What Is the Subjective Theory of Value?
The subjective theory of value maintains that the value of an object is not fixed by the amount of resources and the hours of labor that went into creating it but is variable according to its context and the perspective of its users. In fact, the theory argues, the value of any object is determined by the individual who buys or sells it.
This economic theory suggests that a product's value is decided by how scarce or useful it is to the individual.
The subjective theory of value was developed in the late 19th century by economists and thinkers of the time, including Carl Menger and Eugen von Böhm-Bawerk.
- The traditional theory of value maintains that an object's value is determined by the amount of labor and the cost of the resources that went into making it.
- The subjective theory of value suggests that an object's value is not intrinsic but changes according to its context.
- A product's scarcity is among the factors that can alter its value in the marketplace.
Understanding the Subjective Theory of Value
The subjective theory of value was a dramatic departure from the assumption of earlier economists, including Karl Marx, that an object's value was the sum of the costs of the labor and resources it took to produce it.
The concept that value is subjective suggests that 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 to wear that coat to keep you from freezing. At that moment, the wool coat might be worth more to you than a diamond necklace.
If, on the other hand, the temperature is warm, the value you place on that coat will decline. In effect, the value of the coat is based on your desire and need for it, as is the value you placed on it, not any inherent value of the coat.
How the Subjective Theory of Value Is Applied
Following the subjective theory of value, it may be possible to create or increase the value of an object by transferring ownership of it to an owner who regards the object at a higher value. This can be true even if the object is not modified in any way.
Situational circumstances, cultural significance, sentimentality, nostalgia, and scarcity 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 stems from demand.
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 over time. A work of art or craftsmanship that was highly valued in Victorian times might be worth little today. A modern product may not hold its relevance if moved to a region where the context is unknown or represents an unpopular perspective.