A good essay on the nature of economic value.
http://mises.org/fullstory.asp?control=1349
Here are some excerpts:
By Gene Callahan
[Posted October 17, 2003]
Somewhat ironically, it was one of the greatest philosophers who has ever lived, Aristotle, who was perhaps most responsible for steering the discipline of economics down a false trail. Since the time that he expounded his views, economics has been struggling to rid itself of Aristotle's first, false step.
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Menger's breakthrough insight was to realize that "[v]alue is… nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs... and in consequence carry over to economic goods as the… causes of the satisfaction of our needs." (Principles of Economics)
In other words, value is the name of an attitude or disposition that a particular person adopts toward a good: he chooses to value it. Although Menger set economics on the path to a correct theory of value in 1871, ancient errors die hard. We can still find many erroneous conceptions of value in contemporary discussions of economic issues.
For example, it is quite common to refer to money (or gold, or financial assets) as a "store of value." But an attitude cannot be stored! You cannot pour some of your attitude towards goods into a bar of gold, put it in a vault, and hope it "keeps." You can, of course, store the gold bar. And you will certainly hope that when you decide to take it from the vault and sell it, that others will choose to value it as well. But only the gold was stored.
Money is also referred to as "a measure of value." But if, following Menger, we regard valuing as an attitude people take towards things, then money certainly cannot measure value, since money itself is simply another thing that people choose to value (or not). Rather than "measuring" the value of other goods and services, money itself is valued by human actors based on its adequacy as a commonly accepted medium of exchange.
Another common, troublesome phrase claims that in free markets, people "trade value for value." But if we realize that value names an attitude or disposition, we see that the phrase is misleading. I can trade some gold that I value with you for a sheep you value. If such a trade takes place, you must also value my gold and I your sheep. In fact, you must value my gold more than you value your sheep, and I must value your sheep more than I value my gold.
When we exchange these goods, my attitude toward the gold does not transfer to you with the gold, nor does your attitude toward the sheep become mine. If that occurred, we would wind up immediately trading them back again, since before the first trade you valued the gold I was offering more than the sheep, and I valued the sheep you offered more than the gold I made available.
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