Ludwig von Mises
Remarks on the Fundamental Problem of the Subjective Theory of Value
2. Scale of Values
The fact that modern economics starts from acting man's subjective valuations and the action that is governed by these valuations, and not from any kind of objectively "correct" scale of values, is so familiar to everyone who is even slightly conversant with modern catallactics or who has thought only very little about the meaning of the terms "supply" and "demand" that it would be out of place to waste any more words on it. That it is frequently attacked by authors whose stand is opposed to that of subjective economics?for example, recently by Diehl ?is the result of such crass misunderstanding of the entire theory that it can be passed over without further discussion. Modern economics cannot be more clearly characterized than by the phrase "subjective use value." The explanation that the new theory gives of the phenomena of the market does not have as its basis any "scale of wants which is constructed on rational principles," as Diehl maintains. The scale of wants or of values, of which the theory speaks, is not "constructed." We infer it from the action of the individual or even?whether or not this is permissible can remain undecided here?from his statements about how he would act under certain assumed conditions.
Diehl considers it obviously absurd to draw on "fanciful wishes, desires, etc." for an explanation and thinks that in that case value would be determined by "the subjective whims of each individual" and thereby "the theory of marginal utility would lose all meaning."  Here he has indeed been misled by the oft-lamented ambiguity of the term "value" whose meaning for catallactics must not be confused with the "absolute" values of ethics. For no one will want to doubt that market prices, the formation of which we have to explain, really are influenced by "fanciful wishes" and caprices in exactly the same way as by motives that appear rational in Diehl's eyes. Let Diehl try some time to explain, without referring to "fanciful wishes and desires," the formation of the prices of goods that fluctuate in response to changes in fashion! Catallactics has the task of explaining the formation of the exchange ratios of economic goods that are actually observed in the market, and not those which would come about if all men were to act in a way that some critic regards as rational.
All this is so clear, as has been said, that no one will doubt it. It cannot be the task of this essay to belabor the obvious by attempting to prove it in detail. On the contrary, what we intend is something altogether different. We have already pointed out that Menger and Böhm-Bawerk made statements in various passages of their writings that are utterly incompatible with the basic principles they advanced. It should not be forgotten that the two masters, like all pioneers and trail blazers, had first assimilated the old concepts and ideas that had come down from earlier days and only later substituted more satisfactory concepts and ideas for them. It is humanly excusable, even if it is not objectively justifiable, that occasionally they were not consistent in the elaboration of their great fundamental ideas and that in details they clung to assertions stemming from the conceptual structure of the old, objective theory of value. A critical consideration of this insufficiency of the work of the founders of the Austrian School is an absolute necessity, since they seem to present great difficulties to many readers who attempt to understand the theory. For this reason I wish to select a passage from the chief work of each.
In the preface to the first edition of his Principles of Economics, Menger describes the "proper subject matter of our science" i.e., theoretical economics, as the investigation of the "conditions under which men display provisionary activity that aims at the satisfaction of their wants." He illustrates this in the following words:
- Whether and under what conditions a thing is useful to me; whether and under what conditions it is a good; whether and under what conditions it is an economic good; whether and under what conditions it has value to me, and how great the measure of this value is to me; whether and under what conditions an economic exchange of goods between two parties can take place; and the margins within which prices can be formed in such an exchange; and so on.
This, according to Menger, is the subject matter of economics. It should be noted how the subjectivity of the phenomena of value is repeatedly emphasized by means of the personal pronoun "me": "useful to me," "value to me," "measure of this value to me," etc.
Unfortunately, Menger did not adhere to this principle of subjectivity in his description of the qualities that make things goods in the economic sense. Although he cites Storch's beautiful definition (l'arr?t que notre jugement porte sur l'utilit? des choses . . . en fait des biens), he declares that the presence of all four of the following prerequisites is necessary for a thing to become a good:
1. A human want.
2. Such properties of the thing as enable it to be placed in a causal relation with the satisfaction of this want.
3. Knowledge of this causal relation on the part of a human being.
4. The ability to direct the employment of the thing in such a way that it actually can be used for the satisfaction of this want.
The fourth prerequisite does not concern us here. There is nothing to criticize in the first requirement. As far as it is understood in this connection, it corresponds completely to the fundamental idea of subjectivism, viz., that in the case of the individual lie alone decides what is or is not a need. Of course, we can only conjecture that this was Menger's opinion when he wrote the first edition. It is to be noted that Menger cited Roscher's definition (everything that is acknowledged as useful for the satisfaction of a real human want) along with many definitions of other predecessors, without going further into the matter.
However, in the posthumous second edition of his book, which appeared more than half a century later and which (apart from the section on money, published long before in the Handw?rterbuch der Staatswissenschaften) can in no way be called an improvement over the epoch-making first edition, Menger distinguishes between real and imaginary wants. The latter are those
- which do not in fact originate from the nature of the person or from his position as a member of a social body, but are only the result of defective knowledge of the exigencies of his nature and of his position in human society.
Menger adds the observation:
- The practical economic life of men is determined not by their wants, but by their momentary opinions about the exigencies of the preservation of their lives and well-being; indeed, often by their lusts and instincts. Rational theory and practical economics will have to enter into the investigation of real wants, i.e., wants which correspond to the objective state of affairs.
To refute this notorious slip it suffices to quote some of Menger's own words a few lines below those just cited. There we read:
- The opinion that physical wants alone are the subject matter of our science is erroneous. The conception of it as merely a theory of the physical well-being of man is untenable. If we wished to limit ourselves exclusively to the consideration of the physical wants of men, we should be able, as we shall see, to explain the phenomena of human economic action only very imperfectly and in part not at all.
Here Menger has said all that needs to be said on this subject. The case is exactly the same with regard to the distinction between real and imaginary wants as it is in regard to the distinction between physical and nonphysical wants.
It follows from the preceding quotations that the second and the third prerequisites for a thing to become a good would have to read: the opinion of the economizing individuals that the thing is capable of satisfying their wants. This makes it possible to speak of a category of "imaginary" goods. The case of imaginary goods, Menger maintains, is to be observed
where things which in no way can be placed in a causal relation with the satisfaction of human wants arc nonetheless treated as goods. This happens when properties, and thus effects, are attributed to things to which in reality they do not belong or when human wants that in reality are not present are falsely presumed to exist.
The basis of subjective use value is described very differently, but completely in the spirit of the theories that Menger elaborated in the latter sections of his basic work, in the words of C. A. Verrijn Stuart: A man's valuation of goods is based on "his insight into their usefulness," in which sense anything can be conceived as useful "that is the goal of any human desire, whether justified or not. It is for this reason that such goods can satisfy a human want."
 Cf. Diehl, Theoretische National?konomie (Jena, 1916), I, 287; (Jena, 1927), III, 82-87. Against this, cf. my essays in Arch. f?r Geschichte des Sozialismus, X, 93 ff.
 Loc. cit., Vol. III, p. 85.
 With regard to the problem of the measurement of value and of total value, which will not be treated further here, I have attempted a critical examination of the works of a few of the older representatives of the modern theory of value in my book, The Theory of Money and Credit (Yale University Press), pp. 38-47.
 Menger, Grunds?tze der Volkswirischaftslehre (Vienna, 1871), p. ix; (2nd ed.; Vienna, 1923), p. xxi.
 Cf. Menger, op. cit. (1st ed.), p. 3.
 Ibid., P. 2.
 Ibid., 2nd ed., p, 4.
 Ibid., p. 4 et seq.
 Ibid., p. 5.
 Ibid., p. 4; 2nd ed., pp. 161 f.
 C. A. Verrijn Stuart, Die Grundlagen der Volkswirtschaft (Jena, 1923), p. 94.