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In
economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interact ...

economics
, economic value is a measure of the benefit provided by a
good 125px, In many Western religions, angels are considered to be good beings and are contrasted with devils who are considered evil In most contexts, the concept of good denotes the conduct that should be preferred when posed with a choice betwee ...
or
service Service may refer to: Activities :''(See the Religion section for religious activities)'' * Administrative service, a required part of the workload of university faculty * Civil service The civil service is a collective term for a sector of gove ...
to an
economic agent In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods a ...
. It is generally measured relative to units of
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed t ...

currency
, and the interpretation is therefore "what is the maximum amount of money a specific actor is willing and able to pay for the good or service"? Among the competing schools of economic theory there are differing
theories of valueIn the social sciences, value theory involves various approaches that examine how, why, and to what degree humans value things and whether the object or subject of valuing is a person, idea, object, or anything else. Within philosophy, it is also kno ...
. Economic value is ''not'' the same as
market price A price is the (usually not negative) quantity Quantity is a property that can exist as a multitude or magnitude, which illustrate discontinuity and continuity. Quantities can be compared in terms of "more", "less", or "equal", or b ...

market price
, nor is economic value the same thing as
market value Market value or OMV (Open Market Valuation) is the price at which an asset would trade in a Market (economics), competitive auction setting. Market value is often used interchangeably with ''open market value'', ''fair value'' or ''fair market va ...
. If a
consumer A consumer is a person or a group who intends to order, orders, or uses purchased goods, products, or Service (economics), services primarily for personal, social, family, household and similar needs, not directly related to entrepreneurial or bu ...
is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "
consumer surplus In mainstream economics, economic surplus, also known as total welfare or Marshallian surplus (after Alfred Marshall), refers to two related quantities: * Consumer surplus, or consumers' surplus, is the monetary gain obtained by consumers because ...
". It is easy to see situations where the actual value is considerably larger than the market price: purchase of drinking water is one example.


Overview

The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods that can be exchanged. From this analysis came the concepts '' value in use'' and '' value in exchange.'' Value is linked to
price A price is the (usually not negative) quantity Quantity is a property that can exist as a multitude or magnitude, which illustrate discontinuity and continuity. Quantities can be compared in terms of "more", "less", or "equal", or by ...

price
through the mechanism of
exchange Exchange may refer to: Places United States * Exchange, Indiana Exchange is an Unincorporated area, unincorporated community in Green Township, Morgan County, Indiana, Green Township, Morgan County, Indiana, Morgan County, in the U.S. state of In ...
. When an economist observes an exchange, two important value functions are revealed: those of the buyer and seller. Just as the buyer reveals what he is willing to pay for a certain amount of a good, so too does the seller reveal what it costs him to give up the good. Additional information about market value is obtained by the rate at which transactions occur, telling observers the extent to which the purchase of the good has value over time. Said another way, value is how much a desired object or condition is worth relative to other objects or conditions. Economic values are expressed as "how much" of one desirable condition or commodity will, or would be ''given up'' in exchange for some other desired condition or commodity. Among the competing schools of economic theory there are differing metrics for value assessment and the metrics are the subject of a theory of value. Value theories are a large part of the differences and disagreements between the various schools of economic theory.


Explanations

In
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are driven by the supply and demand In microeconomics, supply and demand is an economic model In econo ...
, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market. This is determined primarily by the demand for the object relative to
supply Supply may refer to: *The amount of a resource Resource refers to all the materials available in our environment which help us to satisfy our needs and wants. Resources can broadly be classified upon their availability — they are classified int ...

supply
in a perfectly competitive market. Many neoclassical economic theories equate the value of a commodity with its price, whether the market is competitive or not. As such, everything is seen as a commodity and if there is no market to set a price then there is no economic value. In
classical economics Classical economics or classical political economy is a school of thought in economics that flourished, primarily in Kingdom of Great Britain, Britain, in the late 18th and early-to-mid 19th century. Its main thinkers are held to be Adam Smith, Je ...
, the value of an object or condition is the amount of discomfort/labor saved through the consumption or use of an object or condition (Labor Theory of Value). Though
exchange value In political economy and especially Marxian economics, exchange value (German: ''Tauschwert'') refers to one of four major attributes of a commodity#Marxist concept, commodity, i.e., an item or service produced for, and sold on the Market (economics ...
is recognized, ''economic value'' is not, in theory, dependent on the existence of a market and price and value are not seen as equal. This is complicated, however, by the efforts of classical economists to connect price and labor value.
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, M ...

Karl Marx
, for one, saw exchange value as the "form of appearance" 'Erscheinungsform''of value, which implies that, although value is separate from exchange value, it is meaningless without the act of exchange, i.e., without a market. In this tradition,
Steve Keen Steve Keen (born 28 March 1953) is an Australian economist and author. He considers himself a post-Keynesian, criticising neoclassical economics as inconsistent, unscientific and empirically unsupported. The major influences on Keen's thinking a ...
makes the claim that "value" refers to "the innate worth of a commodity, which determines the normal ('equilibrium') ratio at which two commodities exchange." To Keen and the tradition of
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist, one of the most influential of the classical economists along with Thomas Malthus Thomas Robert Malthus (; 13/14 February 1766 – 23 December 1834) w ...

David Ricardo
, this corresponds to the classical concept of long-run cost-determined prices, what
Adam Smith Adam Smith ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
called "natural prices" and
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, M ...

Karl Marx
called "
prices of production Prices of production (or "production prices"; in German ''Produktionspreise'') is a concept in Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, jour ...
." It is part of a
cost-of-production theory of valueIn economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and ...
and price. Ricardo, but not Keen, used a " labor theory of price" in which a commodity's "innate worth" was the amount of labor needed to produce it. "The value of a thing in any given time and place", according to
Henry George Henry George (September 2, 1839 – October 29, 1897) was an American political economist and journalist. His writing was immensely popular in 19th-century America and sparked several reform movements of the Progressive Era. He inspired the econ ...

Henry George
, "is the largest amount of exertion that anyone will render in exchange for it. But as men always seek to gratify their desires with the least exertion this is the lowest amount for which a similar thing can otherwise be obtained." In another classical tradition, Marx distinguished between the "value in use" (
use-value Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxian economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or w ...
, what a commodity provides to its buyer), labor cost which he calls "value" (the
socially-necessary labour time Socially necessary labour time in Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher A philosopher is someone who practices philosophy. The term ''philosopher'' comes from the grc, φιλόσοφος, , tr ...
it embodies), and "
exchange value In political economy and especially Marxian economics, exchange value (German: ''Tauschwert'') refers to one of four major attributes of a commodity#Marxist concept, commodity, i.e., an item or service produced for, and sold on the Market (economics ...
" (how much labor-time the sale of the commodity can claim, Smith's "labor commanded" value). By most interpretations of his
labor theory of value The labor theory of value (LTV) is a theory of value that argues that the economic value In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), produc ...
, Marx, like Ricardo, developed a "labor theory of price" where the point of analyzing value was to allow the calculation of
relative price A relative price is the price A price is the (usually not negative) quantity Quantity is a property that can exist as a multitude or magnitude, which illustrate discontinuity and continuity. Quantities can be compared in terms of "m ...
s. Others see values as part of his sociopolitical interpretation and critique of capitalism and other societies, and deny that it was intended to serve as a category of economics. According to a third interpretation, Marx aimed for a theory of the dynamics of price formation but did not complete it. In 1860,
John Ruskin John Ruskin (8 February 1819 20 January 1900) was an English writer, philosopher A philosopher is someone who practices philosophy Philosophy (from , ) is the study of general and fundamental questions, such as those about reason, ...

John Ruskin
published a critique of the economic concept of value from a moral point of view. He entitled the volume ''
Unto This Last ''Unto This Last'' is an essay and book on economy An economy (from Greek language, Greek οίκος – "household" and νέμoμαι – "manage") is an area of the Production (economics), production, Distribution (economics), distribution a ...
'', and his central point was this: "It is impossible to conclude, of any given mass of acquired wealth, merely by the fact of its existence, whether it signifies good or evil to the nation in the midst of which it exists. Its real value depends on the moral sign attached to it, just as strictly as that of a mathematical quantity depends on the algebraic sign attached to it. Any given accumulation of commercial wealth may be indicative, on the one hand, of faithful industries, progressive energies, and productive ingenuities: or, on the other, it may be indicative of mortal luxury, merciless tyranny, ruinous chicanery."
Gandhi Mohandas Karamchand Gandhi (; 2 October 1869 – 30 January 1948) was an Indian lawyer, anti-colonial nationalist, Quote: "... marks Gandhi as a hybrid cosmopolitan figure who transformed ... anti-colonial nationalist politics in the t ...

Gandhi
was greatly inspired by Ruskin's book and published a paraphrase of it in 1908. Economists such as
Ludwig von Mises Ludwig Heinrich Edler von Mises (; 29 September 1881 – 10 October 1973) was an Austrian School economist, historian, logician, and Sociology, sociologist. Mises wrote and lectured extensively on the societal contributions of classical liberal ...

Ludwig von Mises
asserted that "value" is a subjective judgment. Prices can only be determined by taking these subjective judgments into account, and that this is done through the price mechanism in the market. Thus, it was false to say that the economic value of a good was equal to what it cost to produce or to its current replacement cost.
Silvio Gesell Johann Silvio Gesell (; 17 March 1862 – 11 March 1930) was a German-Argentine merchant A merchant is a person who trades in commodities produced by other people, especially one who trades with foreign countries. Historically, a merchant is ...
denied
value theory In the social sciences Social science is the branch The branches and leaves of a tree. A branch ( or , ) or tree branch (sometimes referred to in botany Botany, also called , plant biology or phytology, is the science of plant ...
in economics. He thought that value theory is useless and prevents economics from becoming science and that a currency administration guided by value theory is doomed to sterility and inactivity.


Connected concepts

The theory of value is closely related to that of
allocative efficiency Allocative efficiency is a state of the economy in which production is alligned with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the mar ...
, the quality by which firms produce those goods and services most valued by society. The market value of a machine part, for example, will depend upon a variety of objective facts involving its efficiency versus the efficiency of other types of part or other types of machine to make the kind of products that consumers will value in turn. In such a case, market value has both objective and subjective components. Economy,
efficiency Efficiency is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, it is the ability to do things well, successfully, and withou ...

efficiency
and
effectiveness Effectiveness is the capability of producing a desired result or the ability to produce desired output. When something is deemed effective, it means it has an intended or expected outcome, or produces a deep, vivid impression. Etymology The origi ...
, often referred to as the "Three Es", may be used as complementary factors contributing to an assessment of the value for money provided by a purchase, project or activity. The UK National Audit Office uses the following summaries to explain the meaning of each term: *Economy: minimising the cost of resources used or required (inputs) – ''spending less''; *Efficiency: the relationship between the output from goods or services and the resources to produce them – ''spending well''; and *Effectiveness: the relationship between the intended and actual results of public spending (outcomes) – ''spending wisely''.National Audit Office
Assessing value for money
accessed 15 March 2019
Sometimes a fourth 'E',
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the differe ...
, is also added.Jackson, P.
Value for money and international development: Deconstructing myths to promote a more constructive discussion
OECD The Organisation for Economic Co-operation and Development (OECD; french: Organisation de Coopération et de Développement Économiques, OCDE) is an intergovernmental economic organisation with 38 member countries, founded in 1961 to st ...

OECD
, May 2012
In philosophy, economic value is a subcategory of a more general philosophical value, as defined in
goodness and value theory In the social sciences Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within those societies. The term was formerly used to re ...
or in the science of value.


See also

*
Asset pricing :'' This article is theory focused: for the corporate finance Corporate finance is the area of finance Finance is the study of financial institutions, financial markets and how they operate within the financial system. It is concerned with ...
*
Labour theory of value The labor theory of value (LTV) is a theory of value that argues that the economic value In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), produ ...
*
Law of value The law of the value of commodities (German: ''Wertgesetz der Waren''), known simply as the law of value, is a central concept in Karl Marx's critique of political economy first expounded in his polemic '' The Poverty of Philosophy'' (1847) agains ...
* Marginal theory of value *
Market price A price is the (usually not negative) quantity Quantity is a property that can exist as a multitude or magnitude, which illustrate discontinuity and continuity. Quantities can be compared in terms of "more", "less", or "equal", or b ...
* Non-extractive economic value * Objective theory of value *
Real versus nominal value (economics) In economics Economics () is a social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behav ...
*
Store of value A store of value is the function of an asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce pos ...
*
Subjective theory of value Subjective may refer to: * Subjectivity, a subject's personal perspective, feelings, beliefs, desires or discovery, as opposed to those made from an independent, objective, point of view ** Subjective experience, the subjective quality of consciou ...
*
Theory of value (economics)A theory of value is any economic theory Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economic ...
*
Use value Use value (german: Gebrauchswert) or value in use is a concept in classical political economy and Marxian economics. It refers to the tangible features of a commodity (a tradeable object) which can satisfy some human requirement, want or need, or w ...
*
Utility As a topic of economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within thos ...

Utility
*
Value (marketing) Value in marketing Marketing refers to activities a company A company, abbreviated as co., is a Legal personality, legal entity representing an association of people, whether Natural person, natural, Legal personality, legal or a mixture ...
* Value form *
Value network A value network is a graphical illustration of social and technical resources within/between organizations and how they are utilized. The nodes In general, a node is a localized swelling (a "knot") or a point of intersection (a Vertex (graph theory ...


References

{{DEFAULTSORT:Value (Economics) Political economy