates tend to inhibit increases in wage rates. Limitation of births by the working class would be promoted by the extension of...

(The entire section is 1909 words.)