Subjective-Value Theory

In a previous post I introduced the topic of Subjective Value. I used an anecdote to demonstrate how an individual in the process of shopping decides about value. In the text below I will define some of the important characteristics and qualifications of subjective value. Because economic value consists of a crisscross matrix of concepts, you may find some repetition in future posts related to value theory.

Individual Judgment

The word subjective has several varying definitions. Webster’s dictionary uses phrases like: peculiar to a particular individual; modified or affected by personal views, experience, or background; arising out of or identified by means of one’s perception. These definitions help with an understanding of the concept of subjective value. Economic value always consists of a judgment by a human mind. Because of that characteristic a person cannot quantify economic value. It has no unit of measure.

Reason for Judgment

The theory of economic value places no concern on the reason, or source, for any judgment of value. The economist does not concern himself with the influence of psychology, religious beliefs, or other internal or external influences. In understanding a theory of value, the economist only has to know that the judgment comes solely from the individual.

Ethical Values

The fact that ethical values do not play a role in economic value has particular importance. To argue that one economic choice has more or less value than another based on moral judgments has no bearing on the topic of subjective value. Whether the economic actor has moral or immoral intent based on the judgment of an outside observer makes no difference. For economic discussion, we must consider economic value is amoral — as opposed to either immoral or moral. A person’s ethical standards may have an influence on his judgments about value. But, from the standpoint of economic analysis it does not matter. The economist must accept that the individual values what he values for whatever reason. This point will become important when we discuss the various rationale for intervention. In brief, government cannot make people moral by dictating their economic behavior.

Rational Decision

People always make rational decisions when it comes to value, whether you agree with those decisions are not. In general, people always act rationally. The only times irrational behavior occurs consists of cases of Tourette’s syndrome, reflexive responses to stimuli, involuntary responses to environmental changes, and similar actions. Your disagreement — or anyone else’s — with a person’s value judgment does not make it irrational. We must consider it rational, if they have any reason whatsoever for their actions.

Separate Individuals

I must reiterate that only single individuals — or separate individuals — can make judgments about economic value. Groups cannot make such judgments. Voting on an action does not make it a group judgment. It only means that the individual members of the group have a sufficiently close value for the action that they can vote in favor of it. The person directed to take an action based on collective agreement must himself value that action. The fact that only separate individuals make judgments of economic value plays such an extremely important role in economic activity that I will devote an entire blog post to emphasizing this point.

Summary

The following points summarize this blog post:
  • Individual Judgment
Subjective value occurs only as the result of the judgment of an individual human mind.
  • Reason for Judgment
Economic analysis has no concern for the reason or source of an economic value judgment.
  • Ethical Values
The ethical values of other people do not provide justification for attempting to intervene in the economic value judgments of other individuals.
  • Rational Decision
People always make rational judgments as to value, whether you agree with them or not.
  • Separate Individuals
The individual nature of subjective value has far-reaching implication on economic systems.

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