VALUE (OF. value, value, fem. sg. of p.p. of valoir, from Lat. ralere, to be strong, able). In political economy, a word that is most com monly used to designate the power of a com modity to command other commodities in ex change. The term is applied, however, to several other conceptions. The potential capacity of an object to meet human needs is sometimes called value—'value in use,' in the terminology of the classical economists. In modern scientific economics, the term 'utility' has for the most part supplanted this use of the word value. An other meaning which the term value conveys is the significance of an object to an individual as the indispensable condition of a certain satisfac tion. Value in this sense of the term is frequent ly called 'subjective value,' to distinguish it from `objective' or 'exchange' value (the first con ception noted above). Subjes2tive value is of two kinds, 'subjective use value,' where the import ance of an object is gauged by the direct satisfac tion to be obtained through its consumption, and `subjective exchange value,' where the importance of an object is gauged by the satisfaction it will yield indirectly, through exchange.
A distinction is usually made between 'market value' and 'normal' or 'natural value.' Market value is the purchasing power of a commodity in the open market on a given day; normal or natural value is the value which would prevail if competitive forces worked without friction. Market values fluctuate widely from day to day; normal values change, if at all, only with changes in the fundamental conditions of production and consumption.
The word 'price' is often used as synonymous with 'exchange value.' Economists define price as the power of a commodity to command money in exchange; value ('exchange' or 'objective') is the power of a commodity to command in exchange commodities in general.
In order to have value, an object must satisfy some human want, and it must exist in a quanti ty which is insufficient wholly to satisfy all de sire for it. It must possess 'utility' and 'scarcity' In the ease of most commodities. limitation in
supply is due to the necessity for effort or sacri fice in winning such co iiiiii ratifies from nature, In explaining value, eeommuists have been in clined] to emphasize one or the other of these two essential conditions. On the one hand, we have the cast theories of value: on the other. the util. ity theories. As representative of the cost theories we may take that known as the classical theory, derived from Adam Smith, logically developed by Ricardo, and substantially completed by Senior, Carey, John Stuart Mill. and Cairnes. Accord ing to this theory, market value is determined by demand and supply. being fixed at the point where the former just. equals the latter. Value increases directly with increase in demand, in versely with increase in supply (other conditions remaining the same). In the case of commodities that may be freely reproduced without increase in cost, cost of production determines normal value. If market value is not high enough to cover cost of production some producers will turn to other industries, with the result that value will rise through decrease in supply. lf, on the other hand, market value exceeds cost of pro duction, producers will secure a profit which will hire other producers into the field. whose edmme. tition will reduce prices to the cost level. In the case of commodities produced at varying costs (e.g. the products of agriculture) values will tend to equal cost to the producer in the least favorable situation whose product is neverthe less necessary to meet the demand. The classical economists recognized a third class of commodi ties, consisting of those which could not he re produced (e.g. paintings by the old masters), and of those whose production is controlled by a monopoly. The value of such commodities, in their theory, is derived from their utility and scarcity. Such commodities were regarded as relatively unimportant: accordingly. the law that value is controlled in the long run by cost of pro duction was held to be nearly universal.