Subjective theory of value

The subjective theory of value 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. Its development helped to better understand human action and decision making in economics. The theory follows that the value of any good is not determined by the inherent property of the good, nor by the cumulative value of components or labour needed to produce or manufacture it, but instead is determined by the individuals or entities who are buying or selling the object in question. Because of this notion, a good's value may also increase substantially since its creation, in that the good is perceived as being of greater importance, or more desirable than before. There are many variables that can influence this process, including, but not limited to, changes in age, personal affinity, cultural significance, scarcity, as well as situational circumstances. One can note that this trend is often seen in 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 goods 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". The theory belongs to a set of economic theories from the marginal revolution, an intellectual period representing a departure from classical economics, and its related theories, particularly the labour 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. Due to its development, the theory has helped explain why the value of non-essential goods can be higher than essential ones, whilst also understanding how relatively expensive goods can have low production costs.