Introduction
The nineteenth-century British cooperative movement identified competition as the central feature of the mode of production dominating the British economy. Cooperators most often referred to that system not as the capitalist system, not as the market system, not as the entrepreneurial system, and not as the industrial system. Instead, they referred to it as the competitive system. And most often, cooperators took the competitive system to be the antithesis of their own system of mutual assistance. Yet John Stuart Mill, even while endorsing and predicting the replacement of the capitalist mode with a cooperative one, insists that this new mode must not desert competition. He puts forth this condition from a normative position in opposition to the many cooperative writers who, like Robert Owen, see the abolition of competition as a normative requirement for the new “moral world.” On the contrary, Mill holds that without competition, a cooperative system will fail to achieve progress.
I do not mean to explore whether such an assertion somehow invalidates Mill’s own chosen label of “socialist.” Helen McCabe makes a persuasive argument that this is not the case.Footnote 1 But there is a more interesting set of questions raised by Mill’s endorsement of competition in a cooperative mode. What would a Millean cooperative system look like, and how well might it work?
Before turning to these provocative questions, consider for a moment the few British cooperative socialists who do give a qualified endorsement to competition.Footnote 2 All these writers show considerably less enthusiasm for competition than Mill demonstrates. For example, Edward V. Neale, a Christian socialist, writes in very general terms that “natural competition of desires continues thus to operate to the general advantage of citizens” as long as “there is no question of the means of subsistence depending on the power of individuals to exchange the produce of their own labour for that of other men.”Footnote 3 He is explicitly talking of a time of abundance long past. But capitalists turn natural competition into a means of oppression and exploitation.Footnote 4 Under such circumstances, Neale rejects the competitive system and endorses cooperation.Footnote 5 He anticipates a transitional period in which cooperation grows up. Under this system, cooperatives coordinate supply and demand. After the maturation of cooperatives, Neale leaves no explicit functions for competition.
Cooperative activist and historian George Jacob Holyoake gives a somewhat stronger, more enthusiastic endorsement of competition: “Civilisation is a protection against the competition of the savage; Co-operation is protection against the competition of civilisation. Co-operation may mitigate reckless competition but does not destroy competition itself. Competition opens, and keeps open, the pathway of progress.”Footnote 6 But Holyoake is vague as to exactly what cooperative competition will look like. Given his respect for Mill, it may well be that his invocation of “progress” alludes to a Millean theme, without much in the way of specifics. Elsewhere in the same volume, Holyoake writes critically of a common type of new member in the co-op shops who “merely wants a dividend—knowing little and caring less for the higher ethical principles which have brought the movement its best friends and given it influence beyond any other industrial organization.” Membership is growing, but there is “no check upon the quality of the throng. Thus the movement is dominated by recruits with competition in their bones, who give a competitive complexion to Co-operation.”Footnote 7
A very different type of competition is suggested by William Thompson.Footnote 8 He points to some competition carried on between largely self-sufficient villages. As discussed below, though, Thompson anticipates only a limited role for competition given the largely autarkic nature of the villages he advocates.
Without elaborating, it seems fair to say that most cooperative writers were opposed to any type of cooperative competition, while a small minority made only vague suggestions as to what such an institution might look like as the movement took shape. The comments are at best offhanded. But we should expect more, much more, from Mill.
Mill is, after all, the outstanding classical economist of the mid-nineteenth century. As such, he is presumably not a casual commentator on the economy of that day. Rather, it is reasonable to assume that he possesses as deep an insight as any of his contemporaries into how competition works and at times does not work. Under the circumstances, it is not reasonable to take his endorsement of competition as a minor idiosyncrasy. We do well to take it quite seriously. It potentially tells us a great deal about the nature of the new mode Mill anticipates. A serious reading also points toward issues remaining unaddressed in Mill’s treatment. The present essay attempts to clarify what the competitive mechanics of Mill’s cooperative economy entail. More specifically, if we bring the competitive machinery of Mill’s classical political economy into the cooperative mode, what are the resulting dynamics of cooperative markets, including prices, wages, and rates of return? Given these mechanics, what are the implications for cooperative institutions and social psychology?
Why Mill thinks cooperatives need competition
First, briefly consider Mill’s thoughts on cooperative villages like those suggested by Owen (or Thompson or Charles Fourier). Mill is broadly supportive of such efforts and encourages experimentation with these types of organization.Footnote 9 Perhaps not surprisingly, he never argues for any strong need for competition between and among these villages. Presumably, he might have endorsed a mild form of competition like that suggested by Thompson. Given their largely autarkic structure, it is difficult to imagine that inter-community competition among villages would be very extensive. Trade for such a village takes a distinctly secondary role. Exports are not meant to have a central place in production. They are done on the side when a surplus is generated. They might be the source of some variety, but they are in no way meant to reflect specialization. The Thompson-Owenite village does not market staples; it markets its overage. Trading is done on the side. By construction such trade is incidental to the economic life of the community. For a given year, trade might be more or less, but it is presumably of little consequence.Footnote 10 It is understandable that Mill has nothing to say about competition in such a context.
While Mill is optimistic about the prospects of village communities, he makes no claim that the economic system of his day is evolving in this direction. And he never suggests that historic forces are at work dismantling the new and increasingly urban industrial base of the country in favor of a broad move to rural villages. Rather, he and Harriet Taylor, in their discussion of the “Progress of Society,”Footnote 11 project the emergence of a new cooperative economy based on the replacement of capitalists’ factories and other productive enterprises with worker associations.Footnote 12 These are the associations discussed in Book IV of Principles of Political Economy. They are the institutions forming the core of the cooperative economy. This is the historic course of progress looming in the near future. It seems reasonable to explore the question of competition in this context.
In the system that Mill envisions, cooperative workshops trade in competitive markets for their living. Far from a secondary concern, such trading is the very lifeblood of the cooperative, its source of income and livelihood. As such, competition is far from incidental. Mill puts forward no other institutional principle for interactions among cooperatives.Footnote 13 He is hostile to any alternative systemic organization. He is not a supporter of systemwide planning or hierarchy. He is critical of the inefficiency and waste of systems of custom. The cooperatives that trade are atomic and unconnected except through their competitive market interactions.
So why competition? Mill, as a classical economist, sees much to praise in competition. Yes, he is highly critical of the capitalist institutions of his era. But that criticism focuses largely on capitalists themselves, their greed and selfishness, their gross mistreatment of their employees. The cooperative does away with the capitalist. The workers choose their own management and administration. But the workers cannot be trusted without some prod to internalize the goals of the association. Most importantly, Mill tells us, there is a natural indolence to mankind: “It is the common error of Socialists to overlook the natural indolence of mankind; their tendency to be passive, to be the slaves of habit, to persist indefinitely in a course once chosen.”Footnote 14 The most convinced advocate of the capitalist system could not have said it more directly.
Mill hardly needs to elaborate. Workers, even cooperative workers, must feel the threat of competition. Presumably, Mill would wish the world different. He even suggests that at some point workers may evolve a more independent system of motivation: “Competition may not be the best conceivable stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be indispensable to progress.”Footnote 15 Presumably, cooperative workers need to feel the bite of competition.Footnote 16
Mill explicitly rules out a role for competition in the labor market. Under normal conditions, workers in a cooperative association do not compete with each other for their jobs.Footnote 17 Indeed, within the cooperative workers are presumably moving toward a sense of common purpose and common interest. Elsewhere, Mill anticipates that in general “the strengthening of social ties” generates for each individual “a stronger personal interest in practically consulting the welfare of others” and identifying “his feelings more and more with their good.”Footnote 18 But can fellow feeling extend to an association’s competitors? Mill suggests no mechanism for broadening this process of “socialization.”
How will workers’ wages in the cooperative be determined? Mill is quiet on this point. Most likely, the prohibition on competition among workers rules out a piecemeal wage system. (But notice that Mill elsewhere endorses such a system as perhaps the fairest practice in the manufacturing system.Footnote 19) Rather, we can imagine a base wage supplemented by significant profit sharing across workers. The remainder of profits must take the form of retained earnings to be used for capital widening and deepening.
Mill’s most categorical statement about the consequences of co-op workers’ indolence concerns this question of using internal funds for capital investment. Mill worries that
it would be difficult to induce the general assembly of an association to submit to the trouble and inconvenience of altering their habits by adopting some new and promising invention, unless their knowledge of the existence of rival associations made them apprehend that what they would not consent to do, others would, and that they would be left behind in the race.Footnote 20
This may seem just an off-handed example that Mill has chosen. But in fact, it lies at the core of the competitive economy as described by classical political economy. The most important characteristic of competition from the classical view is the equalization of rates of return on capital. Before expanding on our treatment of competitive cooperation, let’s turn briefly to review what classical economics has to say about competition and rates of return.
Competition and rates of return
From David Ricardo to Karl Marx capitalism is characterized by its powerful tendency to equalize rates of return through competition. In classical economics there may be a range of returns experienced by existing firms, but new investments in all industries must meet the going marginal rate of return. Individual capitalists will accept no less for their new funds. The margin holds within each industry as well as between new investments across industries.Footnote 21
Over time, some firms may well fall behind. Their profits are diverted to other enterprises. Their capital is not renewed, let alone not improved. Such enterprises, not replacing their capital, will fall further and further behind. Ultimately, if they do not actually go bankrupt, they close shop more quietly. They have lost in the competitive contest, replaced by more efficient producers. Meanwhile, the capital consumption allowances and profits made in their period of decline are transferred elsewhere.
These are the classical mechanisms that realize the mission of Adam Smith’s “invisible hand.”Footnote 22 The key force of the system is the search of capital owners for competitive rates of return. But, of course, in the cooperatives endorsed by Mill, capital is owned by the workers themselves.Footnote 23 How does accumulation proceed in such a cooperative mode?
Mill tells us that before the cooperative mode becomes dominant, the rate of return had fallen close to zero.Footnote 24 Let’s take this as the economy’s initial position. In equilibrium product prices just cover the base wage and capital depreciation. The base wage is equal to a worker’s full labor value. Some industries have low capital-labor ratios, and some industries have high capital-labor ratios. Put aside for the moment exactly how workers in capital-intensive industries were cajoled into saving more to cover their higher capital costs per head. A cooperative in a particular industry has reason to expect that a technological improvement will allow it to raise productivity in the short run and create profits that can be shared among its labor force. In the short run, workers give up wages with the promise of higher wages in the future. In Mill’s world, this investment puts competitive pressure on other firms in the same industry. The result is something of a race in which higher productivity leads to lower prices.
Presumably, this is what Mill has in mind when, in the course of discussing the future of the working classes, he puts forward a classical defense of competition as applied to cooperatives. He takes the standard classical line that competition reduces prices and raises real wages: “[W]ith the exception of competition among labourers, all other competition is for the benefit of the labourer, by cheapening the articles they consume.”Footnote 25
Let’s return to competition among cooperatives. If all firms in an industry follow the pacesetter, accumulation will be considerable. At some point, however, the market will be saturated (even with the fall in prices). There are now too many cooperative firms in the industry. But there is no obvious way to move capital from this industry to others. Some firms will fall behind. Competition has been successful at introducing new technology, but the market can no longer support the original number of co-ops in this industry. Some of them will fail under competitive pressure. What happens to their workers? Mill does not follow the story this far. These displaced workers are, in effect, unemployed. Moreover, their physical capital is of little if any value in other activities.
At the same time, workers in industries that have experienced substantial capital deepening will have gone through a period in which much of their enterprise’s income has been absorbed by a high level of investment. In the end, their wages return only to the shared base level. This shared base will have risen a modest amount as prices adjust to take account of greater productivity in the industries that experience capital deepening. Workers in those industries have responded to the stick of threatened unemployment in the short run, but do not clearly enjoy a carrot of higher disposable income in the long run. They can take pride in their greater shared capital ownership but, given an equilibrium rate of return close to zero, they have no long-run reward for these actions.
In the transition itself, it is unclear what the workers have experienced. Their firm in the short run is making a higher than average rate of return. But it is unclear what rules govern their investment level. In a capitalist firm a short-run investment decision has little direct effect on workers’ wages. The capitalists on their own decide what amount to reinvest. But in the cooperative, there are at least three distinct possibilities. First, the collective might reinvest only a portion of their excess profits, saving a portion for maintaining a higher level of consumption. Second, the collective might invest all the excess profits speeding the pace of technological change but leaving consumption at its traditional level. Finally, the collective might supplement its excess profits with a portion of customary wages so as to further speed its industrial development. In this case workers actually make a short-run sacrifice to achieve their competitive goals.
Only in the first of these cases do cooperative workers enjoy a short-run gain. But, that said, it remains unclear which approach is optimal for the workers. The game is one of multiple players with complicated interactions. The fear of falling behind looms large. In this world of competition among cooperatives the penalty is nothing less than losing one’s employment. With information that other workshops are themselves exploring related investment possibilities—this is, after all, the case Mill postulates—pressure to compete might be high indeed. At least for industries with plentiful opportunities, it is difficult to imagine that workers could avoid drawing on their consumption funds. In the end these workers can take pride in their joint ownership of substantial capital, but they may well have sacrificed meaningful consumption.
Under the circumstances described here, it might be better to be in a cooperative industry that offers few or no possibilities for technological improvement. Workers in these sluggish sectors can simply await productivity improvements achieved in other industries to put downward pressure on their prices and hence increases in real wages.
Matching aggregate supply and demand
Return now to the consequences of eventually matching supply and demand. Notice the central problem here. Competitive cooperatives have no mechanism for directing their capital except into the new technology of their industry. These industries end with a higher capital-labor ratio, while industries with few opportunities maintain a low capital-labor ratio. Rates of return across industries return to an equilibrium close to zero. But some cooperative workshops are now superfluous. Without an institutional equivalent of or substitute for a capital market, it is not clear that something like full employment can be maintained.
The early cooperative theory of an Owenite village prided itself on doing away with the mismatch of supply and demand and its ability to maintain full employment. The heart of their argument drew on the largely autarkic nature of their production. In a relatively small cooperative village, labor and other resources can be easily moved from areas of oversupply to areas of undersupply. The members themselves can appreciate the need for adjustment. While some trial and error might be necessary in making these changes, Owen and Thompson were probably right in their judgment.
However, in the more complicated world of numerous independent cooperative workshops, adjustments across industries are virtually impossible. As long as the question is one of introducing new techniques for existing products, Mill’s argument for competition may hold reasonably well. But when resources need to be transferred from one industry to another there is no clear mechanism.
This problem is serious. Not only are workers falling into unemployment, but the economy is losing out on progress associated with potential new industries. Why does Mill dodge this central issue? What alternatives might he have considered? Two possible courses suggest themselves. First, the cooperative system could expand to include a decentralized capital market where cooperative firms could actually invest their savings. We will return to this below. Alternatively, cooperatives can jointly establish a hierarchical organization with the power to command contributions and control over investment. Such an organization, as later suggested by George D. H. Cole, smacks of the power of centralization and monopoly.Footnote 26 Mill’s socialism might point in such a direction, but his liberalism might well balk at it. Such an institution raises the specter of monopoly, and Mill for sure is hostile to monopoly.
Mill on competition and monopoly
Putting aside for the moment the dynamics of cooperative competition, consider what Mill fears is the alternative: cooperative monopoly. Mill is clear: “[W]herever competition is not, monopoly is; and … monopoly in all its forms, is the taxation of the industrious for the support of indolence, if not of plunder.”Footnote 27
Mill is again drawing here on classical political economy. What type of monopoly did the early writers in this tradition have in mind? As Mill himself relates, before the development of national markets, spatial monopolies exercised considerable power. Spatial monopolies with the freedom to set prices will generally set them higher than a competitive market as the monopoly restricts supply.Footnote 28 The statement that competition reduces prices presumes the comparison is a situation in which the supply side is monopolized and the demand side is already competitive. It is likely that such situations were historically common in pre-nineteenth-century economies. As markets expand and thicken, such economies might well experience lower prices. This is presumably the case the classical economists have in mind. By the middle of the nineteenth century, capitalist market institutions were becoming the general rule in Western Europe.
An economy of competitive cooperatives that accepted the direction of capital through a hierarchical institution would, in effect, be establishing one large monopoly over the entire economy. The result would certainly be a considerable concentration of power in that institution. Presumably, all retained earnings of cooperative workshops would ultimately be in the hands of the centralized body. No matter how democratic this institution’s constitution, it must undermine healthy competition of individual workshops. While workers would still have control over the work rules and administrative practices of their own environment, they would lose responsibility for the future. The fear of monopoly here is not a fear of high prices, but rather a fear of lost independence. This is not a direction Mill would easily accept.
Of course, Mill might have fallen back on custom to handle capital allocation. Conceivably, Mill’s sympathy with the stationary state might have led him to accept a less dynamic economy. But Mill clearly rejects such a solution. For Mill, the cooperative mode is the means to continue progress even after the onset of the stationary state. He does not want to fall back on some sort of static long-run equilibrium. He cannot just use some customary rules for directing investment in his cooperative commonwealth. Hence, he insists on maintaining competition.
A capital market
The possibilities of transferring cooperative capital through a more or less formal capital market are difficult to evaluate. It would clearly be at odds with the cooperative ethic if one or more workshops were to earn substantial income from their loans to other workshops. But a workshop anticipating a reduced need for labor in the future might conceivably transfer some of its workers and a share of its capital to a new industry. It is unclear who would take on the entrepreneurial role in this situation. Perhaps one of the elected managers might see a new position as exciting and adventurous. Putting together plans for a new line of products, the entrepreneur-manager might approach the market looking for investments by other cooperatives. In every case an investment matches laborers and retained earnings at a pre-established capital-labor ratio. The capital market matches surplus workers and capital with incipient cooperatives.
New products are launched. Some of these are successful in attracting strong demand; others are of little interest and effectively dissipate their capital. The winning activities act as beacons to other new cooperatives. These winners enjoy high profits for a period. Competition will eventually force rates of return down toward the zero-equilibrium level. So far so good. But what of new efforts that fail? While some of the workers can be added to expanding new industries, it is not clear from where capital to match these workers can be drawn. Perhaps a system-wide tax might be levied on the cooperatives to support these displaced workers entering new industries.
Notice that the important point here is not to allow cooperatives to keep ownership over capital transferred to new workshops. I suspect that Mill would have little objection to such a scheme. It matches more closely his support of both progress and competition. Curiously, however, he does not mention a capital market like this one or any other kind in his discussion of the cooperative mode.
A business cycle?
As long as cooperators focus on largely self-sufficient villages, the question of business cycles seems moot. But once the entire system is characterized by competing workers’ associations, the possibility of business cycles seems more serious. More specifically, widespread competition and the inclusion of a capital market in the cooperative commonwealth raise the possibility of major ups and downs in business activity.
The system now has capital deepening industries, expanding new industries, and disappearing old industries. While core established cooperatives can maintain their markets, there is now considerable room for miscalculation. A boom would likely follow an intensive period of capital deepening and new industry formation. It is easy to imagine a speculative boom emerging around the flow of capital and labor to new entrepreneurial industries. If the boom does not fully materialize, a downturn comes next. It will undoubtedly take a period of time while the displaced workers are again furnished with appropriate capital in alternative ventures.
It is difficult to predict how severe such a cycle would be in comparison to the cycles of nineteenth-century capitalism. Presumably, the cooperative capital market is more conservative than actual financial markets of that century. This should help dampen the cycle, but a cycle there is likely to be. It is difficult to imagine that capital deepening in some industries will always be exactly matched with the emergence of attractive new industrial pursuits.
Surely, the worst possible outcome is a situation where technological change proceeds apace, workers are released, but the entrepreneurial mechanism fails to deliver. In this case a potentially large unemployed underclass will be generated. Perhaps the only solution under the circumstances would be some forms of work sharing.
The incompleteness of Mill’s socialism
Obviously, these comments on Mill’s competitive socialism are highly speculative. But the need for speculation is largely due to the broad strokes with which he describes the possible workings of competition in the cooperative mode. We might reasonably have expected more from a man with his deep knowledge of political economy. How does he leave us with such an incomplete picture?
It is not that Mill loses interest in the subject. Rather, he continues for many years to expand and rework his views on the future of the working class. This is the very heart of his joint project with Harriet Taylor. It seems an open invitation for a more expanded treatment.
Nor is it that Mill is unsympathetic to workers he anticipates filling the cooperative workshops. There is no reason to think that Mill changes his fundamental view of the working class. Interestingly, he first enunciates this view as a young man in his debate with Thompson. There, despite taking a strongly negative position with respect to cooperation, he states his “principles” as follows:
I will tell you, Sir, what are my principles. They are these. That the working people being the majority of the whole population, the interests of all the other classes are of no importance compared with theirs. So far from thinking that they are too well off I think that they never can be too well paid: that they never can have too many comforts and enjoyments: and if it were necessary I would willingly suffer every other person in the community to starve, rather than that they should be inadequately provided with the necessaries of life.Footnote 29
So why does Mill fail to elaborate on the political economy of competitive cooperation? The choice for him would seem to lean toward some type of capital market for redirecting funds into new industries. But he avoids expanding an argument for this.
I offer one observation about this issue. Although he has a footnote on the usefulness of the term entrepreneur,Footnote 30 Mill is never strong in his consideration of entrepreneurship under capitalism.Footnote 31 For all of his discussion of progress, he hardly emphasizes the role of entrepreneurship in achieving it. He most likely has an even vaguer notion of what entrepreneurs under cooperation will look like, what will be their sociology and motivation. Under the circumstances, it is perhaps understandable that he leaves the matter quite open. He should have done better, however. I would assert he needs entrepreneurs to make his socialism plausible.
Acknowledgments
This essay has benefited from conversations with Helen McCabe and Piers Turner at the 2022 Philosophy, Political Science, and Economics meeting; from discussions with the other contributors to this volume; and from the comments of an insightful anonymous referee.
Competing interests
The author declares none.
