The elegance of the Subjective Theory of Value lies in its 1) simplicity and 2) ubiquity. The subjective theory provides the only consistent “source” and “measure” of value in any place at any time.
Brief Summary of Subjective Value
Economic value has only one source: the subjective judgments of individuals. This source applies to all economic goods in all situations at all production levels. All other value theories rely on some form of intrinsic value: the object (or service) contains value irrespective of the judgment of the user or the purpose for which a person might use the good. The idea of intrinsic value always breaks down when subjected to scrutiny. The individual as the source of value always remains valid at any place at any time.
The measure of value consists of the relative preferences of the individual judging the value. In the mind of any individual, one economic good always has relatively more or less value than any other economic good. No objective measure exists for economic value. It is only in the process of exchange, in the revealing of price, that any hint of that relative value becomes exposed.
Money prices do not represent a measure of value. Money consists of an economic good used for the purpose of indirect exchange. The value of money varies in the minds of individuals in the same manner as all other goods.
Because of the extreme importance of economic value, money, and prices, I will often return to these topics in future posts.
Value and its measure always and everywhere exist only in the minds of individuals. It provides the extremely important basis for exchanges made in markets everywhere. Because this idea runs counter to popular misconceptions, the reader should spend time thinking about this concept.