John Stuart Mill & Karl Marx: A Debate on Post-Ricardian Thought

John Stuart Mill and Karl Marx both worked on the theory of value, distribution, and growth they inherited from David Ricardo. Explain and analyze their respective contributions, as well as their innovations to post-Ricardian thought. Of the two, which do you find most persuasive? Defend your choice.

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The theory of value, distribution, and growth has undoubtedly sparked major debates in economics. Most of the time, the value of a product is understood as its price, but in economics, this meaning has a long history with economics such as Ricardo, Karl Max and John Stuart trying to capture its essence. David Ricardo developed his theory of value in the first version of his principles of political economy and taxation. Ricardo argues that the correct value of a product is proportional to the amount of labor required to produce it, including the effort to produce raw materials and the machinery used in that process. John Stuart and Karl Marx’s approach to the theory of value, distribution, and growth were primarily the same as Ricardian thought, with the only difference being their methodical description of the belief.

Although Karl Marx’s definition of value was different from Ricardo’s, his overall theory and primarily the assumptions upon which his approach was based was similar to Ricardo’s. Like David Ricardo, Karl Marx accepted labor as the primary element in his theory of value. He adopted a more radical approach by denoting that labor was also used as a standard measure of value. According to (Marx), "all commodities are only definite masses of congealed labor time (155)." Meaning that the entrepreneur pays the worker an equal amount for what it takes him to reproduce labor. Marx adds that the difference between the value of labor and its product is the surplus-value which the entrepreneur takes for himself- which was initially attributed as profit. According to his analysis of the origin of capitalist profit, he attempted to reconcile the existence of profit with the fact that everything was inclined to be purchased and sold at its value under competition. He proved this reasoning based on his differentiation between the labor power, which is the capacity of a worker to produce-and the labor itself, which is the actual exercise that this production activity (Brue 183). The extra value that the worker added in the production of the raw material was divided into two parts- the first part which characterized the labor power and the second, which represented the surplus and was owned by the capitalist. Picking up from where Ricardo left, Marx initiated his approach by summing up all the direct and indirect labor used to get the actual value of labor.

On the other hand, according to John Stuart Mill, 'The value which a commodity will bring in any market is no other than the value which, in that market, gives a demand just sufficient to carry off the existing supply” (Mill 24). Mill mainly recognized the interaction of forces of demand on supply in dictating the value of a commodity. Mill believes that under competition, products tend to sell at prices which will just be their monetary cost of production- this also includes profit at the standard rate. He also adds that demand and supply are the effects of temporary variations of the market price above or below these production costs. The economic world that Mill witnessed had experienced a significant change from the state with which Ricardo and Malthus had based their concern because many of the battles had been successful. Thus, like Ricardo, Mill denotes that the primary component of the cost of production is the incomes of labor; therefore, the exchange of value commodities fundamentally relies upon the amount of work used in producing them. Mill treated profit differently by affirming that pure or net profit did not exist, and that interest was in the real sense, compensation for the actual cost suffered by its recipient (Brue 193). In regards to the theory of value, where there is a difference in the value of two commodities, Mill observed that, if one thing commands higher value than the other, then the reason must be that it either necessitates higher labor for its production or that the type of labor employed is permanently paid at a higher rate. Mills' view on the distribution of income and wealth supports every person's right to the profits of their labor. The view marks a boundary concerning income acquired from the inherited property (Sandmo 41). He supports restrictions regarding the distribution of inheritance, claiming that the wealth that could be given to a few of the inheritors would either be dedicated to public usefulness or donated to a larger number of people in the society. According to him, wage differentials reinforced inequalities in society.

From the above research, I find Marx more persuasive than Mill. First, what Ricardo revealed and presented as a rejection of the labor theory of value was that pricing as a result of competition and monopoly involves two distinct profit distributions among the capitals of the economy and thus different pricing systems (Sandmo 41). Therefore, Ricardo failed to realize that this reasoning means nothing as to if the profit that is distributed consists of a surplus of anything, including labor or utility. According to Marx, this same value of labor can be actualized in a structure of competitive prices or that of non-competitive prices. However, this is all about the distribution of the value already produced and not about the determination of the value that is to be distributed among the assets that make up the economy. Marx is right because, whether the profit rate is even or not, it does not correlate with the determination of the nature of value, but with the distribution of the already determined value.

Conclusion

In conclusion, according to both Mill and Marx, the high rate of industrial expansion started to be mainly associated with growing economic instability characterized by the repetition of boom and panic. The most vital aspect was the distributional structure of a rapidly expanding economy, which Smith had mistakenly predicted that it would be beneficial to all. These observations pushed Mill to address the problem by arguing that income distribution was prone to human manipulation. Mill's argument led to the establishment of policies developed to encourage general welfare (Brue 107). Marx's conclusion of the value and growth theory was that capitalism did, in the real sense, establish the presence of a redundant population. However, contrary to Malthusian insight, such population pressures were not common through time and space. Generally, Karl contributes that wages and rates of profits are uniform. He treats profits and the rate of surplus as variables in the model of distribution.

Short Essay: Explain how Marx's concept of the reserve army of unemployed workers is linked to his surplus value and profits theory. Do you find his concept persuasive?

According to Marx, with the development of capitalism, there is an overall rate of profits to fall. The possible reasons behind Marx's theory of the LTRPF include the composition of capital and emergence of capitalism, intensity of exploitation caused by fall in the composition of capital, and choice of innovation techniques (Brue 185). Marx added that technological innovations led to more resourceful ways of production (Brue 188). As a result of this, real productivity would be higher per unit of capital invested. Technological inventions would introduce machinery to replace people, making the organic composition of capital rise. Thus, the initial idea of Marx was that technology advancement poses a lasting "labor-saving bias (Sandmo 11)." Also, the impact of saving time used in labor in production with the help of advanced machinery had to be a declining rate of profit on production capital, regardless of market variations or financial constructions.

On the other hand, John Stuart Mill concludes that the rate of profits is contingent to the cost of labor. The cost of labor goes high, where wages fall and the vice vasa. Mill describes his argument in reference to the agricultural lands of Ireland, comparing them with European countries. Mill goes ahead to argue that only a partial amount of capital can be employed at a profit on a limited piece of land. As the amount of capital nears this limit, there occurs a fall in profits. When this limit is reached, return is crushed and destroyed and can only be reestablished by extending the field of employment (Sandmo 31). Extension of the field of labor can be achieved either by acquiring more fertile land or opening more new markets in other countries.

Mill is more convincing than Marx because he concludes that profits arise not from the process of transfer of commodities but the productive strength of workforce. A country's overall profits arise from what the manufacturing power of labor gives it, whether a transaction takes place or not. Marx’s explanation of the rate of exploitation is not satisfactory because he ignores the relative value of surplus; that is, the propensity of labor-time is to be reduced automatically by technology progress.

Work Cited

Brue, Stanley, and Randy Grant. The evolution of economic thought. Cengage learning, 2012.

Marx, Capital. "A Critique of Political Economy, vol. 1, trans. Ben Fowkes." (1990).

Mill, John Stuart. "Principles of Political Economy, New York, M." Kelley, (1848).

Sandmo, Agnar. "The principal problem in political economy: income distribution in the history of economic thought." Handbook of income distribution. Vol. 2. Elsevier, 2015. 3-65, https://doi.org/10.1016/B978-0-444-59428-0.00002-3