1

Andy Caldwell
Prof. Pook Carson
Economics 2010
Sunday, July 26, 2015

Objective and Subjective Value Theory

Subjective Value
In economic thinking today, generally all economists agree that a material object or a
currencys value is subjective. What this means is that the valuation of something is relative to
what a buyer is willing to exchange for the item, and what a seller is willing to accept for it. That
is how price and valuation are set.
This concept is explained in the McConnell, Campbell text, along with the concepts of
consumer and producer surplus that coincide with subjective value theory. (McConnell,
Campbell R., pgs. 145-146) To illustrate subjective value theory, I can offer an example where I
am selling securities, and the price I am asking is $1000.00. Unbeknownst to my buyer, the
lowest price that I will accept for this trade is $900.00. My buyer does not want to pay my initial
asking price of $1000.00, he offers me $975.00 instead. I agree to sell at that price, although
unbeknownst to me, the buyer would have actually agreed to my original offer had I refused the
$975.00. The consumer surplus my buyer gained would be $25.00 and the producer surplus I
achieved would be $75.00. Producer surplus is calculated by the difference between the lowest
price I would accept and the price I actually sold the securities for. Consumer surplus is
calculated by the difference between the highest amount the buyer is willing to pay and what
they actually end up paying.
This fore-mentioned concept is generally agreed to be non-controversial by most
economists today, on how price is set, and this process is how the majority of markets operate.

Objective Value
As Economics students we have to recognize that there is more to price and value than
just solely the subjective value placed on something by various parties. This is where the concept
of objective value comes into play. How many times do we hear in the news media of someone
purchasing some asset, property, or business that no one else is willing touch, or wanting to deal
with, and then turning around and making a large profit, or making it highly profitable? We hear
of this happening all the time. They saw value where no one else could. They were looking
where no one else was looking. That means that there must be some intrinsic, or objective value,
in all goods, services, and really in everything within our universe. Value in and of itself,
regardless of sole subjective appraisals. Just because someone cannot recognize the true value in
or of something does not mean that it is without value, or that its true value is entirely subjective.

The same can also be said with overvaluing an item, where just because something is priceless to
an owner, it does not follow, or necessitate, in an obscenely high price being attached to its true
objective value.
The issue with calculating and measuring objective value, unlike subjective value, is that
it would be extremely difficult, some would even go as far as to say impossible to achieve. We
can only precisely appraise what we can directly see. We can only integrate the facts as we can
evaluate them.
The great Austrian Economist Ludwig Von Mises touches on valuation in his work The
theory of Money and Credit, where he writes on the subject of subjective and objective value.
He mainly deals with the valuation of currency in this work, but he draws a distinction between
two usages of the term objective value. He uses objective value to mean that, if say, $100.00
will always buy you 10 chickens, then that would be the objective value of $100.00. He does
however, bring up the point of objective value also to mean the intrinsic value that something
inherently has regardless of any one person or multiple persons valuation of an item in question,
and that is what I am referring to when I am speaking of objective value. Von Mises does ask if
currency in and of itself has inherent value, he writes It is not the task of the economist, but of
the natural scientist, to explain why corn is useful to man and valued by him; but it is the task of
the economist alone to explain the utility of money. (Von Mises, pg. 98) So he does recognize
that even currency has some value in and of itself as a unit of exchange for goods and services
already rendered. He does also bring up the point that, It is not use-value, but exchange-value,
that appears to govern the modern economic order. (Von Mises, 102) So subjective valuations
may be the best method used to trade, but the point I am trying to make here, is that there still
has to be some type of objective value for everything.
The way I see it, the only way that we could possibly calculate an objective value for the
worth of an item, is to weigh and balance every possible variable of an items worth in relation to
every other possible factor, and also in relation to everything else within the universe at one
point in time. This would have to take into account averaging everyones subjective value,
utility, production costs, scarcity, etc. I wouldnt go as far as to say this would be an impossible
task, just an extremely difficult and time consuming one. Once the value had been calculated
there is a good chance the value might have changed by the time you were done with the
calculation, but that would be uncertain to really know.
I definitely think that true objective value is a topic that more economists should take up,
as if traders can attach the proper valuations to items within a market they would be a lot better
off economically than those just purchasing at the lowest number a seller is willing to part with
an item. Knowing true worth is really important, as efficiency and productivity would greatly be
improved. It is probably a good thing that markets are dominated by subjective valuations and
trading, as they are more in line with human nature, but the concept of objective value is
important too. So in conclusion, I would assert that being able properly value goods & services is
extremely imperative, as all of our time and money is at stake in not being able to evaluate an
items true worth.

Works Cited
Von Mises, Ludwig, 2013: The Theory of Money and Credit, Skyhorse Publishing, 307 West
36th Street, 11th Floor, New York, NY 10018
McConnell, Campbell R., 2015: Microeconomics: Principles, Problems, and Policies 20e,
McGraw Hill Education, 2 Penn Plaza, New York, NY