The Subjective Theory of Value and Schrödinger’s Good

The role of thymology in economic history.

“And it is probably no exaggeration to say that every important advance in economic theory during the last hundred years was a further step in the consistent application of subjectivism.”
FA Hayek, The Counter-Revolution Of Science.

Erwin Schrödinger was one of the most well-known physicists of the 20^th  century. In describing aspects of quantum mechanics, he invoked a thought experiment popularly known as Schrödinger’s cat. The idea goes like this:

Imagine* placing a living cat under a steel box such that observers have no means to see or hear the events unfolding therein. Along with the cat is a toxic vial that may or may not be broken within an hour by the decaying of a radioactive atom. The cat is unable to interfere with any of this from happening. There are one of two inevitable outcomes, each stipulated to be equally likely:

• The atom decays. It switches a hammer positioned to shatter the toxic vial. The cat dies from exposure to this toxin, and may be considered dead, even without observation, after this hour.

• The atom does not decay. There is no reason to conclude the cat is dead. The cat may be considered alive, even without observation, after this hour.

The above facilitates explaining the difficulty in answering the question: at what point does a quantum system exist as one state rather than a superposition of two (or more) states? Intuitively, a cat must be dead or alive, not both. Lifting the box and inspecting what has happened after an hour resolves the question of the actual status of the cat. However, this revelation requires that the box be lifted. The luxury of lifting the box does not appear capable in studying quantum systems. This analogy serves to demonstrate that shortcoming as a result of the Copenhagen interpretation of quantum mechanics - the measurement itself cannot be separated from the result. Prior to lifting the box, the cat’s status is an equal probability of being dead or alive.

What does this have to do with economics? This is a backdrop to consider in understanding subjective value, which is at the core of modern economics.

In the Austrian conceptual framework, a good is valued because it remedies some end an actor means to address. The good is valued in a teleological sense, and it has the serviceability the actor imputes to the good and, in exchange, is valued according to that perceived serviceability on the one hand, and what must be given up for the good’s acquisition on the other.

As a matter of outlining relationships in a broad economic framework, the categories of goods can be described in many terms: a consumption good, a capital good, a durable good, a non-durable good, a luxury good, an inferior good, a complementary good, and a substitute good are some of the most common classifications.

While these types of goods can be described in their relationships in an economic framework, the actual assignment of a good to a category is either: stipulated by the economist for the purposes at hand, or assigned by the actor in question. This makes the real-life application of the question “what kind of good is this?” a thymological question, rather than an economic one.

To explore this more concretely, let’s start with the idea of a used car.

We can assume someone who is in the market to purchase a used car intends to use it for personal travel, or for their work commute. This is the typical practice in textbooks for pedagogical purposes. With this impression, we can infer that the used car in this scenario can be considered a durable good, a good whose serviceability is intended to last over an extended period of time with repeated use, and as a consumption good meaning the person intends to use immediately available serviceability of the car to satisfy his own ends. We note however that these are thymological assumptions stipulated for the purpose of illustrating some particular economic point. Thymology refers to the discipline Ludwig von Mises discussed (among other places) in The Ultimate Foundation of Economic Science.

Thymology is a branch of history or, as Collingwood formulated it, it belongs in “the sphere of history.” It deals with the mental activities of men that determine their actions. It deals with the mental processes that result in a definite kind of behavior, with the reactions of the mind to the conditions of the individual’s environment. It deals with something invisible and intangible that cannot be perceived by the methods of the natural sciences. But the natural sciences must admit that this factor must be considered as real also from their point of view, as it is a link in a chain of events that result in changes in the sphere the description of which they consider as the specific field of their studies (Mises, 43).

However, there is nothing requiring the car to be used in this manner and therefore nothing inherent in the car per se, in its material makeup or technological functioning, which makes it a consumer good. It can be considered a capital good for a person with a business that requires a fleet of cars (e.g., for delivery or taxi services) to be available for employee use or consumer rental services. It may be the case that someone purchases a car with the forecast that the car’s price will be higher in a future period. In this case, the car serves as a capital good where the purchaser considers their forecast of future prices and negotiates the current price with this forecast in mind in the hopes of making a positive return on the two transactions.

The used car also need not be considered inherently durable. Cars that require crash-dummy testing are pulled from the line and intentionally destroyed for the purposes of reviewing safety metrics. The automobile firm in this case is using these particular cars as non-durable goods, whose serviceability is used immediately or over a relatively brief period. There are also charity initiatives where people will purchase a used car and destroy it by charging people per swing of a sledgehammer. The same car that someone could purchase as a means of work commute, a durable good, serves as a non-durable good. It can serve as a consumer good or a capital good.

For a given used car, the market for it can be any number of people valuing it for any number of the above uses, or others, that may be considered distinguishable along the lines of the typical “categories” of goods that are typically outlined in textbooks. Nuance is liable to be forgotten if the means-ends framework, which constitutes the core of Austrian school’s contributions to economic theory, is treated as unimportant or not taught as integral to subjective value theory. If asked, an actor may refer to aspects of a good such as its technical capabilities or physical makeup, but looking at this good in this way serves as an elaboration of the serviceability of the good. An understanding of typical uses and some other sciences can facilitate understanding and inform case analysis or aid in concluding some of the more abstract conceptualizations in economics. It may be that there are economic problems today hampered from resolution by not considering subjectivity playing a greater role than first appears.

* The author hereby forbids any reader or scientist from genuinely attempting this or any similar scenario. It is to remain a thought-experiment.