The Theory of Value

Menger's theory of value begins where his theory of economic goods ended. If goods are scarce relative to requirements, people must rank uses. Value is the importance an actor attaches to a good because satisfaction of a need depends on command of it. The value is not a substance in the good, not a cost stored inside it, and not an objective property like weight or color. It is a judgment made by an economizing person.

When a person has several units of a good, not every unit is tied to the same use. The first units serve the most urgent needs, while later units serve less urgent needs. If one unit is lost, the actor does not give up the most important use; the remaining units are reassigned so that the least important dependent use is sacrificed. The value of one unit is therefore governed by the least important satisfaction that depends on command of that unit.

Higher-order goods do not have independent value. Their value is derived from the lower-order goods they help produce. A mill, flour, oven, and labour matter because they contribute to bread or other consumable goods. If the final product loses importance, the value of the production goods falls too. Menger's value theory therefore moves backward along the causal chain of production.

Chapter 3 can be read as a dependency map. Needs are ranked. Units are assigned to uses. The value of one unit equals the least important use that would be lost if command of that unit disappeared. Higher-order goods receive value from the consumer goods they help produce. Menger has now explained value without treating it as a property of objects.