The Circle of James Mill ( ) Jeremy Bentham( ) – utilitarianism –“Greatest good for the greatest number” Calculus of pleasure and pain –Daniel Bernoulli … St. Petersburg Paradox (1738) »Diminishing marginal utility of income Everyone’s happiness counts equally  Robin Hood principle –Roles for State Employer of last resort Redistribute wealth … but maintain incentives –Panopticon: an ideal prison Thomas Robert Malthus David Ricardo John Stuart Mill (1806 – 1873) –Prodigy/philosopher/East India Co. administrator Learned age 3 Read age 8 … the Illiad for fun Philosophical Radical: civil liberties; women’s rights… »MP, opinion-maker: “Saint of rationalism”

Jeremy Bentham Darwin Lived Here Keynes Lived Here

John Stuart Mill, Principles of Political Economy, 1848 Synthesis of Classical Economics Economic man  self-interest as motive force Invisible hand  harmony through competition Minimal government …but still a role Discern economic laws »Say’s Law »Law of Population »Iron Law of Wages »Law of Diminishing Returns »Law of Comparative Advantage Mill: Competition  Efficient Production …but Political Redistribution can enhance utility Natural science  production but Institutions  distribution »Anticipation of Welfare State Harriet Taylor’s contribution(?) »"when two persons have their thoughts and speculations completely in common it is of little consequence in respect of the question of originality, which of them holds the pen."

Principles in Mill’s Principles text …happily, there is nothing in the laws of value which remains for the present or any future writer to clear up; the theory of the subject is complete. Operation of Supply and Demand Value (price) adjusts to clear the market Short-run / long-run distinction Economies of scale  monopoly Role for public utilities Free trade  losers as well as winners Division of gains from trade … reciprocal demand Tariffs and terms-of-trade  strategic trade theory Defense of infant industry protection Socialism  indolence Competition  efficiency … but then redistribute Technology can benefit all  positive steady state Role for government guidance  progress InstitutionsHuman drives + Institutions  Economic Outcomes InstitutionsInstitutions are subject to political intervention