Ludwig von Mises
On the Development of the Subjective Theory of Value
7. Exchange Ratios and the Limits of Monetary Calculation
The money prices of goods and services that we are able to ascertain are the ratios in which these goods and services were exchanged against money at a given moment of the relatively recent or remote past. These ratios are always past; they always belong to history. They correspond to a market situation that is not the market situation of today.
Economic calculation is able to utilize to a certain extent the prices of the market because, as a rule, they do not shift so rapidly that such calculation could be essentially falsified by it. Moreover, certain deviations and changes can be appraised with so close an approximation to what really takes place later that action?or "practice"?is able to manage quite well with monetary calculation notwithstanding all its deficiencies. It cannot be emphasized strongly enough, however, that this practice is always the practice of the acting individual who wants to discover the result of his particular action (as far as it does not go beyond the orbit of the economic in the narrower sense). It always occurs within the framework of a social order based on private ownership of the means of production. It is the entrepreneur's calculation of profitability. It can never become anything more.
Therefore, it is absurd to want to apply the elements of this calculation to problems other than those confronting the individual actor. One may not extend them to res extra commercium. One may not attempt by means of them to include more than the sphere of the economic in the narrower sense. However, this is precisely what is attempted by those who undertake to ascertain the monetary value of human life, social institutions, national wealth, cultural ideals, or the like, or who enter upon highly sophisticated investigations to determine how exchange ratios of the relatively recent, not to mention the remote, past could be expressed in terms of "our money."
It is no less absurd to fall back upon monetary calculation when one seeks to contrast the productivity of action to its profitability. In comparing the profitability and the productivity of action, one compares the result as it appears to the individual acting within the social order of capitalism with the result as it would appear to the central director of an imaginary socialist community. (We may ignore for the sake of argument the fact that he would be completely unable to carry out such calculations.)
The height of conceptual confusion is reached when one tries to bring calculation to bear upon the problem of what is called the "social maximization of profit." Here the connection with the individual's calculation of profitability is intentionally abandoned in order to go beyond the "individualistic" and "atomistic" and arrive at "social" findings. And again one fails to see and will not see that the system of calculation is inseparably connected with the individual's calculation of profitability.
Monetary calculation is not the calculation, and certainly not the measurement, of value. Its basis is the comparison of the more important and the less important. It is an ordering according to rank, an act of grading (Cuhel), and not an act of measuring. It was a mistake to search for a measure of the value of goods. In the last analysis, economic calculation does not rest on the measurement of values, but on their arrangement in an order of rank.