Monday, September 26, 2011

Nassau Senior

Nassau Senior (1790 - 1864)

On this date in 1790, political economist Nassau Senior was born. Senior is identified in a short list of classical economists who adopted a proto-praxeological approach to economic science.

Senior was a second generation classical economist, born the eldest son of a vicar of Durnford, England. He was educated at Eton and Oxford, earning a law degree in 1815. Senior subsequently gained the first endowed chair of political economy at Oxford in 1825. He also worked at various government commissions in 1830s and 40s.

In 1836 he published his great work An Outline of the Science of Political Economy. In this book he criticized the Ricardian economic system while making his main original contributions in the area of economic method and the theory of value and cost. 

When discussing the nature of economic inquiry, he argued it was to be essentially positive, not normative. Economics, he thought, is about wealth, not happiness. He writes in the introduction,
[T]he subject treated by the Political Economist, using that term in the limited sense in which we apply it, is not Happiness, but Wealth ; his premises consist of a very few general propositions, the result of observation, or consciousness, and scarcely requiring proof, or even formal statement, which almost every man, as soon as he hears them, admits as familiar to his thoughts, or at least as included in his previous knowledge; and his inferences are nearly as general, and, if he has reasoned correctly, as certain, as his premises. Those which relate to the Nature and the Production of Wealth are universally true ; and though those which relate to the Distribution of Wealth are liable to be affected by the peculiar institutions of particular Countries, in the cases for instance of slavery, legal monopolies, or poor laws, the natural state of things can be laid down as the general rule, and the anomalies produced by particular disturbing causes can be afterwards accounted for. But his conclusions, whatever be their generality and their truth, do not authorize him in adding a single syllable of advice. That privilege belongs to the writer or the statesman who has considered all the causes which may promote or impede the general welfare of those whom he addresses, not to the theorist who has considered only one, though among the most important, of those causes (pp. 2-3).
Economics should be about wealth and not happiness, because happiness has ethical connotations. Economics is not ethics. It is about how people seek to achieve their ends through voluntary exchange. It is not about how people arrive at their ends or whether their ends are good and noble or bad and dishonorable.

Also note that, according to Senior economics is to be deductive. Our premises "consist of a very few general propositions" that are self-evidently true. We then apply the laws of deduction to derive true conclusions. This view on economic method is why Senior is often viewed as a proto-praxeologist.

Senior also made contributions to value and cost theory. He advocated a utility theory of value. Relative utility correlated with relative scarcity. The more scarce the good is, the more valuable it is. For Senior, value is that quality which fits goods to be given and received in exchange. He argues that utility is

a necessary constituent of value; no man would give any thing possessing the slightest utility for a thing possessing none; and even an exchange of two useless things would be, on the part of each party to the exchange, an act without a motive. Utility, however, denotes no intrinsic quality in the things which we call useful; it merely expresses their relations to the pains and pleasures of mankind. And, as the susceptibility of pain and pleasure from particular objects is created and modified by causes innumerable, and constantly varying, we find an endless diversity in the relative utility of different objects to different persons, a diversity which is the motive of all exchanges (pp. 6-7).

Note that, according to Senior, utility is not intrinsic, but merely expresses a thing’s relation to pains and pleasures of mankind. Value then is essentially subjective from the point-of-view of the people appropriating goods to satisfy their ends. Not surprisingly, Senior was critical of Ricardo's cost of production theory of value.

Senior also was a proto-Austrian of sorts when it came to capital and interest. He argued that interest was a reward for abstinence, which points to some understanding of time preference. He also hinted that roundabout, more capital intensive, methods of production are more productive than direct methods in the long run.

He was also an early proponent of what we would not call interest group theory. In his work on the Factory Acts he became convinced that they were inspired by the interests of factory operatives who sought to raise their own wages. Such analysis foreshadowed the public choice school of thought.

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