WEBVTT NOTE XI. Valuation Without Calculation 1 00:00:00.000 --> 00:00:05.000 Part 3. Economic Calculation 2 00:00:05.000 --> 00:00:10.000 Chapter 11. Valuation Without Calculation 3 00:00:10.000 --> 00:00:15.000 1. The Gradation of the Means 4 00:00:15.000 --> 00:00:22.000 Acting man transfers the valuation of ends he aims at to the means. 5 00:00:22.000 --> 00:00:27.000 Other things being equal, he assigns to the total amount of the various means 6 00:00:27.000 --> 00:00:32.000 The same value he attaches to the end which they are fit to bring about. 7 00:00:32.000 --> 00:00:37.000 For the moment we may disregard the time needed for production of the end 8 00:00:37.000 --> 00:00:43.000 and its influence upon the relation between the value of the ends and that of the means. 9 00:00:43.000 --> 00:00:51.000 The gradation of the means is like that of the ends, a process of preferring A to B. 10 00:00:51.000 --> 00:00:54.000 It is preferring and setting aside. 11 00:00:54.000 --> 00:01:00.000 It is manifestation of a judgment that A is more intensely desired than is B. 12 00:01:00.000 --> 00:01:11.000 It opens a field for application of ordinal numbers, but it is not open to application of cardinal numbers and arithmetical operations based on them. 13 00:01:11.000 --> 00:01:20.000 If somebody gives me the choice among three tickets, entitling one to attend the operas Aida, Falstaff and Traviata, 14 00:01:20.000 --> 00:01:27.440 Traviata, and I take, if I can only take one of them, AIDA, and if I can take one more, 15 00:01:27.440 --> 00:01:34.040 Falstaff also, I have made a choice. That means, under given conditions I prefer AIDA 16 00:01:34.040 --> 00:01:40.480 and Falstaff to Traviata. If I could only choose one of them, I would prefer AIDA and 17 00:01:40.480 --> 00:01:48.220 renounce Falstaff. If I call the admission to AIDA A, that to Falstaff B, and that to 18 00:01:48.220 --> 00:01:55.620 To Traviata C, I can say, I prefer A to B and B to C. 19 00:01:55.620 --> 00:02:00.940 The immediate goal of acting is frequently the acquisition of countable and measurable 20 00:02:00.940 --> 00:02:04.300 supplies of tangible things. 21 00:02:04.300 --> 00:02:09.180 Then acting man has to choose between countable quantities. 22 00:02:09.180 --> 00:02:18.540 He prefers, for example, 15R to 7P, but if he had to choose between 15R and 8P, he might 23 00:02:18.540 --> 00:02:21.140 prefer 8P. 24 00:02:21.140 --> 00:02:28.620 We can express this state of affairs by declaring that he values 15R less than 8P, but higher 25 00:02:28.620 --> 00:02:30.900 than 7P. 26 00:02:30.900 --> 00:02:36.860 This is tantamount to the statement that he prefers A to B and B to C. 27 00:02:36.860 --> 00:02:46.140 The substitution of 8P for A, of 15R for B, and of 7P for C changes neither the meaning 28 00:02:46.140 --> 00:02:52.480 of the statement nor the fact that it describes. It certainly does not render reckoning with 29 00:02:52.480 --> 00:02:58.800 cardinal numbers possible. It does not open a field for economic calculation and the mental 30 00:02:58.800 --> 00:03:03.060 operations based upon such calculation. 31 00:03:03.060 --> 00:03:11.740 2. The Barter Fiction of the Elementary Theory of Value and Prices 32 00:03:11.740 --> 00:03:17.980 The elaboration of economic theory is heuristically dependent on the logical processes of reckoning 33 00:03:17.980 --> 00:03:23.800 to such an extent that the economists failed to realize the fundamental problem involved 34 00:03:23.800 --> 00:03:30.140 in the methods of economic calculation. They were prone to take economic calculation as 35 00:03:30.140 --> 00:03:36.300 is a matter of course. They did not see that it is not an ultimate given but a derivative 36 00:03:36.300 --> 00:03:43.740 requiring reduction to more elementary phenomena. They misconstrued economic calculation. They 37 00:03:43.740 --> 00:03:49.780 took it for a category of all human action and ignored the fact that it is only a category 38 00:03:49.780 --> 00:03:56.860 inherent in acting under special conditions. They were fully aware of the fact that interpersonal 39 00:03:56.860 --> 00:04:02.740 Historical exchange, and consequently market exchange, affected by the intermediary of 40 00:04:02.740 --> 00:04:09.060 a common medium of exchange, money and therefore prices, are special features of a certain 41 00:04:09.060 --> 00:04:16.020 state of society's economic organization which did not exist in primitive civilizations, 42 00:04:16.020 --> 00:04:21.300 and could possibly disappear in the further course of historical change. 43 00:04:21.300 --> 00:04:26.140 The German Historical School expressed this by asserting that private ownership of the 44 00:04:26.140 --> 00:04:33.260 The means of production, market exchange and money are historical categories. 45 00:04:33.260 --> 00:04:39.860 But they did not comprehend that money prices are the only vehicle of economic calculation. 46 00:04:39.860 --> 00:04:43.980 Thus, most of their studies are of little use. 47 00:04:43.980 --> 00:04:49.180 Even the writings of the most eminent economists are vitiated, to some extent, by the fallacies 48 00:04:49.180 --> 00:04:54.160 implied in their ideas about economic calculation. 49 00:04:54.160 --> 00:05:00.460 The modern theory of value and prices shows how the choices of individuals, their preferring 50 00:05:00.460 --> 00:05:06.400 of some things and setting aside of other things, result in the sphere of interpersonal 51 00:05:06.400 --> 00:05:13.800 exchange in the emergence of market prices. These masterful expositions are unsatisfactory 52 00:05:13.800 --> 00:05:22.040 in some minor points and disfigured by unsuitable expressions, but they are essentially irrefutable. 53 00:05:22.040 --> 00:05:27.240 As far as they need to be amended, it must be done by a consistent elaboration of the 54 00:05:27.240 --> 00:05:33.940 fundamental thoughts of their authors, rather than by a refutation of their reasoning. 55 00:05:33.940 --> 00:05:39.480 In order to trace back the phenomena of the market to the universal category of preferring 56 00:05:39.480 --> 00:05:48.240 A to B, the elementary theory of value and prices is bound to use some imaginary constructions. 57 00:05:48.240 --> 00:05:54.240 The use of imaginary constructions to which nothing corresponds in reality is an indispensable 58 00:05:54.240 --> 00:05:56.360 tool of thinking. 59 00:05:56.360 --> 00:06:01.880 No other method would have contributed anything to the interpretation of reality. 60 00:06:01.880 --> 00:06:07.820 But one of the most important problems of science is to avoid the fallacies which ill-considered 61 00:06:07.820 --> 00:06:12.820 employment of such constructions can entail. 62 00:06:12.820 --> 00:06:19.060 The elementary theory of value and prices employs, apart from other imaginary constructions 63 00:06:19.060 --> 00:06:25.120 to be dealt with later, the construction of a market in which all transactions are performed 64 00:06:25.120 --> 00:06:27.580 in direct exchange. 65 00:06:27.580 --> 00:06:29.520 There is no money. 66 00:06:29.520 --> 00:06:35.040 Goods and services are directly bartered against other goods and services. 67 00:06:35.040 --> 00:06:38.480 This imaginary construction is necessary. 68 00:06:38.480 --> 00:06:44.600 One must disregard the intermediary role played by money in order to realize that what is 69 00:06:44.600 --> 00:06:53.160 ultimately exchanged is always economic goods of the first order against other such goods. 70 00:06:53.160 --> 00:06:57.680 Money is nothing but a medium of interpersonal exchange. 71 00:06:57.680 --> 00:07:02.760 But one must carefully guard oneself against the delusions which this construction of a 72 00:07:02.760 --> 00:07:07.680 market with direct exchange can easily engender. 73 00:07:07.680 --> 00:07:13.500 A serious blunder that owes its origin and its tenacity to a misinterpretation of this 74 00:07:13.500 --> 00:07:19.320 imaginary construction was the assumption that the medium of exchange is a neutral factor 75 00:07:19.320 --> 00:07:21.480 only. 76 00:07:21.480 --> 00:07:27.420 According to this opinion, the only difference between direct and indirect exchange was that 77 00:07:27.420 --> 00:07:31.720 only in the latter was a medium of exchange used. 78 00:07:31.720 --> 00:07:37.660 The interpolation of money into the transaction, it was asserted, did not affect the main features 79 00:07:37.660 --> 00:07:39.660 of the Business. 80 00:07:39.660 --> 00:07:45.360 One did not ignore the fact that in the course of history tremendous alterations in the purchasing 81 00:07:45.360 --> 00:07:51.300 power of money have occurred, and that these fluctuations often convulse the whole system 82 00:07:51.300 --> 00:07:53.100 of exchange. 83 00:07:53.100 --> 00:07:58.140 But it was believed that such events were exceptional facts caused by inappropriate 84 00:07:58.140 --> 00:08:00.140 policies. 85 00:08:00.140 --> 00:08:04.660 Only bad money can bring about such disarrangements. 86 00:08:04.660 --> 00:08:10.260 In addition, people misunderstood the causes and effects of these disturbances. 87 00:08:10.260 --> 00:08:16.860 They tacitly assumed that changes in purchasing power occur with regard to all goods and services 88 00:08:16.860 --> 00:08:20.940 at the same time and to the same extent. 89 00:08:20.940 --> 00:08:25.900 This is, of course, what the fable of money's neutrality implies. 90 00:08:25.900 --> 00:08:31.540 The whole theory of catallactics, it was held, can be elaborated under the assumption that 91 00:08:31.540 --> 00:08:38.200 that there is direct exchange only. If this is once achieved, the only thing to be added 92 00:08:38.200 --> 00:08:44.320 is the simple insertion of money terms into the complex of theorems concerning direct 93 00:08:44.320 --> 00:08:51.200 exchange. However, this final completion of the catallactic system was considered of minor 94 00:08:51.200 --> 00:08:57.040 importance only. It was not believed that it could alter anything essential in the structure 95 00:08:57.040 --> 00:09:04.760 of Economic Teachings. The main task of economics was study of direct exchange. What remained 96 00:09:04.760 --> 00:09:12.520 to be done besides this was, at best, only a scrutiny of the problems of bad money. 97 00:09:12.520 --> 00:09:18.840 Complying with this opinion, economists neglected to lay due stress upon the problems of indirect 98 00:09:18.840 --> 00:09:25.720 exchange. Their treatment of monetary problems was superficial. It was only loosely connected 99 00:09:25.720 --> 00:09:30.740 with the main body of their scrutiny of the market process. 100 00:09:30.740 --> 00:09:36.580 About the turn of the 19th and 20th centuries the problems of indirect exchange were by 101 00:09:36.580 --> 00:09:40.760 and large relegated to a subordinate place. 102 00:09:40.760 --> 00:09:46.060 There were treatises on catallactics which dealt only incidentally and cursorily with 103 00:09:46.060 --> 00:09:52.220 monetary matters, and there were books on currency and banking which did not even attempt 104 00:09:52.220 --> 00:09:57.540 to integrate their subject into the structure of a catalactic system. 105 00:09:57.540 --> 00:10:03.220 At the universities of the Anglo-Saxon countries, there were separate chairs for economics and 106 00:10:03.220 --> 00:10:08.920 for currency and banking, and at most of the German universities, monetary problems were 107 00:10:08.920 --> 00:10:12.440 almost entirely disregarded. 108 00:10:12.440 --> 00:10:19.420 Neglect of the problems of indirect exchange was certainly influenced by political prepossessions. 109 00:10:19.420 --> 00:10:24.580 People did not want to give up the thesis according to which economic depressions are 110 00:10:24.580 --> 00:10:31.300 an evil inherent in the capitalist mode of production and are in no way caused by attempts 111 00:10:31.300 --> 00:10:36.300 to lower the rate of interest by credit expansion. 112 00:10:36.300 --> 00:10:41.340 Fashionable teachers of economics deemed it unscientific to explain depressions as 113 00:10:41.340 --> 00:10:47.500 a phenomenon originating only out of events in the sphere of money and credit. 114 00:10:47.500 --> 00:10:53.220 There were even surveys of the history of business cycle theory which omitted any discussion 115 00:10:53.220 --> 00:10:56.300 of the monetary thesis. 116 00:10:56.300 --> 00:11:02.100 Only later economists realized that some of the most important and most intricate problems 117 00:11:02.100 --> 00:11:08.460 of catallactics are to be found in the field of indirect exchange, and that an economic 118 00:11:08.460 --> 00:11:14.420 theory which does not pay full regard to them is lamentably defective. 119 00:11:14.420 --> 00:11:20.380 The coming into vogue of investigations concerning the relation between the natural rate of interest 120 00:11:20.380 --> 00:11:26.260 and the money rate of interest, the ascendancy of the monetary theory of the trade cycle, 121 00:11:26.260 --> 00:11:31.380 and the entire demolition of the doctrine of the simultaneousness and evenness of the 122 00:11:31.380 --> 00:11:38.100 changes in the purchasing power of money, were marks of the new tenor of economic thought. 123 00:11:38.100 --> 00:11:43.780 Of course, these new ideas were essentially a continuation of the work gloriously begun 124 00:11:43.780 --> 00:11:50.780 by David Hume, the British Currency School, John Stuart Mill and Cairns. 125 00:11:50.780 --> 00:11:55.420 Still more detrimental was a second error which emerged from the careless use of the 126 00:11:55.420 --> 00:12:00.500 imaginary construction of a market with direct exchange. 127 00:12:00.500 --> 00:12:07.940 An inveterate fallacy asserted that things and services exchanged are of equal value. 128 00:12:07.940 --> 00:12:14.460 Value was considered as objective, as an intrinsic quality inherent in things, and not merely 129 00:12:14.460 --> 00:12:18.940 as the expression of various people's eagerness to acquire them. 130 00:12:18.940 --> 00:12:25.000 People, it was assumed, first established the magnitude of value proper to goods and 131 00:12:25.000 --> 00:12:30.700 services by an act of measurement, and then proceeded to barter them against quantities 132 00:12:30.700 --> 00:12:34.960 of goods and services of the same amount of value. 133 00:12:34.960 --> 00:12:41.680 This fallacy frustrated Aristotle's approach to economic problems and for almost 2000 years 134 00:12:41.680 --> 00:12:47.440 the reasoning of all those for whom Aristotle's opinions were authoritative. 135 00:12:47.440 --> 00:12:52.880 It seriously vitiated the marvelous achievements of the classical economists and rendered the 136 00:12:52.880 --> 00:13:00.380 writings of their epigones, especially those of Marx and the Marxian school, entirely futile. 137 00:13:00.380 --> 00:13:06.100 The basis of modern economics is the cognition that it is precisely the disparity in the 138 00:13:06.100 --> 00:13:13.140 value attached to the objects exchanged that results in their being exchanged. 139 00:13:13.140 --> 00:13:20.940 People buy and sell only because they appraise the things given up less than those received. 140 00:13:20.940 --> 00:13:24.940 Thus the notion of a measurement of value is vain. 141 00:13:24.940 --> 00:13:30.580 An active exchange is neither preceded nor accompanied by any process which could be 142 00:13:30.580 --> 00:13:33.620 called a measuring of value. 143 00:13:33.620 --> 00:13:41.140 An individual may attach the same value to two things, but then no exchange can result. 144 00:13:41.140 --> 00:13:46.780 But if there is a diversity in valuation, all that can be asserted with regard to it 145 00:13:46.780 --> 00:13:53.820 is that one A is valued higher than it is preferred to one B. 146 00:13:53.820 --> 00:13:59.780 Values and valuations are intensive quantities and not extensive quantities. 147 00:13:59.780 --> 00:14:05.660 They are not susceptible to mental grasp by the application of cardinal numbers. 148 00:14:05.660 --> 00:14:11.700 However, the spurious idea that values are measurable and are really measured in the 149 00:14:11.700 --> 00:14:18.420 conduct of economic transactions was so deeply rooted that even eminent economists fell victim 150 00:14:18.420 --> 00:14:21.060 to the fallacy implied. 151 00:14:21.060 --> 00:14:26.220 Friedrich von Wieser and Irving Fischer took it for granted that there must be something 152 00:14:26.220 --> 00:14:32.180 like measurement of value and that economics must be able to indicate and to explain the 153 00:14:32.180 --> 00:14:36.180 method by which such measurement is effected. 154 00:14:36.180 --> 00:14:42.780 Most of the lesser economists simply maintained that money serves as a measure of values. 155 00:14:42.780 --> 00:14:49.780 Now we must realize that valuing means to prefer A to B. There is, logically, epistemologically, 156 00:14:51.060 --> 00:14:58.100 Psychologically, psychologically and praxeologically, only one pattern of preferring. 157 00:14:58.100 --> 00:15:03.980 It does not matter whether a lover prefers one girl to other girls, a man one friend 158 00:15:03.980 --> 00:15:10.180 to other people, an amateur one painting to other paintings, or a consumer a loaf of bread 159 00:15:10.180 --> 00:15:12.940 to a piece of candy. 160 00:15:12.940 --> 00:15:20.940 Preferring always means to love or to desire, A, more than B. Just as there is no standard 161 00:15:20.940 --> 00:15:37.260 If a man exchanges two pounds of butter for a shirt, all that we can assert with regard 162 00:15:37.260 --> 00:15:43.660 to this transaction is that he, at the instant of the transaction and under the conditions 163 00:15:43.660 --> 00:15:50.260 which this instant offers to him, prefers one shirt to two pounds of butter. 164 00:15:50.260 --> 00:15:56.340 It is certain that every act of preferring is characterized by a definite psychic intensity 165 00:15:56.340 --> 00:15:58.940 of the feelings it implies. 166 00:15:58.940 --> 00:16:05.100 There are grades in the intensity of the desire to attain a definite goal, and this intensity 167 00:16:05.100 --> 00:16:11.780 determines the psychic profit which the successful action brings to the acting individual. 168 00:16:11.780 --> 00:16:15.580 But psychic quantities can only be felt. 169 00:16:15.580 --> 00:16:21.420 They are entirely personal and there is no semantic means to express their intensity 170 00:16:21.420 --> 00:16:25.900 and to convey information about them to other people. 171 00:16:25.900 --> 00:16:31.300 There is no method available to construct a unit of value. 172 00:16:31.300 --> 00:16:38.460 Let us remember that two units of a homogeneous supply are necessarily valued differently. 173 00:16:38.460 --> 00:16:46.620 The value attached to the nth unit is lower than that attached to the n minus 1th unit. 174 00:16:46.620 --> 00:16:50.820 In the market society there are money prices. 175 00:16:50.820 --> 00:16:55.940 Economic calculation is calculation in terms of money prices. 176 00:16:55.940 --> 00:17:01.460 The various quantities of goods and services enter into this calculation with the amount 177 00:17:01.460 --> 00:17:07.820 of money for which they are bought and sold on the market, or for which they could prospectively 178 00:17:07.820 --> 00:17:15.100 be bought and sold. It is a fictitious assumption that an isolated, self-sufficient individual 179 00:17:15.100 --> 00:17:21.180 or the general manager of a socialist system, that is, a system in which there is no market 180 00:17:21.180 --> 00:17:27.540 for means of production, could calculate. There is no way which could lead one from 181 00:17:27.540 --> 00:17:33.340 the money computation of a market economy to any kind of computation in a non-market 182 00:17:33.340 --> 00:17:39.340 System, The Theory of Value and Socialism. 183 00:17:39.340 --> 00:17:46.300 Socialists, institutionalists and the historical school have blamed economists for having employed 184 00:17:46.300 --> 00:17:52.360 the imaginary construction of an isolated individual's thinking and acting. 185 00:17:52.360 --> 00:17:58.260 This Robinson Crusoe pattern, it is asserted, is of no use for the study of the conditions 186 00:17:58.260 --> 00:18:00.740 of a market economy. 187 00:18:00.740 --> 00:18:03.900 The rebuke is somewhat justified. 188 00:18:03.900 --> 00:18:10.460 Imaginary constructions of an isolated individual and of a planned economy without market exchange 189 00:18:10.460 --> 00:18:17.060 become utilizable only through the implication of the fictitious assumption, self-contradictory 190 00:18:17.060 --> 00:18:24.460 in thought and contrary to reality, that economic calculation is possible also within a system 191 00:18:24.460 --> 00:18:28.540 without a market for the means of production. 192 00:18:28.540 --> 00:18:34.500 It was certainly a serious blunder that economists did not become aware of this difference between 193 00:18:34.500 --> 00:18:39.620 the conditions of a market economy and a non-market economy. 194 00:18:39.620 --> 00:18:45.780 Yet the socialists had little reason for criticizing this fault, for it consisted precisely in 195 00:18:45.780 --> 00:18:52.340 the fact that the economists tacitly implied the assumption that a socialist order of society 196 00:18:52.340 --> 00:18:58.380 could also resort to economic calculation, and that they thus asserted the possibility 197 00:18:58.380 --> 00:19:02.560 of the realization of the socialist plans. 198 00:19:02.560 --> 00:19:07.900 The classical economists and their epigones could not, of course, recognize the problems 199 00:19:07.900 --> 00:19:09.340 involved. 200 00:19:09.340 --> 00:19:14.420 If it were true that the value of things is determined by the quantity of labor required 201 00:19:14.420 --> 00:19:21.640 for their production or reproduction, then there is no further problem of economic calculation. 202 00:19:21.640 --> 00:19:27.040 The supporters of the labor theory of value cannot be blamed for having misconstrued the 203 00:19:27.040 --> 00:19:29.840 problems of a socialist system. 204 00:19:29.840 --> 00:19:34.860 Their fateful failure was their untenable doctrine of value. 205 00:19:34.860 --> 00:19:40.280 That some of them were ready to consider the imaginary construction of a socialist economy 206 00:19:40.280 --> 00:19:47.320 as a useful and realizable pattern for a thorough reform of social organization did not contradict 207 00:19:47.320 --> 00:19:51.580 the essential content of their theoretical analysis. 208 00:19:51.580 --> 00:19:58.180 But it was different with subjective catallactics. It was unpardonable for the modern economists 209 00:19:58.180 --> 00:20:02.700 to have failed to recognize the problems involved. 210 00:20:02.700 --> 00:20:07.780 Wieser was right when he once declared that many economists have unwittingly dealt with 211 00:20:07.780 --> 00:20:13.900 the value theory of communism and have on that account neglected to elaborate that of 212 00:20:13.900 --> 00:20:16.460 of the Present State of Society. 213 00:20:16.460 --> 00:20:21.620 It is tragic that he himself did not avoid this failure. 214 00:20:21.620 --> 00:20:27.460 The illusion that a rational order of economic management is possible in a society based 215 00:20:27.460 --> 00:20:33.500 on public ownership of the means of production owed its origin to the value theory of the 216 00:20:33.500 --> 00:20:40.020 classical economists and its tenacity to the failure of many modern economists to think 217 00:20:40.020 --> 00:20:45.780 through consistently to its ultimate conclusions the fundamental theorem of the subjectivist 218 00:20:45.780 --> 00:20:46.780 theory. 219 00:20:46.780 --> 00:20:52.740 Thus, the socialist utopias were generated and preserved by the shortcomings of those 220 00:20:52.740 --> 00:20:58.860 schools of thought which the Marxians reject as an ideological disguise of the selfish 221 00:20:58.860 --> 00:21:03.180 class interest of the exploiting bourgeoisie. 222 00:21:03.180 --> 00:21:09.880 In truth, it was the errors of these schools that made the socialist ideas thrive. 223 00:21:09.880 --> 00:21:16.160 This fact clearly demonstrates the emptiness of the Marxian teachings concerning ideologies 224 00:21:16.160 --> 00:21:21.080 and its modern offshoot, the sociology of knowledge. 225 00:21:21.080 --> 00:21:22.780 3. 226 00:21:22.780 --> 00:21:27.100 The Problem of Economic Calculation 227 00:21:27.100 --> 00:21:33.280 Acting man uses knowledge provided by the natural sciences for the elaboration of technology, 228 00:21:33.280 --> 00:21:39.280 the applied science of action possible in the field of external events. 229 00:21:39.280 --> 00:21:44.280 Technology shows what could be achieved if one wanted to achieve it, and how it could 230 00:21:44.280 --> 00:21:50.280 be achieved, provided people were prepared to employ the means indicated. 231 00:21:50.280 --> 00:21:55.600 With the progress of the natural sciences, technology progressed too. 232 00:21:55.600 --> 00:22:00.640 Many would prefer to say that the desire to improve technological methods prompted the 233 00:22:00.640 --> 00:22:03.660 progress of the natural sciences. 234 00:22:03.660 --> 00:22:09.780 The quantification of the natural sciences made technology quantitative. 235 00:22:09.780 --> 00:22:15.340 Modern technology is essentially the applied art of quantitative prediction of the outcome 236 00:22:15.340 --> 00:22:17.940 of possible action. 237 00:22:17.940 --> 00:22:23.580 One calculates with a reasonable degree of precision the outcome of planned actions, 238 00:22:23.580 --> 00:22:28.880 and one calculates in order to arrange an action in such a way that a definite result 239 00:22:28.880 --> 00:22:30.460 emerges. 240 00:22:30.460 --> 00:22:36.620 However, the mere information conveyed by technology would suffice for the performance 241 00:22:36.620 --> 00:22:43.780 of calculation only if all means of production, both material and human, could be perfectly 242 00:22:43.780 --> 00:22:52.700 substituted for one another according to definite ratios, or if they all were absolutely specific. 243 00:22:52.700 --> 00:22:57.940 In the former case, all means of production would be fit, although according to different 244 00:22:57.940 --> 00:23:06.300 ratios for the attainment of all ends whatever. Things would be as if only one kind of means, 245 00:23:06.300 --> 00:23:13.500 one kind of economic goods of a higher order, existed. In the latter case, each means could 246 00:23:13.500 --> 00:23:20.460 be employed for the attainment of one end only. One would attach to each group of complementary 247 00:23:20.460 --> 00:23:26.860 factors of production the value attached to the respective good of the first order. Here 248 00:23:26.860 --> 00:23:33.740 Here again we disregard provisionally the modifications brought about by the time factor. 249 00:23:33.740 --> 00:23:39.040 Neither of these two conditions is present in the universe in which man acts. 250 00:23:39.040 --> 00:23:44.340 The means can only be substituted for one another within narrow limits. 251 00:23:44.340 --> 00:23:49.700 They are more or less specific means for the attainment of various ends. 252 00:23:49.700 --> 00:23:54.520 But on the other hand, most means are not absolutely specific. 253 00:23:54.520 --> 00:23:57.880 Most of them are fit for various purposes. 254 00:23:57.880 --> 00:24:02.860 The fact that there are different classes of means, that most of the means are better 255 00:24:02.860 --> 00:24:09.280 suited for the realization of some ends, less suited for the attainment of some other ends, 256 00:24:09.280 --> 00:24:14.520 and absolutely useless for the production of a third group of ends, and that therefore 257 00:24:14.520 --> 00:24:21.220 the various means allow for various uses, set man the tasks of allocating them to those 258 00:24:21.220 --> 00:24:25.220 and those employments in which they can render the best service. 259 00:24:25.220 --> 00:24:31.220 Here, computation in kind as applied by technology is of no avail. 260 00:24:31.220 --> 00:24:38.220 Technology operates with countable and measurable quantities of external things and effects. 261 00:24:38.220 --> 00:24:46.220 It knows causal relations between them, but it is foreign to their relevance to human wants and desires. 262 00:24:46.220 --> 00:24:50.220 Its field is that of objective use value only. 263 00:24:50.220 --> 00:24:56.620 It judges all problems from the disinterested point of view of a neutral observer of physical, 264 00:24:56.620 --> 00:25:00.100 chemical and biological events. 265 00:25:00.100 --> 00:25:06.260 For the notion of subjective use-value, for the specifically human angle and for the dilemmas 266 00:25:06.260 --> 00:25:11.420 of acting man, there is no room in the teachings of technology. 267 00:25:11.420 --> 00:25:14.080 It ignores the economic problem. 268 00:25:14.080 --> 00:25:20.440 to employ the available means in such a way that no want more urgently felt should remain 269 00:25:20.440 --> 00:25:26.800 unsatisfied because the means suitable for its attainment were employed, wasted, for 270 00:25:26.800 --> 00:25:31.200 the attainment of a want less urgently felt. 271 00:25:31.200 --> 00:25:36.240 For the solution of such problems, technology and its methods of counting and measuring 272 00:25:36.240 --> 00:25:38.760 are unfit. 273 00:25:38.760 --> 00:25:44.560 The Theory tells how a given end could be attained by the employment of various means, 274 00:25:44.560 --> 00:25:51.700 which can be used together in various combinations, or how various available means could be employed 275 00:25:51.700 --> 00:25:54.080 for certain purposes. 276 00:25:54.080 --> 00:26:00.380 But it is at a loss to tell man which procedures he should choose out of the infinite variety 277 00:26:00.380 --> 00:26:04.800 of imaginable and possible modes of production. 278 00:26:04.800 --> 00:26:11.700 What acting man wants to know is how he must employ the available means for the best possible, 279 00:26:11.700 --> 00:26:16.280 the most economic, removal of felt uneasiness. 280 00:26:16.280 --> 00:26:21.780 But technology provides him with nothing more than statements about causal relations between 281 00:26:21.780 --> 00:26:23.860 external things. 282 00:26:23.860 --> 00:26:33.940 It tells, for example, 7a plus 3b plus 5c plus xn are liable to bring about 8p. 283 00:26:33.940 --> 00:26:39.460 But although it knows the value attached by acting man to the various goods of the first 284 00:26:39.460 --> 00:26:45.660 order, it cannot decide whether this precept or any other out of the infinite multitude 285 00:26:45.660 --> 00:26:51.900 of similarly constructed precepts best serves the attainment of the ends sought by acting 286 00:26:51.900 --> 00:26:53.700 man. 287 00:26:53.700 --> 00:26:59.280 The art of engineering can establish how a bridge must be built in order to span a river 288 00:26:59.280 --> 00:27:03.340 at a given point and to carry definite loads. 289 00:27:03.340 --> 00:27:08.300 And it cannot answer the question whether or not the construction of such a bridge would 290 00:27:08.300 --> 00:27:13.780 withdraw material factors of production and labor from an employment in which they could 291 00:27:13.780 --> 00:27:17.500 satisfy needs more urgently felt. 292 00:27:17.500 --> 00:27:24.260 It cannot tell whether or not the bridge should be built at all, where it should be built, 293 00:27:24.260 --> 00:27:29.420 what capacity for bearing burdens it should have, and which of the many possibilities 294 00:27:29.420 --> 00:27:32.940 for its construction should be chosen. 295 00:27:32.940 --> 00:27:39.580 Technological computation can establish relations between various classes of means, only to 296 00:27:39.580 --> 00:27:45.140 the extent that they can be substituted for one another in the attempts to attain a definite 297 00:27:45.140 --> 00:27:46.540 goal. 298 00:27:46.540 --> 00:27:52.740 But action is bound to discover relations among all means, however dissimilar they may 299 00:27:52.740 --> 00:27:58.900 be, without any regard to the question whether or not they can replace one another in performing 300 00:27:58.900 --> 00:28:02.020 the same services. 301 00:28:02.020 --> 00:28:07.380 Theory and the considerations derived from it would be of little use for acting men if 302 00:28:07.380 --> 00:28:14.400 it were impossible to introduce into their schemes the money prices of goods and services. 303 00:28:14.400 --> 00:28:20.260 The projects and designs of engineers would be purely academic if they could not compare 304 00:28:20.260 --> 00:28:24.120 input and output on a common basis. 305 00:28:24.120 --> 00:28:29.900 The lofty theorist in the seclusion of his laboratory does not bother about such trifling 306 00:28:29.900 --> 00:28:30.900 things. 307 00:28:30.900 --> 00:28:36.780 He is searching for is causal relations between various elements of the universe. 308 00:28:36.780 --> 00:28:42.980 But the practical man, eager to improve human conditions by removing uneasiness as far as 309 00:28:42.980 --> 00:28:49.740 possible, must know whether, under given conditions, what he is planning is the best method, or 310 00:28:49.740 --> 00:28:53.660 even a method, to make people less uneasy. 311 00:28:53.660 --> 00:28:59.020 He must know whether what he wants to achieve will be an improvement when compared with 312 00:28:59.020 --> 00:29:04.240 of the present state of affairs and with the advantages to be expected from the execution 313 00:29:04.240 --> 00:29:10.940 of other technically realizable projects which cannot be put into execution if the project 314 00:29:10.940 --> 00:29:15.140 he has in mind absorbs the available means. 315 00:29:15.140 --> 00:29:20.180 Such comparisons can only be made by the use of money prices. 316 00:29:20.180 --> 00:29:26.060 Thus, money becomes the vehicle of economic calculation. 317 00:29:26.060 --> 00:29:29.420 This is not a separate function of money. 318 00:29:29.420 --> 00:29:34.820 Money is the universally used medium of exchange, nothing else. 319 00:29:34.820 --> 00:29:40.500 Only because money is the common medium of exchange, because most goods and services 320 00:29:40.500 --> 00:29:47.420 can be sold and bought on the market against money, and only as far as this is the case, 321 00:29:47.420 --> 00:29:51.020 can man use money prices in reckoning. 322 00:29:51.020 --> 00:29:56.380 The exchange ratios between money and the various goods and services as established 323 00:29:56.380 --> 00:30:02.140 on the market of the past and as expected to be established on the market of the future 324 00:30:02.140 --> 00:30:06.180 are the mental tools of economic planning. 325 00:30:06.180 --> 00:30:12.140 Where there are no money prices, there are no such things as economic quantities. 326 00:30:12.140 --> 00:30:17.980 There are only various quantitative relations between various causes and effects in the 327 00:30:17.980 --> 00:30:20.140 external world. 328 00:30:20.140 --> 00:30:26.060 There is no means for man to find out what kind of action would best serve his endeavors 329 00:30:26.060 --> 00:30:30.500 to remove uneasiness as far as possible. 330 00:30:30.500 --> 00:30:35.820 There is no need to dwell upon the primitive conditions of the household economy of self-sufficient 331 00:30:35.820 --> 00:30:37.380 farmers. 332 00:30:37.380 --> 00:30:42.220 These people performed only very simple processes of production. 333 00:30:42.220 --> 00:30:48.900 For them, no calculation was needed, as they could directly compare input and output. 334 00:30:48.900 --> 00:30:54.160 If they wanted shirts, they grew hemp, they spun, wove and sewed. 335 00:30:54.160 --> 00:30:59.460 They could, without any calculation, easily make up their minds whether or not the toil 336 00:30:59.460 --> 00:31:04.160 and trouble expended were compensated by the product. 337 00:31:04.160 --> 00:31:11.860 But for civilized mankind, a return to such a life is out of the question. 338 00:31:11.860 --> 00:31:13.260 4. 339 00:31:13.260 --> 00:31:17.100 Economic Calculation and the Market 340 00:31:17.100 --> 00:31:22.340 The quantitative treatment of economic problems must not be confused with the quantitative 341 00:31:22.340 --> 00:31:28.140 methods applied in dealing with the problems of the external universe, of physical and 342 00:31:28.140 --> 00:31:30.420 chemical events. 343 00:31:30.420 --> 00:31:36.300 The distinctive mark of economic calculation is that it is neither based upon nor related 344 00:31:36.300 --> 00:31:40.940 to anything which could be characterized as measurement. 345 00:31:40.940 --> 00:31:46.900 A process of measurement consists in the establishment of the numerical relation of an object with 346 00:31:46.900 --> 00:31:52.540 with regard to another object, namely the unit of the measurement. 347 00:31:52.540 --> 00:31:57.340 The ultimate source of measurement is that of spatial dimensions. 348 00:31:57.340 --> 00:32:04.480 With the aid of the unit defined in reference to extension, one measures energy and potentiality, 349 00:32:04.480 --> 00:32:09.800 the power of a thing to bring about changes in other things and relations, and the passing 350 00:32:09.800 --> 00:32:11.560 of time. 351 00:32:11.560 --> 00:32:17.620 A pointer reading is directly indicative of a spatial relation, and only indirectly of 352 00:32:17.620 --> 00:32:19.660 other quantities. 353 00:32:19.660 --> 00:32:24.640 The assumption underlying measurement is the immutability of the unit. 354 00:32:24.640 --> 00:32:29.920 The unit of length is the rock upon which all measurement is based. 355 00:32:29.920 --> 00:32:35.940 It is assumed that man cannot help considering it immutable. 356 00:32:35.940 --> 00:32:40.600 The last decades have witnessed a revolution in the traditional epistemological setting 357 00:32:40.600 --> 00:32:44.200 of Physics, Chemistry and Mathematics. 358 00:32:44.200 --> 00:32:49.040 We are on the eve of innovations whose scope cannot be foreseen. 359 00:32:49.040 --> 00:32:54.920 It may be that the coming generations of physicists will have to face problems in some way similar 360 00:32:54.920 --> 00:32:58.520 to those with which praxeology must deal. 361 00:32:58.520 --> 00:33:03.880 Perhaps they will be forced to drop the idea that there is something unaffected by cosmic 362 00:33:03.880 --> 00:33:08.560 changes which the observer can use as a standard of measurement. 363 00:33:08.560 --> 00:33:14.360 But however that may come, the logical structure of the measurement of earthly entities in 364 00:33:14.360 --> 00:33:19.960 the macroscopic or molar field of physics will not alter. 365 00:33:19.960 --> 00:33:26.120 Measurement in the orbit of microscopic physics, too, is made with meter scales, micrometers, 366 00:33:26.120 --> 00:33:32.840 spectrographs, ultimately with the gross sense organs of man, the observer and experimenter, 367 00:33:32.840 --> 00:33:35.600 who himself is molar. 368 00:33:35.600 --> 00:33:43.200 cannot free itself from Euclidean geometry and from the notion of an unchangeable standard. 369 00:33:43.200 --> 00:33:49.960 There are monetary units and there are measurable physical units of various economic goods and, 370 00:33:49.960 --> 00:33:54.760 of many, but not of all, services bought and sold. 371 00:33:54.760 --> 00:34:00.440 But the exchange ratios which we have to deal with are permanently fluctuating. 372 00:34:00.440 --> 00:34:04.140 There is nothing constant and invariable in them. 373 00:34:04.140 --> 00:34:07.580 They defy any attempt to measure them. 374 00:34:07.580 --> 00:34:12.740 They are not facts in the sense in which a physicist calls the establishment of the weight 375 00:34:12.740 --> 00:34:15.840 of a quantity of copper a fact. 376 00:34:15.840 --> 00:34:21.860 They are historical events, expressive of what happened once at a definite instant and 377 00:34:21.860 --> 00:34:24.460 under definite circumstances. 378 00:34:24.460 --> 00:34:30.200 The same numerical exchange ratio may appear again, but it is by no means certain whether 379 00:34:30.200 --> 00:34:35.120 Whether this will really happen, and, if it happens, the question is open whether this 380 00:34:35.120 --> 00:34:41.240 identical result was the outcome of preservation of the same circumstances, or of a return 381 00:34:41.240 --> 00:34:46.920 to them, rather than the outcome of the interplay of a very different constellation of price 382 00:34:46.920 --> 00:34:49.840 determining factors. 383 00:34:49.840 --> 00:34:56.400 Numbers applied by acting man in economic calculation do not refer to quantities measured, 384 00:34:56.400 --> 00:35:02.960 not to exchange ratios as they are expected, on the basis of understanding, to be realized 385 00:35:02.960 --> 00:35:09.680 on the markets of the future, to which alone all acting is directed, and which alone counts 386 00:35:09.680 --> 00:35:12.520 for acting man. 387 00:35:12.520 --> 00:35:17.740 We are not dealing at this point of our investigation with the problem of a quantitative science 388 00:35:17.740 --> 00:35:24.240 of economics, but with the analysis of the mental processes performed by acting man in 389 00:35:24.240 --> 00:35:29.480 in applying quantitative distinctions when planning conduct. 390 00:35:29.480 --> 00:35:36.400 As action is always directed toward influencing a future state of affairs, economic calculation 391 00:35:36.400 --> 00:35:39.520 always deals with the future. 392 00:35:39.520 --> 00:35:45.440 As far as it takes past events and exchange ratios of the past into consideration, it 393 00:35:45.440 --> 00:35:51.100 does so only for the sake of an arrangement of future action. 394 00:35:51.100 --> 00:35:56.980 The task which acting man wants to achieve by economic calculation is to establish the 395 00:35:56.980 --> 00:36:02.900 outcome of acting by calculation is either an estimate of the expected outcome of future 396 00:36:02.900 --> 00:36:08.340 action or the establishment of the outcome of past action. 397 00:36:08.340 --> 00:36:13.820 But the latter does not serve merely historical and didactic aims. 398 00:36:13.820 --> 00:36:19.580 Its practical meaning is to show how much one is free to consume without impairing the 399 00:36:19.580 --> 00:36:22.860 and the Future Capacity to Produce. 400 00:36:22.860 --> 00:36:28.980 It is with regard to this problem that the fundamental notions of economic calculation, 401 00:36:28.980 --> 00:36:37.020 capital and income, profit and loss, spending and saving, cost and yield, are developed. 402 00:36:37.020 --> 00:36:43.100 The practical employment of these notions, and of all notions derived from them, is inseparably 403 00:36:43.100 --> 00:36:49.340 linked with the operation of a market in which goods and services of all orders are exchanged 404 00:36:49.340 --> 00:36:55.460 against a universally used medium of exchange, namely, money. 405 00:36:55.460 --> 00:37:00.460 They would be merely academic, without any relevance for acting within a world with a 406 00:37:00.460 --> 00:37:02.300 different structure of action.