Markets, Productivity, and Happiness in a Historical Perspective

Equal Chances: Mill on Profit and Probabilities

Hirsch Roni, Polonsky Academy for Advanced study, Van Leer Jerusalem Institute

How did J. S. Mill’s frequentism shape his theory of profit? The 19th century saw a radical transformation in the meaning and uses of probability theory. Moving away from questions of subjective expectation, the new, “frequentist” approach saw risk as objective and collective: an actual frequency of events that characterizes a well-defined group. John Stuart Mill was a seminal figure in this transformation, though its links with his economic theory have largely been overlooked. In this paper, I show how Mill’s theory of profit, and the central role played in it by expectation, were shaped by his engagement with probability theory. More specifically, I show that, given this intellectual background, we must reinterpret Mill’s idea of “expectation,” moving away from any subjective sense to the idea of expectation as “equal chances,” premised on widespread knowledge of empirical economic conditions. Mill’s theory of profit, as I show, doesn’t simply adopt the 19th century “abstinence theory of profit,” but substantially transforms it to discuss capitalists as a class, rather than as individuals. It also stands in sharp opposition to contemporary views of profit as a highly uncertain return, rewarding the subjective judgments of the entrepreneur.

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Keywords: Uncertainty; abstinence; profit; J. S. Mill; expectation