The Subjective Theory of Value in One Sentence, Two Translators, and Three Languages

John Locke, Adam Smith, and Karl Marx all used a labor theory of value in their very different works.  To them, a good is worth however much work someone puts into making it. This is incorrect. Value is actually subjective; there is no absolute standard.

As a personal example, I would place a very high value on a nice guitar, since I would play and enjoy the instrument–talent level aside. Someone who isn’t interested in music would be unwilling to pay much money for the exact same good, and rightly so–they would get little use out of it.

So what is a good worth? That’s something every individual decides for himself. There is no single right answer. Value is subjective.

This subjective theory of value originated in part in 1871 with Carl Menger’s textbook Principles of Economics. But this theory is actually best explained by an Italian economist, Ferdinando Galiani, who the German-speaking Menger quotes on p. 296 of his Principles:

ch’essendo varie le disposizioni degli animi umani e varj i bisogni, vario é il valor delle cose.

Any Italian-speaking readers, please correct any of my mistakes. The same quotation reads in English:

since the dispositions of human minds vary, the value of things varies.

Another aphorism that captures the spirit of subjective value is “one man’s trash is another’s treasure.”

Economics can be a dismal science. It can quickly get technical and unnecessarily complicated, but the basics are understandable to everyone. The subjective theory of value is one of those basics–language barriers aside.

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