Subjective theory of value

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The Subjective theory of value (or theory of subjective value) is an economic theory of value that holds that there is no intrinsic value of goods and services. Rather, things become valuable solely by individuals' desiring to have them. And, the magnitude of that valuation is a function of how much of any given thing one is willing to forego in order to obtain them. Since different individuals have different value judgments, there is no objectively "correct" value or price of any given thing that can be ascertained independent of individual value judgements.

This contrasts with intrinsic theories of value, such as the labor theory of value which holds that the value of a thing is contingent upon how much labor was exerted in producing it. Whereas the labor theory of value has been used to decry profit as exploitation, the subjective theory of value offers no justification to condemn it, as an individual paying a lower price for a good (or selling one for a higher price) than that which is commensurate with the amount of labor that went into producing it is concordant with a denial of intrinsic value.

One significant consequence of the subjective theory of value concerns the theory of mutually beneficial trade. An individual purchases a thing because it values it more than he values what is giving in trade, otherwise he wouldn't make the trade but keep the more valuable thing. By this reasoning, both sides tend to receive more value than they transfer to the other party in exchange (barring mistaken predictive value judgements).

While earlier economic schools such as medieval Scholastics and French Economists of the 18th and 19th century implicitly used the STV, it was formalized by the Austrian School with the notion of marginal utility by Carl Menger, who said: "The measure of value is entirely subjective in nature, and for this reason a good can have great value to one economizing individual, little value to another, and no value at all to a third, depending upon the differences in their requirements and available amounts...Hence not only the nature but also the measure of value is subjective. Goods always have value to certain economizing individuals and this value is also determined only by these individuals." (Principles of Economics)

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Political implications

If it is true that the value of things cannot be ascertained without subjecting a particular good to individual value judgements in a market, then governments may have difficulty justifying, to economists, setting the prices of goods and services for society. This is also a technical problem for governments wishing to implement a planned economy. Those who espouse the subjective theory of value tend to advocate that individuals should be allowed to choose for themselves what price they are willing to pay for, or part with, any given good or service. They tend to maintain that forcible interference by the state in the process of individuals arriving at a mutual value judgement when making a trade is irrational and/or immoral.

On the other hand, if the value of goods and services is entirely in the mind of the consumer, a tyrannical government might decide that it knows best what people should want, and may try to "reprogram" or "indoctrinate" the public.

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