The subjective theory of value traces the exchange ratios of the market back to the consumers’ subjective valuations of economic goods. For catallactics the ultimate relevant cause of the exchange ratios of the market is the fact that the individual, in the act of exchange, prefers a definite quantity of good A to a definite quantity of good B. The reasons he may have for acting exactly thus and not otherwise?for example, the reasons why someone buys bread, and not milk, at a given moment?are of absolutely no importance for the determination of a market price.

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.

By costs classical economics understood a quantity of goods and labor. From the standpoint of the modern theory, cost is the importance of the next most urgent want that can now no longer be satisfied. This conception of cost is clearly expressed outside the orbit of the economic in the narrower sense in a statement like the following, for example: The work involved in preparing for the examination cost me (i.e., prevented) the trip to Italy. Had I not had to study for the examination, I should have taken a trip to Italy.

Investigations concerning the money prices of goods and services constituted the historical starting point of the reflections that led to the development of economic theory. What first opened the way to success in these inquiries was the observation that money plays “merely” an intermediary role and that through its interposition goods and services are, in the last analysis, exchanged against goods and services.

All conscious conduct on the part of men involves preferring an A to a B. It is an act of choice between two alternative possibilities that offer themselves. Only these acts of choice, these inner decisions that operate upon the external world, are our data. We comprehend their meaning by constructing the concept of importance. If an individual prefers A to B, we say that, at the moment of the act of choice, A appeared more important to him (more valuable, more desirable) than B.

The most troublesome misunderstandings with which the history of philosophical thought has been plagued concern the terms “pleasure” and “pain.” These misconceptions have been carried over into the literature of sociology and economics and have caused harm there too.

The expression “Psychological School” is frequently employed as a designation of modern subjectivist economics. Occasionally too the difference, in Method that exists between the School of Lausanne and the Austrian School is indicated by attributing to the latter the “psychological” method. It is not surprising that the idea of economics as almost a branch of psychology or applied psychology should have arisen from such a habit of speech.

The system of economic theory is independent of all other sciences as well as of psychology. This is true also of its relationship to technology. By way of illustration we shall demonstrate this in the case of the law of returns.