The labor theory of value and the theory of utility are two extremes of one whole

Have you ever thought about whatguided by the producers of goods, setting them on certain prices? It is clear that they take into account the cost of their competitors' products, but after all, competitors have to orient themselves on something. We can say that their pricing policy depends on the reaction of consumers. Well, what does the buyer's decisions depend on?

Labor theory of value

The first one who tried to explain what thethe value of these or other goods, was none other than Adam Smith. He said that not all of the world's riches were originally purchased for silver and gold, but only for labor. With this it is very difficult not to agree. The labor theory of value has been further developed in the writings of V.Petti, D.Ricardo and, of course, K.Marx.

These economists believed that the cost of anyproduct created for market exchange depends on the labor expended for its production. It is this that determines the exchange ratios. At the same time, the work itself can be different. Not requiring qualification and, on the contrary, requiring. Since the latter requires prior training, certain knowledge and skills, it is valued somewhat higher. This means that one hour of specialist's work can be equated to several hours of a simple laborer. So, labor theory of value suggests that the price of goods is ultimately determined by socially necessary (average) time costs. Is this explanation exhaustive? It turns out that no!

The theory of marginal utility

Imagine that you stayed for a while indesert, and your life depends on several sips of life-giving moisture. At the same time you have a million dollars in cash. For this price, the trader who has met meets with him to buy a jug of clean, cold water from him. Do you agree to make such an exchange? The answer is obvious. The non-labor theory of value, founded by O. Böhm-Bawerk, F. Wieser and K. Menger, says that the value of goods and services is determined not by labor costs, but by the economic psychology of the consumer, the buyer of useful things. If you think about it, this statement contains a certain amount of truth. Indeed, a person evaluates a certain good depending on his life circumstances. And the subjective value of the same goods as it is acquired decreases.

For example, in the heat we will gladly buy ourselvesice cream, eating it, we may want to buy a second and even a third. But the fourth, the fifth and the sixth will no longer have such value for us as the first. The labor theory of value does not explain such behavior, and the utility theory can do it easily.

Theory of supply and demand (neoclassical school)

Representatives of this direction, the founderwhich became an outstanding economist A. Marshall, saw in the previous explanations of the value of one-sidedness and decided to combine the two previously described approaches. In their theory of the value of goods, a clear departure from attempts to find a single source of the price of products is clearly discernible. From A.Marshall's point of view, the discussion about what the cost is regulated - by costs or utility - is tantamount to a dispute about exactly which blade (upper or lower) the scissors are cutting a piece of paper. Neoclassicists believe that the value of goods is determined through the relationship of the buyer and the seller. Therefore, supply and demand factors are in the forefront. In other words, the value of the cost depends on the ratio of producer costs (sellers) and the income of the consumer (the buyer). This ratio is equal, and each side estimates this value in its own way, taking into account the maximum possible concessions to each other.