All action employs 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.
Value and Ends
Value is the importance that acting man attaches to ultimate ends. Only to ultimate ends is primary and original value assigned. Means are valued derivatively according to their usefulness to the attainment of ultimate ends. Their valuation is derived from the valuation of the respective ends. They are important for man only as far as they make it possible for him to attain some ends.
Value is not intrinsic, it is not in things. It is within us; it is the way in which man reacts to the conditions of his environment.
Neither is value in words and doctrines. It is reflected in human conduct. It is not what a man or groups of men say about value that counts, but how they act. The oratory of moralists and the pompousness of party programs are significant as such. But they influence the course of human events only as far as they really determine the actions of men.
Scale of values
Man chooses to use scarce means for various alternative ends. The ends that he chooses are the ones he values most highly, less urgent wants remain unsatisfied.
The ends can be ranked on a scale of values, or scale of preferences. These scales differ for each person, both in their content and in their orders of preference; and they differ for the same individual at different times. For example, let's say an actor called Jones has the following preferences:
- Watch a baseball game
- Go for a drive
- Play a computer game
If he has one hour to spend and this supply of means (time) is sufficient for the attainment of only one of these ends, the fact that he chooses the baseball game shows that he ranked it highest (or first). In the next hour he might choose to go for a drive, or to go for a drive and then to play a computer game, rather than to continue watching the game. In that case, the ranking on his preference scale shifts to this order:
- Go for a drive
- Play a computer game
- Continuing to watch the baseball game
- Main article: Subjective theory of value
There is no way to measure an increase or decrease in happiness or satisfaction; not only between different people, it is not possible to measure change in the happiness of one 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. Therefore, 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".
Accordingly, 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.
"Value is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being. Hence value does not exist outside the consciousness of men."
Value in Trade
In a voluntary exchange is the valuation of goods different and reverse: each party values what is given up less than what is received in the exchange.
If goods had an objective, intrinsic value, then there could be no reverse valuation (except through error). If this were the case, then traded goods would be equal in value (and hence there would be no reason to trade them), or one party would necessarily benefit at the expense of the other. But because individuals value goods differently, there are mutual "gains from trade". Both parties benefit from a voluntary exchange (or at least expect to).
With the possibility of trade, goods are valued not only by their direct use-value but also their exchange-value. An actor will always value a unit of a good at the higher of these two. (For example, even a non-smoker would prefer a box of cigars over a hot dog, if he thought he could trade the former to a smoker.)
- Murray N. Rothbard. "A. Ends and Values", 5. Further Implications, Man, Economy and State, online version, referenced 2009-05-12.
- Ludwig von Mises. "2. The Scale of Value", IV. A FIRST ANALYSIS OF THE CATEGORY OF ACTION, Human Action, online version, referenced 2009-05-12.
- Murray N. Rothbard. "2. First Implications of the Concept", Chapter 1-Fundamentals of Human Action, Man, Economy and State, online version, referenced 2009-05-13.
- Carl Menger. "1. The Nature and Origin of Value", Principles of Economics online edition, Chapter III., The Theory of Value, referenced 2009-05-14.
- Murray N. Rothbard. "2. Types of Interpersonal Action: Voluntary Exchange and the Contractual Society", Chapter 2-Direct Exchange, Man, Economy and State, online version, referenced 2009-05-26.
- "Subjective-Value Theory" by Robert P. Murphy, May 2011
- "Subjective Value and Market Prices" by Robert P. Murphy, February 2011
- "Problems with the Cost Theory of Value" by Robert P. Murphy, May 2011
- "What's Cost Got to Do with It?" by Joseph T. Salerno, December 2010
- "What's Cost Got to Do with It?" by Doug French, October 2011
- "Again, what’s cost got to do with it?" by Douglas French, December 2011
- "Cardinal Utility: It's Worse Than You Thought" by Ken Zahringer, June 2011
- "Diminishing Marginal Utility: It's a Law" by Art Carden, November 2008
- "Toward a Reconstruction of Utility and Welfare Economics" by Murray N. Rothbard, 1956
- Final Utility: The Cornerstone of Austrian Theory by Eugen von Böhm-Bawerk, July 2010