The Theory of Value

For at least the past 120 years the discussion of the source of value has been dominated by the concept of marginal utility, originated by Jeavons in The Theory of Political Economy (1871), Menger in Principles of Economics (1871) and Walras in Elements of Pure Economics (1874). However, prior to the 1870s the debate on the source of value had been dominated by the various interpretations of the labour theory of value. Hence, the question of why goods and services have value and the determination of the magnitude of value, has been a constant theme in economics for over two hundred years. In contrast, the neoclassical school has an emphasis on the concept of subjective marginal utility. Subjective utility is the degree of satisfaction that is obtained by an individual, or household, from the consumption of a good or service. It is said to be quantifiable in the cardinal sense, and implies that individuals acquire goods and services to enhance their own utility. Thus, each individual acts as if they had a set of ordered preferences for different combinations of goods and services, and each individual is the best judge of his or her own utility.1 It would then be possible to impute a number to the combinations of goods and services that are consumed, and that such a number would represent the utility that was obtained from the bundle of goods and services.