Hello,
Was hoping a scholar here could help me out. Can someone do me the great favor of explaining intrinsic value in terms of Austrian Economics? An Austrian would not believe something has intrinsic value correct? I have been reading Rothbard so I believe he states subjective theory of value is the way to go. Does something have intrinsic value? Gold? No? Either way could someone provide a short sweet explaination?
On top of that could someone also clear up the differences between money and currency? I understand money is a function but can't currency be a function as well? What are the differences? Short and sweet explainations would really help me out a lot.
Thank you all so much in advance!
All value is subjective because it involves purposeful action done by the acting man...
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Production is 'anarchistic' - Ludwig von Mises
So then nothing has intrinsic value?
Any insight on currency v. money?
Thank you again.
"Intrinsic value" depends on the context. The ultimate worth of an object is subjective. If nobody wants it, it has no value.
However, when contrasting fiat money to gold, one can say that gold has intrinsic value compared to paper money. In that context it means that, stripped of its use as money, paper fiat money would have almost no [subjective] value, certainly not even close to the number printed on it. Gold on the other hand has [subjective] value even if it is not legal money.
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Excellent, thank you. Helps me a bunch. Any insight on money v. currency?
money is market created... history shows people have used gold,silver, crops,animals, rare rocks, etc. as money...
in a free market system, or atleast somewhat free market, currency may represent money... for example, you used to be able to cash in your dollars(currency) for gold (money)... in today's banking system, the US currency is backed up by nothing... if government, somehow, vanished tomorrow, do you think your currency is useful? Maybe, if someone chooses to accept it, but that would be bad choice for that person because the currency is backed by nothing...
im sure others have a better way of explaining it
So then when Gold becomes money does it become intrinsically valued?
never... every value is subjective...
If i gave you a loaf of bread for some gold and you accept the trade... you are valuing the bread more than the gold, and i am valuing the gold more than the bread... then if i go to a different person and offer the bread for the same amount of gold as i did to you and the person rejects the trade, he obviously values his gold more than my bread, but you value my bread more than your gold... therefore, gold, as well as everything, has subjective value...
Smiling Dave:"Intrinsic value" depends on the context. The ultimate worth of an object is subjective. If nobody wants it, it has no value. However, when contrasting fiat money to gold, one can say that gold has intrinsic value compared to paper money. In that context it means that, stripped of its use as money, paper fiat money would have almost no [subjective] value, certainly not even close to the number printed on it. Gold on the other hand has [subjective] value even if it is not legal money.
Dave, this isn't AE. This is something else.
Paper money, stripped of its value as legal tender, could have enormous value as a collectible.
Gold, not used as money, might be absolutely useless to someone who has no need for gold in an industrial or decorative application.
All value is subjective. Intrinsic value is a non-concept because it is contradictory to value being subjective.
Thank you for that, could you shed any insight into money v. currency? Are the previous posts for the most part right on?
No. What's happening is that the same words, "intrinsic value", are used to mean two different things.
Intrinsic value, when contrasted with subjective value means one thing. When contrasted with fiat value, it means something else.
As for "currency" wikipedia says it means money you can hold in your hand, like coins and bank notes, as opposed to... well, look it up.
here, http://mises.org/journals/qjae/pdf/qjae13_2_5.pdf, no less an expert than Mark Thornton in the Quarterly Journal of Austrian Economics, uses "intrinsic value" when discussing coins exactly as I described, both in the body of the article and in footnote 1.
in this article, http://mises.org/daily/4800, Rothbard uses the phrase the way I said. He was stating John Law's ideas, and clearly disagrees with them.
this article was accepted for Mises daily, http://mises.org/daily/3039, and uses the phrase as I mentioned
here, http://mises.org/daily/3803, Mises himself discusses the concept I mentioned, although he calls it "industrial demand".
Apparently "intrinsic value" is a very convenient phrase, and the users of it when discussing currency and fiat money assume some sophistication on the part of their audience, so that they will not be confused
Smiling Dave: here, http://mises.org/daily/3803, Mises himself discusses the concept I mentioned, although he calls it "industrial demand". Apparently "intrinsic value" is a very convenient phrase,
Apparently "intrinsic value" is a very convenient phrase,
Dave, why do you cite a passage of Mises' in which he does NOT use the phrase "intrinsic value" to support your contention that "intrinsic value" is a convenient phrase?
Aww, Danny, you know better than that. The other links were to show its use as I described. The Mises link, as I clearly pointed out, was to show he agreed with the concept, though he called it by a different name.
Now I'm confused again... so do things have an intrinsic value? Or is it something only possesses that when compared to fiat money?
As an example of what is going on, a "strike" in baseball means one thing, and in bowling means something completely different. It all depends on the context. Are you talking about baseball or bowling.
So too, "intrinsic value" means two different things, depending on the context. Are you talking about how the value of an object is determined, or about the advantages and disadvantages of various types of currency.
Dave, appeals to authority are a waste of our time. I welcome Mark Thornton to join us in the community and explain what he means by 'intrinsic value".
Value cannot be intrinsic and subjective at the same time. And we, as good Misesians and Austrians, know that value is subjective.
JaisonDM:Now I'm confused again... so do things have an intrinsic value?
They do not.
No, technically speaking, the concept is absolutely meaningless. At the same time, though, people use the term because it can be convenient, especially when talking to the general public (which is typically unfamiliar with economic doctrine). What they're trying to express is that the supply of gold is not arbitrarily controlled by some central authority.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
All values are subjective from an Austrian perspective.
The "intrinsic" value of a 100 dollar bill is next to nothing because it is valued mainly for its value in exchange. That value is still subjective though.
JaisonDM: Now I'm confused again... so do things have an intrinsic value? Or is it something only possesses that when compared to fiat money?
About 100 years ago, economists tried to discover what determines the price of an object. Some said there was something about the object, maybe the amount of labor put into creating it, that gave it its value. They called it the object's intrinsic value.
AE asserts there is no such thing. The value of an object, and thus the price one is willing to pay for it, is subjective. That's why you will hear that there iis no such thing as intrinsic value.
Another discussion that arose was about gives money value. Clearly fiat money and commodity money [like gold] are different somehow. Fiat money gets its value cause you can use it to buy stuff. When gold is money, it has that value [you can use it to buy stuff], but another component of value as well. You can make jewelry with it. You can use it in some industrial things. This additional value, as explained in the Mises article I linked to earlier, was called "industrial demand" by Mises, but later economists started giving it the name of "intrinsic value". But they certainly did not mean that gold when used as money has the other kind of intrinsic value, the one used in contrast to subjective value.
Jaison,
If an Austrian economist ever says that any good (including money) has "intrinsic value", they are speaking loosely. What they mean is that it has significant use value (as opposed to only significant exchange value, as is the case with fiat money). The term "intrinsic value" is widely associated with the fallacious theory of value of classical political economy, the refutation of which was the crucible out of which modern economics was forged. The everyday definition of the word "intrinsic" naturally leads to that association. Therefore, it is a most inconvenient term.
To clear up what I mean regarding the fallacious value theory of classical political economy vs. the value theory of Austrian economics, here are some comics I created (under my old pen name of "Lilburne"):
[EDIT: oops, flash embed not working. Here are the links:
Subjective Theory of Value
Marginal Theory of Value
Law of Marginal Utility ]
Excellent, I seem to have it now. I apologize for having you all restate your points. I am not exactly new to the AE realm and have been studying it for about 2 years now. I just always got mixed up with the two different uses. Thank you for all of your contributions. Much respect and another fine example of why you all make this the best area on the internet for proper research and expansion of knowledge.
Dave, appeals to authority are a waste of our time.
Appeals to authority are bad when used to defend a logical challenge to an idea. One should refute the challenge directly, not say "It must be wrong because so and so said so."
However, when the question is, "How do the recognized experts of the Austrian community use a phrase", then quoting from someone who is at the very heart of current AE is useful and relevant.
Put it this way. If you are going to write an article for the Quarterly Journal of AE, Mark Thornton is going to decide if you are using your words right.
A bit about Mark Thornton, from wikipedia;
"...a senior fellow and resident faculty member at the Ludwig von Mises Institute.[2] He is currently the Book Review Editor for the Quarterly Journal of Austrian Economics.[3]
...Thornton's first book, The Economics of Prohibition, was praised by Murray Rothbard, who declared:
Oops, flash embed not working. Here are the links to the comics I tried to embed in my last post:
Law of Marginal Utility
Jaison.... value is subjective... end of story.... A big part of how we differ from mainstream econ and other schools is our view on subjectivity... subjectivity is key in Austrian Economics
"It is clear, in these cases of direct exchange of useful goods,
that even if the utility of goods for buyers or sellers is at present
determined by its subjective exchange-value for the individual,
the sole ultimate source of utility of each good is its direct usevalue.
If the major utility of a horse to its possessor is the fish or
the cow that he can procure in exchange, and the major value of
the latter to their possessors is the horse obtainable in exchange,
etc., the ultimate determinant of the utility of each good is its
direct use-value to its individual consumer." - Rothbard , Man, Economy, And State page 142
"Everything in the economy ultimately occurs because of individual human actions which are guided by people’s subjective values and beliefs." - Robert Murphy, Lesson for the young economist, page 329
"When people engage in purposeful actions, they are motivated
by desires that are not necessarily identical from person to person.
In order to explain exchanges, economists must recognize that preferences
are subjective." Robert Murphy, Lessons for the young economist, page 39