2: The Measurement of Value
It is a common mistake to consider money as a standard of value. Because money is used as a common medium of exchange for a multitude of goods, it has the appearance of being a standard against which the various goods can be measured.
However, value remains subjective: each exchange is an assessment of the value of the good to be obtained in consideration of the value of the good to be relinquished in order to obtain it. Consent to exchange is given when each party finds greater value in the good to be obtained than in whatever they offer in exchange for it.
(EN: An interesting consideration is that, seen in this light, an exchange is not a zero-sum equation, but instead results in creating greater value. Neither side loses or sacrifices value, but instead gains greater value in comparison to what is given in exchange.)
Valuation is not objective, and as such not susceptible to any kind of measurement. It can be said that bread is of different value to one person than another. It can likewise be observed that bread is of different value to a single person at different times - the greater their hunger, the greater value they would place on the same quantity of bread.
As such, value is subjective, and has little practical meaning in the marketplace. You may calculate the average value of bread across all buyers, in their various stages of hunger, to arrive at a mean value for bread - but this does not mean that any individual buyer or seller would be willing to freely enter into an exchange at that price.
Each exchange is made between a buyer and a seller based on their subjective valuations at the moment at which the exchange occurs. And further, since neither party to a trade knows the degree of satisfaction the other will take from the exchange of goods, the notion of an objective standard of value is further removed from any practical application.
Von Mises refers to Bohm-Bawerk's theory of satisfaction, in which a person faced with a multitude of desires and the means to fulfill only some of them is faced with a dilemma that cannot be solved by objective reason, and while he can rank some desires as being more important than others, there is no clear mathematical solution that enables him to maximize his total satisfaction. It remains a subjective decision.
He then refers to Irving Fisher, who reasoned that the marginal utility of a good decreases as its supply increases. This is a mathematical "proof" of the theory of scarcity. That is, the greater the volume of a good in the marketplace, the less the value of each unit of that good There's quite a bit of calculative sophistry involved, but it is likewise based on the assumption that the value derives from exchange, rather than willingness of the buyer to surrender one good in exchange for another.
Total Value
As use-value remains subjective, it follows that it is not practical to ascribe a quantity to it. We may observe in a general sense that one commodity has a greater value in trade than another, but it is not possible to assert to any practical end that one commodity is worth a specific amount of another.
Value is the result of a process of valuation; and the process of valuation is the significance of the two commodities relative to their capacity to serve the needs of the individual who is making the valuation, at the time they are making the valuation.
There remains the notion of collective bargaining: when the members of a group (which would include things such as a nation) engage in a discussion on a proposed exchange to arrive at a common consent to value. But neither does this constitute an objective valuation: it remains subjective, though negotiated among the intensity of the desire of each individual who has input into the decision - and for that instant only. Just as a man who is not hungry would place a lesser value on bread than he would if he were starving, so might a nation at peace place a lesser value on a battleship than they would were the nation at war.
There is also the matter of the diversity of goods. The example is given of a farmer who, if wild animals attacked one of his horses and one of his cows, might opt to save the horse, as it is more valuable than the cow; but if his stable and cowshed both caught fire, he might opt to save two cows and two horses, rather than four horses at the expense of all his cattle.
Money as a Price Index
In a market in which goods are directly traded, it is not feasible to derive an index of prices: the permutations in the exchange of various goods defy mathematical consistency.
If a man exchange a bushel of apples for two of barley, and a bushel of apples for three bushels of corn, and another man exchange two bushels of corn for a bushel of barley, there is no consistent mathematical basis for exchange. (A = 2B and A = 3C suggests that 2B = 3C, but in the third exchange, B = 2C).
In a market of indirect exchange, where all goods are traded in exchange for money, it is more feasible to express the value of goods in terms of money, in order that a "price index" can be created that could be used as a reference to making equitable trades.
However, acceptance of the price index, and its indication of value that is independent of the subjective use-value individuals ascribe to the various goods in question, can do as much to hinder as facilitate trade. To return to the previous examples, if apples are value at six coins, then barley would be worth three and corn at two, but the participants in the third exchange (two bushels of corn for one of barley) would be dissuaded from engaging in trade if they relied upon the price index rather than happily engaging in trade according to their own subjective valuation of the goods in question.
The result is that money is not an objective measurement of value of other goods, but is in itself a commodity to be traded, and which has a subjective use-value ascribed to it that is independent of the value of the other goods in question.
And in this sense, money can be accepted as a measurement of prices in a market where differentiated goods are traded by means of indirect exchange. This would be entirely practical - but it would not be entirely objective.