Theory of value (economics)

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"Theory of value" is a generic term which encompasses all the theories within economics that attempt to explain the exchange value or price of goods and services. Key questions in economic theory include why goods and services are priced as they are, how the value of goods and services comes about, and for normative value theories how to calculate the correct price of goods and services (if such a value exists). Theories of value fall into two main categories:

Intrinsic (objective) theories

see main article: Intrinsic theory of value
Intrinsic theories, as the name implies, hold that the price of goods and services is not a function of subjective judgements. This is the basis for the labour theory of value.

Subjective theories

see main article: Subjective theory of value
Subjective theories hold that for an object to have economic value (a non-zero price), the object must be useful in satisfying human wants and it must be in limited supply. This is the foundation of the marginalist theory of value. In the context of explaining price, the marginal utility theory is not a normative theory of value.

Labour theory of value

"see main article: Labour theory of value
Labour theory of value asserts that the economic value of a good or service is determined by the total amount of socially necessary labour required to produce it. When speaking in terms of a labour theory of value, value, without any qualifying adjective should theoretically refer to the amount of labour necessary to the production of a marketable commodity, including the labour necessary to the development of any real capital employed in the production. Both David Ricardo and Karl Marx attempted to quantify and embody all labour components in order to develop a theory of the real price, or natural price of a commodity.[1]

In either case what are being addressed are general prices, i.e. prices in the aggregate, not a specific price of a specific good or service in a given circumstance. Theories in either class allow for deviations when a particular price is struck in a real-world market transactions, or when a price is set in some price fixing regime.

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  1. ^ e.g. see - Junankar, P. N., Marx's economics, Oxford : Philip Allan, 1982, ISBN 0-86003-125-X or Peach, Terry "Interpreting Ricardo", Cambridge: Cambridge University Press, 1993, ISBN 0-521-26086-8

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