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Value (economics)

From Wikipedia, the free encyclopedia

Economic value is a measure of the benefit provided by a good or service to an economic agent. It is generally measured relative to units of currency, and the interpretation is therefore "what is the maximum amount of money a specific actor is willing and able to pay for the good or service"?

Among the competing schools of economic theory there are differing theories of value.

Economic value is not the same as market price, nor is economic value the same thing as market value. If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus"[1]. It is easy to see situations where the actual value is considerably larger than the market price: purchase of drinking water is one example.

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  • ✪ Ep. 5: A BEE'S INVOICE; THE HIDDEN VALUE IN NATURE | Adrian Grenier
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Transcription

♪ When you look out at the world, on to nature, and its indescribable wonder and beauty, do you see money? Maybe you should. Look at those fish. Wait... look again. How 'bout that rain cloud over there? [thunder rumbles] Sure, it has value to the human experience, say, the romance of getting caught in a storm on your way home from school, or... the smell of rain on a hot summer day. But I'm talking about economic value: dollars and cents. Measurable monetary value in economic terms. They say money doesn't grow on trees, but... What if that's not entirely correct? Maybe in some cases, nature isn't just simply beautiful, but also has real tangible value: productive value. In other words, nature often functions as actual capital, just as a machine would in a factory. Take bees, for example. Like the blue collar working force, toiling tirelessly, selflessly and faithfully to pollinate all of our agriculture. Yet, they've never once submitted an invoice. That worker bee puts in a full day's worth of work and us as humans, well we do account for it if it shows up in a jar of honey in your local Whole Foods. But that's about it. Well, natural capital is a set of natural resources that are not only nice to look at and have around, but they're also productive in that they help us make things that we use every day. Bees are actually responsible for 8% of the total agricultural output, or about $190 billion. They've done all that work for free. Without them, our food systems would collapse. Yet we don't recognize them as being an important part of our economy. There's an economic principle called "common pool resources," which are resources that anyone can tap into or exploit, like... fishing in the oceans. It used to be the case that oceans were so big relative to humans, relative to society, that limits simply didn't matter. You could always go out, maybe a little bit further, and still haul in the same catch. That's no longer possible. By now, we have the technology to exploit oceans to an extent that has never been possible before. And all of a sudden we get a problem, typically referred to as "the tragedy of the commons," where these common pool resources get over-used. For example, you can think about Boston Common, founded in 1634 as a place for cows to graze. For awhile, this worked well. People would bring their cows. It was free and open to everyone. But as there got to be more cows, overgrazing became a problem. If there were a bank account, let's say, where everyone had an ATM card, eventually and probably sooner than later, everyone would take advantage. Take out all the money, and the account would be overdrawn. [loud buzz] We don't price nature. We don't account for the hidden economic value of nature. Like the northeastern trade winds delivering 20 billion tons of water vapor from the Amazon to South America. That's $240 billion of economic value. But how do we put a price tag on the rain forest itself... all the rich life within? It's hard to put a value on these details, but we have to start in order to measure the true cost of damages that businesses put onto society. And make sure they pay the bill, not us. Every ton of CO2 emitted into the atmosphere today causes about $40 dollars worth of damages. Policy-makers and conservationists have started introducing this concept of carbon markets, or sometimes called green markets. And this is one important attempt to put a price on the use of this natural capital. When you increase the price of CO2, by accounting for the true damages, the true damages that each ton of CO2 causes, you can decrease payroll taxes, income taxes, and you basically create a win-win-win. It's a win for employment. It's a win for the economy. It's a win for the planet. ♪ If somebody came and dumped a bag of garbage in your backyard, what would you do? Would you go-- Would you say to them, "Come back here and clean it up because my children play there and this is my property."? They have no more right to put that garbage in your backyard, than they have to dump it in the ocean. And you have as much a property right to tell them to remove it, as you do in your backyard. The Atlantic Ocean, the Pacific Ocean... You own it. It's probably the biggest thing you're ever gonna own. And when somebody contaminates it, they're committing an act of theft against you. If our natural resources were a stock market, it'd be headed for a crash. I mean, that's not to say that we can't use our natural capital. Just that we need to limit behaviors where the costs to society outweigh the benefits. The mantra that we have to choose between economic prosperity on the one hand and environmental protection on the other, is a false choice. In 100% of the situations, good environmental policy is identical to good economic policy. But beyond economics, we are connected to, and part of our environment. So how do we truly value nature on this level? The kiss of the sun on our face? The smell of flowers through an open window? The roar of an ocean wave, crashing to the shore? Or playing with friends out in a field? All of these gifts, and countless other indefinable details that are the beauty inherent in this wondrous planet we call home, are worth respecting and deserving. Not just because they serve our economies, but because they serve our humanness. In places that are just below the surface of our calculators, in the heart of the human spirit. ♪

Contents

Overview

The economic value of a good or service has puzzled economists since the beginning of the discipline. First, economists tried to estimate the value of a good to an individual alone, and extend that definition to goods which can be exchanged. From this analysis came the concepts value in use and value in exchange.

Value is linked to price through the mechanism of exchange. When an economist observes an exchange, two important value functions are revealed: those of the buyer and seller. Just as the buyer reveals what he is willing to pay for a certain amount of a good, so too does the seller reveal what it costs him to give up the good.

Additional information about market value is obtained by the rate at which transactions occur, telling observers the extent to which the purchase of the good has value over time.

Said another way, value is how much a desired object or condition is worth relative to other objects or conditions. Economic values are expressed as "how much" of one desirable condition or commodity will, or would be given up in exchange for some other desired condition or commodity. Among the competing schools of economic theory there are differing metrics for value assessment and the metrics are the subject of a theory of value. Value theories are a large part of the differences and disagreements between the various schools of economic theory.

Explanations of value

In neoclassical economics, the value of an object or service is often seen as nothing but the price it would bring in an open and competitive market. This is determined primarily by the demand for the object relative to supply in a perfectly competitive market. Many neoclassical economic theories equate the value of a commodity with its price, whether the market is competitive or not. As such, everything is seen as a commodity and if there is no market to set a price then there is no economic value.

In classical economics, the value of an object or condition is the amount of discomfort/labor saved through the consumption or use of an object or condition (Labor Theory of Value). Though exchange value is recognized, economic value is not, in theory, dependent on the existence of a market and price and value are not seen as equal. This is complicated, however, by the efforts of classical economists to connect price and labor value. Karl Marx, for one, saw exchange value as the "form of appearance" [Erscheinungsform] of value, which implies that, although value is separate from exchange value, it is meaningless without the act of exchange, i.e., without a market.

In this tradition, Steve Keen makes the claim that "value" refers to "the innate worth of a commodity, which determines the normal ('equilibrium') ratio at which two commodities exchange."[2] To Keen and the tradition of David Ricardo, this corresponds to the classical concept of long-run cost-determined prices, what Adam Smith called "natural prices" and Karl Marx called "prices of production." It is part of a cost-of-production theory of value and price. Ricardo, but not Keen, used a "labor theory of price" in which a commodity's "innate worth" was the amount of labor needed to produce it.

"The value of a thing in any given time and place", according to Henry George, "is the largest amount of exertion that anyone will render in exchange for it. But as men always seek to gratify their desires with the least exertion this is the lowest amount for which a similar thing can otherwise be obtained."[3]

In another classical tradition, Marx distinguished between the "value in use" (use-value, what a commodity provides to its buyer), labor cost which he calls "value" (the socially-necessary labour time it embodies), and "exchange value" (how much labor-time the sale of the commodity can claim, Smith's "labor commanded" value). By most interpretations of his labor theory of value, Marx, like Ricardo, developed a "labor theory of price" where the point of analyzing value was to allow the calculation of relative prices. Others see values as part of his sociopolitical interpretation and critique of capitalism and other societies, and deny that it was intended to serve as a category of economics. According to a third interpretation, Marx aimed for a theory of the dynamics of price formation, but did not complete it.

In 1860, John Ruskin published a critique of the economic concept of value from a moral point of view. He entitled the volume Unto This Last, and his central point was this: "It is impossible to conclude, of any given mass of acquired wealth, merely by the fact of its existence, whether it signifies good or evil to the nation in the midst of which it exists. Its real value depends on the moral sign attached to it, just as strictly as that of a mathematical quantity depends on the algebraic sign attached to it. Any given accumulation of commercial wealth may be indicative, on the one hand, of faithful industries, progressive energies, and productive ingenuities: or, on the other, it may be indicative of mortal luxury, merciless tyranny, ruinous chicanery." Gandhi was greatly inspired by Ruskin's book and published a paraphrase of it in 1908.

Economists such as Ludwig von Mises asserted that "value," meaning exchange value, was always the result of subjective value judgements. There was no price of objects or things that could be determined without taking these judgements into account, as manifested by markets. Thus, it was false to say that the economic value of a good was equal to what it cost to produce or to its current replacement cost.

Silvio Gesell denied value theory in economics. He thought that value theory is useless and prevents economics from becoming science and that a currency administration guided by value theory is doomed to sterility and inactivity.[4]

Value in the most basic sense can be referred to as "Real Value" or "Actual Value." This is the measure of worth that is based purely on the utility derived from the consumption of a product or service. Utility derived value allows products or services to be measured on outcome instead of demand or supply theories that have the inherent ability to be manipulated. Illustration: The real value of a book sold to a student who pays $50.00 at the cash register for the text and who earns no additional income from reading the book is essentially zero. However; the real value of the same text purchased in a thrift shop at a price of $0.25 and provides the reader with an insight that allows him or her to earn $100,000.00 in additional income is $100,000.00 or the extended lifetime value earned by the consumer. This is value calculated by actual measurements of ROI instead of production input and or demand vs. supply. No single unit has a fixed value.

Connected concepts

The theory of value is closely related to that of allocative efficiency, the quality by which firms produce those goods and services most valued by society. The market value of a machine part, for example, will depend upon a variety of objective facts involving its efficiency versus the efficiency of other types of part or other types of machine to make the kind of products that consumers will value in turn. In such a case, market value has both objective and subjective components.

In philosophy, economic value is a subcategory of a more general philosophical value, as defined in goodness and value theory or in the science of value.

See also

Value or Price
Value or Price

References

  1. ^ "Consumer Surplus" (PDF). p. 7-1, 7-2.
  2. ^ Steve Keen Debunking Economics, New York, Zed Books (2001) p. 271, ISBN 1-86403-070-4, OCLC 45804669
  3. ^ "''The Science of Political Economy'', Chapter 8". Politicaleconomy.org. Retrieved 2012-04-17.
  4. ^ https://biblio.wiki/wiki/The_Natural_Economic_Order/Part_III/Chapter_3
This page was last edited on 7 January 2019, at 09:49
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