J.S. Mill’s Theory of Development
J.S. Mill has made a significant contribution to the theory of economic development. According to Mill, economic development is a function of land, labour, and capital. He treated land and labour as original factors of production, and capital as the stock previously accumulated from the production of labour. According to him, the wealth of a nation increases production faster than the labour force. He also distinguished between productive consumption, and unproductive consumption. Productive consumption is that consumption which increases the productive power of the community.
The important constituents of Mill’s theory of development are
i) control of population growth
ii) a wage fund
iii) The role of capital accumulation
iv) rate of profit
v) The role of the state
vi) The stationary state
i) Control of Population Growth: Mill believed in Malthusian Theory of Population. According to Mill, the tendency of a population is to increase faster than the means of living. Therefore, there is a need to restrict population growth in order to bring faster development.
ii) The Wage Fund: According to Mill, the elasticity of labour supply is very high in response to rise in wages. Wages usually cross the subsistence level. Wages are paid out of capital, and, hence, they are limited by the existing fund of capital. Further, wages are determined by the demand and supply of labour. Any change in the wage rate is affected by the change in capital or population.
Thus, the rise and fall in wages depends upon whether capital grows faster than a population, or whether population grows faster than capital. Mill pointed out that an increase in consumption leads to a decline in investment. On the other hand, increase in investment leads to an increased wage fund, and this leads to economic progress. Mill believed that the wage fund depends upon the aggregate fund of capital, and the wages that are paid out of capital as advances.
iii) The Role of Capital Accumulation: Capital is defined as the previously accumulated stock of the products of formal labour: the higher the capital, the larger the size of wages and thus, the higher the demand for productive labour. Capital is the result of savings, and savings means abstinence from present consumption for the sake of future investment.
According to Mill, capital accumulation depends upon
i) the size of the fund that savings can make, and
ii) the strength of the disposition to save.
Thus, capital is the kingdom of development, and it is the upshot of investment.
iv) The Rate of Profit: According to Mill, the ultimate tendency in an economy is for the rate of profit to decline due to diminishing returns in agriculture, and an increase in the population at a Malthusian rate. In the absence of technical improvement in agriculture, and with a high population growth rate, the rate of profit is bound to decline, and the economy will approach a stationary state.
v) The Role of State: J S. Mill was an ardent supporter of laissez faire and advocated a minimum role for the state in economic affairs. Mill was in favour of free trade, and against protectionism. He prescribed protection only for infant industries. In his view, the government has an important role to civilize citizens by providing educational facilities.
However, he did not consider education as an investment in capital which stimulates economic growth.
vi) The Stationary State: The stationary state is a stage where there could be no increase in either population, or in the stock of capital. Profit becomes minimal. However, there would still be a rise in the standard of living because of improvements in the life style, and increased leisure through technical progress. According to J.S. Mill the stationary state is imminent. He supported the stationary state as it leads to improvement
in income distribution, and large remuneration for labour.