Taken as a whole the works of Cairnes formed the most important contribution to economical science made by the English school since the publication of J.S. Mill's Principles. It is not possible to indicate more than generally the special advances in economic doctrine effected by him, but the following points may be noted as establishing for him a claim to a place beside Ricardo and Mill: (1) His exposition of the province and method of political economy. He never suffers it to be forgotten that political economy is a science, and consequently that its results are entirely neutral with respect to social facts or systems. It has simply to trace the necessary connexions among the phenomena of wealth and dictates no rules for practice. Further, he is distinctly opposed both to those who would treat political economy as an integral part of social philosophy, and to those who have attempted to express economic facts in quantitative formulae and to make economy a branch of applied mathematics. According to him political economy is a mixed science, its field being partly mental, partly physical.
It may be called a positive science, because its premises are facts, but it is hypothetical in so far as the laws it lays down are only approximately true, i.e. are only valid in the absence of counteracting agencies. From this view of the nature of the science, it follows at once that the method to be pursued must be that called by Mill the physical or concrete deductive, which starts from certain known causes, investigates their consequences and verifies or tests the result by comparison with facts of experience. It may, perhaps, be thought that Cairnes gives too little attention to the effects of the organism of society on economic facts, and that he is disposed to overlook what Bagehot called the postulates of political economy. (2) His analysis of cost of production in its relation to value. According to Mill, the universal elements in cost of production are the wages of labour and the profits of capital. To this theory Cairnes objects that wages, being remuneration, can in no sense be considered as cost, and could only have come to be regarded as cost in consequence of the whole problem being treated from the point of view of the capitalist, to whom, no doubt, the wages paid represent cost.
The real elements of cost of production he looks upon as labour, abstinence and risk, the second of these falling mainly, though not necessarily, upon the capitalist. In this analysis he to a considerable extent follows and improves upon Senior, who had previously defined cost of production as the sum of the labour and abstinence necessary to production. (3) His exposition of the natural or social limit to free competition, and of its bearing on the theory of value. He points out that in any organized society there can hardly be the ready transference of capital from one employment to another, which is the indispensable condition of free competition; while class distinctions render it impossible for labour to transfer itself readily to new occupations. Society may thus be regarded as consisting of a series of non-competing industrial groups, with free competition among the members of any one group or class. Now the only condition under which cost of production will regulate value is perfect competition. It follows that the normal value of commodities - the value which gives to the producers the average and usual remuneration - will depend upon cost of production only when the exchange is confined to the members of one class, among whom there is free competition.
In exchange between classes or non-competing industrial groups, the normal value is simply a case of international value, and depends upon reciprocal demand, that is to say, is such as will satisfy the equation of demand. This theory is a substantial contribution to economical science and throws great light upon the general problem of value. At the same time, it may be thought that Cairnes overlooked a point brought forward prominently by Senior, who also had called attention to the bearing of competition on the relation between cost of production and value. The cost to the producer fixes the limit below which the price cannot fall without the supply being affected; but it is the desire of the consumer - i.e. what he is willing to give up rather than be compelled to produce the commodity for himself - that fixes the maximum value of the article. To treat the whole problem of natural or normal value from the point of view of the producer is to give but a one-sided theory of the facts. (4) His defence of the wages fund doctrine. This doctrine, expounded by Mill in his Principles, had been relinquished by him, but Cairnes still undertook to defend it. He certainly succeeded in removing from the theory much that had tended to obscure its real meaning and in placing it in its very best aspect.
He also showed the sense in which, when treating the problem of wages, we must refer to some fund devoted to the payment of wages, and pointed out the conditions under which the wages fund may increase or decrease. It may be added that his Leading Principles contain admirable discussions on trade unions and protection, together with a clear analysis of the difficult theory of international trade and value, in which there is much that is both novel and valuable. The Logical Method contains about the best exposition and defence of Ricardo's theory of rent; and the Essays contain a very clear and formidable criticism of Bastiat's economic doctrines.
Professor Cairnes's son, Captain W.E. Cairnes (1862-1906), was an able writer on military subjects, being author of An Absent-minded War (1900), The Coming Waterloo (1905), etc.