Value: A Subjective Concept
Oscar B. Johannsen
[Reprinted from Fragments, Summer/Fall 1997]
Value is order of preference. It is a subjective concept which
resides in human minds. You judge the order of preference. You value
an orange above an apple. In the order of preference which exists in
your mind, the orange has a higher place than an apple.
More exactly, value is order of priority of desires. The desire
for the orange is greater than the desire for the apple. Your
preferences may be due to any number of factors, some so subtle that
you may not even be aware of them. The determining conditions may
lie hidden within the deepest recesses of the insoluble mystery
comprising the human personality.
You could not begin to list the order of all the things you
prefer, for almost from the moment you did, it would change in your
mind. Even if you could, the fact that the one at the list's head
was satisfied might change the order of the rest. Although you may
convince yourself that your first choice is an orange, the second an
apple, the third a pear, once you have eaten the orange you may
prefer the pear to the apple -- or prefer neither. You are not a
robot. It is a cliche of men to say that a woman changes her mind
constantly; but that propensity is true of all of us. Our
evaluations change constantly.
As people begin to value items, value is ascribed to goods. A
pair of shoes is valued at $10; a painting at $1,000. Individuals
may wonder why shoes are valued at $10 when a painting, which is not
as "useful," is valued 100 times more. They are not aware
that these valuations are the result of subjective judgments.
Theories have arisen which assumed that value is part of the
article itself. The term "intrinsic value" became common.
The suave salesman in an antique shop may claim that the "intrinsic
value" of a beautiful piece of Ming pottery is $5,000, but, out
of the goodness of his heart, he will let you have it for a mere
$500. Many people believe that "intrinsic value" is as
much a part of an article as its atoms. They seem to have forgotten,
or do not know, that value is merely a personal judgment.
Men may say that a woman is beautiful. What is meant is that in
their subjective judgment her physical endowments are such that they
prefer them to other women. Beauty is no more a part of a woman than
value is a part of a good.
Probably the most that can be said about value is that, by some
psychological process, you arrive at a decision that you will give
two apples for an orange. But that does not mean that such will be
the exchange ratio, for, when you come into the marketplace, you may
find someone willing to accept an apple for an orange. You will then
consider that you have obtained a "bargain."
In civilized societies, price is the ratio at which goods are
exchanged for money. The ratio is determined subjectively by each
individual. The price an individual is willing to pay is modified by
the effect of other individuals, all of whom are making independent
-- subjective -valuations. The interactions of all these exchange
ratios, or prices, through the higgling and haggling of the
individuals concerned, results in a particular price at a particular
time in a particular place.
In making judgments, people seek objective means to help them
evaluate. By associating such objective factors as dark clouds, as
well as certain pressure and atmospheric changes, individuals have a
means whereby to predict the weather. It is not perfect. The
decision on what objective factors are involved is itself
subjective. That erroneous evaluations are made is only too apparent
when the fair weather predicted is actually a howling rainstorm.
Similarly, observation has taught people that often certain
factors may have a bearing on the evaluation of goods. An obvious
factor is the labor required to produce an article. It seems logical
to assume that the more labor expended on producing an article, the
more valuable it must be. This is known as the labor theory of
value, and many variations of it have arisen. Such theories, while
apparently explaining why some articles are valued higher than
others, run counter to experience in many instances. A Frans Hals
spends an hour on a painting, but it is valued at, perhaps, a
thousand times one on which an amateur spends a hundred hours.
Obviously, the value of the Hals work of art is not determined by
the amount of laborexpended.
One variation of the labor theory of value is that value is
determined by the amount of labor which the ownership of an item
will save the possessor. If you estimate that an article would save
you an hour's work, presumably you would be willing to buy it for
the amount you would receive for an hour's labor, but this is not
necessarily true. You may pay more or less -- or nothing --
depending on how you feel about it.
The labor saved or expended may not be involved at all in
determining value. Probably, all one may say about labor is that,
for continuous production, the price of an article must be greater
than the cost of producing it. But that is not to say the labor and
other costs determine price. It is the other way around. The price
which consumers are willing to pay determines the point beyond which
labor and other costs cannot go. If no one can produce at costs
which are lower than the price the consumers will pay, the article
ceases to be produced. The labor theories of value, while presumably
they have some degree of validity, simply are erroneous.
For instance, Henry George's negative theory of value -- the
labor saved theory -- cannot explain why a Rembrandt masterpiece
sells for millions, as there is no current labor saved, much less
expended. The same goes for the value of land, on which no labor has
been expended. George gets around these "exceptions" by
creating a "value from obligation." But that, in effect,
destroys his "labor saved" theory of value. For a theory
of value to be consistent, it must take into account all items: a
pound of butter, an art work by some long-dead master, and the value
of land. The Austrian School theory of value does take into account
all of such items. That is why the Austrian theory -- based on
subjective evaluation -- is a valid theory. George's is not.
In the production of wealth, as more and more people are involved
and divisions of labor become more minute, each product tends to be
the specialty of some individual or of a relatively small group of
individuals. The value these individuals place on such articles
tends to be based on what such items can be sold for, rather than on
the personal desires of these people. In economic literature, this
distinction is emphasized by stating that exchange value tends to be
of more importance than use value. To a farmer producing 100,000
oranges, any one orange obviously occupies so low a point in his
scale of preferences that it can be said to be virtually
non-existent. This does not mean that he does not desire to eat
oranges. It merely means that he has so many available that any one
of them means very little to him. His actions with respect to
oranges are geared to what he can exchange them for in the open
marketplace. With so many people employed in the production of
articles, they (the articles) tend to be considered in terms of
exchangeability rather than in terms of individual preferences.
While this is true, articles still are dependent upon the scale of
preferences of millions upon millions of consumers. If people did
not like oranges, they would not be produced.
You cannot add, subtract, multiply, or divide valuations. The
most that can be said about valuations is that we prefer one desire
to another. Possibly, for a fleeting instance, we can set them up in
some order or scale, but we cannot say that we prefer Debussy's
hauntingly beautiful "Clair de Lune" two and a half times
as much as we prefer Gershwin's "Rhapsody in Blue." We
cannot apply mathematics to valuations. We are not dealing with
inanimate matter. We are dealing with thinking individuals, often
irrational, who have ends and purposes in mind and whose psychology
and mental processes are simply not reducible to numbers.
Value is a subjective concept. It is order of priority of desires
-- and it is to the Austrian School of economy that we are indebted
for the correct determination of that elusive concept: Value.