value

I might as well break these up. Here's some of what I wrote PK about Mengerian value theory:^*

Value is always value to someone. I've been heavily editing a chapter on value theory so my mind is filled with this stuff at the moment.

(You can probably check most of these names in Wikipedia:)

Before Adam Smith, the Continental tradition was to treat economic value as subjective, but the subjectivists didn't understand the relevance of marginality -- that decisions are made on the margins, so to speak, and that the subjective value of X always means the subjective value of the next relevant concrete unit of X and not of all units of X in some abstract aggregate. Prior to the discovery of marginality, it was thought that because there tended to be a uniform price for X, there must also be a single value for X. What marginality reveals is that the price of X is determined by the lowest valued use of X, given the available supply. A single glass of water is very valuable to a man dying of thirst, but the millionth glass of water can be used to wash his dirty bits or to spray litter off the sidewalk, or to irrigate, flush sewers, etc. It's the value of that millionth glass that determines the price of all glasses of water, even the one you drink to survive.

Smith seems to have started the tradition of objective value theory. Somehow labor was supposed to impart an intrinsic, objective value on the products of labor. Smith and Ricardo and others are referred to as the British Classical School. Marxism and all other western 19th-century socialisms come from this tradition. The labor theory of value is the basis for leftist exploitation theory and the secular attacks on "usury".

The marginalist revolution was the near-simultaneous discovery of marginality by three men: Jevons in Britain, Walras in France, and Menger in Austria. Marginality requires subjectivity, since different people experience different marginal decisions, revealing different values and manifesting in different price-tolerance. But Menger (and the following Austrian School tradition) conceived the nature of value entirely differently than did Jevons and Walras (and the following "neo-classical" tradition that currently constitutes mainstream economics).

Neo-classical value theory is a psychological theory, called marginal utility. Utility is want-satisfaction, which is a psychological phenomenon. An economic good is anything that can satisfy your wants. More highly valued goods are those that can more greatly satisfy your wants. They are said to have more utility. But again, it's the utility of the next unit of X (the marginal utility of X) that ends up determining its price.

Austrian theory is entirely different. Technically, it should be called marginal value theory, not marginal utility theory, since Menger saw no reason to conjecture about unobservable abstractions such as psychological want-satisfaction. Menger's claim is that we see people prefer X to Y, as demonstrated by their choice of X when it means forgoing Y. That's all we need to know for economics. The reason someone foregoes Y to gain X is economically irrelevant; all we care about is that he chooses one over the other. The "value" of a good, in the Mengerian theory, is the subjective ranking it gets in someone's array of options. Value is evaluation.

[...]

The neo-classicals like utility because they conceive of it as a quantity. An orange gives me 5 utils and gives you only 4 utils so I value it more than you do. (And according to social cost theory, which comes later, it is best if I get the orange and you don't.)

For Austrians, value is ordinal (ranked) not cardinal (counted). Austrian economics is therefore a qualitative science, not quantitative. (Always brings me back to Gregory Bateson's complaint that modern scientists think science has to be about numbers, rather than patterns, directions, and other qualitative phenomena with which we can be just as rigorous.)

* This is what I wrote, but I won't be at all surprised if someone wants to point out where I've been sloppy or gotten something wrong.

Also, PK questioned my claim to iceberg that there are 2 paths to wealth: "You can't mean only two."

So I amended:

[...] you're right that I skipped over the Robinson Crusoe stage. Still, I think it is more than rationalization to describe an individual's isolated pursuit of goods as exchange, if not trade.

Crusoe lies exhausted on the beach. He realizes he's hungry. He drags himself up and wades out into the surf where, after an hour, he's able to catch some sea creature and pop it in his mouth. He has exchanged something he valued less (another hour of rest) for something he valued more (seafood). It is impossible to pursue wealth without exchange. Everything has an opportunity cost.

But you're right, that's not quite the same thing as trade.

Still Crusoe's wealth potential is so limited that he might soon starve to death. By trading both rest and fishing for the creation of a spear (capital formation) he increases his future wealth. So I still do mean only two paths. I'll just swap out "trade" for "exchange" and recognize trade as the dominant subset of exchanges within civilization.

Autarky is poverty.