It seems that, when expounding on various economic theories, most economists simply avoid in-depth discussions about the source and measurement of value. They might, on the one hand, consider the source and measurement of value so obvious that they require no further attention; or, on the other hand, they might have such little confidence in their theories of value that they avoid the topic altogether.
Value, however, remains such an elementary concept in any economic theory that it requires explicit explanation to assure that the theory in discussion rests on sound footing. Without sound principles and theories with regard to value no economic theory can withstand logical examination.
In this post, I will examine very briefly the source of economic value. I will address the measurement of value later.
People make frequent references to value, either directly or indirectly, in their day-to-day conversations. “I think the Ferrari is not worth more than the Ford.” “I can’t imagine that you think the Android is worth more than the iPhone.” “The food in that restaurant is really quite a bargain.” Comments like these, and many more that you might find more reasonable, make reference to the values of various economic goods. They indicate how important we view value in our daily interactions, yet they make no reference as to the source of value.
A common source of value must exist. Otherwise, how can we make these comparisons? Everything that you value does indeed have a common source of value. And, quite simply, you provide the source of value for yourself. The same holds true of every individual. Each individual provides the source of his or her own values.
Thus, the individual represents the only source of economic value. Each individual by himself or herself determines what they value. This statement remains true for all items that have economic value. Only individuals can determine value.
You may already question how an economic system can operate effectively when the judgment of individuals provides the only source of value. I will tie together the notion of subjective value — the formal reference to individual value — and the operation of an effective economic system in future posts.
In the meantime, please ask yourself the source of the values you place on various items in your life. Did someone tell you the value of those items? Or, did you decide their value on your own?
See my next post on the measure of value.