Man, Economy, and State with Power and Market

Economics has made such extensive use of the term “value” that it would be inexpedient to abandon it now. However, there is undoubtedly confusion because the term is used in a variety of different ways. It is more important to keep distinct the subjective use of the term in the sense of valuation and preference, as against the “objective” use in the sense of purchasing power or price on the market. Up to this chapter, “value” in this book has meant the subjective individual “valuing” process of ranking goods on individual “value scales.”

In this chapter, the term “value of capital” signifies the purchasing power of a durable good in terms of money on the market. If a house can be sold on the market for 250 ounces of gold, then its “capital value” is 250 ounces. The difference between this and the subjective type of value is apparent. When a good is being subjectively valued, it is ranked by someone in relation to other goods on his value scale. When a good is being “evaluated” in the sense of finding out its capital value, the evaluator estimates how much the good could be sold for in terms of money. This sort of activity is known as appraisement and is to be distinguished from subjective evaluation. If Jones says: “I shall be able to sell this house next week for 250 ounces,” he is “appraising” its purchasing power, or “objective exchange-value,” at 250 ounces of gold. He is not thereby ranking the house and gold on his own value scale, but is estimating the money price of the house at some point in the future. We shall see below that appraisement is fundamental to the entire economic system in an economy of indirect exchange. Not only do the renting and selling of consumers’ goods rest on appraisement and on hope of monetary profits, but so does the activity of all the investing producers, the keystone of the entire productive system. We shall see that the term “capital value” applies, not only to durable consumers’ goods, but to all non-human factors of production as well—i.e., land and capital goods, singly and in various aggregates. The use and purchase of these factors rest on appraisement by entrepreneurs of their eventual yield in terms of monetary income on the market, and it will be seen that their capital value on the market will also tend to be equal to the discounted sum of their future yields of money income.26

• 26On appraisement and valuation, cf. Mises, Human Action, pp. 328–30.