Austrian Economics Part Three – Value

Matthew John Hayden

Scarcity is the inescapable frame in which human life resides. Our limited minds and bodies subject us to incomplete and halting control over the environment around us. In the face of this we order – in our minds – the different ends we could pursue and the means we could employ to attain them. We order our wants by the utility we feel we’ll get from satisfying each of the wants in question. With these scarcity calculations come the scarcities inherent in ourselves. First is our own limited stamina which finds expression as the disutility of labour, or the lack of motivation without external incentive to take action. Second is time. We can only use any given moment in time to actively satisfy one goal at a time, productivity aids and delegation notwithstanding. We’re also mortal; our time will someday run out.

But there’s a huge revelation implicit in the individual arrival at calculations of ordinal and marginal utility. One last clue; I am very partial to Cadbury’s Creme Eggs. I like high-tech architecture. I find tomato ketchup horrifying. What did all of these assertions have in common? They are all descriptions of my subjective likes and dislikes, or the utility or disutility I experience by partaking of the three examples offered. My experience. So my individual perspective frames every economic decision I will make. Then surely the same is true of every other person who has ever lived. As people love to say, taste is subjective. Well, the economic outgrowth of that observation is that economic value itself is subjective.

Subjectivism has a long and storied history going back through the early Austrians – Carl Menger revived it – and on back via the Scholastics to Saint Thomas Aquinas.  The Austrians finally pushed it into the mainstream and subjectivism is accepted, along with marginalism, by all mainstream schools of economics today. The finer points they do vary, but by and large you can trust any mainstream economist you run into to be a marginalist and a subjectivist.

Subjective value is a natural outgrowth of the methodological individualism of the Austrian school, as we work our way up from the action axiom to describe real-world market-wide and economy-wide scenarios like prices, interest rates, and business cycles. Trying to falsify this axiom of subjectivity, considering it’s an intrinsic property of observable human consciousness, is impossible without performative contradiction; you can’t make your individual frame of reference objective, not without a God’s eye view of the entire cosmos all at once, constantly, for an extended period of time. QED subjective value is at the heart of all evaluations by the individual of the ways to use the world around them to satisfy his or her unique, subjective wants.

Subjective value is going to be very important later in explaining the last of the ultra-theoretical building blocks of Austrian method before embarking upon situations in which humans actually have to deal with each other for mutual benefit. Yes, I said mutual benefit. I wonder how that could possibly apply in real trades between people. Stay tuned!


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