Montreal, May 7, 2006 • No 178
Even though people may make incorrect value judgments, as with the
example of getting the latest fashions, value is determined by the
valuer for some need to benefit his or her life. This theory of value
was most aptly coined by the founder of the Austrian school of
economics, Carl Menger (1840-1921). His theory was trying to
counteract the so-called "objective" labor theory of value, with Karl
Marx and Adam Smith as its figureheads. Even though Menger's theory of
value was unwisely titled "the subjective theory of value," his did
look at objective benefits needed by the valuer.
In his economic thought, Aristotle arrived at the first truly
adequate understanding of "value." Even though some, like Marx, have
seen parts of Aristotle's text advocating a labor theory of
value, Aristotle himself saw that the skills and acts of labor itself
were a part of the task of creating a good. However, a good would just
sit idle, even if much labor was put into its construction and
planning, unless the good was valued as a "good" by an individual
person. Value is determined by the amount of utility a good has to
fulfilling a person's needs.
For Aristotle, all values, economically speaking, are derived by how
pertinent they are to allowing individuals to achieve their needs in
the best possible way.
By making this distinction, Aristotle is able to see that the "demand"
for a certain product comes about as a function of the product's "use"
value to valuing individuals. The primary value a good possesses is
totally based on it serving some particular "use" for the individual.
Demand is thus a measure of the level of utility a good has for
fulfilling a person's desired goal.
The essence of "exchange" value will be examined later, but now it is
best to briefly examine Aristotle's views on the phenomenon of
"scarcity." Aristotle sees that the "demand" of a particular good
changes greatly if the good is in small supply. For moderns this makes
perfect sense, and one imagines graphs and charts outlining supply and
demand schedules for particular goods. Such "rarity" factors could be
influenced by natural disasters or other "disturbing" factors. In two
instances, Aristotle writes: "Another rule is that the more
conspicuous good is more desirable than the less conspicuous, and the
more difficult than the easier: for we appreciate better the
possession of things that cannot be easily acquired." (Topics,
Because money was introduced, it acts as an equalizing unit to
determine utility for both sides. Aristotle sees that, "Now this unit
is in truth demand, which holds all things together ... but money has
become by convention a sort of representative of demand." (Ethics,
1133a, 26-30)(9). He did
not see money itself as a "store of value," as some critics have often
coined, but rather money was the "medium" through which man's values
could be best articulated. Money should not be loved for itself, but
rather for what it can help fulfill in a person's life.
"By expressing how people can determine values based on what is needed for the betterment of their lives, without the coercion of an outside influence (i.e., the government), Aristotle and Menger both influenced the development of free market ideas."
With Aristotle's views established, now it is time to look for comparisons and contrasts with Carl Menger's theory of value. Menger's fame came when he gave further substance to Aristotle's early inklings on marginal utility. In conjunction with W. Stanley Jevons and Leon Walras, they established the Theory of Diminishing Marginal Utility as a set economic theorem for analysis. While his colleagues used the theory in a more "numerical" and "mathematical" manner by trying to find derivatives of an overarching Marginal Utility "Equation," Menger saw it as a philosophical principle that could be applied in everyday language and to everyday life. He adamantly opposed the "objective" theory of value espoused by Adam Smith and Karl Marx, for he thought that value was not integrally determined by the labor factors necessary to produce a "good." He summarizes his view in his great treatise when he says:
For Menger, value can only be given "to things" by rational human beings. Like Aristotle, this might appear, on the surface, as a subjective theory of value, but Menger pushes for an "objective" stance, in that value is given to a good if the good helps to further or fulfill a need of an economizing individual. This starting point is virtually synonymous with Aristotle. Menger, like Aristotle, saw the importance of scarcity in the equation, when he said:
With these similarities to Aristotle, Menger will continue
to build upon the ancient philosopher's "objective" theory
Now that the subjective factors and the context of the
situation have been addressed, Menger then delves into the
objective factors. Although determining value seems quite
easy if the situation involves just one good, Menger saw
that, " ...in ordinary life the relationship between
available goods and our needs is generally much more
complicated. Usually not a single good but a quantity of
goods stands opposite not a single concrete need but a
complex of such needs." (Principles of Economics,
The last part of Menger's value theory that will be examined
is in regard to the value of goods of "higher order." He
held that, " ... the value of goods of higher order is
dependent upon the expected value of the goods of lower
order they serve to produce." (Principles of Economics,
Goods of higher order, capital goods, only have value, if, "
... they serve to produce goods that we expect to have value
for us." (Principles of Economics, , 3.iii.a.3)(21).
|1. Richard McKeon,
Introduction to Aristotle, 2nd edition, (Chicago: The
University of Chicago Press, 1973), 600.
2. Barry J. Gordon, “Aristotle and the Development of Value Theory,” The Quarterly Journal of Economics, 78, no. 1 (Feb., 1964): 117.
3. McKeon, 609.
4. Gordon, 117.
5. Gordon, 118.
7. Gordon, 120.
8. McKeon, 446-7.
9. McKeon, 447.
10. McKeon, 446.
11. Lorenzo Infantino, “Economists and sociologists compared: Carl Menger and Georg Simmel, Ludwig von Mises and Max Weber,” In Individualism in Modern Thought: From Adam Smith to Hayek (London: Routledge, 1998), 102.
12. Infantino, 102-3.
13. Tancred Lidderdale, “Chapter 3: The Theory of Value” Carl Menger’s Principles of Economics in the Ludwig von Mises Institute, 1998.
14. Edward W. Younkins, Philosophers of Capitalism: Menger, Mises, Rand, and Beyond, ed. Edward W. Younkins, (Lanham, Maryland: Lexington Books, 2005), 337.
15. Lidderdale, 3.
16. Lidderdale, 4.
17. Lidderdale, 6.
18. Lidderdale, 9.
19. Infantino, 103.
20. Lidderdale, 11.
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