Praxeology and Subjective Valuation

Praxeology is the study of human action. Ludwig von Mises, in his magnum opus, Human Action, delved into praxeology with the claim that “all humans act,” and that all human action is purposeful behavior, by using means to obtain ends (sharply differentiating it from reflex or observed movements of inorganic matter). Mises later expanded praxeology into the study of economics by logically elaborating from these principles.

For example, Mises proved that when two actors, let’s say, Mark and Kevin, decide to exchange goods with each other, they both benefit. For example, if Mark has an apple, and Kevin has an orange, Mark will only exchange his apple for Kevin’s orange if he subjectively values the orange over the apple; likewise, Kevin will only exchange his orange for Mark’s apple if he subjectively values the apple over the orange. Through peaceful cooperation and exchange, both benefit from the trade; both are wealthier than they were before the trade.

This is scientifically unverifiable yet logically indisputable. How would a scientist prove that Mark subjectively values the orange over the apple? No full-proof method can possibly exist. As for logic, some may attempt to come up with examples that disprove the logic. I will mention a few of these arguments below.

1) A person may not actually value one good over the other in an exchange. Perhaps Charles is a billionaire with an extra house and decides to give it to a homeless man for a dollar. Obviously, Charles doesn’t value the dollar over the house; he is simply attempting to help another human being while being altruistic (not completely altruistic apparently because he still wants a dollar).

This argument does not defy the logic of subjective valuation. Monetarily, Charles may not value the dollar over the house, but he does value the dollar over the house for the utility it gives him in making another person happy. Charles would not make the exchange unless he valued what he was receiving over what he was giving. In this case, he is receiving more than just a dollar, he is receiving satisfaction emotionally.

2) A person may be desperate and pay 400 dollars for a glass of water.

This argument obviously also does not defy subjective valuation. In his situation, the person does value the water over the 400 dollars; otherwise, he would not exchange it. Some might argue that no man should have to pay 400 dollars for a glass of water, but this is not an argument against the praxeology, but rather an ethical argument.

3) Perhaps in the first situation described (with Mark’s apple and Kevin’s orange), Mark may have heard of praxeology and subjective valuation. He believes he does not value the orange over the apple; nevertheless, he makes the exchange simply to disprove the logic of subjective valuation.

Here, again, this would not defy subjective valuation. The reasoning behind this is that Mark still subjectively values the orange over the apple; otherwise, he would not have made the exchange. His reasons for subjectively valuing the orange over the apple may not be normal reasons, for example, that he liked the taste of the orange better than the taste of the apple, but rather that he subjectively values the orange over the apple because of the utility the orange gives him in disproving the praxeology. Nevertheless, this brings us to a new point. Mark has made a mistake. He valued the orange over the apple for the utility it gave him in disproving the logic, but he has not disproved the logic. He has simply made an error of judgment instead, and the law holds.

Mark may realize at some later point that he was incorrect in his judgment of the situation. Perhaps, Kevin explains it to him 5 minutes later. Now, if Kevin consents, Mark may trade the orange for the apple back, and this would prove that he now values the apple over the orange, for subjective valuations may change over time.

I have delved into what some may think is common sense reasoning in order to apply this to economic situations. One of these situations is the minimum wage, which I will go into next week.

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Posted on October 23, 2011, in Economics and tagged , , , , . Bookmark the permalink. 4 Comments.

  1. This type of trade also makes them both losers in the other person’s eyes then. Since if Mark thinks he got the better deal and Kevin thinks he got the better deal they would each respectively think their trading counterparts are at a losing end. And what of the man who traded the paper clip for a house? http://oneredpaperclip.blogspot.com/

    Also, you probably think that first comment is mine, BUT IT’S NOT.

    • It’s not a necessity for each of them to see the other on the losing end. For example, I can trade an apple for an orange. I know I subjectively value the orange over the apple, but I wouldn’t be qualified to say that the other person should have the same values as me. I can say he is on the winning end too if we both simply have different tastes.

      Of course, it’s a possibility that I can view the other person as stupid for making that exchange, but it’s not always true.

      As for the paper clip and the house, I replied to a similar argument in #1.

      • Actually, the question of gain from exchange is settled by the very act of exchange. Ex-ante, it is necessary that both parties gain for the concept of a voluntary exchange implies that each party values that which he receives above that which he gives up. If it didn’t, he wouldn’t engage in the exchange in the first place.

        Thus, each party can know (through deduction from the fact of exchange) that the other party to the exchange is ex-ante better off as a result of that very exchange.

  1. Pingback: Archive: Minimum Wage | The Interventionist Paradox

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