By The Foundation for Economic Education. Originally published at ValueWalk.
Each of us is constantly seeking to bring about what he regards as a more satisfactory state of affairs (or a less unsatisfactory state of affairs). This is another way of saying that each of us constantly seeks to maximize his satisfactions. And this again is but another way of saying that each of us is constantly seeking to get the maximum value out of life.
Value
Psychic values can never be measured in any absolute sense, even when they are “purely economic.” Now the word “maximum” or “maximize” implies that values or satisfactions can be increased or added together to make a sum—in other words, that values or satisfactions can be measured, can be quantified. And in a sense they can be. But we must be careful to keep in mind that it is only in a special and limited sense that we can legitimately speak of adding, measuring, or quantifying values or satisfactions.
It may help to clarify the question if we begin by considering merely economic values, which seem most nearly to lend themselves to measurement. Economic value is a quality which we attach to commodities and services. It is subjective. But in our unphilosophic moments we are apt to regard it as a quality inhering in the commodities and services themselves. So regarded, it would belong to that class of qualities that can be greater or less, and can mount or descend a scale without ceasing to be the same quality—like heat or weight or length. Such qualities could be measured and quantified.
Prices Don’t Measure Values
And probably most economists today still think, like the man in the street, that economic values are in fact “measured” by monetary prices. But this is an error. Economic values—or at least market values—are expressed in money; but this does not mean that they are measured by it. For the value of the monetary unit itself may change from day to day. A measure of weight or length, like a pound or a foot, is always objectively the same; but the value of the monetary unit may constantly vary. And it is not even possible to say, in absolute terms, how much it has varied.
Each of us finds his “pleasure,” his happiness, his satisfactions, his values, in different objects, activities, or ways of life.We can only “measure” the value of money itself by its “purchasing power”: it is the reciprocal of the price “level.” But what we are “measuring” is merely a ratio of exchange. And a change in such a ratio—e.g., a change in a money price—can be the result either of a change in the market value of a commodity or of a change in the market value of the monetary unit, or both. And though we may guess, we can never know which value changed, or whether both changed, or precisely by how much each changed.
Even more, we can never measure precisely how much a given individual (even if he is ourself) values an object in terms of money. When a man buys something, it means that he values the object he buys more than he values the money he pays for it. When he refuses to buy something, it means that he values the money asked for it more than he values the object.
Even when we are talking of exchange values, or of the relative valuations of an individual, in short, we can never know these more than approximately. We can know when an individual values sum-of-money A less than commodity B; it is when he actually pays that much for it. We can know when he values sum-of-money A more than commodity B; it is when he refuses to pay that much for it.
If a man refuses $475 for a painting but accepts $500, we know that he values the painting (or valued it) somewhere between $475 and $500. But we don’t know exactly where. He never values it at precisely the price he accepts; he values it at less: otherwise he would not have sold. (Of course he may believe that the “real” value of the painting is considerably more than what he is “forced” to accept; but this does not change the fact that at the moment of sale he values [for whatever reason] the sum received more than the painting he parts with.)
Psychic values can never be measured in any absolute sense, even when they are “purely economic.” To the unsophisticated layman it may seem obvious that a man will value $200 twice as much as $100, and $300 three times at much. But a little study of economics, and particularly of “the law of diminishing marginal utility,” will probably change his mind. For it is not merely true that a man who will pay, say, $1 for a lunch will probably refuse to pay $2 for double portions.
The law of diminishing marginal utility works, though not so quickly and sharply, even with the generalized or “abstract” good called money. The diminishing marginal utility of added monetary income will be reflected in practice by a man’s refusal to make proportionate sacrifices—e.g., to work proportionately longer hours (though these of course will have an increasing marginal disutility)—to earn it.
When we turn from the realm of strictly “economic” or “catallactic” values (or the realm of exchangeable goods) to the broader realm that comprises all values, including the moral, the difficulties of measurement obviously become greater rather than less. And this has posed a serious problem for all conscientious and realistic moral philosophers. In order for us to make the correct moral decision” it has been thought necessary that we be able to make a correct “hedonistic calculus” or at least that all values be “commensurable.” In other words, it has been thought necessary that we be able to measure “pleasure” or “happiness” or “satisfaction” or “value” or “goodness” quantitatively.
But this is not really necessary. The fact of preference decides. Values do not have to be (and are not) precisely commensurable. But they do have to be (and are) comparable. In order to choose between taking action A and taking action B, we do not have to decide that action A will give us, say, 3.14 times as much satisfaction as action B. All we have to ask ourselves is whether action A is likely to give us more satisfaction than action B. We can answer questions of more or less. We can say whether we prefer A to B, or vice versa, even if we can never say by exactly how much. We can know our own order of preferences at any given moment among many ends, though we can never measure exactly the quantitative differences that separate these choices on our scale of values.
Those who think that we can make an exact “hedonistic calculus” are mistaken, but they are at least dealing with a real problem which those who talk vaguely of “higher” and “lower” pleasures, or who insist that values or ends are “irreducibly pluralistic,” refuse to face. For when it comes to choosing between a “large amount” of a “lower” pleasure and a “small amount” of a “higher” pleasure, or
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