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

Have you ever thought about what the producers of goods are guided by setting certain prices on them? It is clear that they take into account the cost of their competitors' products, but in fact competitors have to be guided by 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 who tried to explain what the value of these or those goods depends on 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 any product 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, the labor theory of value suggests that the price of goods is ultimately determined by the socially necessary (average) time costs . Is this explanation exhaustive? It turns out that no!

The theory of marginal utility

Imagine that you have been in the desert for a while, 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, shows 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 assesses 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 ice cream ourselves, having eaten it, we may want to buy a second and even a third one. But the fourth, fifth and 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 cope with this easily.

Theory of supply and demand (neoclassical school)

Representatives of this direction, whose founder was the prominent 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 cost 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 is regulated by cost - cost 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, the 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.