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Saturday, August 3, 2013

Nassau Senior, praxeology, and John Stuart Mill

There are few economists in any age who are self-conscious about the methodology of their craft. Even more was this true during the alleged heyday of the British classical school which, as we have seen, was an era of disintegration rather than triumph of the Ricardian paradigm. But an excellent methodologist was one of the finest economists of that epoch, Nassau W. Senior. Senior indeed took up the torch of the praxeological method that had been expounded and used by the great French economist of the early nineteenth century, Jean-Baptiste Say.

Senior began to spell out his views on methodology in his very first, introductory lecture at Oxford in 1826. With exceptional clarity, he began by stating that economic theory rests on the broadest general insights about human nature, insights that are self-evident in the sense that once stated they command universal assent. Economic theory, says Senior, ‘will be found to rest on a very few general propositions, which are the result of observation, or consciousness, and 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’. But if these premises, or axioms, rest on general knowledge of man and the world, then conclusions deduced from them must possess equal generality: ‘Its conclusions are also nearly as general as its premises – those which relate to the nature and production of wealth, are universally true.’ It is then the task of the economist to narrow down the conclusions to those areas which are directly relevant to the problem at hand. Thus:

those [conclusions] which relate to the distribution of wealth, are liable to be affected by peculiar institutions of particular countries – in the cases, for instance, of slavery, corn laws or poor-laws – the natural state of things can be laid down as a general rule, and the anomalies produced by particular disturbing causes can be afterwards accounted for.

As specifically part of his apodictic conclusions, Nassau Senior generalized laws that other economists had been approaching or groping for. For example, Senior defined ‘wealth’ as all goods and services that possess utility and which therefore will be purchased in exchange. He then stated in his first ‘fundamental proposition’: ‘That every person is desirous to obtain, with as little sacrifice as possible, as much as possible of the articles of wealth.’ Not only did Senior thus ably generalize some important insights of universal human action: he also in that way dismissed Adam Smith's unfortunate distinction between ‘productive’ (material) and ‘unproductive’ (immaterial) labour; everything which people desired and were willing to buy was ‘productive’. It is because Ricardo at least implicitly adopted this distinction that he was able to dismiss cavalierly any explanation of the pricing of immaterial services and hence to move toward a cost theory of value.

In elaborating on this first fundamental proposition, Senior moved on to an eloquent summation of the relationship between desire, individual diversity, choice, and human effort:

In stating that every man desires to obtain additional wealth with as little sacrifice as possible, we must not be supposed to mean that everybody, or indeed anybody, wishes for an indefinite quantity of everything... What we mean to state is, that no person feels his whole wants to be adequately supplied; that every person has some unsatisfied desires which he believes that additional wealth would gratify. The nature and urgency of each individual's wants are as various as the differences in individual character. Some may wish for power, others for distinction, others for leisure... Money seems to be the only object for which the desire is universal; and it is so because money is abstract wealth...
As equal diversity exists in the amount and the kind of the sacrifice which different individuals, or even the same individual, will encounter in the pursuit of wealth.

Two decades later, on returning to the Drummond chair at Oxford, Nassau Senior, in his introductory lectures in 1847, returned to the problem of the methodology of economics (published in 1852 in his Four Introductory Lectures on Political Economy). He now denned economic science as expounding ‘the laws regulating the production and distribution of wealth, so far as they depend on the action of the human mind’ – the latter clause emphasizing that economics was a ‘mental’ rather than ‘physical’ science. Indeed, Senior saw clearly that the proper scientific method was dualistic, the physical sciences treating the properties of matter, while the mental ones study ‘the sensations, faculties, and habits of the human mind, and regard in matter only the qualities which produce them’. The methods of the two sciences must necessarily differ, for the physical sciences ‘being only secondarily conversant with mind, draw their premises almost exclusively from observation or hypothesis’. Observation may guide such strictly empirical sciences as technology, but such sciences as physics, ‘those which treat only of magnitude and number.... draw them altogether from hypothesis’. The physical sciences must rest on tentative hypotheses, precisely because they are ‘only secondarily conversant with mind’. On the other hand, ‘the mental sciences and the mental arts draw their premises principally from consciousness. The subjects with which they are chiefly conversant are the working of the human mind. And the only mind whose workings a man really knows is his own’. And of course economics was one of the mental sciences.

In this way, Nassau Senior, with brilliant clarity, developed the essentials of what Ludwig von Mises, a century later, would call ‘praxeology’. As in the case of other mental sciences, economics cannot, like the physical sciences, conduct experiments. It is true, Senior noted, that economics deals with such material matters as production, productivity and diminishing returns, but the ‘political economist dwells on them only with reference to the mental phenomena which they serve to explain’, as among the motives or sources or capital, rent, profit, etc. In short, wrote Senior,

All the technical terms, therefore, of Political Economy, represent either purely mental ideas, such as demand, utility, value, and abstinence, or objects which, though some of them may be material, are considered by the Political Economist so far only as they are the causes of certain affectations of the human mind, such as wealth, capital, rent, wages, and profits.

It is important to consider the once famous battle between Nassau Senior and John Stuart Mill on economic method, for Mill was soon to become the undeservedly towering economist for the next half-century. Mill agreed that economics, as a mental science, cannot conduct experiments; but he did not conclude, with Senior, that its premises or axioms should be complete, general and apodictic. Instead, he asserted that the foundations and premises of economics can only be ‘hypothetical’, that is, they must make assumptions that abstract from, and hence distort, reality. The axioms of economics are only partially, or hypothetically, true. In short, for Mill, since economics focuses on man's desire for wealth, it must assume, even though admittedly falsely, that man's only desire is for wealth. Thus, as Mill stated in his Essays on Some Unsettled Questions in Political Economy in 1844:

Political Economy... does not treat of the whole of man's nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging the comparative efficacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth. It makes entire abstraction of every other human passion or motive... Political Economy considers mankind as occupied solely in acquiring and consuming wealth; and aims at showing what is the course of action into which mankind living in a state of society, would be impelled, if that motive... were absolute ruler of all their actions... Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed.30

Mill conceded that the founding assumption of his economics was ‘an arbitrary definition of man’. For it reasoned from ‘assumed premises – from premises which might be totally without foundation in fact, and which are not pretended to be universally in accordance with it...’.

And thus, John Stuart Mill, in this adumbration of the methodology of the deliberate creation of the fallacious ‘economic man’ – the man who is only interested in pursuing wealth – elaborated what might be called the orthodox, or dominant, ‘positivist’ methodology in economics. The positivist method, set down with such fallacious and fateful clarity by Mill, after a struggle with alternative praxeological (as well as other) methods, finally triumphed in the mid-twentieth century with the unfortunate rise to dominance of the positivism of Vilfredo Pareto and Milton Friedman.

Part of the motivation of Senior's thoughtful lectures on method in 1847 was precisely to engage in a critique and demolition of Millian positivism. Since Mill, like Smith and Ricardo before him, returned to their fallacious limitation of ‘wealth’ to material goods, the resulting distortion of value and production theory made Senior's task all the more important. Senior's assault on Mill, as well as on Ricardo, was formidable and devastating. He made their essential differences clear:

neither the reasoning of Mr. Mill, nor the example of Mr. Ricardo, induce me to treat Political Economy as a hypothetical science. I do not think it necessary, and, if unnecessary, I do not think it desirable.
It appears to me, that if we substitute for Mr. Mill's hypothesis, that wealth and costly enjoyment are the only object of human desire, the statement that they are universal and constant objects of desire, that they are desired by all men and at all times, we shall have laid an equally firm foundation for our subsequent reasoning, and have put a truth in the place of an arbitrary assumption. (Italics added.)

Senior goes on to concede that indeed we shall not now be able to infer, from the fact that a labourer may so act as to obtain higher wages, or a capitalist higher profits, that ‘they will certainly act in that manner’. But, at least ‘we shall be able to infer that they will do so in the absence of disturbing causes. And if we are able, as will frequently be the case, to state the cases in which these causes may be expected to exist, and the force with which they are likely to operate, we shall have removed all objection to the positive as opposed to the hypothetical treatment of the science’.

One danger of the hypothetical method, Senior wisely and prophetically points out, is the perpetual danger of forgetting that the premises are not complete and are only partial and even false assumptions. Another and even deeper flaw is that, since the assumptions are false from the very beginning, there is no way to bring in experience or observation to correct or even check on the conclusions of the abstract analysis. In this way, positivists, who always trumpet their method as being the only truly scientific and ‘empirical’ one, turn out to be resting on runaway and uncorrectable false premises. On the other hand, and ironically, the praxeological method, which has long been accused of a priori mysticism, is the only one that bases theory on broadly known and deeply empirical – indeed universally true – premises!
Being universally true, the praxeological method provides complete and general laws rather than partial, and hence generally false, ones. As Marian Bowley astutely sees the difference:

Thus in the question of the definition of the desire for wealth: if it is stated in Mill's form that everyone always prefers wealth to anything else [the ‘economic man’], with the added warning that it is only a hypothesis, the constant relation between the desire for wealth and all other conflicting motives is not defined completely by the general law. It remains necessary to introduce a further premise in each individual stating the general relation of other motives to that of the desire for wealth, as well as evaluating the actual variables. Now Senior's explanation of the desire for wealth includes information as to the interconnections between the variables.

Or, as Miss Bowley explains further:

Senior's substitution of net advantages for earnings is equivalent to defining in general terms the relation between all the variables which influence the distribution of resources between occupations, instead of leaving that relation to be considered afresh in each use.32

Thus, a positivist, assuming that businessmen are always and only interested in maximizing money profits, might well overlook and ignore instances of businessmen placing other motives (such as giving an executive post to one's relative) higher than profits. Or, worse still, if acknowledging such instances, he would be tempted to dismiss these cases contemptuously as ‘irrational behaviour’. Similarly, Charles Dickens, who repeatedly spoofed and attacked classical economics in his novels, had a utilitarian son refuse to help his impoverished mother on the ground that the science of political economy told him that to be rational a man must always buy in the cheapest market and sell in the dearest. And since Smith-Ricardo-Mill classical economics solely emphasized cost of production and therefore was totally blocked from even talking about the consumer, it was especially open to this Dickensian misconception.
Austrian Perspective on the History of Economic Thought (2 volume set)

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