History of ECON 2 - Book Report/Review Example

History of Econ 2 Theories of value The need to understand value resulting from commodity production and market prices requires a deep exploration on the perception held by the two theories of value: labor theory of value and utility theory of value. In which case, each has differing explanations for the price system in the market. This essay provides a critical review of the two concepts, by first explaining the difference existing between the theories; then using this as rationality for verifying economist classification of objective and subjective theory.

Labor theory of value states that by determining the total amount of socially obligatory labour needed to produce a good an individual can ascertain the economic value of the particular good. It puts the amount of labor, used in making production a success, as its priority in explain the price system. The theory agrees with the notion that the price of goods cannot be determined subjectively but rather through recognizing the resources used in its completion. Evidently, the theory implies that goods requiring the same timeframe to produce should have the same cost.

However, utility theory of value brings a different meaning by asserting that the economic value does not necessarily rely on labor, but on how scarce or useful the good is to the individuals involved in the transaction (Lautzenheiser & Hunt, 115). According to this theory it is not plausible base the value of a given good on the number of resources or labor used in its creation. From the above explanation, it comes out that labor theory of value is more of objective while the utility theory is subjective in nature.

Labour theory is considered objective because it lays its claim on the sphere of production; whereby sphere of production includes labor and resources required to drive the process to completion. The labor and the resources in this case are therefore considered as “objects” of productions since they are necessary for the successful completion; otherwise, there would be no finished good. From this, the objectivity of the theory comes out succinctly given that it expresses the theorists’ opposition to subjective judgments in determining the prices of the commodity.

Intuitively, theory advances the idea that labour and other resources are necessary for the creation of value hence must be integrated in the price systems. For utility theory of value, the economists characterize it as subjective in nature because it places value on the desire that the subjects attach to the good. In which case, the subjective nature comes out because it focuses value on the sphere of circulation rather than the resources needed to the complete the production process. The idea of scarceness or usefulness of the product thereby arises in determining the value and hence the pricing system (Bentham, 130).

The economists view the theory from the point that it disputes the inherent nature of the value of the object and instead considers the value resulting from how people desire or need the object. Consequently, it is subjective because it gives much power to the action of individuals in the sphere of circulation. In conclusion, the definitions given to the two theories confirm the economists’ classification of subjective and objective theory. In which case, utility theory of value is subjective in nature because it places value on the desire that the individuals (subjects) attach to the good.

However, labour theory is considered objective because it focuses its claim on the sphere of production, whereby labor and resources are considered as the determinant of value of the product. Work citedHunt, E. K. & Lautzenheiser, M. History of economic thought: A critical perspective. New York, NY: Harper Collins Publishers, 1992. Bentham, J. Utilitarianism and Classical theory of Value. Oxford University Press, 1830