Wednesday, June 3, 2009

Subjective Value through Non-Austrians

James Buchanan in his book The Reason of Rules(10.2.9) states:
The individual is the unique unit of consciousness from which all evaluation begins. Note that this conception does not in any way reject the influence of community or society on the individual. The value structure of an isolated human being may be totally divergent from that of such a person described by membership in one or many social relationships. The presupposition requires only that societal or communitarian influences enter through modifications in the values that are potentially expressed by the individual and not externally.
Armen Alchian and William Allen in Exchange and Production: Competition, Coordination, and Control:
Groups, organizations, communities, nations, and societies are best understood by focusing on the incentives and actions of their members. A business, union, or family may be formed to further some common interest of its members, but group actions are still the results of decisions of individuals. Therefore, do not ask, "Why does the U.S. government, or General Motors, or some union behave as it does?" Ask instead, "Why does the decision-maker decide as he does?"
It is followed with some postulates that I list below:
  1. For each person, some goods are scarce
  2. Each person desires many goods and goals
  3. Each person is willing to forsake some of an economic good to get more of other economic goods
  4. The more one has of any good, the lower its personal marginal valuation
  5. Not all people have identical tastes and preferences
  6. People are innovative and rational
Value must be subjective otherwise a planned economy would be the easiest solution, but as Postulate 5 shows, tastes and preferences differ b/w individuals even b/w identical twins.

Monday, June 1, 2009

Value: Subjective or Objective

Is value objective or subjective?

I am not sure this is much debated today as most economists agree that value is subjective.

Objective value dictates that value is taken from the object. This would mean even if there were no one to purchase the apple; the apple still holds a certain value.

Subjective value, on the other hand, is taken from man's use of the object. Using the apple as a reference, the apple holds a value only because it is scarce and someone can use it. It is therefore from the individual that the value is taken and not from the apple itself. The cost of producing the apple does not influence it's value except to the person who went through the action of producing the apple.

There is then multiple amount of subjective values placed on an object as their could be numerous individuals who have use for it. Their value will allow them to bid on the item allowing those who value the object higher to be willing to give up more for it. If the producer values the object more than what others are willing to give, then he would not sell it.