ABSTRACT
It is inviting to regard J.S.Mill’s formal arrangement of the Principles of Political Economy-the discussion of ‘production’, ‘distribution’ and ‘exchange’ in separate books-as indicating a failure to define distribution in terms of the pricing of scarce factor services, or to appreciate the relation between factor pricing, the technical conditions of production and allocation (Knight 1956:42; Schumpeter 1954:543). But Mill had reasons, which involve matters other than pure theory, for the decision to organise his work as he did-a concern to distinguish those economic relationships which do from those which do not vary between alternative societal organisations; an interest in comparative economic development; and a pedagogical concern for simplicity. It is certainly true that the formal treatment of production, distribution and exchange, in that order, left its mark on the substantive matter itself; serious confusions were created which a more satisfactory package from a theoretical perspective would probably have avoided. As an obvious example, placing the contrast between ‘demand for commodities’ and ‘demand for labour’—the fourth fundamental proposition on capital-before either the analysis of distribution (particularly the wages-fund theory) or the analysis of exchange, courted misunderstanding. Moreover, Mill’s social preoccupations sometimes led him to bring the discussion of difficult technical problems to a close rather too hastily for the analytically conscientious reader (Marshall 1920:824). Yet for all that, his position can be unravelled, and it is clear that the organisation of the Principles did not derive from any intention to divorce production and distribution from exchange in a technical sense. The general perspective is, in fact, one of a tight interconnection between these aspects of the economic problem (following the lines laid out by Ricardo).
