Subjective theory of value

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The subjective theory of value (STV) is an economic theory for explaining how the value of goods and services are not only set but also how they can fluctuate over time. The contrasting system is typically known as the labor theory of value.

STV's development helped to better understand human action and decision making in economics. The theory claims that the value of a good is not determined by any inherent property of the good, nor by the cumulative value of components or labor needed to produce it, but instead is determined by the individuals or entities who are buying (and/or selling) that good.^[1]

Thus a good's value may increase substantially following its creation if the good is perceived as being of greater importance, or as being more desirable than before. There are many variables that can influence this process, including, but not limited to, changes in the age of the good, personal affinity, cultural significance, scarcity, as well as situational circumstances. This is often seen in the case of collectable items such as cars, vinyl records, and comic books.

An additional variable, as Austrian economist Carl Menger pointed out, is the estimation of a good's value due to uncertainty and lack of knowledge, in which people "sometimes estimate the importance of various satisfactions in a manner contrary to their real importance".^[2]

It is one of several theories that sprang from the marginal revolution, which was a departure from classical economics, and in particular STV departed from the labor theory of value. The modern version of the subjective theory of value was created independently and nearly simultaneously by William Stanley Jevons, Léon Walras, and Carl Menger in the late 19th century.^[3] The theory has helped explain why the value of non-essential goods can be higher than essential ones, and how relatively expensive goods can have relatively low production costs.^[4]