Intrinsic Value and Currency v. Money

Miscellaneous Newbies
21

About 100 years ago, economists tried to discover what determines the price of an object. Some said there was something about the object, maybe the amount of labor put into creating it, that gave it its value. They called it the object’s intrinsic value.

AE asserts there is no such thing. The value of an object, and thus the price one is willing to pay for it, is subjective. That’s why you will hear that there iis no such thing as intrinsic value.

Another discussion that arose was about gives money value. Clearly fiat money and commodity money [like gold] are different somehow. Fiat money gets its value cause you can use it to buy stuff. When gold is money, it has that value [you can use it to buy stuff], but another component of value as well. You can make jewelry with it. You can use it in some industrial things. This additional value, as explained in the Mises article I linked to earlier, was called “industrial demand” by Mises, but later economists started giving it the name of “intrinsic value”. But they certainly did not mean that gold when used as money has the other kind of intrinsic value, the one used in contrast to subjective value.

22

Jaison,

If an Austrian economist ever says that any good (including money) has “intrinsic value”, they are speaking loosely. What they mean is that it has significant use value (as opposed to only significant exchange value, as is the case with fiat money). The term “intrinsic value” is widely associated with the fallacious theory of value of classical political economy, the refutation of which was the crucible out of which modern economics was forged. The everyday definition of the word “intrinsic” naturally leads to that association. Therefore, it is a most inconvenient term.

23

Jaison,

To clear up what I mean regarding the fallacious value theory of classical political economy vs. the value theory of Austrian economics, here are some comics I created (under my old pen name of “Lilburne”):

[EDIT: oops, flash embed not working. Here are the links:

Subjective Theory of Value

Marginal Theory of Value

Law of Marginal Utility ]

24

Excellent, I seem to have it now. I apologize for having you all restate your points. I am not exactly new to the AE realm and have been studying it for about 2 years now. I just always got mixed up with the two different uses. Thank you for all of your contributions. Much respect and another fine example of why you all make this the best area on the internet for proper research and expansion of knowledge.

25

Appeals to authority are bad when used to defend a logical challenge to an idea. One should refute the challenge directly, not say “It must be wrong because so and so said so.”

However, when the question is, “How do the recognized experts of the Austrian community use a phrase”, then quoting from someone who is at the very heart of current AE is useful and relevant.

Put it this way. If you are going to write an article for the Quarterly Journal of AE, Mark Thornton is going to decide if you are using your words right.

A bit about Mark Thornton, from wikipedia;

"…a senior fellow and resident faculty member at the Ludwig von Mises Institute.[2] He is currently the Book Review Editor for the Quarterly Journal of Austrian Economics.[3]

…Thornton’s first book, The Economics of Prohibition, was praised by Murray Rothbard, who declared:

*Thornton's book... arrives to fill an enormous gap, and it does so splendidly....This is an excellent work making an important contribution to scholarship as well as to the public policy debate.*
26

Oops, flash embed not working. Here are the links to the comics I tried to embed in my last post:

Subjective Theory of Value

Marginal Theory of Value

Law of Marginal Utility

27

Jaison… value is subjective… end of story… A big part of how we differ from mainstream econ and other schools is our view on subjectivity… subjectivity is key in Austrian Economics

"It is clear, in these cases of direct exchange of useful goods,

that even if the utility of goods for buyers or sellers is at present

determined by its subjective exchange-value for the individual,

the sole ultimate source of utility of each good is its direct usevalue.

If the major utility of a horse to its possessor is the fish or

the cow that he can procure in exchange, and the major value of

the latter to their possessors is the horse obtainable in exchange,

etc., the ultimate determinant of the utility of each good is its

direct use-value to its individual consumer." - Rothbard , Man, Economy, And State page 142

“Everything in the economy ultimately occurs because of individual human actions which are guided by people’s subjective values and beliefs.” - Robert Murphy, Lesson for the young economist, page 329

"When people engage in purposeful actions, they are motivated

by desires that are not necessarily identical from person to person.

In order to explain exchanges, economists must recognize that preferences

are subjective." Robert Murphy, Lessons for the young economist, page 39