Socialism. Людвиг фон Мизес
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as a whole. But to choose whether we shall use a waterfall to produce electricity or extend coal-mining and better utilize the energy contained in coal, is quite another matter. Here the processes of production are so many and so long, the conditions necessary to the success of the undertaking so multitudinous, that we can never be content with vague ideas. To decide whether an undertaking is sound we must calculate carefully.
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But computation demands units. And there can be no unit of the subjective use-value of commodities. Marginal utility provides no unit of value. The worth of two units of a given commodity is not twice as great as one—although it is necessarily greater or smaller than one. Judgments of value do not measure: they arrange, they grade.6 If he relies only on subjective valuation, even isolated man cannot arrive at a decision based on more or less exact computations in cases where the solution is not immediately evident. To aid his calculations he must assume substitution relations between commodities. As a rule he will not be able to reduce all to a common unit. But he may succeed in reducing all elements in the computation to such commodities as he can evaluate immediately, that is to say, to goods ready for consumption and the disutility of labour and then he is able to base his decision upon this evidence. It is obvious that even this is possible only in very simple cases. For complicated and long processes of production it would be quite out of the question.
In an exchange economy, the objective exchange value of commodities
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becomes the unit of calculation. This involves a threefold advantage. In the first place we are able to take as the basis of calculation the valuation of all individuals participating in trade. The subjective valuation of one individual is not directly comparable with the subjective valuation of others. It only becomes so as an exchange value arising from the interplay of the subjective valuations of all who take part in buying and selling. Secondly, calculations of this sort provide a control upon the appropriate use of the means of production. They enable those who desire to calculate the cost of complicated processes of production to see at once whether they are working as economically as others. If, under prevailing market prices, they cannot carry through the process at a profit, it is a clear proof that others are better able to turn to good account the instrumental goods in question. Finally, calculations based upon exchange values enable us to reduce values to a common unit. And since the higgling of the market establishes substitution relations between commodities, any commodity desired can be chosen for this purpose. In a money economy, money is the commodity chosen.
Money calculations have their limits. Money is neither a yardstick of value nor of prices. Money does not measure value. Nor are prices measured in money: they are amounts of money. And, although those who describe money as a “standard of deferred payments” naively assume it to be so, as a commodity it is not stable in value. The relation between money and goods perpetually fluctuates not only on the “goods side,” but on the “money side” also. As a rule, indeed, these fluctuations are not too violent. They do not too much impair the economic calculus, because under a state of continuous change of all economic conditions, this calculus takes in view only comparatively short periods, in which “sound money” at least does not change its purchasing power to any very great extent.
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The deficiencies of money calculations arise for the most part, not because they are made in terms of a general medium of exchange, money, but because they are based on exchange values rather than on subjective use-values. For this reason all elements of value which are not the subject of exchange elude such computations. If, for example, we are considering whether a hydraulic power-works would be profitable we cannot include in the computation the damage which will be done to the beauty of the waterfalls unless the fall in values due to a fall in tourist traffic is taken into account. Yet we must certainly take such considerations into account when deciding whether the undertaking shall be carried out.
Considerations such as these are often termed “non-economic.” And we may permit the expression for disputes about terminology gain nothing. But not all such considerations should be called irrational. The beauty of a place
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or of a building, the health of the race, the honour of individuals or nations, even if (because they are not dealt with on the market) they do not enter into exchange relations, are just as much motives of rational action, provided people think them significant, as those normally called economic. That they cannot enter into money calculations arises from the very nature of these calculations. But this does not in the least lessen the value of money calculations in ordinary economic matters. For all such moral goods are goods of the first order. We can value them directly; and therefore have no difficulty in taking them into account, even though they lie outside the sphere of money computations. That they elude such computations does not make it any more difficult to bear them in mind. If we know precisely how much we have to pay for beauty, health, honour, pride, and the like, nothing need hinder us from giving them due consideration. Sensitive people may be pained to have to choose between the ideal and the material. But that is not the fault of a money economy. It is in the nature of things. For even where we can make judgments of value without money computations we cannot avoid this choice. Both isolated man and socialist communities would have to do likewise, and truly sensitive natures will never find it painful. Called upon to choose between bread and honour, they will never be at a loss how to act. If honour cannot be eaten, eating can at least be forgone for honour. Only such as fear the agony of choice because they secretly know that they could not forgo the material, will regard the necessity of choice as a profanation.
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Money computations are only significant for purposes of economic calculation. Here they are used in order that the disposal of commodities may conform to the criterion of economy. And such calculations take account of commodities only in the proportions in which, under given conditions, they exchange for money. Every extension of the sphere of money calculation is misleading. It is misleading when in historical researches, it is employed as a measure of past commodity values. It is misleading when it is employed to evaluate the capital or national income of nations. It is misleading when it is employed to estimate the value of things which are not exchangeable as, for instance, when people attempt to estimate the loss due to emigration or war.7 All these are dilettantisms—even when they are undertaken by the most competent economists.
But within these limits—and in practical life they are not overstepped—money calculation does all that we are entitled to ask of it. It provides a
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guide amid the bewildering throng of economic possibilities. It enables us to extend judgments of value which apply directly only to consumption goods—or at best to production goods of the lowest order—to all goods of higher orders. Without it, all production by lengthy and roundabout processes would be so many steps in the dark.
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Two things are necessary if computations of value in terms of money are to take place. First, not only goods ready for consumption but also goods of higher orders must be exchangeable. If this were not so, a system of exchange relationships could not emerge. It is true that if an isolated man is “exchanging” labour and flour for bread within his own house, the considerations he has to take into account are not different from those which would govern his actions if he were to exchange bread for clothes on the market. And it is, therefore, quite correct to regard all economic activity, even the economic activity of isolated man, as exchange. But no single man, be he the greatest genius ever born, has an intellect capable of deciding the relative importance of each one of an infinite number of goods of higher orders. No individual could so discriminate between the infinite number of alternative methods of production that he could make direct judgments of their relative value without auxiliary calculations. In societies based on the division of labour, the distribution of property rights effects a kind of mental division of labour, without which neither economy nor systematic production would be possible.
In the second place, there must be a general medium of exchange, a money, in use. And this must serve as an intermediary in the exchange