Markets, Productivity, and Happiness in a Historical Perspective

N.Senior on money and international values

Tabuchi Taichi, Doshisha University

This paper gives a reappraisal of Nassau Senior’s theory on money and international values, understanding it from the viewpoint of Ricardo’s cost-of-production theory of value and comparing it with John Stuart Mill’s theory of reciprocal demand. First, we will show that Senior, in his Three Lectures on the Cost of Obtaining Money (1830), elucidated, in line with Ricardo (and Marx), that it is labour productivity of a country’s exporting industry that determines what amount of gold its national labour can be expressed in, and that by the differentials of labour productivity in exporting industry, we can determine uniquely the international values between trading countries and explain why prices and nominal wages are higher in more developed countries. Then we focus on the debate between Senior and Torrens held in 1843. Torrens, in his Budget (1841-43), presented the reciprocal demand theory in 2 country 2 commodity case. Senior, in his Free Trade and Retaliation (1843), criticized Torrens’s view, arguing that the cost-of-production theory is valid both in domestic and international exchanges, in line with Ricardo. It is notable that Senior already pointed out the critical issue underlying Mill’s reversion in his Essays on Some Unsettled Questions of Political Economy published in 1844, that is, the question of the relevance of an analysis confined to 2 × 2 case. Lastly, the paper will examine what are the similarities and differences between Senior’s and Ricardo’s theory on money and international values. It is true that Senior and Ricardo share the common ground of the cost-of-production theory of value, but Ricardo stated that it is the natural price in the exporting country which regulates the prices in the importing country. For Ricardo, natural price is the ‘money cost of production’ but it would be altered by the change of the value of money. That is why Senior was able to explain simply the causal connection between the rise of the labour productivity of a country’s exporting industry and the rise of the rate of wages there, while Ricardo could not help explain the shocks of labour productivity differentials through international flow of precious metals. Thus, the paper will show that Senior inherited Ricardo’s cost-of-production theory of value invalid both in domestic and international exchanges with some important modifications in the theory of money.

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Keywords: international trade, money, reciprocal demand, the cost-of-production theory of value, Senior, Ricardo, John Stuart Mill, Torrens

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