Lecture 5: Property, Communism, and Socialism

1. Introduction: Distribution as a Matter of Human Institution

We now cross the most significant theoretical boundary in Mill’s work, moving from Production to Distribution. Here, the nature of the laws changes entirely. The laws of Production, as we have seen, are like physical truths. In contrast, Mill asserts, the principles of Distribution are socially determined. “The things once there, mankind, individually or collectively, can do with them as they like… The distribution of wealth, therefore, depends on the laws and customs of society.” This lecture will explore the primary institution governing distribution—private property—and then examine the major alternative systems proposed by its most trenchant critics: the Communists and Socialists.

2. The Institution of Private Property

Mill observes that the institution of private property did not originate from considerations of utility. Rather, it emerged from the efforts of early tribunals to repress violence by giving legal sanction to first occupancy. The essential principle of private property, however, is to assure “to all persons what they have produced by their labour and accumulated by their abstinence.”

This principle also justifies the capitalist’s share of the produce. The materials, machinery, and food to sustain labourers during production are the fruits of previous labour and saving (abstinence). The capitalist’s profit, therefore, is an equivalent given in exchange for the use of this “antecedent labour” and for the “abstinence” that preserved this capital rather than consuming it.

3. Critiques of Private Property: Communism and Socialism

Mill gives serious and respectful consideration to the radical critiques of private property, focusing on Communism, which he defines as the system of “community of property and equal distribution of the produce.” He systematically analyzes the common objections to such a system and provides nuanced, and often surprising, rebuttals.

4. Mill’s Conditional Verdict on the Debate

Mill’s analysis leads him to a startling conclusion, a statement so radical for a leading liberal economist of the era that it constituted a direct challenge to the propertarian orthodoxy:

“If… the institution of private property necessarily carried with it… that the produce of labour should be apportioned as we now see it… all the difficulties, great or small, of Communism would be but as dust in the balance.”

This is not an endorsement of Communism, but a damning indictment of the injustices of the property system of his own day. He clarifies that the principle of private property has “never yet had a fair trial.” The comparison should not be between Communism at its best and property as it currently exists, but between Communism at its best and private property as it might be made.

Ultimately, Mill believes the decisive consideration will be “which of the two systems is consistent with the greatest amount of human liberty and spontaneity.” His primary fear is that a communistic system, with its “absolute dependence of each on all,” could create a “tyrannical yoke” of public opinion, crushing individuality under a weight of tame uniformity.

5. Alternative Socialist Systems: St. Simonism and Fourierism

Mill also considers socialist systems that stop short of pure Communism. He finds the system of St. Simon, with its centralized, hierarchical authority, a recipe for tyranny. He gives a more favourable analysis of Fourierism, which he sees as the “most skilfully combined” of all the socialist schemes. Its key features include:

• It does not abolish private property or inheritance.
• Industry is carried on by large associations known as “Phalanxes.”
• The produce is shared between the three elements of production: Labour, Capital, and Talent.
• It seeks to make labour attractive by allowing individuals to choose their work groups and by turning work into a form of social competition.

6. Conclusion and Transition

Mill, while deeply sympathetic to the aims of socialists and sharply critical of the existing property system, does not advocate for its overthrow. He concludes that the object for the present is “not the subversion of the system of individual property, but the improvement of it.” This practical focus on reforming the rules of property provides a direct link to our next lecture, where we will examine how different rules governing the ownership of land have profound consequences for society.

Lecture 6: Systems of Labour and Land Tenure

1. Introduction: The Impact of Social Arrangements on Productivity and Welfare

The abstract rules of property and contract manifest in the real world as concrete systems of organizing labour and land. These different arrangements—or “tenures”—are not neutral; they have profound and predictable effects on both the efficiency of production and the moral and physical well-being of the population. This lecture will compare and contrast four distinct systems of tenure as analyzed by Mill: slavery, peasant proprietorship, metayer (sharecropping) tenancy, and cottier (competitive rent) tenancy.

2. Competition and Custom

Mill begins by noting that the division of produce is governed by two great agencies: Competition and Custom. He argues that English political economists of his time vastly exaggerated the role of competition. Throughout most of human history, it was not market forces but “fixed customs” that determined rents and wages. Custom, he states, has historically been the “sole protector of the weak against the strong.”

3. The Extremes: Slavery and Peasant Proprietorship

At one pole of social organization is Slavery, where the landowner owns the labourer. Mill is unequivocal that its productive efficiency is exceptionally low, because “labour extorted by fear of punishment is inefficient and unproductive.” Any profitability for the owner depends entirely on the relative cost of free labour and the ability to cheaply import new slaves.

At the opposite pole is the system of Peasant Proprietors, where the labourer owns the land. This is the state where labourers are the “most uncontrolled arbiters of their own lot.” Mill, drawing on extensive testimony from across Europe, details the immense benefits of this system:

• Profound Industry: The “magic of property” inspires an “almost superhuman industry,” as the proprietor is assured of reaping the full reward of any extra effort.
• An Instrument of Popular Education: Managing a small farm is a practical education in itself, exercising the mental faculties through the constant need for planning, foresight, and adaptation.
• A Promoter of Moral Virtues: Peasant proprietorship fosters prudence, temperance, and self-control.
• A Powerful Check to Over-population: A proprietor can clearly see the physical limits of his land and is intensely motivated to control the size of his family, as he is reluctant to leave his children a worse lot in life than his own.

4. Sharecropping: The Metayer System

The Metayer system is a form of sharecropping, common in parts of Italy and France, where the labourer provides the labour and the landlord provides the land and the initial stock. The produce is then typically divided in half between them.

Note Mill’s methodology here. He refuses to condemn a system based on abstract principles or the biased accounts of English writers. Instead, he seeks out contrary empirical evidence from the Continent. This commitment to evidence over dogma is a hallmark of his approach. He uses the positive account of the system in Tuscany, provided by the economist Sismondi, to argue that it has the advantages of peasant properties but to a lesser degree. While the worker only keeps half the fruits of his extra industry, the system is far superior to hired labour, as the metayer is a partner in the enterprise.

5. Competitive Rent: The Cottier System

The Cottier tenancy, for which Mill uses Ireland as the tragic prime example, is a system where rent is determined not by custom but by fierce, unrestrained competition for land among the entire rural population.

This system creates a destructive logic. Since the supply of land is fixed and the population has an essentially unlimited power of increase, competition inevitably “forces up rent to the highest point consistent with keeping the population alive.”

The consequences of this arrangement are catastrophic:

• The tenant can gain nothing by industry, as any surplus he creates would simply be taken from him in the form of higher rent.
• The tenant can lose nothing by recklessness, as his family’s bare subsistence will be the first charge on the produce, before the landlord is paid.

Mill concludes that this creates a situation “more devoid of motives to either labour or self-command, imagination itself cannot conceive.” He launches a powerful critique of those who attribute Irish poverty to inherent flaws in the “indolence and insouciance in the Celtic race,” arguing that this is the “most vulgar” mode of thinking, as it deliberately ignores the crushing effect of social and moral influences.

6. Conclusion and Transition

The system of land tenure is a critical, if not the most critical, determinant of the labourer’s condition and character. The Irish cottier represents the absolute worst-case scenario, where institutional arrangements strip away all positive incentives. This analysis leads naturally to the broader question of what determines remuneration in the most common modern system: that of hired labour. Our next lecture will therefore address the dynamics of wages.

Lecture 7: The Dynamics of Wages and Profits

1. Introduction: Determining the Share of Labour and Capital

In the dominant industrial system of modern Europe, the produce of industry is divided primarily between two great classes: labour and capital. The share of labour is called wages; the share of capital is called profits. Understanding what determines the general rate of each is a central task of political economy. This lecture will explore Mill’s theory of wages, analyze the popular but often misguided remedies proposed for low wages, and conclude with his theory of what determines the rate of profit.

2. The Law of Wages: The Wages-Fund Doctrine

Mill articulates the core principle of what became known as the wages-fund doctrine. It is a simple but powerful theory of supply and demand:

“Wages, then, depend mainly upon the demand and supply of labour; or, as it is often expressed, on the proportion between population and capital.”

To be precise:

• “Population” refers to the number of people working for hire.
• “Capital” refers to the portion of circulating capital that is set aside for the direct purchase of labour—the “wages-fund.”

It follows that the condition of the labouring class can be bettered in “no other way than by altering that proportion to their advantage.” It is a crucial point of intellectual history to note that Mill himself later repudiated the rigid form of the Wages-Fund Doctrine presented here, a move that sent shockwaves through the field of political economy. For the purposes of understanding the Principles, however, we must analyze it as he first presented it.

3. Analyzing Popular Remedies for Low Wages

Mill uses this doctrine to systematically deconstruct several popular remedies for low wages, arguing that they are at best temporary palliatives and at worst actively harmful.

• Fixing a Minimum Wage by Law: If the law fixes wages at a rate higher than that set by the market’s capital-to-population ratio, the inevitable result is that some labourers must be kept out of employment. To support these unemployed workers requires a “compulsory saving” via taxation. If this becomes a general right, it suspends all checks to population, which would expand until the tax eventually absorbed the entire income of the country.
• The Allowance System (The Old Poor Law): Mill condemns the English practice of giving parish allowances proportioned to the number of children. This, he argues, acted as a direct encouragement to improvidence and created “habits of recklessness.”
• Allotments of Land: He is also skeptical of giving small plots of land to wage labourers to supplement their income. He sees this as a temporary palliative that, without a fundamental change in the people’s habits, simply allows a larger population to subsist in the same degree of misery.

4. Mill’s Proposed Remedies for Low Wages

In stark contrast to these failed remedies, Mill’s preferred solutions are those that aim for a permanent, transformative change in the “habitual standard” of the people. They focus on moral and intellectual elevation, not just material relief.

• Universal Education: The first and most essential step is an “effective national education” to cultivate common sense, sound judgment, and the capacity for foresight.
• Extinguishing Extreme Poverty for a Generation: Mill argues that incremental changes are useless: “small means do not merely produce small effects, they produce no effect at all.” To break the cycle of poverty, he advocates for large-scale, one-time measures that would establish a new, higher standard of comfort for an entire generation. He suggests two such measures:
  1. A “great national measure of colonization.”
  2. The sale of waste lands at home to the labouring class to create a new and independent body of peasant proprietors.

5. The Determinants of Profit

Having discussed wages, Mill turns to profits. He defines the minimum rate of profit as that which is just sufficient to compensate the capitalist for the “abstinence, risk, and exertion” involved in employing capital.

What is the source of profit? It arises from the simple fact “that labour produces more than is required for its support.” A capitalist advances subsistence to labourers, and the value they produce is greater than the value they consumed, leaving a surplus which constitutes profit.

From this, Mill derives his fundamental theorem on profit: the rate of profit depends on the “Cost of Labour.” A high cost of labour results in low profits. Conversely, a low cost of labour leads to high profits. The two are inversely related.

6. Conclusion and Transition

For Mill, the distribution of society’s produce into wages and profits is ultimately governed by the critical ratio of population to capital. This ratio determines the cost of labour, which in turn determines the rate of profit. The only path to a society of permanently high wages is through the moral and intellectual elevation of the labouring class. We have now covered the core principles of Production and Distribution. The final division of classical political economy, which we will turn to next, is Exchange.