The following points highlight the top seven economic ideas of Nassau William Senior. The economic ideas are: 1. Scope of Political Economy 2. Value 3. Abstinence and Capital Formation 4. Theory of Monopoly 5. Rent 6. Money 7. Wages.
Economic Idea # 1. Scope of Political Economy:
According to Nassau William Senior the subject matter of Political Economy was limited to wealth and not with human happiness. He adopted the deductive method of study. He treated economics as an abstract and deductive science. He stated that “the science of economics depends more on reasoning than on observation”.
He lays down four postulates from which the deductions are to be made:
(1) Man’s desire to obtain additional wealth with as little sacrifice as possible
(2) Malthusian theory of population,
(3) Powers of the factors of production should be indefinitely increased and
(4) the law of diminishing returns from land. These days the first postulate is used as the assumption of economic rationality, which means that every economic unit acts with self-interest. For instance a consumer tries to maximise his consumer’s surplus, an entrepreneur tries to maximise his profits, a factor of production, its income etc. The second postulate is concerned with the theory of population, the third one laid the foundation for Bohm-Bawerk’s theory of production, and the fourth in the familiar law of diminishing returns in agriculture.
Economic Idea # 2. Value:
Nassau William Senior defined value as “that quality in anything which fits it to be given and received in exchange.” Transferability or marketability, relative scarcity and utility are the three things that contribute value. Scarcity of a good is determined in relation to its demand. Thus he brings in both demand and supply to determine value. Demand rests on utility.
Economic Idea # 3. Abstinence and Capital Formation:
Nassau William Senior introduced a cost of production theory. The two productive factors, namely, labour and capital contribute production. As these factors were inadequate a secondary agent, abstinence was needed. Senior emphasised that capital formation could take place due to abstinence. Abstinence he says, “is a term, by which we express the conduct of a person who either abstains from the unproductive use of what he can command ”
Economic Idea # 4. Theory of Monopoly:
Senior’s treatment of monopoly revenue was remarkable. He recognised that in practice free competition is not always present. There is often an element of monopoly present in the market, and this could be guaranteed only when everyone had equal access to factors of production. He, therefore, held that in the case of land the element of monopoly is always found to exist.
Commodities produced with the help of natural agents are monopoly commodities. He divided monopoly into four kinds- comparative advantage monopoly, absolute monopoly, copy-right monopoly and land monopoly. The most common feature of these monopolies is that income is always more than the cost of production. He regarded land rent as monopoly revenue.
Economic Idea # 5. Rent:
Due to the scarcity of fertile land labour was applied to inferior lands which results in diminishing returns to labour and capital. Hence the owner of superior land demanded rent. The value of land was determined by the scarcity of superior land and cultivation of inferior lands. If only a part of the most fertile land was cultivated, land had no value. Thus rent would arise so long as a scarce factor of production was used.
Economic Idea # 6. Money:
Senior suggested the qualities of money as durability, stability, portability and divisibility. Coins should be made only from gold and silver. Paper money should be well regulated. He criticised the Quantity Theory of Money as presented by David Ricardo and James Mill. Hence the value of money neither depends upon its quantity nor upon the velocity of circulation but upon its cost of production.
Economic Idea # 7. Wages:
Nassau William Senior propounded the Wages-Fund theory. According to him wages depend on “the extent of the fund for the maintenance of the labourers, compared with the number of labourers to be maintained.” Wages were determined according to the size of the wage fund and the number of the labourers. Further he believed that the productive powers of the workers would increase with the introduction of division of labour and machinery.
Nassau William Senior stated that real wages obtained by workers during a year must be the ratio between the quantity of commodities set aside for the maintenance of the working population and the size of that population.He supported the Malthusian Theory of Population and Adam Smith’s division of labour. The advantages of division of labour are mainly depended upon the use of capital or abstinence.
Senior did not advocate the laissez faire policy. He also suggested that the state should advance money to facilitate emigration. He welcomed state intervention to solve social problems and for the constitution of public work programmes.
He lacked constructive powers. His greatest contribution to political economy was his Abstinence Theory of Interest. His writings are full of logic and analytical detail but he could not make proper use of these faculties. To conclude, in the words of Haney, “He gave prominence to the unduly abstract character of the classical political economy; his classification of the factors of production lacked coordination, and his definition of monopoly has proved to be inexpedient”