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4. Prices and Consumption > 5. The Marginal Utility of Money

D. Planning and the Range of Choice

It should be evident that the establishment of money tremendously broadens the range of choice open to everybody. The range of alternative uses that can be satisfied by units of money is far wider than the number of uses to which individual goods can be put. Horses or houses can be allocated to several uses, raw materials to many areas of production, but money can be allocated in expenditure on every single type of exchangeable good in the society, whether a tangible commodity or an intangible service, a consumers’ or a capital or a natural good, or claims to these goods. Money serves greatly to expand the range of choice; and it itself becomes a key means to be allocated to the most highly valued of alternative ends.24

It might be worthwhile to consider at this point what each person does in action. He is always engaged in allocating means to the most highly valued of his alternative ends, as ranked on his value scale. His actions in general, and his actions in exchange in particular, are always the result of certain expectations on his part, expectations of the most satisfactory course that he could follow. He always follows the route that he expects will yield him the most highly ranked available end at a certain future time (which might in some cases be so near as to be almost immediate) and therefore a psychic profit from the action. If he proves to have acted erroneously, so that another course of action would have yielded him a greater psychic revenue, then he has incurred a loss. Ex ante he appraises his situation, present and prospective future, chooses among his valuations, tries to achieve the highest ones according to his “know-how,” and then chooses courses of action on the basis of these plans. Plans are his decisions concerning future action, based on his ranking of ends and on his assumed knowledge of how to attain the ends. Every individual, therefore, is constantly engaged in planning. This planning may range from an impressive investment in a new steel plant to a small boy's decision to spend two cents on candy, but it is planning nevertheless.25 It is erroneous, therefore, to assert that a free market society is “unplanned”; on the contrary, each individual plans for himself.

But does not “chaos” result from the fact that individual plans do not seem to be co-ordinated? On the contrary, the exchange system, in the first place, co-ordinates individual plans by benefiting both parties to every exchange. In the second place, the bulk of the present volume is devoted to an explanation and analysis of the principles and order that determine the various exchange phenomena in a monetary economy: prices, output, expenditures, etc. Far from being chaotic, the structure of the monetary economy presents an intricate, systematic picture and is deducible from the basic existence of human action and indirect exchange.26

  • 24. We shall see below, in chapter 11, that money is unique in not conferring any general benefit through an increase in the supply once money has been established on the market.
  • 25. “Planning” does not necessarily mean that the man has pondered long and hard over a decision and subsequent action. He might have made his decision almost instantaneously. Yet this is still planned action. Since all action is purposive rather than reflexive, there must always, before an action, have been a decision to act as well as valuations. Therefore, there is always planning.
  • 26. Economics “must at any rate include and imply a study of the way in which members of ... society will spontaneously administer their own resources and the relations into which they will spontaneously enter with each other.” Wicksteed, Common Sense of Political Economy, I, 15–16.