Mill

Front 1

Mill’s Principles was divided into what five parts?

Back 1

Production, Distribution, Exchange, The Influence of the Progress of Society on Production and Distribution, and Of the Influence of Government

Hint 1

mill

Front 2

Production

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modern division the factors of production into land, labor, and capital. He believed that increases in capital created additional employment and output. Mill sided with Ricardo on the role of demand and Say’s Law. He wrote that: “Thus the limit of wealth is never deficiency of consumers, but of producers and productive power. Every addition to capital gives to labour either additional employment and labor and there were a million workers competing for jobs, then competition between workers would force the wage down to $10 per worker. An effective trade union (or a government edict) that raised wages to say $20 per worker from the competitive wage of $10, would force capitalists to cut their hiring to a half of a million. In effect, the pay increase going to the workers who manage to remain employed comes out of the pockets of those who become jobless due to the rise in pay. Mill argued that the wage fund was not fixed, but variable. Capitalists could vary the fund by increasing their savings or government policy could be direct to increase the wage fund. With a variable wage fund, an increase in wages would not necessarily cause a decline in employment. Mill thought that the real limit to a rise in wages was the economic health of businesses, and not due to the wage fund. In later editions of his Principles Mill abandoned the wage fund doctrine altogether.$$$$$$ Mill also re-thought the theory of profits. Starting with the physiocrats and continuing through Smith and Ricardo profits were thought to result from capitalists’ control over the surplus product created by labor . In contrast, Mill argues that profits have three components. The main component of profit is interest. The capitalist advances her capital and receives interest income based on the amount they advance and for how long the funds must be advanced. In this sense pure profit is no different than the money lending activities of bankers. Besides interest income, profits also consist of a return for insurance (or risk) and the wages of superintendence. The former is compensation for the risk of loss of a entrepreneurs’ capital and the later for the degree to which a capitalists must watch over their investments.Mill also advanced the theory of human capital. The theory of human capital can explain wage differences between skilled and unskilled labor. Let us suppose that an unskilled worker makes on average $20,000 per year. What compensation would a skilled worker earn? Assume that a skilled worker needed to train for five years and thus forgo $100,000 in income to acquire their skill. If the normal rate of return is 10%, then the skilled worker would have to earn a pay difference of $10,000 per year, or 10% of their $100,000 “investment” to make the acquisition of the skill pay a competitive return. Therefore, pay differences due to human capital investments in acquiring skills or education would vary with the length of time it takes to acquire the skill as well as the cost.

Hint 2

mill

Front 3

Exchange

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price of goods depend on cost (supply conditions) and demand. The price of a good is equal to the value of the good in terms of money, and cannot, therefore, be greater than the use value to the buyer. Mill invented the demand schedule—a schedule that shows demand varies with price. A higher price brings a lower demand for a good and a lower price a higher demand. In terms of cost, Mill classified goods into three groups. First there are goods that have a fixed supply—there supply is perfectly inelastic. For these goods, their value is determined by demand. Second there are goods that supply of them can be expanded with ease at the same cost of production. For this group of goods supply is perfectly elastic. As a result, their price is determined by their cost of production. Finally, there are the goods in between, where supply can be expanded but only by increasing the cost of production. Mill claims that the price of these goods is determined by the cost of production by those producers with the most unfavorable conditions of producing the goods.

Hint 3

mill

Front 4

Growth

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in the long-run profit rates fall as food prices increase due to a scarcity of land. First as the profit rate falls capitalists become accustom to the lower rate of return and continue to save and invest. Second, even if the profit rate falls and growth slows, slowing growth—or the famous stationary state—is not melancholy. For by the time the stationary state is reached the society is so affluent that additional output more growth would bring would add little to human happiness.

Hint 4

mill

Front 5

Government

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believed in minimum government, but with some important exceptions. First, he argued individuals cannot decide how much to educate themselves. Second the government must put in place child labor laws. Third, the government must regulate natural monopolies. Fourth, he was against relying on charity to take care of the poor. And finally, he argued that the government should have a role in scientific and geographic exploration, as well as the provision of infrastructure. Mill’s idea of limited government was bigger than that of his predecessors

Hint 5

mill

Front 6

mills theory of profits

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Mill also re-thought the theory of profits. Starting with the physiocrats and continuing through Smith and Ricardo profits were thought to result from capitalists’ control over the surplus product created by labor . In contrast, Mill argues that profits have three components. The main component of profit is interest. The capitalist advances her capital and receives interest income based on the amount they advance and for how long the funds must be advanced. In this sense pure profit is no different than the money lending activities of bankers. Besides interest income, profits also consist of a return for insurance (or risk) and the wages of superintendence. The former is compensation for the risk of loss of a entrepreneurs’ capital and the later for the degree to which a capitalists must watch over their investments.

Hint 6

mill

Front 7

marx theory of profit

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The profit is the result of the surplus value produced by the worker. The degree to which the capitalist is able to exploit the worker to produce their profits Marx calls the rate of surplus value—the ratio of surplus value to variable capital (sv/v). In this case, the rate of surplus value (or the rate of exploitation) is 100%, or $50/$50.

Front 8

marx reserve army

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Workers must work hard and effectively because they know that in the labor market there is a great number of unemployment or marginally employed workers willing and able to replace them. The choice for the worker is to work hard and effectively for the capitalist in the hope of keeping their job and earning a living or slacking off and risk being fired and replaced by a more desperate worker. The existence of the reserve army gives the capitalist a powerful weapon to wield against her workers

Front 9

surplus value

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is established by the class struggle between labor and capital greatly influences the profit rate earned in the production of commodities. the rate of profit varies directly with the rate of surplus value. This means that a rise in the rate of surplus value, everything being equal, will increase the profit rate and a fall in the rate of surplus value will decrease the profit rate.

Front 10

The two ways capitalists can raise the rate of surplus value

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The first was by increasing absolute surplus value. Capitalists increase absolute surplus value by either increasing the length of the work day or the intensity of work. In the former case, say the capitalist manages to lengthen the work day from ten to twelve hours without granting workers any additional pay. The rate of surplus would then rise from 100% to 140%! A similar impact would occur if capitalists found a way to increase the intensity of labor by enabling each worker to produce more use values per hour of work.The second way capitalists can increase the rate of surplus value is by increasing what Marx called relative surplus value. Relative surplus value is the strategy of raising the rate of surplus value by increasing the productivity of labor and reducing the real wage of the worker. By reducing the amount of variable capital an employer must pay to his workers the rate surplus value will begin to rise.

Front 11

The circuit of capital has three phases what is phase 1?

Back 11

capitalists must gather sufficient money capital (M) to purchase labor power (LP) and constant capital (machines and stuff needed to produce goods) (CC). So capital first takes the form of money. The money is then transformed into commodities.

Front 12

The circuit of capital has three phases what is phase 2?

Back 12

2. In the THIS phase the labor power and constant capital are transformed in production (. . .) into a commodity (C’) that embodies a certain amount of constant, variable, and surplus value.In the secound phase of the circuit capital takes the form of commodities that embody value and surplus value

Front 13

The circuit of capital has three phases what is phase 3?

Back 13

.In the final phase the capitalist must sell the commodities they produce for money, and to make a profit they must exchange their commodities for more money (M’) than they started with. Marx called this phase realization. In the final phase capital has to transform back into money. The process is summarized below.