Man, Economy, and State with Power and Market

All action involves the employment of scarce means to attain the most valued ends. Man has the choice of using the scarce means for various alternative ends, and the ends that he chooses are the ones he values most highly. The less urgent wants are those that remain unsatisfied. Actors can be interpreted as ranking their ends along a scale of values, or scale of preferences. These scales differ for each person, both in their content and in their orders of preference. Furthermore, they differ for the same individual at different times. Thus, at some other point in time, the actor mentioned in section 2 above might choose to go for a drive, or to go for a drive and then to play bridge, rather than to continue watching the game. In that case, the ranking on his preference scale shifts to this order:

(First)      1. Going for a drive
(Second) 2. Playing bridge
(Third)     3. Continuing to watch baseball game

Moreover, a new end might have been introduced in the meantime, so that the actor might enjoy going to a concert, and this may change his value scale to the following:

(First)      1. Going for a drive
(Second) 2. Going to a concert
(Third)     3. Playing bridge
(Fourth)   4. Continuing to watch baseball game

The choice of which ends to include in the actor’s value scale and the assignment of rank to the various ends constitute the process of value judgment. Each time the actor ranks and chooses between various ends, he is making a judgment of their value to him.

It is highly useful to assign a name to this value scale held by all human actors. We are not at all concerned with the specific content of men’s ends, but only with the fact that various ends are ranked in the order of their importance. These scales of preference may be called happiness or welfare or utility or satisfaction or contentment. Which name we choose for value scales is not important. At any rate, it permits us to say, whenever an actor has attained a certain end, that he has increased his state of satisfaction, or his contentment, happiness, etc. Conversely, when someone considers himself worse off, and fewer of his ends are being attained, his satisfaction, happiness, welfare, etc., have decreased.

It is important to realize that there is never any possibility of measuring increases or decreases in happiness or satisfaction. Not only is it impossible to measure or compare changes in the satisfaction of different people; it is not possible to measure changes in the happiness of any given person. In order for any measurement to be possible, there must be an eternally fixed and objectively given unit with which other units may be compared. There is no such objective unit in the field of human valuation. The individual must determine subjectively for himself whether he is better or worse off as a result of any change. His preference can only be expressed in terms of simple choice, or rank. Thus, he can say, “I am better off” or “I am happier” because he went to a concert instead of playing bridge (or “I will be better off” for going to the concert), but it would be completely meaningless for him to try to assign units to his preference and say, “I am two and a half times happier because of this choice than I would have been playing bridge.” Two and a half times what? There is no possible unit of happiness that can be used for purposes of comparison and, hence, of addition or multiplication. Thus, values cannot be measured; values or utilities cannot be added, subtracted, or multiplied. They can only be ranked as better or worse. A man may know that he is or will be happier or less happy, but not by “how much,” not by a measurable quantity.17

All action is an attempt to exchange a less satisfactory state of affairs for a more satisfactory one. The actor finds himself (or expects to find himself) in a nonperfect state, and, by attempting to attain his most urgently desired ends, expects to be in a better state. He cannot measure the gain in satisfaction, but he does know which of his wants are more urgent than others, and he does know when his condition has improved. Therefore, all action involves exchange—an exchange of one state of affairs, X, for Y, which the actor anticipates will be a more satisfactory one (and therefore higher on his value scale). If his expectation turns out to be correct, the value of Y on his preference scale will be higher than the value of X, and he has made a net gain in his state of satisfaction or utility. If he has been in error, and the value of the state that he has given up—X—is higher than the value of Y, he has suffered a net loss. This psychic gain (or profit) and loss cannot be measured in terms of units, but the actor always knows whether he has experienced psychic profit or psychic loss as a result of an action-exchange.18

Human actors value means strictly in accordance with their valuation of the ends that they believe the means can serve. Obviously, consumers’ goods are graded in value in accordance with the ends that men expect them to satisfy. Thus, the value placed on the enjoyment contributed by a ham sandwich or a house will determine the value a man will place on the ham sandwich or the house themselves. Similarly, producers’ goods are valued in accordance with their expected contribution in producing consumers’ goods. Higher-order producers’ goods are valued in accordance with their anticipated service in forming lower-order producers’ goods. Hence, those consumers’ goods serving to attain more highly valued ends will be valued more highly than those serving less highly valued ends, and those producers’ goods serving to produce more highly valued consumers’ goods will themselves be valued more highly than other producers’ goods. Thus, the process of imputing values to goods takes place in the opposite direction to that of the process of production. Value proceeds from the ends to the consumers’ good to the various first-order producers’ goods, to the second-order producers’ goods, etc.19 The original source of value is the ranking of ends by human actors, who then impute value to consumers’ goods, and so on to the orders of producers’ goods, in accordance with their expected ability to contribute toward serving the various ends.20

• 17Accordingly, the numbers by which ends are ranked on value scales are ordinal, not cardinal, numbers. Ordinal numbers are only ranked; they cannot be subject to the processes of measurement. Thus, in the above example, all we can say is that going to a concert is valued more than playing bridge, and either of these is valued more than watching the game. We cannot say that going to a concert is valued “twice as much” as watching the game; the numbers two and four cannot be subject to processes of addition, multiplication, etc.
• 18An example of suffering a loss as a result of an erroneous action would be going to the concert and finding that it was not at all enjoyable. The actor then realizes that he would have been much happier continuing to watch the game or playing bridge.
• 19A large part of this book is occupied with the problem of how this process of value imputation can be accomplished in a modern, complex economy.
• 20This is the solution of a problem that plagued writers in the economic field for many years: the source of the value of goods.