Is Value In the Mind of the

Beholder?
by Stefan A.
Cuevas

One of the most important historical (and contemporary) questions in

economic theory is how do material objects obtain their value?
In classical economics this value was attributed to the cost or the labor
used to create the object. If somebody were to spend five hours of labor producing
a pencil, for example, then the price of the pencil would be proportional to that
labor-time used to produce that pencil.
This theory of value worked very well for the agricultural and industrial
industries which were prevalent in 19th century economies. Yet still, there were
situations in which an item's value could not be accurately explained by this theory.
One example of this deficit deals with two paintings. One painting is valued much
higher than the other, and therefore it has a higher price to purchase. However,
both paintings took the same amount of labor-time to create. If we are to assume
that value is proportional to labor, we much conclude that both paintings have the
same value. Yet we observe from reality that this is not true. So how can one
resolve this contradiction?
In the late 19th century a new theory of value, called the marginal or what
some people call the subjective theory of value was developed. This theory posited
that in the special case value can be viewed as proportional to labor, but in more
general and encompassing cases, value is subjectively determined by the individual
or group of individuals who demand the object. This resolves the dilemma of the
paintings. Because one painting is more popular, so will it become higher valued.
Not only did the marginal theory of value explain the misgivings of the
labor theory of value, but also it explained some other intuitive observations of the
world. For example, one can view a bottle of water in the hot desert as having
much greater value than a bottle of water in a more temperate, and aqueous climate,
purely because of the subjective nature of demand. Because water is scarcer and
more necessary in this hot desert, so is it valued more. In the labor theory of value,
this would had been attributed to more labor-time required to obtain the water in
the desert climate versus the aqueous climate.
Very much like how Einstein's Theory of Gravitation resolved holes in
Newtonian gravity while introducing a new medium to view gravity through
geometry, so had the subjective theory of value done much the same with its
predecessor the labor theory. Nevertheless, we always still try to obtain greater
understanding of this topic and there is still much to learn about the value of
objects.