Mill's Fourth Proposition Was Once Considered the Touchstone of Economic Thinking: Demand for Commodities Is NOT Demand for Labour

Mill's fourth proposition was once considered the touchstone of economic thinking, 'the best test of a sound economist' as it was once said. If you could not understand why it is true, you were seen as incapable of understanding how an economy works. This proposition has, however, now grown so far from present usage that it would be a very rare economist who has even heard this statement, let alone accepts what it says. Yet for all that, it remains as valid today as the day it was first penned.

Mill's fourth proposition states that 'demand for commodities is not demand for labour.' Its meaning: when you buy goods and services you are not increasing the number of jobs. . . .

When someone buys goods they are not themselves employing the labour or paying the wages. By the time the good is bought, the work has already been done and workers have already been paid their wages. The employment of labour is an entrepreneurial decision made in advance of production and sale. It is not the consequence of someone having finally bought the product. . . .

The conclusion that should never be lost sight of in understanding how economies work is that buying things creates no value. To purchase is not to produce, nor is it to employ. Demand of itself creates no value and cannot put people to work.

--Steven Kates, Free Market Economics: An Introduction for the General Reader, 3rd ed. (Cheltenham, UK: Edward Elgar Publishing, 2017), Kobo e-book.