CHAPTER XIII. MONETARY CALCULATION AS A TOOL OF ACTION
1. MONETARY CALCULATION AS A METHOD OF THINKING
Monetary calculation is the guiding star of action under the social system of division
of labor. It is the compass of the man embarking upon production. He calculates in order to
You distinguish the remunerative lines of production from the unprofitable ones, those
of which the sovereign consumers are likely to approve from those of which they are likely
to disapprove.
Every single step of entrepreneurial activities is subject to scrutiny by monetary calculation.
The premeditation of planned action becomes commercial pre-calculation of expected costs
and expected proceeds.
The retrospective establishment of the outcome of past action becomes a counting of profit
and loss.
The system of economic calculation in monetary terms is conditioned by certain social institutions.
It can operate only in an institutional setting of the division of labor and private ownership
of the means of production, in which goods and services of all orders are bought and
and sold against a generally used medium of exchange, that is, money.
Monetary calculation is the method of calculating employed by people acting within the frame
of society based on private control of the means of production.
It is a device of acting individuals.
It is a mode of computation designed for ascertaining private wealth and income and private profits
Results and Losses of Individuals Acting on Their Own Behalf within a Free Enterprise Society.
In partnerships and corporations, it is always individuals who act, although not only one
individual.
All its results refer to the actions of individuals only.
When statisticians summarize these results, the outcome shows the sum of the autonomous
Man's actions of a plurality of self-directing individuals, but not the effect of the action
of a collective body, of a whole, or of a totality.
Monetary calculation is entirely inapplicable and useless for any consideration which does
not look at things from the point of view of individuals.
It involves calculating the individual's profits, not imaginary social values and social welfare.
Monetary calculation is the main vehicle of planning and acting in the social setting
of a society of free enterprise, directed and controlled by the market and its prices.
It developed in this frame, and was gradually perfected with the improvement of the market
Mechanism and with the expansion of the scope of things which are negotiated on markets
against money.
It was economic calculation that assigned to measurement, number and reckoning the role
they play in our quantitative and computing civilization.
The measurements of physics and chemistry make sense for practical action only because
there is economic calculation.
It is monetary calculation that made arithmetic a tool in the struggle for a better life.
It provides a mode of using the achievements of laboratory experiments for the most efficacious
removal of uneasiness.
Monetary calculation reaches its full perfection in capital accounting.
It establishes the money prices of the available means and confronts this total with the changes
is brought about by action and by the operation of other factors.
This confrontation shows what changes occurred in the state of the acting men's affairs and
the magnitude of those changes.
It makes success and failure, profit and loss ascertainable.
The system of free enterprise has been dubbed capitalism in order to deprecate and to smear
it.
However, this term can be considered very pertinent. It refers to the most characteristic feature of the system, its main eminence, namely, the role the notion of capital plays in its conduct.
There are people to whom monetary calculation is repulsive. They do not want to be roused from their daydreams by the voice of critical reason.
Reality sickens them. They long for a realm of unlimited opportunity. They are disgusted
by the meanness of a social order in which everything is nicely reckoned in dollars and
pennies. They call their grumbling the noble deportment worthy of the friends of the spirit,
of beauty and virtue, as opposed to the ignoble baseness and villainy of babatory. However,
The cult of beauty and virtue, wisdom and the search for truth are not hindered by the
rationality of the calculating and computing mind.
It is only romantic reverie that cannot thrive in a milieu of sober criticism.
The cool-headed reckoner is the stern chastiser of the ecstatic visionary.
Our civilization is inseparably linked with our methods of economic calculation.
It would perish if we were to abandon this most precious intellectual tool of acting.
Goethe was right in calling bookkeeping by double entry one of the finest inventions
of the human mind.
2.
Economic Calculation and the Science of Human Action
The evolution of capitalist economic calculation was the necessary condition for the establishment
of a Systematic and Logically Coherent Science of Human Action.
Praxeology and economics have a definite place in the evolution of human history and in the
process of scientific research.
They could only emerge when acting man had succeeded in creating methods of thinking
that made it possible to calculate his actions.
The science of human action was, at the beginning, merely a discipline dealing with those actions
It dealt exclusively with what we may call the orbit of economics in the narrower sense,
that is, with those actions which, within a market society, are transacted by the intermediary
of money.
The first steps on the way to its elaboration were odd investigations concerning currency,
money lending, and the prices of various goods.
The knowledge conveyed by Gresham's law, the first crude formulations of the quantity theory
of money, such as those of Baudin and Davanzati, and the law of Gregory King, mark the first
dawn of the cognition that regularity of phenomena and inevitable necessity prevail in the field
of action.
The first comprehensive system of economic theory, that brilliant achievement of the
for classical economists was essentially a theory of calculated action.
It drew implicitly the borderline between what is to be considered economic and what
extra-economic, along the line which separates action calculated in monetary terms from other
action.
Starting from this basis, the economists were bound to widen, step by step, the field of
of their Studies, until they finally developed a system dealing with all human choices, a
general theory of action.