Theory of value
Theory of value is an area of study within economics concerned with what things are worth, and why they are worth what they are worth.
Theories of value include:
- Labor theory of value: Goods and services are worth the total labor necessary to acquire them;
- Randian theory of value: Value derives from the objective realities of an individual's situation, and reasonable goals on the part of the individual;
- Subjective theories of value: value is created and determined by subjective demand and scarcity
Adam Smith states there are two types of value, value in use, and value in exchange, and gives as an example,
|“||Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it. ||”|
- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Of the Origin and Use of Money, Book I, Chapter 4, Paragraph 13, First Edition 1776.