Front Page Titles (by Subject) Measurement and Economics - The Economic Point of View
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
Measurement and Economics - Israel M. Kirzner, The Economic Point of View 
The Economic Point of View: An Essay in the History of Economic Thought, ed. with an Introduction by Laurence S. Moss (Kansas City: Sheed Andrews McMeel, 1976).
About Liberty Fund:
This work is copyrighted by the Institute for Humane Studies, George Mason University, Fairfax, Virginia, and is put online with their permission.
Fair use statement:
Measurement and Economics
Several points of criticism present themselves in the consideration of the Marshall-Pigou view of economics. The description of the subject in terms of the possibility of measuring human motives could conceivably be interpreted as stressing the comparison of motives with one another. Economic activities would be those in which the relative strength of human desires would be expressed, through the allocation of resources, in the visible phenomena of the market. But this is not the sense in which Marshall wrote that money measures human motives.
What Marshall had in mind is a means of escape from the dim, hazy realm of desires and feelings into a sharply defined world of quantities brought into clear focus, free of the fuzziness of merely qualitative differences. There is a groping towards the “quantification” and the endowment with “objective measurability” of the numberless subjectively felt urges and drives. Economic phenomena, we are to understand, are in the unique and apparently highly-prized position of being able to reflect in measurable (and hence presumably “scientific”) terms, at least some part of the uncharted wilderness of the human mind. Now there is, no doubt, some satisfaction in feeling that not all human desires remain submerged within individual consciousness; that some of them at least register delicate, but measurable, changes on some external scale for all to see. But it is not clear that the inherence of such a fortunate property in certain motives and feelings offers a valid criterion for a common scientific treatment. As Croce asked Pareto on a slightly different point: “What intrinsic connection is there between this merely accidental attribute, measurability, of the objects which enter into an economic action, and the economic action itself?”21 At least Marshall himself shows appreciation of the good fortune that the motives measured by money all admit of analysis by similar types of reasoning. “The problems which are grouped together as economics,” he wrote, “because they relate specially to man’s conduct under the influence of motives that are measurable by a money price, are found to make a fairly homogeneous group.”22 But surely this homogeneity, under Marshall’s definition, is no more than a happy accident.
Moreover, the whole idea of the measurement of subjective desires by means of money is one that involves serious and controversial problems. It may be readily conceded that human motives, acting in the market place, exert definite effects on money prices. It is by no means clear that the resultant prices offer in any valid sense a means of measuring such motives. Discussions on the possible conception of a cardinal utility may invite ingenious suggestions purporting to measure such a utility. Money has never in any but the crudest of senses been able to serve as such a measure. Undoubtedly Marshall’s idea of money as a measuring rod is related to his frequent use of the hypothesis that money is exempt from the “law” of diminishing marginal utility, but this was never more than a simplifying analytical technique. Prices are not measured in money; they are simply amounts of money given in exchange for goods. Prices are expressed in terms of money, not because money represents any sort of “measuring rod,” but simply because it is money that is commonly used as the quid pro quo for goods.23 One need not draw attention (as Marshall himself did) to the violent fluctuations in the purchasing power of money in order to feel the force of a characteristic sentence of Professor Knight: “If we accept the aphorism, ‘science is measurement,’ as a definition of science, which is its only intelligible meaning, then there is no such thing as ‘economic’ science...”24
Marshall’s was not the only attempt to see economic science as essentially a consequence of measurability. An interesting point of view in this regard was presented in an essay in 1893 by an eminent American contemporary of Marshall, Simon Patten. In the classical economic system, Patten explained, economics was unfortunately divorced from utilitarianism.
Utilitarianism was abstract, and treated of pleasures and pains as purely subjective phenomena. Economics was concrete and treated of utilities as material wealth conditioned by the laws of the objective world...25
The achievement of subjective economics and the development of the theory of consumption makes possible their unification.
When the basis of economics is broadened by making the unit of measurement subjective, and the basis of utilitarianism narrowed by separating it from ethics, the unity of the two, both in the method they use, and in the field they occupy, becomes apparent... There is only one science for measuring the welfare of society and its progress through the gains or losses of those positive utilities which men create or destroy.26
The term “positive utility” is used by Patten in contradistinction to “absolute utility.” By “absolute utilities” Patten understands those which cannot be measured and hence cannot enter into the utilitarian calculus. As instances of such absolute utilities, Patten cites “water in a desert,” “honesty,” and the like. “Positive utilities” are those which, by their susceptibility to measurement, enter into the utilitarian calculus.
Economics is the science of positive utilities—the realm where no other motives are recognized except those resulting from changes in the amount of our measurable pleasures and pains.27
It is true that Patten’s stress on the measurability of economic motives refers to their comparison with one another. Honesty is not directly relevant to economics because it is immeasurable, in the sense that no finite utilities can reach up to it. It is an absolute good.28 But Patten’s position reflects also the felt need for a conception of “quantities” of utility. Of course, in a scheme in which a label bearing for each individual a definite number of “units” of utility is mentally attached to every good, it is difficult to treat in terms of such units those values to whose utility the individual can imagine no limit to be assigned. This difficulty led to the postulation of a difference in kind between “positive” and “absolute” utilities. Economics became neatly identified with the first of these; and measurement, for Patten as for Marshall, constituted the decisive criterion.
But in the absence of a demand to know the “quantity” of a utility, the distinction between “positive” and “absolute” utilities disappears of itself. The modern idea of the role of preference in human action offers a completely adequate view of the matter. When forced to choose between two alternatives, the individual exercises his preference in a way that remains essentially the same regardless whether the alternatives represent “positive” or “absolute” utilities. In the process of preferring, all possible values are placed in an ordered array. “If honor cannot be eaten, eating can be forgone for honor.”29 Measurability becomes a criterion of doubtful worth simply because any results that it brings for comparing utilities with one another can be obtained even more easily without it. A considerable number of writers who cite the Marshall-Pigou view of economics have drawn attention to these weak points in the whole idea of measurement.30
[]B. Croce, “On the Economic Principle II,” in International Economic Papers, No. 3, p. 197.
[]A. Marshall, The Present Position of Economics, p. 27.
[]See the article by L. Mises in Studium Generale, VI, No. 2, 1953.
[]F. H. Knight, “The Nature of Economic Science in Some Recent Discussion,” American Economic Review, June, 1934, p. 236.
[]S. Pattern, “The Scope of Political Economy,” reprinted in S. Patten, Essays in Economic Theory, ed. R. Tugwell (New York: Alfred Knopf, 1924), p. 192.
[]Ibid., p. 185.
[]Ibid. For other passages on economics and measurable motives, see O. R. Trowbridge, Bisocialism (1903), p. 106; R. Scoon, “Professor Robbins' Definition of Economics,” Journal of Political Economy, August, 1943, p. 321.
[]On the possibility of infinite utility, see P. H. Wicksteed, “On Certain Passages in Jevons' Theory of Political Economy,“ Quarterly Journal of Economics, 1889, reprinted in Common Sense, II, 736.
[]L. Mises, Socialism (London: Jonathan Cape, 1936), p. 116.
[]Writers who have criticized the criterion of money as a measuring rod include J. A. Hobson, Free Thought in the Social Sciences (New York, 1926), pp. 97 f.; R. G. Hawtrey, The Economic Problem (London, 1925), p. 184; F. A. Fetter, “Price Economics Versus Welfare Economics,” American Economic Review, 1920, pp. 721, 736; A. L. Macfie, An Essay on Economy and Value (London, 1936), pp. 72–73.