Lecture 2: The Requisites of Production – Labour and Capital

1. Introduction: The Physical Truths of Production

We now turn to the first major division of Mill’s work: the Production of wealth. For Mill, this domain is governed by principles that are fundamentally different from those that govern Distribution. The laws and conditions of Production, he states, “partake of the character of physical truths.” They are not optional, arbitrary, or subject to human will. A society cannot simply wish for more wealth; it must operate within the unchangeable constraints imposed by nature and the inherent properties of human effort. This lecture explores these foundational requisites that govern the creation of wealth in any society, at any time.

2. The Primary Agents: Labour and Natural Objects

At the most basic level, production requires only two things: labour and appropriate natural objects.

• Labour encompasses all human exertion, whether “muscular or nervous.”
• Natural Objects are the raw materials and forces that labour acts upon.

Even resources that appear spontaneously, such as wild fruit or fish, require the labour of appropriation—finding, gathering, or catching them. Mill directly refutes the idea, common in his day, that nature provides more “assistance” to some industries, like agriculture, than to others, like manufacturing. The payment of rent for land, he argues, does not arise because nature is doing more work on a farm than in a factory. Rather, rent is a price commanded by a natural agent simply because its quantity is limited and it can be monopolized. If other natural forces, like electricity or chemical agencies, were similarly scarce and could be owned, they too would command a price.

3. Deconstructing Labour as an Agent of Production

The simple term “labour” conceals a complex network of activities that contribute to a final product. Mill provides a clear classification of the different modes of labour, all of which are ultimately remunerated from the value of the final good. Using the example of bread, we can identify several distinct categories:

1. Direct Labour: This is the work performed on the final product itself, such as the baker who bakes the loaf.
2. Indirect Labour: This includes all preceding operations. For bread, this is the work of the miller who ground the flour, the reaper who harvested the grain, the sower who planted it, and even the miners and smelters who produced the iron for the plough used to till the field.
3. Labour for Subsistence: This is the labour required to produce the food, clothing, and shelter that maintain other labourers while they are engaged in a productive process. Since production takes time, a stock of subsistence must exist beforehand, representing a critical, if indirect, labour input.
4. Labour of Invention and Speculation: This is the highly productive work of inventors and speculative thinkers (savants). Their discoveries, such as the principles behind the electro-magnetic telegraph, can lead to immense gains in productivity and are a crucial, though remote, part of the productive labour of society.

4. Productive versus Unproductive Labour and Consumption

Mill offers a precise definition to distinguish between labour that creates wealth and labour that does not.

• Productive Labour: “those kinds of exertion which produce utilities embodied in material objects.” This is his core definition. Importantly, however, he includes indirectly productive labour. This was a key departure from more rigid definitions and shows Mill’s pragmatic focus on what enables wealth creation. The work of government officials in providing security, for example, is productive because without it, “material wealth, in anything like its present abundance, could not exist.”
• Unproductive Labour: This is labour whose result is not the creation of material wealth, but rather a service or immediate enjoyment. The labour of a musician, for instance, produces pleasure but not a durable, exchangeable object.

This distinction extends to consumption:

• Productive Consumption: This is consumption “which goes to maintain and increase the productive powers of the community.” It includes the food, shelter, and upkeep necessary for a labourer to maintain their health, strength, and skills.
• Unproductive Consumption: This is consumption spent on “pleasures or luxuries,” which does not contribute to future productive capacity.

5. Capital as Stored Labour

The third requisite of production, Capital, is not a primary agent like labour and nature. For Mill, capital is simply the accumulated stock of the products of previous labour, set aside for the purpose of future production. It is, in essence, stored-up labour. He divides capital into two main types:

• Circulating Capital: This portion fulfills its entire function in a single use. It is consumed and must be reproduced in each cycle of production. Examples include raw materials and, crucially, the wages paid to labourers.
• Fixed Capital: This portion exists in a durable form and contributes to production over many cycles. Examples include buildings, tools, and machinery.

Mill addresses a common fear that an increase in fixed capital (machinery) must come at the expense of the circulating capital available to pay labourers’ wages. He argues this is generally not the case. Major investments in machinery are typically funded from the annual increase of capital—the new savings generated by profits—not by withdrawing existing circulating capital from production.

6. Conclusion and Transition

We have now identified the three requisites of production: Labour, Natural Objects, and Capital (which is itself a product of past labour). Understanding these essential components is the first step. However, societies differ enormously in how effectively they combine these agents. The next critical inquiry, therefore, is to analyze the factors that determine how productively these agents can be employed, which will be the subject of our next lecture.

Lecture 3: The Productivity of Economic Agents and the Power of Co-operation

1. Introduction: What Determines Economic Efficiency?

Having identified the fundamental agents of production—labour, capital, and natural resources—we must now ask a more dynamic question: what determines their degree of productiveness? Why is the combination of these agents in one society, or at one time, vastly more efficient than in another? This lecture moves beyond the mere requisites of production to explore the natural, social, and institutional factors that amplify their power and create the conditions for economic prosperity.

2. Analyzing the Determinants of Productiveness

Mill provides a comprehensive analysis of the factors that govern economic efficiency. These can be structured as follows:

• Natural Advantages: Mill acknowledges the obvious impact of factors like a favourable climate, fertile soil, and abundant mineral deposits.
• The Energy of Labour: The vigour and persistence of work vary significantly between different peoples. Mill offers a sharp cultural critique of his own countrymen, noting in an early edition of the Principles that the English “have no life but in their work; that alone stands between them and ennui… they have little to distract their attention from work, or to divide the dominion over them with the one propensity which is the passion of those who have no other… the desire of growing richer, and getting on in the world.”
• Skill and Knowledge: The economic value of human capital is paramount. This includes both the manual dexterity of individual workers and, more importantly, the general diffusion of intelligence throughout the population. Mill cites the detailed testimony of Mr. Escher, a Zurich-based manufacturer who employed workers from across Europe. Escher contrasted the highly specialized but inflexible English workmen with the more adaptable, resourceful, and educated Continental workmen (particularly Saxons and Swiss), who were better suited to new tasks and general usefulness.
• Moral Qualities and Trustworthiness: Mill argues with great force that trustworthiness is a cornerstone of economic efficiency. Dishonesty imposes enormous direct and indirect costs on a society. It necessitates a large “predatory population,” a vast apparatus of police and justice systems, and a proliferation of lawyers, all of which are a “direct burthen on the national industry.” The ability to rely on contracts and the integrity of others is an incalculable economic asset.
• Security: Defined as “the completeness of the protection which society affords to its members,” security is perhaps the most critical determinant. Mill makes the crucial point that protection against the government is more important than protection by the government. He cites the historic poverty of fertile Asian territories, where the rapacity of the state made any accumulation of wealth a dangerous liability, thus destroying the incentive to produce.

3. Co-operation: The Combination of Labour

Co-operation, or the combined action of numbers, is a fundamental principle of productivity that is often overshadowed by its most famous sub-category, the division of labour. Citing the work of Mr. Wakefield, Mill identifies two distinct forms of co-operation:

• Simple Co-operation: This occurs when several people help each other in the same employment. The classic example is two or more people combining their strength to lift a heavy weight that none could move alone.
• Complex Co-operation: This occurs when several people help each other in different employments. This is the principle more commonly known as the division of labour.

4. Deconstructing the Division of Labour

To illustrate the dramatic productivity gains from complex co-operation, Mill uses Adam Smith’s famous example of pin-making. An individual worker, acting alone, might make one, perhaps twenty, pins in a day. But in a small factory where ten men divide the process into eighteen distinct operations, they could produce upwards of 48,000 pins daily. Mill critically evaluates the sources of this gain, analyzing the three advantages enumerated by Smith:

1. Increased Dexterity: This is the most obvious benefit; practice at a single, repetitive task leads to greater speed and skill.
2. Saving of Time: Smith argued that time is lost when workers switch between different tasks. Mill offers a nuanced counter-argument, suggesting that changing occupations can provide rest and mental refreshment, allowing a person to work more hours without fatigue. Mill makes an astute and remarkably modern observation here, noting that the entire economic theory of specialization is built on a male-centric model of work, completely ignoring the versatile and multi-tasking labour common in the domestic sphere, which was overwhelmingly the domain of women.
3. Invention of Machines: While agreeing that workers focused on a single task are more likely to invent machinery to aid it, Mill qualifies this by stating that general intelligence is a more important driver of invention than the mere exclusiveness of an occupation.

To these, Mill adds a fourth advantage, highlighted by the mathematician Charles Babbage: the “more economical distribution of labour, by classing the work-people according to their capacity.” A complex process can be broken down so that high-skill work is given to those best suited for it, while simpler tasks are left to others.

5. The Limits of the Division of Labour

The principle of specialization cannot be extended infinitely. Mill identifies two primary constraints:

• The Extent of the Market: A larger potential market for a product allows for greater specialization in its production. A village blacksmith must be a generalist, whereas in a large city, there can be specialized artisans for every type of metalwork.
• The Nature of the Employment: Some occupations, by their very nature, resist minute division. Agriculture is the chief example. Its operations are sequential—one cannot plough, sow, and reap simultaneously. A farm labourer who only ploughed would be idle for most of the year.

6. Conclusion and Transition

The efficiency of production is therefore determined by a complex interplay of natural resources, human qualities (skill, energy, and trust), institutional security, and the intelligent organization of labour through co-operation. Having established the principles that govern how wealth is produced and how efficiently it can be produced, we must now turn to the central dynamic question of political economy: how does this production increase over time? This leads us directly to an examination of the laws governing the increase of labour, capital, and land.

Lecture 4: The Laws of Increase and the Limits to Production

1. Introduction: The Dynamics of Economic Growth

Production is not a fixed quantity; in most societies, it is an increasing one. This lecture shifts our focus to the dynamics of economic growth by investigating the laws that govern this increase. The growth of production is ultimately tied to the growth of its three essential requisites: Labour, Capital, and Land. By understanding the principles that govern the increase of each of these elements, we can identify the ultimate and unavoidable limits to economic expansion.

2. The Law of the Increase of Labour: Population

The increase of labour is the increase of population. Here, Mill adopts the Malthusian principle: the “power of multiplication inherent in all organic life may be regarded as infinite.” Left unchecked, and under favourable conditions, the human population has the capacity to double in as little as twenty years. This potential, however, is never fully realized because it is met by powerful checks.

Mill distinguishes between the animal condition, where population is kept down by death (from predators or starvation), and the human condition, where foresight can play a role. He identifies two primary checks on human population:

• The “Positive Check” (Malthus): Population is restrained by misery, starvation, and disease. This is the brutal mechanism that operates in very backward societies.
• The “Preventive Check” (Malthus): Population is restrained by the voluntary limitation of births, arising from prudence, foresight, or social custom. Mill points to the examples of Norway and Switzerland, countries of small peasant proprietors, where a strong sense of prudence prevailed.

A critical point for Mill is that temporary improvements in the condition of the labouring classes often yield no permanent benefit. Any wage increase or period of prosperity merely creates a “temporary margin, speedily filled up by an increase of their numbers,” unless the improvement is significant enough to permanently raise their “habitual standard of comfortable living.”

3. The Law of the Increase of Capital

The source of all increase in capital is saving. The capacity to save depends on the “amount of the fund from which saving can be made” and the “strength of the dispositions which prompt to it.” Mill identifies two key elements that determine this “effective desire of accumulation”:

1. The Rate of Profit: A higher rate of profit on invested capital provides a stronger motive to save and invest for the future rather than consume in the present.
2. Social and Institutional Factors: The desire to accumulate varies greatly between societies. Mill argues it is exceptionally strong in England due to a long history of security from war, political institutions favouring commerce, a social ethos where wealth is synonymous with power, and even the “incapacity of the people for personal enjoyment” stemming from a Puritanical legacy. This he contrasts with the frugal but less ambitious habits of the Dutch.

In advanced commercial countries like England, Mill concludes, the desire to accumulate is so powerful that there is “no tendency to become deficient” in capital.

4. The Law of the Increase of Production from Land: Diminishing Returns

We now arrive at what Mill considers “the most important proposition in political economy”: the law of diminishing returns in agriculture. The law states that after a certain point, “every increase of produce is obtained by a more than proportional increase in the application of labour to the land.” In simpler terms, doubling the labour on a finite piece of land will not double the crop.

This law represents the ultimate limit on production. While the power of labour (population) and capital (saving) to increase is virtually limitless, the land is fixed. However, there are powerful forces that act as an “antagonist influence,” constantly pushing back against this law and postponing its effects:

• Improvements in Production: This includes all technological advances, such as mechanical inventions and better agricultural processes.
• Improvements in Government & Society: Better laws regarding land tenure, the spread of education, and increased trustworthiness in the population all make labour more productive.
• Importation of Cheaper Food: Obtaining food from abroad at a lower cost is economically equivalent to a major agricultural invention at home.

5. Consequences of the Foregoing Laws

Synthesizing these principles, Mill concludes that the limit to production is twofold: it can be constrained by a deficiency of capital (the case in backward nations) or by a deficiency of land and its diminishing returns (the ultimate constraint in advanced nations).

This leads to a crucial corollary: “The niggardliness of nature, not the injustice of society, is the cause of the penalty attached to over-population.” Mill argues that even if wealth were distributed with perfect equality, the law of diminishing returns would ensure that a population doubling every twenty years would soon make every individual poorer, as the need to cultivate inferior land would make food production progressively less efficient.

To mitigate this pressure, societies have two main “expedients”: the importation of food and emigration/colonization. While both are highly beneficial, they are ultimately palliatives that do not eliminate the fundamental necessity of checks to population growth.

6. Conclusion and Transition

The laws of production, then, are akin to physical laws. They are governed by the capacity of population to expand, the desire of society to accumulate capital, and the ultimate, inescapable limit of diminishing returns from the land. These principles set the hard boundaries of what a society can produce. Having established this foundation, Mill makes a powerful pivot that defines the rest of his work. “It is not so with the Distribution of wealth,” he writes. “That is a matter of human institution solely.” This foundational statement serves as the perfect bridge to the next part of our course, where we will examine the human-made rules, laws, and customs that govern how the wealth produced is actually divided.