What’s It Worth?—Intrinsic Value
How a Good’s Value Emerges
Have you ever argued with an advocate of some precious good who made the case for its intrinsic value? This proponent was able to make great arguments for the unique properties of the product but could not give an exact figure this intrinsic value signifies. What is a good’s intrinsic value? What does “valuing a good” mean? What is the value of a “Federal Reserve Note,” which is, at the end of the day, just a piece of paper?
Subjective Valuations
Picture this: You stumble upon an old vinyl record at a flea market. Its scratches tell tales of forgotten melodies. To the vendor, it's a dusty relic. But to you? It's nostalgia, a portal to your teenage years. Another scenario: Your house is burning down. The family is in safety and you have one last chance to rescue another item. You don’t run in and take your new 1000$ laptop or your expensive pottery collection. Instead, you protect your family photo album from the flames. You attach a higher value to the vinyl record and your foto album than others humans, as they are dear to your heart.
Advocates of precious goods can never quantify what exact price this intrinsic value represents. Ask a vivid defender of gold’s intrinsic value what price this intrinsic value signifies! Gold has many industrial use cases, in addition to its property of being a great material for jewelry. However, not only does every person value gold differently, their valuation for gold changes over time too. A constant, “fair” price cannot be attached to gold. Billions of human beings are buying, selling, or abstaining from trading with it. For you, your old smartphone is barely worth anything; for a recycling company that is able to extract precious metals like gold in small quantities from it, your old smartphone has a real value. Any good’s price is formed through countless individual valuations that change over time.
Various Theories of Value
Carl Menger opposed classical economists, who proposed that the amount of “socially necessary labor” that the production of a good requires is directly correlated to its value. This labor theory of value is fundamental to Marxian considerations of economics. In opposition to it, Menger’s subjective theory of value ascertains that all value is subjective.
According to it, voluntary transactions create added value for the participants, as they value what they receive more than what they are giving away. This point deserves reiteration, as it is central: A transaction voluntarily occurring creates value just by the goods changing their owners. While one party values item A over item B, the other party values item B over item A. These items do not have intrinsic value, but the involved parties attach valuations, based on characteristics like their time preference or usage opportunities, to them. These are distinct; otherwise the parties would not transact. Hence, when a transaction happens both parties say “Thank you!”
The subjectivity of value is fundamental for many Austrian Economic ideas with distinct nuances. Mises, for instance, highlights how a good’s utility is based on its ability to satisfy human wants and describes how individuals’ subjective valuations are translated into objective information which is necessary for allocating resources rationally.
Valuing Daily Decisions
Value’s subjectivity can be detected by just observing parties involved in exchanging items every day. Subjectivity of value is a fundamental characteristic of a free economy. If you go to a local farmer and buy a pound of apples for two dollars, consider what went into that. The farmer bought the area, planted the trees, protected them from being trampled, and waited for years before he was able to pick the first apple. He did all that to convince you to spend your hard-earned money for his apples. With it, he can fuel his tractor and continue his operations. You, on the other hand, make the effort to walk or drive to him, because you value the apples more than the money—you want something sweet and healthy to eat. Growing the apples and satisfying your want is only possible because different parties attach different values to the fruit.
You can also observe this with your fellow human beings. People do not pay the intrinsic value of some ice cream at the ice cream stall. Market competition provides ice cream for a fraction of the price in the supermarket. They could have a cone of ice cream for a quarter of the price at home, but they value ice cream in this situation with their companions higher. Scuba-divers constitute another example: They pay for a big bottle of air—a combination of gases that is freely available if you are above the ocean. Air is valued differently in distinct situations. The value of air is not intrinsic—it is subjective.
What Do You Value?
In your life, recognize that barter isn't about equal exchange; it is about unequal satisfaction. When you swap your rare comic for a vintage typewriter, you're saying, "This clunky beauty is my treasure." You value this tool as a portal to nostalgia. Each keystroke echoes with Hemingway's ghosts. And the comic? It's not just ink on paper; it's a ticket to parallel universes. Subjective value transforms mundane objects into time-travel tokens. Subjective valuation is what underlies voluntary trade.
Consider whether others could value some materials in your home higher than you. You might want to sell them. For every buying decision, ask yourself: Do I really value this item more than the money I will spend to buy it. Is that coffee really worth its 5$, or is it better to wait another 30 minutes to drink one at home? With regard to health decisions, consider what you value more—your joy now or your wellbeing later. Based on that, do you eat the donut or the steak? When making gifts, ask yourself what the receiver will value more—some idle object or a short adventure trip with you.
A Good’s Exact Intrinsic Value
Value is never intrinsic; valuation is subjective. Prices of goods never represent their intrinsic value but subjective valuations of the parties involved. If you encounter an advocate of a precious good arguing that its price will rise because of its intrinsic value, ask them what exact price this intrinsic value signifies. Is it 500$/oz or 450$/oz? Ask what air’s value is and if it can differ in different situations. Last, always remember that voluntary trade is not possible without the parties involved valuing the products traded differently. What is your funniest encounter with somebody convinced of a good’s intrinsic value?
Think for yourself and question everything, my fellow liberty people!