Value is a concept of relative worth, merit, or importance and is applicable to several disciplines and areas. Our focus here is primarily in the areas of economics, in this arena it is the worth of something in terms of the amount of other things for which it can be exchanged or in terms of some medium of exchange. Since the normative medium of exchange is money, there are several theories that attempts to explain the exchange value of ‘something’. Typically these theories attempt to explain value in terms of price and price only. The two main theories are
- The Intrinsic Value Theory and
- The Subjective Theory of Value
No. 1, spawned the Labor Theory of Value and
No. 2, which by including several non-normative concept led to the Marginalist Theory.
The Labor Theory states essentially that the “exchange value” is determined by the labor content of the product. Alternately, the Marginalist Theory states that the product must satisfy a ‘want or need’ and must be available in limited supply. From our perspective, none of these theories alone and by themselves explains the exchange value of products. Rather, we take a hybrid approach in which labor is the primary determinant of the real or natural value of a products that have a needed component or desirability. The extent of supply or demand only modulates the market price of the product and that the price and value is not synchronous. If they were synchronized, then the real value of a product would be realized in every transaction.
Value could be rather nebulous, when the same product, bought at a Discount “Sale” and another bought across the border on the black market sitting side by side on the same shelf have hugely different prices. Of course it can be argued that the ‘seller’ of the commodity having control of the distribution channels could be manipulated the market, and where s/he does not have influence to that extent may be simply taking advantage of the local market condition.
We regard the real or true value of a product as the intrinsic value realized only when supply and demand are equal or intersect in an “ideal” market as defined by Adam Smith in his “Wealth of Nations” (See Markets below)
Note: Adam Smith made the distinction between “Value in use” and “Value in trade”. He resurrected and popularized the notion of the “Value Paradox”, also called the Diamond – Water Paradox, in which water, essential to life does not exchange for anything near to that for diamond having relatively reduced utility.