John Stuart Mill and The Economic Rationale for Organized Labor

The Classical School of economics is generally credited with providing the ideological foundation for the study of labor unions in the United States. In particular, one passage from Adam Smith's Wealth of Nations is believed to be the catalyst for the systematic study of organized labor. Smith and other classical economists wrote extensively of “labor's disadvantage” with capital, which allowed for unfair negotiations between workers and management. In this paper, we suggest that, although Adam Smith was the first economist to identify the problems that labor has in its dealings with management, he did not offer a truly theoretical explanation for these difficulties. The economist who first studied the labor/capital nexus from an economic perspective was John Stuart Mill. Mill's pioneering treatment of labor and capital provided an economic justification for the existence of labor unions.