The Problem of Value

One of the very first things you’ll learn in an Introduction to Economics course is the problem of value. There is no such thing as a “true value” of a good or service. The closest approximation we can make is based on willingness to pay. The price of something is whatever people are willing to pay for it.

In his post in reaction to Francis’s papal encyclical, Tim Worstall makes another significant point about value:

The second problem here is a logical one. Stemming again from a definitional error. We do not assume that infinite or unlimited growth is possible because there’s that infinite supply of the earth’s goods. On the grounds, described above, that the first thing we do note is the scarcity of those resources. Rather, we note that economic growth is not dependent upon the supply of the earth’s goods. Economic growth is defined as an increase in the value created, that value being defined as whatever subjective and or arbitrary value human beings put on what is created.

As an example, human beings appear to value MP3 files. The creation of a new MP3 file, containing new information or sounds, is not notably constrained by the consumption or supply of the earth’s goods. Nor is the duplication of an extant MP3 file so constrained: but there is that increase in value as defined by human beings.

The supply of resources, of the earth’s goods, is indeed limited. But given that value itself is not a physical thing, the amount of value that can be created is not limited by the supply of physical inputs or goods.

Since value is not limited by the amount of physical inputs or goods, even in the face of scarcity we can continue to grow and prosper. For an example of this, simply look around you. A century ago most American were engaged in farming, mining, cutting lumber, fishing and the like—primary production. Today most American are employed in retail, hospitality, professional services, finance, and healthcare—secondary production.