Subjective theory of value: Difference between revisions
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The '''subjective theory of value''' is a doctrine of [[value]] discovered independently and nearly simultaneously by [[William Stanley Jevons]], [[Léon Walras]], and [[Carl Menger]]. | The '''subjective theory of value''' is a doctrine of [[value]] which advances the idea that the value of a good is not determined by any inherent property of the good, nor by the amount of labor required to produce the good, but instead value is determined by the importance an acting individual places on a good for the the achievement of their desired ends.<ref>Mises, Ludwig von. [http://mises.org/resources/3250 "Human Action"], 2010, page 96.</ref> This theory is one of the core concepts of the [[Austrian School|Austrian School of Economics]], but is also accepted by most other "mainstream" schools of economics. While the modern version of this theory was discovered independently and nearly simultaneously by [[William Stanley Jevons]], [[Léon Walras]], and [[Carl Menger]] in the late 19th century it had in fact been advanced in the Middle Ages and Renaissance but did not gain widespread acceptance at that time.<ref>Gordon, David. [http://mises.org/resources/1084/An-Introduction-to-Economic-Reasoning "An Introduction to Economic Reasoning"], 2000.</ref> | ||
==Diamond-Water Paradox== | |||
The development of the subjective theory of value was partly motivated by the need to solve the so-called value-paradox which had puzzled many classical economists. This paradox, also referred to descriptively as the diamond-water paradox, arose when value was attributed to things such as the amount of labor that went into the production of a good or alternatively to an objective measure of the usefulness of a good. Based on these measures how could a diamond be valued greater then water? The measure of uselfulness or "utility" failed to solve the paradox because water is obviously more useful to an individual than are diamonds. But the the theory that it was the amount of labor that went into producing a good that determined its value proved equally futile because someone could easily stumble upon the discovery of a diamond while out for a hike, for example, which would require minimal labor, but yet the diamond could still be valued higher than water. | |||
The subjective theory of value was able to solve this paradox by realizing that value is not determined by individuals choosing between entire abstract classes of goods such as all the water in the world versus all the diamonds in the world. Rather an acting individual is faced with the choice between definite quantities of goods, and the choice made by such an actor is determined by which good of a specified quantity will satisfy the individuals highest subjectively ranked preference, or most desired end.<ref>Callahan, Gene. [http://mises.org/resources/2031/Economics-for-Real-People "Economics for Real People"], 2004, page 42.</ref> | |||
==References== | |||
{{reflist}} | |||
==See also== | ==See also== | ||
* [[Theory of value]] | * [[Theory of value]] | ||
Revision as of 23:17, 18 September 2011
The subjective theory of value is a doctrine of value which advances the idea that the value of a good is not determined by any inherent property of the good, nor by the amount of labor required to produce the good, but instead value is determined by the importance an acting individual places on a good for the the achievement of their desired ends.[1] This theory is one of the core concepts of the Austrian School of Economics, but is also accepted by most other "mainstream" schools of economics. While the modern version of this theory was discovered independently and nearly simultaneously by William Stanley Jevons, Léon Walras, and Carl Menger in the late 19th century it had in fact been advanced in the Middle Ages and Renaissance but did not gain widespread acceptance at that time.[2]
Diamond-Water Paradox
The development of the subjective theory of value was partly motivated by the need to solve the so-called value-paradox which had puzzled many classical economists. This paradox, also referred to descriptively as the diamond-water paradox, arose when value was attributed to things such as the amount of labor that went into the production of a good or alternatively to an objective measure of the usefulness of a good. Based on these measures how could a diamond be valued greater then water? The measure of uselfulness or "utility" failed to solve the paradox because water is obviously more useful to an individual than are diamonds. But the the theory that it was the amount of labor that went into producing a good that determined its value proved equally futile because someone could easily stumble upon the discovery of a diamond while out for a hike, for example, which would require minimal labor, but yet the diamond could still be valued higher than water.
The subjective theory of value was able to solve this paradox by realizing that value is not determined by individuals choosing between entire abstract classes of goods such as all the water in the world versus all the diamonds in the world. Rather an acting individual is faced with the choice between definite quantities of goods, and the choice made by such an actor is determined by which good of a specified quantity will satisfy the individuals highest subjectively ranked preference, or most desired end.[3]
References
- ↑ Mises, Ludwig von. "Human Action", 2010, page 96.
- ↑ Gordon, David. "An Introduction to Economic Reasoning", 2000.
- ↑ Callahan, Gene. "Economics for Real People", 2004, page 42.
See also
Links
- "Subjective-Value Theory" by Robert P. Murphy, May 2011
- "Subjective Value and Market Prices" by Robert P. Murphy, February 2011
- "Problems with the Cost Theory of Value" by Robert P. Murphy, May 2011
- "Cardinal Utility: It's Worse Than You Thought" by Ken Zahringer, June 2011