Subjective Theory of Value - Explained
What is the Subjective Theory of Value?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is the Subjective Theory of Value?
The subjective theory of value stems from the belief that the value of an object lies in how much people desire or need the object and not determined by the inherent qualities of the object. Carl Menger and Eugen von Boehm-Bawerk and other economists and thinkers of the 19th century developed the subjective theory of value. According to the subjective theory of value, the amount of labor or capital invested in the production of an object or the inherent qualities of the object do not determine its worth, rather, it's importance to people based on how much they need in meeting specific needs determines its value.
How does the Subjective Theory of Value Work?
The idea that the value of an object does not lie in the intrinsic properties of the object but rather on the importance and usefulness of the object to different people. When an item is useful to different people, there is a tendency of it being scarce. The subjective theory of value, when applied to the objects cannot be measured. This concept holds that the value of an object lies in how much people desire it, this desire can however and overtime, causing the value of the object to diminish, according to this concept. How much capital, resources and human labor that went into the production of the item does not determine its value.
How the Subjective Theory of Value Is Applied
Since the value of an object lies in how much people desire it and value it, the subjective value of an object can change. There are certain ways to influence or increase the value of an object. One can increase the value of an object by giving it to someone that desires it. Cultural significance of an object among a particular set of people can also determine the subjective value of the object. Situational circumstances can also increase the value of an item. For instance, a wool coat in an extreme cold weather will have more value than in hot weather due to the circumstances. Nostalgic feelings, scarcity of products and preference can also affect the subjective value of items.
Related Topics
- Self Interest
- Cost-Benefit Analysis
- Enlightened Self-Interest
- Fisher's Separation Theorem
- Ratchet Effect
- Total Utility (Economics)
- Efficiency Principle
- Expected Utility
- Subjective Theory of Value
- Positional Goods
- Utilitarianism
- Indifference Curve
- Time Preference Theory of Interest
- Incentives
- Marginal Benefit
- Diminishing Marginal Utility
- Sunk Costs
- Production Possibilities Frontier
- Law of Diminishing Returns
- Economic Efficiency
- Efficiency Theory
- Productive Efficiency
- Capacity Utilization Rate
- Allocative Efficiency
- Pareto Efficient
- Comparative Advantage
- Criticisms of the Economic Approach
- Behavioral Economics
- Normative Economics
- Positive Economics
- Invisible Hand
- Sunk cost