The last great classical economist was John Stuart Mill (1806-1873)
His main economic work is Principles of Political economy, published in 1848.
Mill was a most unusual and probably the most gifted writer who contributed significantly not only to economics but also to political science and philosophy.
His intellectual powers were in much the effect of his education. His father, James Mill was also an economist but of lesser importance. James Mill educated his son in a very disciplined and restrictive way.
At three years of age J. S. Mill was studying Greek and by age eight he began Latin. After mastering mathematics, chemistry, physics and logic, he started to study political economy at age thirteen. He was not allowed to read any religious writings or poetry, nothing that would make him irrational.
By his 15th year his formal education was finished, he had the knowledge of formally educated 30-years old person.
He suffered mental breakdown at the age of 20 (due to the psychological costs of this intense education), but after the period of depression he became one of the leading intellectuals of his and all time. He is an important figure in the history of economics and in the field of logic, political science, philosophy of science and political or social philosophy.
Mill contributed to economic theory, but his main interest was in broader social issues than economists typically address. He was rather social philosopher, social reformer, who wanted to improve the lot of the individual in the society.
So first, we have to say something about these broader social issues, which Mill was interested in, and only after, we will discuss his theoretical achievements.
There are two social movements, which influenced Mill. The first is socialism, the other utilitarianism.
Let's start with socialism.
Early socialist thinkers appeared in economic thought in the beginning of 19th century. This group of writers was very diverse and one unifying that binds them together is their view that the functioning of capitalism in 19th century Western Europe was disharmonious. While classical economists were in general strong advocates of capitalism, early socialists against Smith, Ricardo and others, founded many objections to capitalist system.
They proposed many various means of eliminating evils of capitalism, most of them were of non-violent character. Most of them argued simply that capitalism is unjust, because there is too much inequality and poverty in capitalism.
Karl Marx called them - utopian socialists, since he thought that their critique of capitalism was not based on scientific science - we'll get back to this issue, while discussing Marx's views. Marx claimed that he scientifically proved that capitalism in inherently unstable and self-destructing, while early socialists, pre-Marx socialists mainly criticized capitalism on ethical basis, as unethical, unjust system. This is the difference between Marx and early, utopian socialists.
Before we proceed, further we should define what we mean by socialism and capitalism, because these terms have many different meanings.
We can use the following workable, but not generally agreed on, definitions.
There are two important features of ideal capitalism: 1) private ownership of economic resources; 2) market as a allocation and distribution mechanism
Ideal socialism is defined respectively as system where 1) there is a state or public ownership of economic resources; 2) market still serves to some extent as mechanism of allocation of resources and a mechanism of distribution of incomes.
Communism here would be a system with 1) state or public ownership of resources; 2) state or some central planning authority decides on the allocation of productive factors and on the distribution of incomes. There is no market. Ideally, according to Marx, in communism each person should be given as much resources as to fulfill her needs. In addition, everyone should give to the society as much as his or her ability is - to work as hard as possible.
Hence, the communist phrase describing allocation and distribution in communism says - “from each according to his ability, to each according to his needs”
In times of Mill early socialist ideas were becoming more and more popular and Mill is the first classical economists who gave response to these ideas, and evaluated them objectively.
Second social movement, which is important while discussing Mill's views in utilitarianism.
Utilitarians, proponents, advocates of utilitarianism, were social reformers, social philosophers, who held some specific views about the economy and society.
The leader of the group was Jeremy Bentham (1748-1832), economist and philosophers.
What is utilitarianism?
Simply it is the ethical view that the only standard by which moral rules, civil laws, economic actions, government economic acts, or decisions in economic policy should be evaluated is the principle of utility: the maximization of the sum of the happiness (they named happiness also as utility) of all individuals that make up a society.
Early utilitarian economists thought that if society could measure happiness, than economic laws and regulations could be created that would result the maximal possible sum of the utility (happiness) of all members of society.
They thought that the best way to measure happiness was by the use of money.
How to use money in practice to measure happiness resulting for any economic action or event?
According to them, you have to ask how much would you pay for this economic action or event, if it can be brought about. Willingness to pay is the measure of happiness.
Thus, Bentham and early utilitarians thought that they could design an optimal society, that they can formulate the best possible economic policy for example, by using the principle of utility and by the use of money as to measure happiness.
This principle of utility became the most popular standard of evaluation economic policies, economic actions, and economic arrangements later in 19th century and today is used as one of the most popular criterion of social welfare in welfare economics - the sum of the utilities of all members of society.
According to this criterion, the social welfare increases, if the sum of utilities of all members of the society increases.
We may say here as a digression that there are many theoretical limitations of money as an instrument to measure utility and in general it is not easy, if not impossible to measure utility by the use of money.
In 20th century, in 1930s, 1940s, utilitarianism was largely rejected in economics because most economists agreed that there are no exact, scientifically valid methods for measuring utility or happiness, and what is more that there are no scientific methods for comparing utility of different persons.
Still, today utilitarianism is a quite strong movement in economics and social philosophy. Many of contemporary economists are in principle advocates of some form of utilitarianism. In later part of 20th century economists invented several more precise methods of measuring and comparing utility. We will discuss this issue, while studying the development of 20th century economics.
John Stuart Mill was a pupil, a student of Bentham, and soon became a leader of utilitarian movement, developing a sophisticated version of utilitarianism in economics and philosophy.
So much on Mill's intellectual background, and especially the influence of socialism and utilitarianism on his thought.
Mill's views on the economic policy, his attitude to capitalism and socialism and his general social philosophy.
Socialist writers influenced Mill. This influence is best evident in his distinction between the laws of production and the laws of distribution.
Mill maintained that this distinction between the laws of production and the laws of distribution was his single most important contribution to economic thinking.
The laws of production (for example the principle of diminishing returns), according to Mill, are laws of nature (like the law of gravity in physics) that cannot be changed by human will or institutional arrangements.
However, the laws of distribution are not fixed; they result chiefly from particular social and institutional arrangements.
Therefore, the laws of production are fixed, independent of human will, but the laws of distribution can be changed by human decision. This is the important difference between those two kinds of economic laws according to Mill.
Why he made the distinction?
Because he was reacting strongly to the way, in which classical economics was being used in economic policy.
Conservative economists, politicians and general opinion used classical theory to show that the distribution of income is determined by fixed, unchangeable laws (that cannot be changed anymore than the law of gravity can be changed).
According to this argument the many efforts to improve the quality of life, the welfare of the mass of society, particularly of the working class, through social legislation, the trade union movement and income redistribution policy are futile, because the distribution of income is governed by immutable, fixed economic laws, which result in the masses being poor (recall the so-called iron law of wages - the wages of laborers are on the subsistence level, they are sufficient to fulfill only basic needs of workers).
According to Mill the distribution of income or wealth (the laws of distribution in his language) can be changed through the social legislation (pro-poor legal acts, redistribution policy and the like).
Therefore, the government can redesign the institutions of capitalism, to some degree, to make the distribution of income and wealth more equitable, more equal.
We have to discuss here Mill's distinction in more detail. What does it actually mean that the laws of distribution are not fixed, while the laws of production are fixed, independent of human will?
There are two meanings of distribution of income in economic theory. One is functional distribution of income - the distribution of income among the factors of production or the social classes - how big is the part of national income going to the owners of labor, how big is the share of NI going to the owners of capital and the like. The factual, real functional distribution of income depends on the prices of factors of production (rate of wage, profit, and land rate) and on the marginal productivity of factors of production.
As such, because it depends on the MP of factors of production, the functional distribution of income is in direct relationship with the laws of production, because we determine the MP of factors of production on the basis of the production function.
Therefore, the functional distribution of income cannot be changed any more, than the society can change the laws of production (the production function).
However, there is a second meaning of distribution in economics and this is personal distribution of income, the share on NI going to every household. The personal distribution of income depends on number of factors (economic ones - such as the resources in the possession of the household, the effort of the members of the household and the like). Moreover, a variety of non-economic factors do influence the personal distribution of income (factors like the laws, customs, institutional, political arrangements and, for example, the fact how lucky is the household in the market economy).
Most of these non-economic factors influencing personal distribution of income are outside the subject of analysis of economic science, so modern mainstream economics has little to say on factors explaining the personal distribution of income.
So the laws on production only loosely influence the personal distribution of income and the society have the ability to effect this distribution of personal income in accordance, for example, with some ethical judgments.
Therefore, Mill's laws of distribution concern personal distribution of income, not the functional one. In this sense his distinction is correct.
But, against his views we could, from the modern point of view, argue that society, in a way, can influence also the laws of production, for example, by investing smartly in the development of technology, the production function of any country can be changed and governments can influence, the seemingly physical, unchangeable, relation between economic resources and economic output. Well, but classical economists generally did underestimate the importance of technology for economic development.
As you can see, Mill made the distinction between these two kinds of laws, because he was a social reformer and he was concerned with the standard of living of the working class. He thought that society should act in a more wise and humanistic way, so that a more equal distribution of income and wealth.
In practice, to achieve this aim, more equal distribution, he favored the following means in economic policy:
high rates of taxation on inheritances, but he opposed progressive taxation because he feared the disincentive effects of progressive taxation (that is he thought that those who are progressively taxed would put less than optimal amount of effort into work)
he advocated the formation of producer cooperatives, that is firms in which workers would receive not only wages but also would participate in profits achieved) - this would contribute to more equal distribution of wealth.
he argued that more equal distribution would be achieved if population growth could be reduced. Therefore, he wanted to enlighten the working class through education (including education about birth control. Reduced family size would contribute to higher living standards of the masses.
limitation of right of property in land. State may expropriate (take over the ownership of land) land if it pays compensation. He also thought that there should be a tax on all increases in land rent.
So much on the Mill's distinction between the laws of distribution and the laws of production.
Mill's economics was often described as eclectic (that is deriving ideas from many various, possibly contradictory, sources). His basic economic theory was Ricardian, but he used rather the methodology of Adam Smith than of Ricardo (that is he used contextual economic analysis, he was not a pure, abstract theorist).
He also drew inspirations also from socialism and utilitarianism; he thought that economic activity must be considered in a broader social context of all human activity; he was concerned not only with economics but with social philosophy in general
All this contributed to his main economic work being called eclectic.
This Mill's eclecticism is best visible in his approach to economic policy.
His writings on economic policy are a strange mixture of opinions and he cannot be easily classified as an advocate of laissez faire or an advocate of government intervention or as a proponent of socialism. He was subtle writer, but also ambiguous one. And complex one too.
Possibly the best way to characterize such a subtle, complex economist as Mill is to say that in terms of economic policy he represents a midpoint between classical liberalism and socialism.
His views were not close to Marxian, revolutionary socialism, but rather to some kind of evolutionary, non-violent version of socialism.
What were Mill's specific views of the role of government in a good society?
His philosophical book “On liberty” (1859) is a classic statement of political liberalism. In the book, he claimed that individual freedom is the most important social value. He maintained that the only rightful exercise of power by a government over an individual will is “to prevent harm to others”. So individual freedom is restricted only by not harming other people. You can do anything you want (in your private and public spheres of life), unless it is harmful for other people.
Until today, it is a classical statement of liberalism in political and philosophical tradition of the western world.
However, in his discussion of practical social action Mill abandoned such a strong liberal position and found exception upon exception to the general rule of liberty and freedom.
He found it necessary in one place to make a forceful statement, I quote it: “Laissez faire, in short, should be general practice: every departure from it, unless required by some great good, is a certain evil”. Therefore, the laissez-faire should be general practice in economic policy, according to this statement.
However, he was far from being an unqualified supporter of laissez-faire, going so far as to describe the exceptions from laissez faire as `large'.
He listed five classes of actions that had to be performed by the state.
They included cases where individuals were not the best judges of their own interest (it would include education for example), he advocated that state should complement private education by providing public education, but not on the monopoly basis, state education should compete with privately provided education.
He thought also that individuals may not be able to judge future consequences of actions, so the of long term obligations (long term job contracts for example) should be regulated by state.
He thought also that state could intervene in joint-stock companies, because if a task needs to be delegated to joint-stock associations, it would be better done by
the state; in joint-stock companies there is a problem with shareholder control over the management; while state can better control the management of the company.
In addition, he thought that the state intervention is required in situations where coordinated action is required, for example if workers aim at reducing hours of work, they should coordinate this action, they should all require the reduced hours of work at the same time. Because none of them (of workers) has the incentive to start to require the reduced hours of work individually - he would be fired and replaced by others from the labor market.
So reduction of the hours of work can be only implemented by government legislation.
Further, state should strongly participate in such a activities as public charity (it should be regulated by state), colonization, and in general in public services that cannot be performed by an individual.
Even more radically, Mill argued that there might be circumstances in which it became desirable for the state to undertake almost every activity:
“In the particular circumstances of a given age or nation, there is scarcely
anything, really important to the general interest, which it may not be desirable,
or even necessary, that the government should take upon itself, not because
private individuals cannot effectually perform it, but because they will not. At
some times and places there will be no roads, docks, harbours, canals, works of
irrigation, hospitals, schools, colleges, printing presses, unless the gvovernment
establishes them; the public being either too poor to command the necessary
resources, or too little advanced in intelligence or appreciate the ends, or not
sufficiently practiced in joint action to be capable of the means.”
So in cases of underdevelopment or possible the economic transformation, Mill proposed that state should take control over almost every economic activity in the economy.
The range of exceptions to laissez faire in Mill's writings is quite extensive, much more extensive than exceptions to laissez faire proposed by Adam Smith.
Having made the case for laissez-faire in the first place, Mill thus qualified it so heavily as to open the possibility that this level of state activity could be regarded as socialist.
So should we call Mill a socialist thinker?
In principles of political economy, he compared capitalist and socialist economic systems.
He wrote that if we would compare existing capitalism (with its excessive inequality and poverty among laborers) with ideal socialism (with definitely more equal distribution of income and wealth) than we should choose without hesitation socialism. Even if socialism has the problems of its own, (the authority has to decide on the distribution scheme, has to decide how much equality should be among the members of society). However, he thought that theoretical, conceptual socialism is better in comparison with real, existing capitalism.
However, Mill wrote, the system of private property, capitalism, does not have to be as it is.
With universal education and limitation on the population growth poverty could be eliminated from a system of private property.
Some basic institutions of capitalism can be changed in favor of redistribution toward the poor, and capitalism with a more equitable, more equal distribution is a fully workable alternative to socialism.
We should compare this modified, ideal capitalism with ideal, theoretical socialism (socialism at its best).
In such a comparison, Mill argued, we should choose rather capitalism because capitalism would assure better individual freedom and diversity of opinion among the members of society, which are, to Mill, the sources of mental and moral progress in society. So finally, he preferred capitalism over socialism but rather on a political non-economic basis.
He argued that people should experiment on a small scale with socialist economic arrangements in practice in order to determine what are their practical economic advantages and disadvantages and in order to make a better-informed decision whether socialism or capitalism is a better economic system.
As we can see he was not a socialist or communist, but was sympathetic to socialism, he flirted with socialism. In fact, he was rather a proponent of a modified version of capitalism, he saw many advantages of markets and market competition, but he wanted capitalism with more equal distribution of income and wealth, so we could call him a precursor of modern “third way” between capitalism and socialism, some kind of modern social market economy.
One final issue about Mill's economic policy and social philosophy concerns his analysis of Ricardian stationary state. Mill agreed with Ricardo that stationary state (a state where there is no economic growth, the economy is not expanding) is the ultimate fate of capitalism.
For Mill this vision of coming stationary state was not a sad or dismal one. He thought that ever-growing economy is not necessarily a desirable place in which to live. Mill found many aspects of a prosperous, growing economy to be rather objectionable or reprehensible and the aspects of interpersonal relationships in market economy such as trampling, crushing, elbowing, and treading on each other's heels on the way to make more and more money.
Therefore, some egoistic, competitive aspects of human relationships in the market economy were for him rather not very attractive for the overall human happiness and well-being.
In stationary state, the situation would be different, it could be a highly desirable place to live, as the pace of economic activity would decrease and more attention would be focused on the individual and his or her non-economic well-being. In Mill's vision of stationary state a gentler, less materialistic culture exist. A redistribution of income in stationary state has occurred and no one is poor, no one desires to be extremely rich (it is quite not possible, since economy is not growing, and redistribution mechanisms are working), no one fears that he we will be excluded from the society or become poor by the efforts of others to make themselves rich.
In a stationary state, according to Mill, you can spend more time improving the art of your living, you work less, you can engage in developing your interests, your hobbies and the like.
So in Mill's view stationary state would bring about a good society, it is therefore not pessimistic conclusion of Ricardo's model, a better society, more humanistic, less materialistic, would emerge in this state, in which the fruits of capitalism would be shared by all its members.
This was a very unusual interpretation of the concept of stationary state.
From his analysis of stationary state, we can see that he was not an economist in a narrow meaning of this word; he was considering economic problems from a broad, social perspective.
Now, let's now turn to Mill's contributions to the mainstream economic theory.
His main economic work, Principles of Political Economy was first published in 1848 and remained, in its subsequent seven editions, the standard, the ruling textbook on economics until the end of the century.
Mill claimed that in this book he was only updating Smith's Wealth of Nations and Ricardo's Principles of Political Economy to incorporate into them the new ideas that had appeared during the second quarter of the 19th century.
Mill summed up classical economics, showing how it had changed since Smith and Ricardo, his theories of value, income distribution and growth are basically Ricardian, but he modified some of them in important ways.
First, Mill recognized that Ricardo analysis was too abstract and that it has to be tempered by an awareness of historically prevailing institutions. Mill argued for example that market forces are only one type of factors influencing the distribution. The other type is custom and tradition.
Mill criticized classical economists for emphasizing the role of competition and market forces while almost neglecting the role of custom and tradition.
He then presented historical material describing a variety of institutional arrangements (customs, traditional rules) that had existed in the past and governed the distribution of income in historical economies.
In the whole book, he was generally pondering the question of how much importance should be given in economic reasoning to abstract theory and how much to institutional and historical context.
At the same time, he was convinced that economics if it wants to remain science has to rely to some extent on competition model of markets, because it gives exact and certain conclusions and predictions. While the analysis based on historical study of customs and traditions is not capable of giving any predictions. So it has to remain only complementary to abstract, theoretical reasoning.
So his views on proper methodology of economics were rather closer to those of Adam Smith (who was a proponent of contextual economic analysis) than to those of Ricardo - pure theoretician of economics. This was a consequence of his deep conviction that economic activity in only a part of all activities and should be studied in a broader social context. The mainstream economics in 20th century has followed rather the approach of Ricardo -modeling of economic activity abstracted from social context. This was the result of growing specialization is social sciences in the 20th century.
Returning to Mill's economic theory.
He supported Say's Law when discussing long-run growth; in discussion of fluctuations argues that people may have the means to purchase goods but desire to postpone their consumption (to hold money); glut (the excess of supply for some goods) may exist as part of the business cycle, but not in the long run. Therefore, he accepted the Say's Law and thought that there is no possibility of long-lasting economic crises in capitalism.
In value theory, theory of relative prices, Mill rejected Ricardo's labor theory of value.
He was a proponent of a cost of production theory of value (that is he claimed that relative prices in the market economy equal the relative cost of production, where the cost of production is the sum of wages, profits and land rents paid in the process of production).
In case of rare goods (wines, works of art, rare books, coins and the like), he argued that only demand determines the prices of such goods. However, this is relatively unimportant category of goods, because only few commodities are perfectly inelastic in supply.
A second category of goods, manufactured goods, has a perfectly elastic supply curve, according to Mill, and Mill concluded that the cost of production of these goods determines their price. He assumed that all manufacturing industries are constant-cost situations, that is supply curve is horizontal - the marginal cost of production do not change as the output increases.
Third group of commodities, agricultural commodities, are produced in situation of increasing costs - MC do increase as output increases, the price of these commodities depends, to use his language, upon the cost of production in the most unfavorable circumstances (that is the MC of production of the least efficient producer, who still is able to sell his product in the market).
Mill did not use mathematical equations, supply and demand schedules or curves to explain his theory, but he was able to describe better the process of determination of prices in the long run in market economy than Smith and Ricardo.
He only failed to cover those commodities, which are produced in decreasing costs industries, when long run supply is decreasing, downward sloping.
We could say that the analysis of the working of supply and demand in the long run in competitive markets has not fundamentally changed since Mill. Of course, many developments have occurred since Mill's times, mathematical advancement of the theory for example, but he was able to carry out a significant analysis of markets in the long run with few analytical errors.
The great gap, omission in Mill's microeconomic theory, not filled until 1930s, was his inability to analyze less than perfectly competitive markets.
Mill contributed significantly also to international trade theory. His most important achievement here is his analysis of the division of the gains from international trade among trading countries. It is probably his most important and lasting contribution to the technical economic theory.
He used no mathematical techniques but surprisingly he gave a quite correct, although inexact, answer to this problem of division of gains from international trade.
He stated that the division of gains from international trade depends on the relative strength of the demands for import in trading countries, by which he clearly meant something like the elasticity of demand. The concept, elasticity of demand, was not developed at the time yet, but Mill described the cases of elastic, inelastic and unitary elastic demand in his analysis.
He also introduced the concept of transport costs into the comparative advantage theory of international trade and showed how transportation costs may produce situations where trade will not occur at all even with differences in comparative costs of production of different goods.
He also analyzed the influence of tariffs on terms of trade, and the problem of how price and income changes influence the trade equilibrium between countries.
It is general judgment that major changes in the classical theory of international trade were made only nearly 100 years after Mill, when Bertil Ohlin made a first advancement in the so-called Heckscher-Ohlin model of international trade.
His contribution to this part of economic theory was significant.
Another contribution of Mill to economic theory involves the wages fund doctrine.
This doctrine, theory of wages fund, claims that the wage rate (w) is determined by the ration of the size of wages fund (capital advanced by capitalists to cover the life expenses of laborers) and the size of the labor force.
The wages fund doctrine was used by some economists and a number of popular writers against the formation of labor unions in England. It was used as anti-union economic argument.
According to the theory any effort by labor class to raise wages, by whatever means, would be fruitless, because the wage depends solely on the decisions of capitalists about how much to invest in wages fund. (if the size of labor force would decrease, capitalists would invest less in wages fund, possibly, to keep the wage on the subsistence level).
This is an example of how orthodox, classical economic theory was used to prove that attempts to improve the welfare of the working class by providing more equal distribution of income could not be successful.
Mill supported the wages fund doctrine, but also he supported the formation of labor unions.
Unions and strikes seemed to Mill to be appropriate tools for labor to use in its attempt to counterbalance the power of the employing firms. He followed a suggestion of Adam Smith that a single unorganized laborer is at a competitive disadvantage in bargaining over wage rate with an employer (when employee asks for a raise of wage, employer could always argument that there are thousands of workers in labor market who are willing to work for a lesser wage.
Later in his life Mill rejected the wages fund doctrine arguing that in any given moment there is a possibility that although the maximum amount on funds advanced for wages is fixed, a given wage rate and a given labor force may not exhaust this fixed amount. Therefore, there is a possibility that labor unions can raise wages through bargaining process with employers. The existence of labor unions is justified.
This is not a very convincing argument, but if you assume that the demand for labor is fixed (as classical economists assumed) then there is a little room for explaining how labor unions could effectively fight for higher wages.
The assumption of fixed demand for labor was rejected later toward the end of 19th century.
This support of Mill for labor unions is in general with his program of social reform in capitalism centering on a more equal distribution of income. He was the first classical, mainstream economist who explicitly argued in favor of labor unions.
Let's sum up Mill's thought.
John Stuart Mill attempted to combine the classical economic theory with the humanism of social reform to promote the society and economy that were less concerned with the business side of the economy and more concerned with the problem of individual improvement and welfare of underprivileged members of the society.
Mill's concern with the social reform led him to stress the distinction between the unchangeable laws of production and the changeable, institutionally determined laws governing the distribution of personal income.
He was concerned with let's say “closer to real life” economic policy and his approach to this issue was more in Adam Smith style, than in that of David Ricardo. He was not a pure theoretician.
His thought is hard to classify ideologically; his writings contain strong dose of classical liberalism with its insistence on freedom and laissez-faire policy; yet he often advocated government intervention in the economy.
Still he rejected socialist condemn for private property and free competition, suggesting that capitalism can be improved by social reform in order to retain the benefits of capitalistic institutions, while removing the glaring, obvious for him, evils of capitalism. The evils included mostly restrictions of personal freedom and opportunities for individual development which were connected to the high inequality and high poverty rates in capitalism.
He proposed several, quite moderate, means in economic policy to make the distribution of income and wealth in capitalism more equal - those means were designed in such a way as to save intact the fundamental institutions of capitalism (that is free markets and private property)
He can be classified as a proponent of some kind of improved capitalism, precursor of modern concept of “limited welfare state” or social market economy, again a quite well specified limited version of this conception.
He made some lasting and important contributions to economic theory.
He finally rejected the Ricardian labor theory of value an in its place developed a long-run cost of production theory of value that included both labor and capital costs of production.
He extended the Ricardian theory of international trade to explain the division of gains between trading countries and came close to inventing the concept of price elasticity of demand.
He defended smartly the Say's law, giving classical economics a powerful argument in favor of the view that capitalism is stable in the long-run.
Toward the end of his career he withdrew his support for the wages fund doctrine, removing an important economic argument from the arsenal of those who believed that the mass of society were unable to raise their wages through collective bargaining or political process.
He originally contributed also to political science, philosophy of science and political philosophy, so it was quite a good fortune for economics that John Stuart Mill spent a large part of his life doing economics.
Orthodox, mainstream economics was ruled by Millian economics, economics of J. S. Mill almost until the end of 19th century, that is for about 50 years from the publication of the first edition of his Principles of Political Economy.
This is the best evidence of his importance and significance for economics.
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