Value, Advantage & Malthusian trap

Value, Advantage & Malthusian trap

Many theories have been formed regarding value; subjective, objective, utility, marginal utility, production cost, additive, labor. In simple words, they examine how the value of something is determined. In subjective theory, value is determined by the desires and needs of the consumer. It depends on how important it is for someone to meet needs or achieve goals. David Ricardo believed that different people receive different levels of satisfaction from a good.

Another view holds that there is an objective value that is the property of the object or service. This is its true value, which may be different from what buyers are willing to pay. In another theory, value is based on utility. Each person puts a priority on the goods he/she wants. Once the basic needs are met he/she will seek to acquire others. This theory cannot explain the paradox of water and diamonds. Although water is much more useful than diamonds, water has a much lower value. So, the concept of marginal utility is introduced, the additional utility of consuming one more unit. Each additional unit of a commodity receives an ever-decreasing satisfaction, the law of diminishing marginal utility. Marginal utility explains the paradox because water is abundant while diamonds are scarce. According to production cost theory, value is the sum of the costs for all factors of production or inputs, labor, capital, land, and taxation.

It is similar to Adam Smith's additive value theory. He believed that value was based on labor. In primitive societies, work determined the value of exchange. In more developed societies it should include reward for the owners of the factors of production. It is worth as much labor as it takes to exchange or as one saves (in the case of tools). The work done on the production does not matter and in this way, he indirectly includes the supply and demand mechanism. He distinguished prices in physical and market. Physical prices are the sum of wages, profits and rents. When production was at the level of efficient or effective demand, market prices would approach natural ones.

Labor value theory claims that value is determined by the labor required to produce it. This includes work on raw materials and machinery used in production. All costs are ultimately broken down into labor costs, except profit and rent or return on capital and land. David Ricardo and Karl Marx tried to measure and include all the labor needed to produce. It is considered a key pillar of Marxist and anarchist thought but was first introduced by classical economists, Adam Smith and David Ricardo. Marx differentiates between socially necessary and used labor. Value is determined by the first. There is an exploitation of the working class in the capitalist system. The surplus value of labor is what the capitalist receives from the value of the transaction and does not pay it to the workers.

The absolute advantage is the ability of a professional, a business or a country to produce a greater quantity of products or services than competitors. Adam Smith first mentioned it in international trade. He argued that all countries could benefit, if there was free trade and each country specialized in the sectors where it has an absolute advantage. Some countries may have no absolute advantage in anything. Ricardo developed the theory of comparative advantage. In simple terms, Ricardo said that countries can benefit from free trade, when they specialize in what they do best, even if they do not have an absolute advantage.

The Malthusian Trap is a theory which claims that although there have been increases in overall production, living standards have remained virtually stagnant throughout history, due to population increases. The basic idea is that production of food and raw materials increases linearly while population geometrically (faster). Nature employs crime, illness, war, natural disasters as regulators to the problem. Supporters of the theory cite the amount of wheat that the average daily wage earner could buy at various periods in History; a) Babylonia - 1700 BC - 15 pounds b) Classical Athens - 300 BC  - 24 pounds c) England - 1800 AD - 13 pounds. Opponents claim that, labor productivity grew much faster than the population. Most agree that overcrowding of the planet clearly has an impact on the depletion of natural resources, environmental damage,  migratory flows, social unrest etc.

Scroll to Top