Front Page Titles (by Subject) CHAPTER 2: CHOICE AND VALUE - Economics, vol. 1: Economic Principles
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CHAPTER 2: CHOICE AND VALUE - Frank A. Fetter, Economics, vol. 1: Economic Principles 
Economics, vol. 1: Economic Principles, (New York: The Century Co., 1915).
Part of: Economics, 2 vols.
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CHOICE AND VALUE
§ 1. Choice; its origin. § 2. Development of conscious choice. § 3. The idea of scarcity. § 4. Valuation. § 5. One’s own labor as a valuation unit. § 6. Crusoe’s scale of valuations. § 7. Choice before and after valuation. § 8. Value. Notes on Aspects of things chosen, Various meanings of scarcity, Value and valuations.
§ 1. Choice; its origin. The world of industry, as we look out upon it, appears to be alive with motion, like a beehive. In the crowded harbor, the busy railroad yard, the noisy steel mill, the bustling department store, we see a ceaseless and bewildering activity. In all this movement and apparent confusion, there is, however, a large degree of order and a pretty regular succession of events which reflects a succession of choices that men are making.
These choices are not always and entirely the result of deliberate and conscious calculation. They are determined in a very great degree by habit or by instinct. Every living creature has a nervous organization of some sort—plants as well as the lowest forms of animals. This nervous organization has a pretty definite “set” or habit of response toward its environment; that is, the nerves react in certain ways to external stimuli. The seed in moist soil germinates; it sends rootlets into the earth in search of water and of the particular soil-elements which it by nature “chooses”; it sends stock and leaf upward into the light and air, it spreads or climbs or twines according to its nature. The chick picks its way out of the shell, and then instinctively (by its inborn nature) picks at any particle it sees. It finds some objects “good” and it eats them; it finds others “bad” and it rejects them. It thus adds to its instinctive choice the choice resulting from experience.
§ 2. Development of conscious choice. Every human being starts on his life of choice in just this way, with a fund of natural impulses, a capacity for certain instinctive reactions. The new-born child cries when hungry or uncomfortable, and it does not know in advance (the first time) what it is crying for. It is moved by mere impulse, tho we say loosely that it “knows” well enough when it gets the right thing. Some food it rejects, other food it takes; and its mere impulse has now become a vague aversion or a vague desire. Very quickly it learns to associate the presence of some object with this or with that choice, and reaches for it, cries for it, giving now a very definite direction to the impulse which it feels. Feeling directed in this way upon some particular object or action is called desire. If we speak of this as a “conscious desire,” we mean not that the person is reflecting on the nature of the desire, but simply that he is conscious of the presence of the thing, and that he desires it. As the child grows older, choice becomes vastly more complex, but all human choice is the development of the first simple impulsive acts. The difference in this matter between man and the animals lies in the degree to which the original fund of impulses is strengthened or weakened by experience and training, and is modified by the greater growth of forethought, imagination, and reason. As the man attains his maturity, deliberate calculation enters more and more into the making of choice. Yet the instinctive and habitual elements of choice continue to be very potent.
Tastes change with age, are trained, are influenced by custom, by example, and by suggestions of many kinds, and are given a wider range by wealth, travel, and opportunity. But choice is ruled fundamentally by instinct; one likes what he likes; de gustibus non disputandum est.
Choice develops in this way as it is directed upon each of the great classes of things with which man is surrounded; clothing, houses, furniture, horses, automobiles, books, etc. It operates also upon the actions of the man himself. He reaches out or withdraws his hand; he seeks or he shuns; he labors to make or to destroy, to possess or to get rid of. Thus the choice among one’s own acts is intertwined with one’s choice of things.1
§ 3. The idea of scarcity. Now we are not likely to feel a very keen desire for a particular thing unless the supply of it at our disposal is relatively limited. The air which we breathe is essential to life. But the air is all around us, and ordinarily in boundless abundance. Moreover, we breathe by reflex or automatic action of the muscles without conscious attention. The result is that we do not ordinarily feel a desire for air. But in a crowded room where there is a real scarcity of fresh air relative to our need for it, our desire for a breath of fresh air may become very keen indeed. Under such circumstances the air takes on a very different importance as an object of choice. Our impulsive actions and our thought are directed toward getting it. The diver in his diving suit must make this his first and most constant interest; the drowning man tragically feels this need.
The scarcity which we are now discussing is such a limitation in the number or quantity of objects that not all desires can be met then and there by the amount of goods available. In the numberless cases where some desires are not met or are only partially met, we are under the necessity of making a choice as to which desires shall be met. This involves a choice—and therefore a comparison—among things.2
§ 4. Valuation. If we choose one thing rather than another it is plain that for us the first thing has the greater importance. For one cause or another (instinct, training, experience, imagination, judgment) it weighs more in the scale of our choice than the thing which is rejected. Now in our daily life we are constantly making comparisons of this sort between things. Few of us—if any—are able to secure all the things which we desire. We are under the necessity of choosing among the various possibilities. We are, therefore, under the recurring necessity of comparing one thing with another, and in so doing, we assess or estimate one thing in terms of the quantity of the other thing. Such an expression of the importance of one object of choice in terms of another we may call a valuation.
A comparison of this sort between things may take the form of a mere vague preference without any exact quantitative expression of the degree to which the one thing is more important to us than the other. (Fig. 1.) We prefer one object, X, to another object, Y, without attempting to express even to ourselves the exact strength of the preference. On the other hand, our valuations may and usually do take the form of definite mathematical ratios. In the early American fur trade, for example, a beaver skin came by convention to be used as a unit in terms of which the relative importance of other things (e.g., other furs, food supplies, etc.) was expressed. The other things were measured as multiples (or fractions) of the unit.
Suppose, now, that in a similar way, we were to take a number of things, X, Y, M, N, O, P, and Q (taking, of course, a definite amount and grade of each) and were to make an exact estimate of their respective degrees of importance. The accompanying diagram may be used to express in a graphic way the mathematical relations of the importance of any one expressed in terms of any one of the others. As a matter of convenience we may settle upon a particular one, Q, as a common unit for expressing or measuring the importance of each of the others in turn. This, in fact, is exactly what the fur-traders did. And we do the same in our use of a monetary unit as our standard for the expression and comparison of the relative importance of things.
Viewed as the reflection of an act of choice, a valuation of goods appears to be a very simple fact. Yet underlying this simplicity would be found ordinarily a number of complex motives. Each valuation is a focus of many influences, a resultant of many conditions, some in the environment, and some in the nature and in the feeling of man. According as there is more or less of the various things to choose, and according as the person is more or less hungry or tired or cold or elated or downcast, any particular object may appear to be more or less important, may thus have a greater or less valuation.
§ 5. One’s own labor as a valuation unit. A valuation involves more than a comparison between external objects. Often one’s own labor is brought into the comparison. Choice frequently has to be made with reference to the limited strength and time of the subject, his laboring force. Here there is a twofold comparison; a good is compared with the labor required to secure it as well as with another good. When we are face to face with nature, and goods are to be secured only through our own labor applied to various materials, we are likely to estimate things habitually in terms of our own labor. Labor may under these circumstances become a common unit for the valuation of external things.
§ 6. Crusoe’s scale of valuations. The economy of Robinson Crusoe serves to illustrate the problems which the individual has to solve when the relation is between man and nature, and not between man and man.
The unfailing interest which old and young find in the story of Crusoe is largely due to the convincing naturalness of the tale. Each reader feels that he would have done just the same things in just the same order, if he were in the same plight and had been cast ashore as the story relates.
I was wet and cold, and had no dry clothes to put on, no food to eat, not a friend to help me. . . . I had but a knife and a pipe. . . . Where was I to go for the night? . . . I went to a tree and made a kind of nest to sleep in. Then I cut a stick to keep off the beasts of prey in case they should come. . . . The next day . . . I swam up to the wreck which was in a sand bank. My first thought was to look around for some food . . . and I ate some of it as I went to and fro, as there was no time to lose. There was, too, some rum, of which I took a good draught, and this gave me heart. . . . I fell to work to make a raft. I found some bread and rice, a Dutch cheese, and some dried goat’s flesh, . . . some fresh clothes and four guns, . . . with these I put to sea . . . and brought the raft safe to land with all her freight. . . .
The next day, as there was still a great store of things left in the ship, which would be of use to me, I thought I ought to bring them to land at once, for I knew that the first storm would break up the ship. . . . The first thing I sought was the tool-chest; and in it were some bags of nails, spikes, saws, knives, and such things; but best of all I found a stone to grind my tools on. There were two or three flasks, some large bags of shot, and a roll of lead. There were some spare sails too, which I brought to the shore.
Now that I had two freight of goods on hand, I made a tent with the ship’s sails, to stow them in, and cut the poles for it from the wood.
The next day I had no great wish for work, but there was too much to be done for me to dwell long on my sad lot. Each day, as it came, I went off to the wreck to fetch more things and I brought back as much as the raft would hold. . . .
The last time I swam to the wreck I found some tea and some gold coin; but as to the gold it made me laugh to look at it. “O drug,” said I; “thou art no use to me! I care not to save thee. Stay where thou art till the ship goes down; then go thou with it.” Still I thought I might as well just take it. . . .
I have said not a word of my pets. You may guess how fond I was of them, as they were all the friends left to me. I brought a dog and two cats from the ship.—(Adapted from the abridged edition, published by H. Altemus, Philadelphia.)
Crusoe knew not at what moment the waves would sweep into the sea whatever was left. He had scant strength and time for the task. His labor was to be so distributed that he might save from the wrecked ship the most valuable contents. Did he choose well? First, to preserve his life he found a tree to sleep in, and a stick to ward off wild beasts. Then at the ship he took food, clothing, weapons and tools, and made a place to store them safe; and finally came gold and pets. We see how he ranks them then and there, and how different is the scale from that he had before. His remark about the gold is whimsically suggestive of the old lingering standards of choice, and of the dim hope that he might return to live among men, and thus resume his old scale of values.
§ 7. Choice before and after valuation. It is usual to speak of the valuation which a person has (or holds or makes) of an object as preceding choice; but evidently this is not so in the case of instinctive choice, and many choices have in a measure this impulsive character. In case of a choice of a thing by a person for his own use the valuation is simply the resultant of choice; it is the arithmetic expression necessarily involved in the action and reveals to the person himself what he has done, how he values the object, rather than determines his action.
In a great many business transactions, however, one is not choosing for his own desires, but is trying to forecast the valuations of others to whom he will sell. There is often, in such cases, a long and careful attempt to express in exact figures the relative importance of different objects before a choice is finally made. In other cases the valuations precede the choice, when a conscious calculation is made of the relative effectiveness of things (heating power, food-value, etc.) and the relative difficulty of getting them (cost in money, distance to carry, etc.). In this sense of a careful estimate of the importance of a thing for business purposes, we speak of an assessor’s valuation of property for purposes of taxation, an appraiser’s valuation of imports, and a merchant’s valuation of his stock-in-trade. This kind of commercial valuation usually precedes choice by merchants.3
§ 8. Value. Now as a choice is made and a valuation is thus expressed, the person choosing feels that there is a certain quality in the thing which evokes or determines his choice. This quality of importance which things have when they are the subjects of man’s choice is value. Broadly understood value may be of many kinds: moral (the quality in actions calling for approval or disapproval), religious (the quality in actions, sentiments, and beliefs reflecting what the persons believe to be the will of the deity), esthetic (the quality in objects that accords with the canons of good taste in color, form, sound, etc.). Economic value is but one species of the larger genus of value. It is the quality in an object in the environment to influence a man’s action in respect to the control and use of the object. We ascribe this quality to the object that motivates our choice. Bread, meat, dress, houses, land, gold, carriages, slaves, the labor of hired servants, each object is said by you to have (economic) value, just because you feel and know that it sways your behavior in relation to itself. Value in this sense is not inherent or intrinsic in anything; it goes and comes, it grows and wanes, according to the intensity of the desire. It may have existence for one economic subject and not for another. It is not to be thought of as something in a thing before man makes it an object of choice. The logical order is: first, choice; secondly, a valuation by necessary implication; third, value—the quality imputed to the object. Yet in real life these are but three phases, absolutely contemporaneous, of the same thing. Value is but the abstract quality which we attach to the thing in our thought, because of the way it makes us behave in its presence. Value is fundamentally a reflection of the individual choice, though many individuals may have a similar choice, and by their interrelations mutually influence each other’s valuations in remarkable ways. Objects have their physical qualities independent of man’s choice; the apple has form, weight, the texture and skin which to the eye look red, and the chemical elements that give a certain flavor and taste. These singly or combined are not value, tho each has its part in determining under varying conditions, whether the apple is to have also the quality of value. There are as many problems of economic value as there are ways of choosing between economic objects. Their study makes up a large part of economics.4
Aspects of things chosen. Choice itself has a number of aspects and is made in reference to one or another quality of goods and acts (when certain other qualities are for the time equal or may be left out of consideration). The four chief aspects of choice relate to stuff, form, place, and time, as follows: (1) Choice of kinds of things (the simplest case being choice among things present and chosen for their immediate use and enjoyment), as choice between different kinds of objects, such as food and clothing, apples and oranges; or again the things may be of the same general kind but of different qualities, as apples differing in sweetness, smoothness, and in color; or the objects may be of different sizes or be in different quantities. (2) Choice of form, as an apple cut and pared rather than one uncut, or cooked food rather than uncooked food, or a made garment rather than the unmade cloth and materials. (3) Choice of the place, as an apple here rather than on the tree or on a distant farm, a pail of water in the house rather than at the well, home for one’s self rather than the roadside at dusk with home still miles away, etc. (4) Choice of the time at which goods of a certain kind shall come into one’s control, or that acts should be done, as choice of food at once when hungry rather than later, or of rainfall after a drought rather than during a flood, or the choice involved in keeping of food for winter instead of eating it all in the fall, etc.
These choices occur in many combinations and degrees of difficulty and complexity. It is a large part of the task of economics to study in detail the large groups of choices which are thus made.
Various meanings of scarcity. In economics the idea of scarcity is (as is shown above) connected with limitation relative to the desire for the objects. But “scarce” has other meanings. Sometimes it is that of rare, or uncommon (which usually, tho not always, implies desirability), as a scarce plant, a scarce butterfly, or a scarce stamp. Scarcity means also a small amount compared with the average or usual; it is said that wheat is scarce the year of a poor harvest tho there are millions of bushels of it, and conversely that “wheat is not scarce,” when there is a good harvest; yet in relation to choice it is merely less scarce than usual.
Value and valuation. The words value and valuation are frequently used interchangeably without much harm; yet for great precision it would usually be better to distinguish between them. The essential meaning of value as given in § 8 (a quality imputed to an object by a man) is individual, that is, it relates to a particular person. The meaning is somewhat different when value and market value are used for convenience to express a valuation, that is, some one’s estimate (as a statistician’s, an official’s) of the amount of goods in terms of price, such as the value of the imports and of the exports, the total value of the wheat crop of the country, the value of all the outstanding stock of a corporation. This valuation is obtained by multiplying the whole number of units of goods, shares of stock, etc., by the price in a single transaction. This valuation is not to be confused with price; price is an actual amount of money paid, whereas the valuation is an estimate of the total number of dollars for which all the articles could have sold, if they had changed hands at that price. In fact, in many cases, many of them did not change hands at that time.
[1 ]See note on Aspects of things chosen, at end of chapter.
[2 ]See note at end of chapter on Various meanings of scarcity.
[* ]The dotted valuation line ab drawn through and above y indicates that the valuation of x is greater than that of y, but the degree of the difference is left indefinite.
[3 ]It is, however, but the anticipation and reflection of the choices that purchasers will later make. See on enterprise in Part V.
[4 ]See note below on Value and valuation.