Entrepreneurship, knowledge and employment

John Stuart Mill and the concept of externality: what counts as a harm

Bertrand Elodie Bertrand, CNRS - ISJPS

The history of the concept of externalities is necessarily also a history of the ethics of externalities. In this perspective, the philosophy of John Stuart Mill is inescapable. His principle limiting private liberty to what does not harm others is regularly referred to in the analyses of externalities (e.g., Chauvier 2013). Even more, this principle is sometimes interpreted as pointing at externalities (e.g., Medema 2009). The present paper aims at assessing the role of Mill’s harm principle in the definition of the concept of externality. It will interpret On Liberty (Mill 1859) and The Principles of Political Economy (1871, V.11) with the lens of the modern definition of externalities. Mill’s principle does not aim at involuntary harm, hence does not aim at externalities. However, it is true that On Liberty is crucial to the economists’ modern definition of externalities, but for another reason, insufficiently explored. Other types of externalities can be found in Mill: indirect harms that, in his view, do not justify public interference, and that correspond to external effects that are excluded from the standard definition of externalities. These are “moral” externalities, these effects of our actions that harm others by injuring their morality. I conclude that Mill does not refer to externalities as market failures, but that he gave welfare economists the philosophical background that justifies them in excluding moral externalities while their view of welfare as preferences satisfaction should lead to this concept. What counts as an externality rests on the liberal harm principle. The economists’ concept of externalities is grounded in Mill, but not in the sense Mill would write about externalities, rather because economists exclude from externalities the same moral effects that Mill excludes from the harm principle.

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Keywords: John Stuart Mill, externality, harm principle, utility interdependence

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