Part One: An Austrian Method to Our Madness

Part Two: Axiom of Economics

Part Three: Value

 

Value is the sentiment we place upon the utility we will or will not gain by achieving certain possible states, such as cuddling with a lover, having a long soak in a hot bath, taking a walk, playing a video-game, or the act of wandering from shop to shop buying things as retail therapy. This makes value bigger than utility, though it includes utility. Utility is actual satisfaction arising from the change of state from less satisfying to more satisfying that we achieve by acting. It is entirely a mental phenomenon. It exists only in the mind and thus is subjective to the individual. If this seems offensive to any Marxist or other objective value theory advocates, sorry, but reality dictates that value is subjective. It’s over.

Everything we’ve covered in previous articles can apply to one individual living completely alone without human contact. This is called Crusoe economics after Robinson Crusoe of fictional marooning fame. But now we come to how humans will actually act in encounters with each other to create value, that is, the promise of satisfying their most pressing wants. The form this interaction takes is exchange. Exchanges themselves would be the units of economics if economics had units. Exchange is very simply Person A giving something to Person B while Person B in turn gives something to Person A. That’s it! When does exchange take place, and when is exchange not exchange?

Economic exchange is called trade because both parties get more than they give. Yep, you read that right. Voluntary trade between consenting parties adds value for both of those parties. How do we know this? Because if you value potential purchases equally to or less than the money in your wallet, you wouldn’t bother to exchange that money for any of those goods. This is because if the state offered by, say, a Gillette razor is no more satisfying than a present state without said razor, then I ain’t buying one. So as party to an exchange I take part only because I will gain a greater capacity to satisfy my wants than I will without the exchange.

So, we act to get from a less satisfying present to a more satisfying future, on which we place more value than its alternatives. Trade is a form of action in which two people exchange with other while both seeking to gain value. This value-added is a prerequisite to and good or service being recognised in business as a product, because it is something that creates value for purchasers by satisfying wants, and adds value to its sellers by adding money which offers opportunity to engage in future trades.

Refuting the subjective value of exchange explained above is an exercise in futility because if the actions being taken by the two parties are not entirely consensual – one is coercing or deceiving the other – then by definition what is taking place is not a trade. It’s assault, theft, murder or rape, depending on the action involved. If it looks at the time like a trade but one party later finds out they’ve been played it was fraud, which is a subset of theft. QED trade os voluntary exchange between consenting parties and represents added value in both of their lives, just making both people a little richer after than they were before, and thus causing all the social progress whose fruits we of the late 20th and 21st Centuries have enjoyed since we were born.