A publication of

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James Mill

On the Overproduction and

Underconsumption Fallacies

Edited and with an Introduction by

George Reisman

A Publication of 

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Introduction and editorial footnotes copyright © 2006, 2000 by George Reisman. All rights reserved..

Electronic copies of this publication may be purchased from the publisher at its web site www.capitalism.net. All

inquiries should be addressed to The Jefferson School of Philosophy, Economics, and Psychology, PO Box 2934,

Laguna Hills, CA 92654. Fax: [phone]. E-mail: [e-mail].

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James Mill

On the Overproduction and

Underconsumption Fallacies

*

James Mill (1773-1836) is perhaps best known as the father

and educator of John Stuart Mill. He deserves to be remembered

for much more, however. Not only was he an influential popu-

larizer of the ideas of his friend, David Ricardo, but also, as

appears from the excerpt here presented, an important econo-

mist in his own right.

What has come down to us as Say’s Law may, perhaps with

equal propriety, be called Mill’s Law. In a letter to Mill, dated

July 27, 1820, Ricardo refers to the doctrine that a general

overproduction is impossible and that capital can never increase

too rapidly, as “Say’s and your doctrine of accumulation.”

(Works of David Ricardo, Edited by P. Sraffa, Vol. VIII,

Cambridge, 1962, p. 212.)  And John Stuart Mill, in his discus-

sion of the doctrine, states: “It is but justice to two eminent

names to call attention to the fact, that the merit of having placed

this most important point in its true light belongs principally,

on the Continent, to the judicious J. B. Say, and in this country

to Mr. [James] Mill; who (besides the conclusive exposition

which he gave of the subject in his Elements of Political

Economy) had set forth the correct doctrine with great force and

clearness in an early pamphlet, called forth by a temporary

controversy, and entitled Commerce Defended; the first of his

writings which attained any celebrity, and which he prized more

as having been his first introduction to the friendship of David

Ricardo, the most valued and most intimate friendship of his

life.” (J. S. Mill, Principles of Political Economy, Ashley

Edition (reprint Fairfield, New Jersey: Augustus M. Kelley,

1976) Book III, Ch. XIV, Sect. 4.)

Whether or not Mill arrived at his version of “Say’s” Law

independently of Say is unimportant. What is important is that

his is by far the more consistent, the more forceful, and the

clearer version. Moreover, the excerpt now presented, which

consists of Chapters VI and VII of Commerce Defended, enti-

tled respectively, “Consumption” and  “Of the National Debt,”

is not confined exclusively to the overproduction fallacy, but

is also and even more concerned with the companion fallacy of

underconsumption. In the opinion of the Editor, it represents

one of the most important contributions of the Classical School,

and to this day, remains among the most advanced expositions

of the theory of saving and capital formation to be found

anywhere. A highly favorable opinion of this essay was shared

by Mises and Hazlitt, both of whom personally expressed it to

the Editor. Indeed, Hazlitt planned to include it in a new,

enlarged edition of his Critics of Keynesian Economics.

One word of caution must be said. Commerce Defended was

published in 1808, in reply to various articles by William

Cobbett which had appeared in a publication of the day called

the Political Register, and to a pamphlet by William Spence,

entitled Britain Independent of Commerce. The only changes

made to the text are to break up some of Mill’s extremely long

paragraphs and to modernize the spelling. Despite the modern-

ization of spelling, some phrases may sound quaint to modern

ears.

That the arguments of Mill are now one hundred and ninety-

eight years old is true; but it does not follow that they are

therefore false. One of the things the attentive reader will be

shocked to discover as he proceeds, is that the doctrines which

Mill attacks, and which, therefore, are older than his own, are

precisely those which are today considered modern!  If the

reader ignores the occasional archaic expression, he may come

to regard Mill as a revolutionary critic of contemporary eco-

nomics!

GEORGE REISMAN

  SEPTEMBER 2006

Editorial Note: All footnotes are Mill’s own and are desig-

nated with symbols. The editor’s notes are consecutively num-

bered and appear as endnotes whether they refer to the text or

to Mill’s notes.

* 

An excerpt from the author’s pamphlet Commerce Defended, edited by George

Reisman, Ph.D., Pepperdine University Professor Emeritus of Economics. 

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CONSUMPTION

The doctrine of Mr. Spence respecting consumption

is not less worthy of examination than his doctrine con-

cerning production.

This author divides the members of a civilized society

into four classes: The class of landowners - The class of

cultivators - The class of manufacturers - And the unpro-

ductive class. “As the whole revenue of a country,” he

says,

*

 “is derived from its land; and as the class of

land-proprietors are the recipients of this revenue, it is

evident that from this class must be drawn the revenues

of the two other classes of society; the manufacturing and

unproductive class. It is a condition, then, essential,” he

adds, “to the creation of national wealth, that the class of

land-proprietors expend the greater part of the revenue

which they derive from the soil. So long as they perform

this duty, everything goes on in its proper train. With the

funds which the manufacturing and the unproductive

classes appropriate to themselves from the expenditure

of the class of landowners, they are enabled to purchase

the food which the farmer offers to them. The farmer

being enabled to dispose of his produce, acquires the

funds necessary for the payment of his rent, etc. Let us

make the supposition that fifty of our great landowners,

each deriving twenty thousand pounds a year from his

estates, which they have been accustomed to spend, were

to be convinced by the arguments of Dr. Adam Smith,

that the practice of parsimony is the most effectual way

of accumulating national riches, and should save the

£1,000,000 which their revenue amounted to. Is it not

self-evident that the members of the manufacturing and

unproductive classes, who had been accustomed to re-

ceive this sum, would have their power of consuming

diminished? The farmer consequently could not sell so

much of his produce, nor at so good a price as before. It

is clear then that expenditure, not parsimony, is the

province of the class of land proprietors; and that it is

upon the due performance of this duty by the class in

question, that the production of national wealth depends.

And not only does the production of national wealth

depend upon the expenditure of the class of land-propri-

etors, but for the due increase of this wealth, and for the

constantly progressive maintenance of the prosperity of

the community, it is absolutely requisite that this class

should go on progressively increasing its expenditure. It

will follow, as a consequence, that in countries consti-

tuted as this and those composing the rest of Europe are,

the increase of luxury is absolutely essential to their

well-being. It is impossible exactly to define what are

luxuries and what necessaries; yet a slight consideration

will show that a very great proportion of our manufac-

tures cannot be included under the latter title. Every one

knows that a few hundreds a year are sufficient to procure

all the necessaries and comforts of life: in what then can

the sums above this amount, which are spent by the

numbers in this country who have their £10,000 and

£20,000 a year, be expended, but in luxuries? And as

from this consideration it is plain that the population of

the manufacturing class, at present occupied in providing

necessaries, is fully equal to fabricate all that are wanted

of this description, it follows that the additional popula-

tion of this class can only be employed in the manufac-

ture of new luxuries.”

This is the first part of our author’s doctrine concern-

ing consumption, and I have been anxious to exhibit a

full view of it. Its nature and value we now proceed to

investigate. 

The reader of this pamphlet, we trust, will im-

mediately discover one short argument subversive of this

whimsical speculation. It is founded, we see, upon the

assumption that land is the only source of wealth; a

position which we have found to be altogether untenable.

Both manufactures and commerce are sources, and im-

portant sources of wealth; therefore the landed propri-

etors are not the original owners of the whole, nor of

nearly the whole, annual revenue of the country. The

foundation of Mr. Spence’s doctrine being thus removed,

the superstructure of necessity falls to the ground.

**

It may be useful, however, to exhibit a fuller and more

accurate view of the fallacy of this doctrine respecting

consumption. It proceeds entirely upon a misapprehen-

4

JAMES MILL

ON THE OVERPRODUCTION AND UNDERCONSUMPTION FALLACIES

* 

See Mr. S’s pamphlet, from p. 29 to 37.

** 

Mr. Spence here furnishes us with an unanswerable argument against his doctrine of

durable commodities. He insists upon it, as we have already seen, that all commerce

is unprofitable, which does not import durable commodities. But commodities the

more they are durable, are the more opposed to consumption. In conformity with his

doctrine of consumption, he ought to recommend commerce in the most perishable

commodities. His doctrine of durable commodities affords an argument against his

doctrine of consumption; and his doctrine of consumption affords an argument

against his doctrine of durable commodities.

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