Theory of value

economic-dictionary

The theory of value is an academic postulate that tries to explain how the value of a good or service is determined. This, depending on different variables such as scarcity, cost of production, among others.

In other words, a theory of value serves to justify the price or exchange value of a commodity. Thus, this varies depending on the approach given by each school of economic thought.

In this sense, it should be noted that, to estimate the value of a product, some economists consider objective variables (such as the quantity supplied of the good in question) to be more important. However, other academics give more relevance to subjective factors such as the satisfaction that the good or service provides to the consumer.

Theories of value usually appear as a response or complement to some previous theory (s). In this way, the academic debate is enriched.

Examples of theory of value

Some examples of theories of value are:

  • Theory of value-work: It maintains the value of a commodity depend on the effort contained in it. Thus, the more man-hours it takes to make a commodity, the higher its price. Its following variants stand out:
    • Theory of value in classical economics: Here the postulate of Adam Smith stands out, who argues that the value of a good in the long term is justified by the factors of production. However, according to Smith, in the short term, the value — reflected in the price — will rise or fall depending on whether demand rises or falls, respectively. Likewise, for another economist of this trend, David Ricardo, the value of the merchandise will depend on the labor effort necessary to produce it and its availability. Thus, the scarcer a good is, the more valuable it will be.
    • Karl Marx's theory of value: According to Marxism, the value of a commodity depends on the socially necessary labor to produce it. That is, it is calculated based on the average time required by companies in the sector to develop the respective asset.
  • Subjective value theory: The value of a commodity does not depend on its characteristics or on the effort or cost required to produce it, but on the utility it provides to the individual. It is one of the main postulates of the Austrian school.

Importance of the theory of value

The theory of value is important because it allows us to understand how the price is determined or how a commodity is valued. Although it can be assumed that only the factors or costs of production enter the equation, we must consider other variables such as the marginal utility that the consumer obtains. That is, the benefit of consuming an additional unit of the good.

Let's think about two scenarios: A person lost in the desert and another who walks down the street after work on the way home and is not thirsty. The first individual will be willing to pay a much higher price than the second for a bottle of water. And he will be willing to pay more precisely because he gives more value to the glass of water. In economic terms, we could say that it is more useful to the thirsty individual.

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