DEFINITION of 'Subjective Theory of Value'

Subjective theory of value is the idea that an object's value is not inherent and is instead worth more to different people based on how much they desire or need the object. The subjective theory of value places value on how scarce and useful an item is, rather than basing the value of the object on how many resources and man hours went into creating it.

This theory was developed in the late 19th century by economists and thinkers of the time, including Carl Menger and Eugen von Boehm-Bawerk.

BREAKING DOWN 'Subjective Theory of Value'

The concept that value is subjective also arguably means it cannot be consistently measured. For example, let's say you have one wool coat and the weather is extremely cold outside; you will want that coat to wear and keep you from freezing. In a case like this, the wool coat might be worth more to you than a diamond necklace. If, on the other hand, the temperature is warm, you will not want to use the coat, so your desire for – and amount you value – the coat wanes. In effect, the value of the coat is based on your desire and need for it, and so it is the value you placed on it, not any inherent value of the coat.

How the Subjective Theory of Value Is Applied

Under the theory, it may be possible to create or increase value of an object by transferring ownership of it to an owner who hold regards the object at a higher value. This maybe be true even without modifying the object.

Situational circumstances, cultural significance, sentimentalism and nostalgia, and availability can all influence the value of objects. For instance, collectible items such as classic cars, baseball cards, and comic books can be valued at much higher rates than their initial sale prices. The value of the items stem from demand but also the willingness of others to pay the asked for price. When items are put up for auction, the bidders indicate what value they believe the object holds. Each bid raises the value, though the item itself has not changed in function or form. That value, however, might not be retained if the item is placed in the custody of an individual or group that does not view the object with the same regard. A piece of art, for instance, that is associated with a particular time and place may not hold its relevance if moved to a region where the context is unknown or represents an unpopular perspective among the local populace.

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