Professional Documents
Culture Documents
Contents
History
Intrinsic theory of value
Labor theory of value
Exchange theory of value
Monetary theory of value
Power theory of value
Subjective theory of value
See also
References
External links
History
A major question that has eluded economists since the earliest of publications was one of price. As commodities began to be exchanged for currency, economic thinkers have
constantly been trying to decipher how prices are determined. “Value” was the general term assigned to indicate the relative price of a good or service. One of the earliest
predecessors of classical views on value theory comes from a pamphlet that was published in 1738. In this pamphlet, it is discussed how labor is the most important measurement
tool when considering value. This idea stemmed from pre-monetary views of price, where labor was exchanged for other labor services. While this was an accepted idea, it was not
without its critics.
Adam Smith agreed with certain aspects of labor theory of value, but believed it did not fully explain price and profit. Instead, he proposed an ‘Adding-up Theory’ (or cost-of-
production theory, to later develop into exchange value theory) that explained value was determined by several different factors, including wages and rents. This theory of value,
according to Smith, best explained the natural prices in the market. While an underdeveloped theory at the time, it did offer an alternative to another popular value theory of the
time.
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The utility theory of value was the belief that price and value were solely based on how much “use” an individual received from a commodity. However, this theory is rejected in
Smith’s work The Wealth of Nations. The famous “water-diamond” paradox questions this by examining the use in comparison to price of these goods. Water, while necessary for
life, is far less expensive than diamonds, which have basically no use. Which value theory holds true divides economic thinkers, and is the base for many socioeconomic and
political beliefs.[1]
Silvio Gesell denied value theory in economics. He thought that value theory is useless and prevents economics from becoming science and that a currency administration guided
by value theory is doomed to sterility and inactivity.[2]
The value is created through the valuers attitude or judgements. Moral judgement and decisions is a crucial part in this value. Intrinsic value actually cuts off our logical decision
and makes us think only about what feels right to us, not anybody else because it is what we make it to be. If something has intrinsic value it has properties or features in virtue of
which it is valuable, separated of anyone's attitudes or judgements. It includes other variables such as brand name, trademarks, and copyrights that are usually difficult to calculate
and sometimes not accurately reflected in the market price. Intrinsic value is not what the investors are willing to pay, however, it is what the object is really worth.[5]
In either case, what is being addressed are general prices—i.e., prices in the aggregate, not a specific price of a particular good or service in a given circumstance. Theories in either
class allow for deviations when a particular price is struck in a real-world market transactions, or when a price is set in some price fixing regime.
The use value is the value of a material by the utility, use or consumption, and in which a thing meets human needs.[9] An example of this is if someone wants to build a wooden
shed they would need a certain quantity and quality of wood and nails. Some use value takes no effort to attain, for example the sun, or something like gravity both which humans
need to survive but do not need to do anything to obtain and still have value. Other use values do require effort to attain, increasing their use value. The needs an object fulfills and
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the physical properties, as in the uses to which the object can be put to work on, also tie in with the use value.[10]
In capitalism, power is the governing principle as rooted in the centrality of private ownership. Private ownership is wholly and only an act of institutionalized exclusion, and
institutionalized exclusion is a matter of organized power.[14][15] And since the power behind private ownership is denominated in prices, Nitzan and Bichler argue, there is a need
for a power theory of value. There is, however, a causality dilemma to their argument that has drawn criticism: power is based on the ability of firms to set monopoly prices yet the
ability to set prices is based on firms possessing a degree of power in the market.
Capitalization, in their theory, is a measure of power, as illuminated through the present discounted value of future earnings (while also taking into account hype and risk). This
formula is basic to finance which is the overarching logic of capitalism. The logic is also inherently differential as every capitalist strives to accumulate greater earnings than their
competitors (but not profit maximization). Nitzan and Bichler label this process differential accumulation. In order to have a power theory of value there needs to be differential
accumulation where some owners' rate of growth of capitalization is faster than the average pace of capitalization.
The modern subjective theory of value was created by William Stanley Jevons, Léon Walras, and Carl Menger in the late 19th century.[19] The subjective theory contradicted Karl
Marx’s Labour Theory which stated an item's value depends on the labour that goes into production and not the ability to satisfy the consumer.[20]
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The subjective theory of value helped answer the "diamond–water paradox," which many believed to be unsolvable. The diamond-water paradox questions why diamonds are so
much more valuable than water when water is necessary for life. This paradox was answered by the subjective theory of value by realizing that water, in total, is more valuable than
diamonds because the first few units are necessary for life. The key difference between water and diamonds is that water is more plentiful and diamonds are rare. Because of the
availability, one additional unit of diamonds exceeds the value of one additional unit of water.[20]
Marginalism refers to the study of marginal theories and studies within economics. The topics included in marginalism are marginal utility, marginal rate of substitution, and
opportunity costs.[21] Marginalism can be applied to the subjective theory of value because the subjective theory takes into account the marginal utility of an item in order to put a
value on it.
See also
Cost-of-production theory of value
Paradox of value
References
1. Hunt, E.K. (2015). History of Economic Thought: A Critical Perspective. London: Routledge.
2. Silvio Gesell (1916, trsl. 1929), The Natural Economic Order, Part III. Chapter 3. So-called "Value" (https://biblio.wiki/wiki/The_Natural_Economic_Order/Part_I
II/Chapter_3)
3. Zimmerman, Michael (2014). "Intrinsic vs Extrinsic value" (https://plato.stanford.edu/entries/value-intrinsic-extrinsic/). plato.stanford.edu.
4. Gray, James (2011). "FAQ on Intrinsic Value" (https://ethicalrealism.wordpress.com/faq-on-intrinsic-value/). Ethical Realism.
5. Webfinace. "Intrinsic Value" (http://www.investorwords.com/2587/intrinsic_value.html). Investor words.
6. Junankar, P. N., Marx's economics, Oxford: Philip Allan, 1982, ISBN 0-86003-125-X; Peach, Terry "Interpreting Ricardo", Cambridge: Cambridge University
Press, 1993, ISBN 0-521-26086-8.
7. I. I. Rubin, "Abstract Labour and Value in Marx's System" (https://www.marxists.org/archive/rubin/abstract-labour.htm), Capital and Class, 5 (Summer 1978),
pp. 107–139, at pp. 118–119; first published: Pod Znamenem Marksizma, 1927.
8. A. J. Horn (2016), "Abstract Labour & Value in Marx’s System (A belated reply to I.I. Rubin)", Journal of Socialist Theory 44(4), pp. 351–379, esp. p. 368.
9. "Use Value" (https://www.marxists.org/glossary/terms/u/s.htm#use-value). Marxists Internet Archive.
10. "Use-value, exchange value, value" (https://libcom.org/library/use-value-exchange-value-value). libcom. February 20, 2016. |first1= missing |last1= in
Authors list (help)
11. Milios, John (2003). "Marx's Value Theory Revisited. A 'Value-form' Approach." (http://users.ntua.gr/jmilios/F2_3.pdf) (PDF). Proceedings of the Seventh
International Conference in Economics (PDF)|format= requires |url= (help). Ankara: METU. p. 9. Retrieved 2015-01-12.
12. John Milios, "Marx's Monetary Theory of Value, Fictitious Capital and Finance" (http://users.ntua.gr/jmilios/Milios_El%20Capital_150_aniversario_Fin.pdf), 6
November 2015, p. 6.
13. Jonathan Nitzan and Shimshon Bichler, Capital as Power: A Study of Order and Creorder, Routledge, 2009, p. 10.
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14. Jonathan Nitzan and Shimshon Bichler, Capital as Power: A Study of Order and Creorder, Routledge, 2009, p. 228.
15. "Capitalism as a Mode of Power interviewed by Piotr Dutkiewicz" (http://bnarchives.yorku.ca/364/01/20130700_bichler_nitzan_dutkiewicz_cmp_interview_we
b.htm). Retrieved 1 February 2014.
16. Staff, Investopedia (2011-01-20). "Subjective Theory Of Value" (http://www.investopedia.com/terms/s/subjective-theory-of-value.asp). Investopedia. Retrieved
2017-03-02.
17. Staff, Investopedia (2003-11-23). "Marginal Utility" (http://www.investopedia.com/terms/m/marginalutility.asp). Investopedia. Retrieved 2017-03-02.
18. "What is utility theory? definition and meaning" (http://www.businessdictionary.com/definition/utility-theory.html). BusinessDictionary.com. Retrieved
2017-03-02.
19. Stigler, George J. (1950-01-01). "The Development of Utility Theory. I". Journal of Political Economy. 58 (4): 307–27. doi:10.1086/256962 (https://doi.org/10.10
86%2F256962). JSTOR 1828885 (https://www.jstor.org/stable/1828885).
20. "Austrian school of economics" (https://www.britannica.com/topic/Austrian-school-of-economics#ref725579). Encyclopedia Britannica. Retrieved 2017-03-02.
21. Staff, Investopedia (2008-02-13). "Marginalism" (http://www.investopedia.com/terms/m/marginalism.asp). Investopedia. Retrieved 2017-03-02.
External links
Gilman, D. C.; Peck, H. T.; Colby, F. M., eds. (1905). "Value (political economy)". New International Encyclopedia (1st ed.). New York: Dodd, Mead.
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