If individuals provide the only sources of value, how do those individuals measure value? Does every person have a standard scale of value to compare the economic value of one good to another?
In fact, value has no unit of measure. Unlike height, weight, volume, etc., people have no way to compare their values with those of other people — or, indeed, with the goods they value themselves. Value has no objective source; and value has no objective measure. Only the subjective preference scales of individuals provide a measure of economic value. An individual can only value one economic good more or less than another economic good. A person cannot quantify how much more, or less, he or she the values that good.
In my next post I will discuss how the subjective values of individuals become useful to other people. But first I want to touch briefly on several important factors about preference scales.
First, preference scales only exist in an instant. A person can prefer ice cream to cantaloupe in one moment and cantaloupe to ice cream in the next.
Second, the unit of measure (e.g. quantity, volume, length) of a good affects its place on the preference scale. A person might place a bowl of ice cream high and their preference scale but a gallon of ice cream relatively low.
Third, distance affects preferences. Goods nearby have more value than goods in the distance.
Fourth, time likewise affects preferences. A good in the present has more value than the same good in the future.
Fifth, each additional unit has less value than the previous unit — all at the same time and place in the same units. The second bowl of ice cream has less value than the first. The 100th bowl of ice cream has less value than the 99th, the second, and the first.
Sixth, context — weather, hunger, social situations, etc. — has an effect on relative value. A cold man might place more value on an ugly coat than a warm man, who might prefer a more fashionable coat.
Other factors can affect value scales, but these are some important ones.
- Individual preference scales provide the only measure of value.
- Those preference scales have no units of measure; only ordinal ranking.
- Preferences exist only at a point in time.
- Many factors affect preference scales including space, time, units, and context.
In the last two posts I covered the essence of the subjective nature of economic value. The complexity of the subject runs a lot deeper than my coverage so far. I shall return to the subject of value frequently as I add blog posts.
In the next post I will address how the subjective values of individuals become useful to an economic system.