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The subjective theory of value (or theory of subjective value) is an economic theory of value that holds that there is no intrinsic economic value of goods and services; rather, things become valuable in the economic sense solely by individuals' desiring to have them. The magnitude of that value is measured by how much of any given thing one is willing to forgo in order to obtain them. Since no two individuals have the same desires and circumstances, there is no objectively "correct" economic value or price of any given thing that can be ascertained independent of individual value judgements.
This contrasts with intrinsic theories of value, such as the labor theory of value which holds that the economic value of a thing is contingent upon how much labor was exerted in producing it. Whereas the labor theory of value has been used to decry profit as exploitation, the subjective theory of value offers no justification to condemn it, as an individual paying a lower price for a good (or selling one for a higher price) than that which is commensurate with the amount of labor that went into producing it is concordant with a denial of intrinsic value.
One significant consequence of the subjective theory of value concerns the theory of mutually beneficial trade. An individual purchases a thing because he values it more than he values what is given in trade; otherwise he wouldn't make the trade, but would keep the more valuable thing. By this reasoning, both sides tend to receive more value than they transfer to the other party in exchange (barring mistaken predictive value judgements).
While earlier economic schools such as medieval Scholastics and French Economists of the 18th and 19th century implicitly used the STV, it was formalized by the Austrian School with the notion of marginal utility by Carl Menger, who said: "The measure of value is entirely subjective in nature, and for this reason a good can have great value to one economizing individual, little value to another, and no value at all to a third, depending upon the differences in their requirements and available amounts...Hence not only the nature but also the measure of value is subjective. Goods always have value to certain economizing individuals and this value is also determined only by these individuals." (Principles of Economics)
Political implications
If it is true that the economic value of things cannot be ascertained without subjecting a particular good to individual value judgements in a market, then governments may have difficulty justifying, to economists, setting the prices of goods and services for society. This is also a technical problem for governments wishing to implement a planned economy. Those who espouse the subjective theory of value tend to advocate that individuals should be allowed to choose for themselves what price they are willing to pay for, or part with, any given good or service. They tend to maintain that forcible interference by the state in the process of individuals arriving at a mutual value judgement when making a trade is irrational, unworkable, and/or immoral.
On the other hand, if the value of goods and services is entirely in the mind of the consumer, a tyrannical government might decide that it knows best what people should want, and may try to "reprogram" or "indoctrinate" the public.
Criticism by Ayn Rand
Ayn Rand was critical of the subjective theory of value, because she did not view humans as irrational beings that suddenly "desire" an obejct thereby making it valuable. As she explained in her book the Unknown Ideal, one may desire a hammer to drive nails into wood. The reason the hammer is valuable is because it is heavy, hard, and has a convenient handle to swing it with. So the value in the hammer is a rational decision based on intrinsic qualities of the hammer. But the value is also dependent on our assesment of how the intrinsic qualities of the object can serve our needs. To someone who never needs to hammer a nail, the hammer is worth nothing. This is why it may seem that value is subjective. But the intrinsic characteristics of the object play a part in its value too. A tomato would be unsuited to nailing, for example. Anyone trying to nail with a tomato would quickly find that it is worthless to that task.
See also
- Intrinsic theory of value
- Labour theory of value
- Objectivist theory of value
- Marginalism, the theory of marginal value.
External links
- 28. Labor Theory of Value. from The Concise Guide To Economics by Jim Cox, contrasting the Labor Theory with the Subjective Theory
- Remarks on the Fundamental Problem of the Subjective Theory of Value by Ludwig Von Mises
"Subjective theory of value"