Analysis of Economic Value
Economic value is a difficult topic, and thinkers since at least the 12th century have pondered the question of how to define and explain what value is and how we can measure it. Modern economics has a few things to say about this topic, but economics also recognizes that, as they say, "there's no accounting for taste"--meaning value is always going to be subjective.
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Value as Subjective
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The price of a rock concert ticket might be $100, and for some people that will be a relatively low price to pay. Others, however, probably wouldn't go to the concert even if it were free. It is obvious that humans have wants that are diverse, varying from individual to individual. As a science, economics makes no moral judgments about whose preferences are to be used as an arbiter of value; economics values all of our preferences equally.
Scarcity Creates Value
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Just because it satisfies a human want or need doesn't make something valuable in the economic sense. The other part of the definition is scarcity: things have value when there isn't enough for everyone to have as much as they would like. For example, clean air is only valuable if there isn't enough for everyone to breathe as much as they want; if there's plenty of clean air for everyone, it has no real economic value under this definition. By forcing us to decide who gets what, scarcity gives objects value.
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Measuring Value: Price and Exchange
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The foundation of the modern economy is based on the theory of subjective value based on scarcity. When people make voluntary exchanges, it is because the transaction makes both parties better off (one party wouldn't agree if it didn't). When people come together to trade, it is to allocate scarce resources to make as many people as well off as possible. Voluntary trade always increases the size of the economic pie by creating value, as we all enter the market to increase our subjective wealth.
Economic Value and Price
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If economic value represents the benefits that a good or service can have for humans, then price represents the cost of the good or service to us as humans. In some sense, price can be seen as a relative indicator of the efficiency of the creation of that good, in terms of the use of other goods and services (capital) as well as manpower (labor) required to produce it. The science of economics studies behavior of economic agents, as agents in the economy try to maximize their own subjective well-being by trading (comparing the price of a good with the subjective value it creates).
Intrinsic Theories of Value
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Even though modern economics generally accepts the subjective theory of value, some theories of value reject this subjectivity. These intrinsic theories of value hold that using some form of calculation or other method of determination, the value of an object can be determined objectively. For example, the labor theory of value (one of the main intrinsic theories of value) holds that the value of an object can be calculated as the number of man-hours used in production. However, most economic research and modern thought implicitly assumes a subjective theory of value.
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References
- Economics: Private and Public Choice, 11th Ed.; James D. Gwartney, Richard L. Stroup, Russell S. Sobel, and David Macpherson; 2006
- Theory of Value: An Axiomatic Analysis of Economic Equilibrium; Gerard Debreu; 1959
- Truth or Economics: On the Definition, Prediction, and Relevance of Economic Efficiency; Richard S. Markovits; 2008
