From pg 120 of Human Axtion, Mises says:
"A man owns five units of commodity a and three units of cornmodityb. He attaches to the units of a the rank-orders I, 2, 4, 7, and 8, to the units of b the rank-orders 3, 5, and 6. This means: If he must choose between two units of a and two units of b, he will prefer to Iose two units of a rather than two units of b. But if he must choose between three units of a and two units of b, he will prefer to lose two units of b rather than three units of a. What counts always and alone in valuing a compound of several units is the utility of this compound as a whole-i.e., the increment in well-being dependent upon it or, what is the same, the impairment of well-being which its loss must bring about."
I think I understand the first example, it seems fairly clear that both commodities ranked 7th and 8th would be valued less than those ranked 5th and 6th. But his 2nd statement confuses the hell out of me. How would it necessarily follow? He even states that we cannot perform operations to "find" the value of these bundles, so how does it follow that if you know the rankings of 3 of one commodity a as 4, 7 and 8, and with b as 5 and 6, that it must necessarily follow that the 3 of a are valued more. Even though 5 and 6 are valued less than a individually, couldn't it be the case, that "as a bundle they are valued" more than the 4th ranked commodity, and that this information could not be revealed through a value scale which only reveals information about the "unit" quantities of each commodity?
Or have I missed something?
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
"In other words, our man ios walking down the street with 5 units of A and 3 units of B when a robber points a gun at him (and assuming that he values his life more than any of the commodities). He figures that he can satisfy the robber by giving him 2 units of A or 2 units of B. We can now tell strictly within the confines of this example which one he would choose. Then we turn back time to the point that the man is first held up. Everything else is the same but this time he figures that the robber will require either 3 units of A or 2 units of B."
I understand that, indeed it is the very sense we come to understand marginal utility when analysing the intended purpose of value scales in actually helping us understand the exchange value of the actually traded marginal units. I don't see how though your analysis can be produced without splitting up the action into several, since our value scale compares only the units of value in question on a preference scale. In this example they are 4, 7 and 8 for a and 5 and 6 for b. Action can only rigidly only implies relative preference on a value scale of the specific units of quantities being exchanged, and we cannot know anything about magnitude of utility from a value scale. Hence how can we know for sure that 5 and 6 together may not be valued more than 4 alone?
"The marginal utility of our man having this package would still be 6 and the marginal utility of not having it would still be 4.If you bundled 3 and 5, you'd have a more interesting question. In this case, You'd have to compare the 3 and 5 bundle to 4, which cannot be solved within the eonfines of the example. We'd have to know how the 3 & 5 bundle compares to 4 in terms of marginal utility."
Tbh, this baffles me, since it seems like the only case in which one could produce a legitimate answer in comparing bundles! 3 is valued more than 4 on its own. So why would there be a dilemma about giving up both 3 and 5 for 4? For the same reason, I have no problem with Mises' earlier statement of 5 and 6 of b being preferred to 7 and 8 of a. In any case, regardless of our ultimate conclusion, this thread has certainly been intellectually engaging!
I think the problem here is that we're trying to add up values, which is an impossible endeavor. The simple implication here is that individuals will always peruse their most highly valued ends first, which is tautological.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
The two "value charts" below are consistent with the value scale described by Mises: "He attaches to the units of a the rank-orders 1, 2, 4, 7, and 8, to the units of b the rank-orders 3, 5, and 6. " Further, Mises states that from the value scale above we can make the two following statements: "If he must choose between two units of a and two units of b, he will prefer to lose two units of a rather than two units of b. But if he must choose between three units of a and two units of b, he will prefer to lose two units of b rather than three units of a." i.e., according to Mises, from the value scale above it follows that X > Y and Y > Z. While it is possible that an individual values the bundles in such a way, it does not necessarily have to be the case. The first value chart gives that Y > X and Y > Z
The second that X > Y and Z > Y
Edit: to clarify, the numbers in the value charts are the ranks of the different bundles, a higher number signifies a higher rank. The ranks are of course stricly ordinal. To find the value scale we find the path beginning from the top right, where at each step, the individual chooses the bundle with the highest rank.
I am not sure I understood the OP correctly.
Is your point that value of some goods is not fully independent from each other (complementary/substitutes), and this breaks the analysis of value scale in terms of individual goods as opposed to bundles/states of the world?
I must confess I find the above charts a little confusing, but I think I'm beginning to see what Esuric, Doug and others have been getting at, though I'm still not sure it's correct. I'll use a simple example of Mises', which is much like nirgraham's to illustrate, and you can tell me if and where I go wrong. Suppose we have a man with 12 dollars who can buy opera tickets to Aida, Falstaff and Traviata, each of which cost 4 dollars. We may suppose he has preferences among viewing the 3 operas as follows:
A
F
T
Hence in analysing the action assuming a value scale as so just before, we may conclude without controversy, if he only has 4 dollars, that he will purchase A. Now suppose he's given 8 dollars, again, it's not controversial that he will purchase A anf F. Now suppose that we tell him he has 12 dollars, so we may well expect him to purchase A, F and T, but if we then turn around and tell him that he can only purchase 4 dollars worth, he may now only purchase A. This is functionally equivalent to the first case in which he knows he only has 4 dollars to begin with. Yet I think one could claim it also displays a functional equivalence with the case where he has A, F and T to begin with, and we then tell him he has to lose 2. Ignoring the intermediary device of dollars, the actual opportunity costs are represented by forgone ends F and T in both the first and final case. Is this the kind of things you guys were pointing at?
I'm still a little uneasy, but I think it's starting to make sense... I'd be interested to know nirgraham's thoughts in light of the above.
Now suppose he's given 8 dollars, again, it's not controversial that he will purchase A anf F.
Why not A and A, if he prefers A to F?
I think the trouble with value scales is that their meaning is not rigorously defined - now we mean one thing, on another page another. Sometimes it becomes tacitly assumed that from a ranking of individual A, F, and T one can infer rankings of all possible combinations of them (which I hope we agree is inconsistent with the theory of subjective value).
Returning to your example - the scale A over F over T can be understood at least in two different ways.
If we get the definition of the value scale fixed, we can make meaningful assertions - otherwise we are just inviting more critique for AE as a pseudo-science.
Even taking on board the possibillity the theatre sells more tickets, I do not know how preferences ranked as follows:
Give one the impression he would buy 2 of A instead of A and F individually with 8 dollars. These are the valuations of the individual units of A, F and T, not as "classes of goods." The only place an additional A could go is below T, and since that is below F in the scale of preferences it would have to be valued less than the additional F.
With regard to the rest of your post, I agree with its theme, which is very much reflective of my erring on the side of empirical caution in the OP, with regard to the limitations of what can be inferred from action since, preference is only demonstrated over the actual marginal units being traded, and only from this can we come to understand the concept of utility at large.
I think a skeptic could quite easily try to "refute" us by screaming "interpersonal utility comparisons!" all day long, as a fatal contradiction when establishing marginal utility theory, if we're not careful. Such a critique carried to its full conclusion would not only damage the Austrians, but the entire corpus of economic theory post Menger.
The dude is amazing, but he isn't perfect. There are plenty of other areas, I feel are a little unclear or incorrect. I greatly respect him, but sometimes I feel Austrians hero worship him too much, along with Rothbard and Hayek.
He is only mortal. The sheer volume and overall quality of his work and his tenacity are why he is "hero-worshipped". He basically reconstructed and unified Austrian theory. Austrian theorists may differ from one another after Mises but few diverge from him himself, as opposed to refine and tweak his work.
Freedom of markets is positively correlated with the degree of evolution in any society...
Indeed, Jon, that is very much the direction I myself see as productive. I may well be mistaken, but I see the praxeological edifice overall as a rather sound one, and one that I do not see in any contradiction with the general methodological underpinnings of science, when its limitations are properly understood in application. I feel there is much work to be done, and many areas unfortunately neglected over the years, needing cleaning up and tweaking as you mention. This situation is of course understandable given the school's miniscule size for so long, hopefully things can now change. Praxeology, like mathematics can only improve as more people learn to properly apply it.
Now suppose that we tell him he has 12 dollars, so we may well expect him to purchase A, F and T, but if we then turn around and tell him that he can only purchase 4 dollars worth, he may now only purchase A. This is functionally equivalent to the first case in which he knows he only has 4 dollars to begin with. Yet I think one could claim it also displays a functional equivalence with the case where he has A, F and T to begin with, and we then tell him he has to lose 2. Ignoring the intermediary device of dollars, the actual opportunity costs are represented by forgone ends F and T in both the first and final case. Is this the kind of things you guys were pointing at?
In retrospect, I think what I have written above is a completely false dichotomy. Even when we inform the hapless man he is 8 dollars short of buying all opera tickets, his preference is dictated by how he utilises 4 dollars, and therefore equivalently, when he is asked to use just one unit. He is not given the choice of exchanging the most valued unit for the lower 2. Either we or the circumstances, force him to not even be able to consider keeping 2 of his possible tickets, and decide on which he would like if he can only pick one.
These are the valuations of the individual units of A, F and T, not as "classes of goods." The only place an additional A could go is below T, and since that is below F in the scale of preferences it would have to be valued less than the additional F.
I understand this interpretation of value scales, I've just seen a lot of discussions gone awry when people started being confusing about what exactly is meant by value scales.
Having said that, I still have issues with this definition: it seems to assume that personal preferences are "incremental", for the sake of a better word (given more possibilities, the person just adds more goods to his preferred state of the world, never removing goods he've chosen with less possibilities).
An example: let's say the tickets price changed, so now A costs 6, F costs 4, and T costs 2. Having 2$, the person buys T. Given 4$, he still buys T, not F. Is this compatible with the original value scale? I say yes (though it is not the only possible compatible choice).
The value scale of A over F over T, as you noted, does not compare classes of A, F, and T. My interpretation is, it says that the person prefers one unit of A to one unit of F, and (attention!) one unit of A and one unit of F to one unit of A and one unit of T (and specifically says nothing about preference of one unit of F over one unit of T). Do you agree with this interpretation? Do you agree that the difference is significant?
PS: "incremental" as used here is more narrow than "marginal", thus a use of a new word.