Book II, Chapter I: Of Property, contains Mill's famous dictum the principle of private property has never yet had a fair trial in any country, but also much more. It begins with the following observation

The principles which have been set forth in the first part of this Treatise, are, in certain respects, strongly distinguished from those, on the consideration of which we are about to enter. The laws and conditions of the production of wealth partake of the character of physical truths. There is nothing optional or arbitrary in them. Whatever mankind produce, must be produced in the modes, and under the conditions, imposed by the constitution of external things, and by the inherent properties of their own bodily and mental structure.
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We cannot, indeed, foresee to what extent the modes of production may be altered, or the productiveness of labour increased, by future extensions of our knowledge of the laws of nature, suggesting new processes of industry of which we have at present no conception. But howsoever we may succeed in making for ourselves more space within the limits set by the constitution of things, we know that there must be limits.

Oh, good, Mill understands the second law of thermodynamics better than modern economists do, to judge by Herman Daly's criticism of neoclassical economics:

What Second Law?

It was argued in Chapter 2 that growth economists were confused about ultimate means, or low-entropy matter-energy. It might be useful here to document a few examples of economists' disregard for the second law of thermodynamics.

In an article defending growth, Harvard economist Richard Zeckhauser tells us that "Recycling is not the solution for oil, because the alternate technology of nuclear power generation is cheaper" (1973, p. 117, n. 11). The clear meaning of the sentence is that recycling oil as an energy source is possible but just happens to be uneconomical, because nuclear energy is cheaper. The real reason that energy from oil, or any other source, is not recycled is of course the entropy law, not the relative price of nuclear power. This nonsensical statement is not just a minor slip-up that we can correct and forget; it indicates a fundamental lack of appreciation of the physical facts of life. No wonder Zeckhauser is unconvinced by limits to growth arguments; if he is unaware of the entropy law he could not possibly feel the weight of the arguments against which he is reacting in his article.

An article entitled "The Environment in Economics: A Survey" Begins with the words: "Man has probably always worried about his environment because he was once totally dependent on it" (Fisher and Peterson, 1976, p. 1). The implication is that man is no longer totally dependent on his environment, or at least that he has become less dependent. Presumably, technology has made man increasingly independent of his environment. But, in fact, technology has merely substituted nonrenewable resources for renewables, which is more an increase than a decrease in dependence. How could man possibly become more independent of his environment without shutting off exchanges with the environment or reducing depletion and pollution, rather than increasing them? For man to exist as a closed system, engaging in no exchanges with the environment, would require suspension of the second law. Man is an open system. What was man three months ago is now environment; what was environment yesterday is man today. Man and environment are so totally interdependent it is hard to say where one begins and the other ends. This total interdependence has not diminished and will not in the future, regardless of technology.

The statement, already cited, by Barnett and Morse that "Nature imposes particular scarcities, not an inescapable general scarcity," is about as clear a denial of the second law as could be imagined. To drive the point home they add:

Science by making the resource base more homogeneous, erases the restrictions once thought to reside in the lack of homogeneity. In a neo-Ricardian world, it seems, the particular resources with which one starts increasingly become a matter of indifference....Advances in fundamental science have made it possible to take advantage of the uniformity of energy/matter--a uniformity that makes it feasible without preassignable limit to escape the quantitative constraints imposed by the character of the earth's crust [Barrett and Morse, 1973, p. 11].

It is, however, not the uniformity of matter-energy that makes for usefulness, but precisely the opposite. It is nonuniformity, differences in concentration and temperature, that makes for usefulness. If all materials and energy were uniformly distributed in thermodynamic equilibrium, the resulting "homogeneous resource base" would be no resource at all. There would be a complete absence of potential for any process, including life! The economist's notion of infinite substitutability bears some resemblance to the old alchemists' dream of converting base metals into precious metals. All you have to do is rearrange atoms! But the potential for rearranging atoms is itself scarce, so the mere fact that everything is made up of the same homogeneous building blocks does not abolish scarcity. Only Maxwell's Sorting Demon could turn a pile of atoms into a resource, and the entropy law tells us that Maxwell's Demon does not exist.

Back to Mill:

It is not so with the Distribution of Wealth. That is matter of human institution solely. The things once there, mankind, individually or collectively, can do with them as they like. They can place them at the disposal of whomsoever they please, and on whatever terms. Further, in the social state, in every state except total solitude, any disposal whatever of them can only take place by the consent of society, or rather of those who dispose of its active force. Even what a person has produced by his individual toil unaided by any one, he cannot keep, unless by the permission of society. Not only can society take it from him, but individuals could and would take it from him, if society only remained passive; if it did not either interfere en masse, or employ and pay people for the purpose of preventing him from being disturbed in the possession. The distribution of wealth, therefore, depends on the laws and customs of society. The rules by which it is determined, are what the opinions and feelings of the ruling portion of the community make them, and are very different in different ages and countries, and might be still more different, if mankind so chose.

I tell you, this man (like Adam Smith before him) is a dangerous socialist. Be it as it may, he then embarks of an exploration of the objections to private property, the various alternative (socialist) systems known to him, and criticisms of those.

The assailants of the principle of individual property may be divided into two classes: those whose scheme implies absolute equality in the distribution of the physical means of life and enjoyment, and those who admit inequality, but grounded on some principle, or supposed principle, of justice or general expediency, and not, like so many of the existing social inequalities, dependent on accident alone.

Mill mentions Owen, Louis Blanc, M. Cabet, as well as St. Simonism and Fourierism, the latter of which Mill reports as "still flourishing in the number, talent and zeal of its adherents". Mill is not entirely opposed to these socialist schemes

Whatever maybe the merits or defects of these various schemes, they cannot be truly said to be impracticable.

He then proceeds to disarm the main argument of the opponents of socialism

The objection ordinarily made to a system of community of property and equal distribution of the produce, that each person would be incessantly occupied in evading his fair share of the work, points undoubtedly, to a real difficulty. But those who urge this objection, forget to how great an extent the same difficulty exists under the system on which nine-tenths of the business of society is now conducted. The objection supposes, that honest and efficient labour is only to be had from who are themselves individually to reap the benefits of their own exertions. But how small a part of the labour performed in England, from the lowest to the highest, is done by persons working for their own benefit.

He then considers two other objections to Communism, and concludes with the following explanation for the appeal of Utopian Socialism:

If, therefore, the choice were to be made between Communism with all its chances, and the present state of society with all its sufferings and injustices; if the institution of private property necessarily carried with it as a consequence that the produce of labour should be apportioned as we now see it, almost in an inverse ratio to the labour [...] is this or Communism were the alternative, all the difficulties, great or small, of Communism would be but as dust in the balance.

Like Keynes and the Social Democrats would during the 20th century, Mills now sets out to reform capitalism in order to save it from revolution. First, with an appeal to intellectual honesty.

But to make the comparison applicable, we must compare Communism at its best, with the régime of individual property, not as it is, but as it might be made. The principle of private property has never yet had a fair trial in any country; and less so, perhaps, in this country than in some others. The social arrangements of modern Europe commenced from a distribution of property which was the result, not of just partition, or acquisition by industry, but of conquest and violence: and notwithstanding what industry has been doing for many centuries to modify the work of force, the system still retains many and large traces of its origin. The laws of property have never yet conformed to the principles on which the justification of private property rests. They have made property of things which never ought to be property, and absolute property where only a qualified property ought to exist. They have not held the balance fairly between human beings, but have heaped impediments upon some, to give advantage to others; they have purposely fostered inequalities, and prevented all from starting fair in the race. That all should indeed start on perfectly equal terms, is inconsistent with any law of private property: but if as much pains as has been taken to aggravate the inequality of chances arising from the natural working of the principle, had been taken to temper that inequality be every means not subversive to the principle itself; if the tendency of legislation had been to favour the diffusion, instead of the concentration, of wealth—to encourage the subdivision of the large masses, instead of striving to keep them together; the principle of individual property would have been found to have no necessary connexion with the physical and social evils almost all Socialist writers assume to be inseparable from it.

Mill may not think that property is theft, but he comes dangerously close to it as property as he knew it definitely was. Mill now defines private property and the additional necessary conditions for a desirable social order, chief among which is liberty:

Private property, in every defence made of it, is supposed to mean, the guarantee to individuals of the fruits of their own labour and abstinence.
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To judge the final destination of the institution of property, we must suppose everything rectified, which causes the institution to work in a manner opposed to that equitable principle, of proportion between remuneration and exertion, on which in every vindication of it that will bear the light, it is assumed to be grounded. We must also suppose two conditions realized, without which neither Communism nor any other any other laws or institutions could make the condition of the mass of mankind other than degraded and miserable. One of these conditions is, universal education; the other, a due limitation of the number of the community. With these, there could be no poverty, even under the present social institutions: and these being supposed, the question of Socialism is not, as generally stated by Socialists, a question of flying to the sole refuge against the evils which now bear down humanity; but a mere question of comparative advantages, which futurity must determine. We are too ignorant either of what individual agency in its best form, or Socialism in its best form, can accomplish, to be qualified to decide which of the two will be the ultimate form of human society.

If a conjecture may be hazarded, the decision will probably depend mainly on one consideration, viz. which of the two systems is consistent with the greatest amount of human liberty and spontaneity. [...] The perfection both of social arrangements and of practical morality would be, to secure to all persons complete independence and freedom of action, subject to no restriction but that of not doing injury to others: and the education which taught or the social institutions which required them to exchange the control of their own actions for any amount of comfort or affluence, or to renounce liberty for the sake of equality, would deprive them of one of the most elevated characteristics of human nature. It remains to be discovered how far the preservation of this characteristic would be found compatible with the Communistic organization of society. No doubt, this, like all the other objections to the Socialist schemes, is vastly exaggerated. [...] The restraints of Communism would be freedom in comparison with the present condition of the majority of the human race. [...] But it is not by comparison with the present bad state of society that the claims of Communism can be estimated; nor is it sufficient that it should promise greater personal and mental freedom than is now enjoyed by those who have not enough of either to deserve the name. The question is, whether there would be any asylum left for individuality of character; whether public opinion would not be a tyrannical yoke; whether the absolute dependence of each on all, and surveillance of each by all, would not grind all down into a tame uniformity of thoughts, feelings, and actions.

After giving this bleak view of what is to be expected of communism, he goes on to discuss forms of "non-communistic Socialism" such as St. Simonism or Fourierism, of which he concludes

Even from so brief an outline, it must be evident that this system does no violence to any of the general laws by which human actions, even in the present imperfect state of moral and intellectual cultivation, is influenced; and that it would be extremely rash to pronounce it incapable of success, or unfitted to realize a great part of the hopes founded on it by its partisans. With regard to this, as to all other varieties of Socialism, the thing to be desired, and to which they have just claim, is opportunity of trial.