As far as I understand, Austrian Economics adheres to subjective valuation of goods. But a couple individuals in the chat last night mentioned that the rarity of gold determines (or at least aids in) its value. I disagreed.
For example, moon rocks ought to be one of the most valuable substances on earth. Please note: I am not speaking about why certain currencies are chosen vs. others--I am simply discussing the value of goods regardless of currency status. I am not wanting to discuss why gold is chosen vs. moon rocks; I am wanting to know how value of goods is determined accoridng to AE because I was under the assumption that it was completely subjective: for instance, water could, indeed, be the most valuable substance in existence to someone dying of thirst in the desert. The amount of people who value a certain good is unimportant concerning the principle of value.
So since, according to this site, there are 841.6 pounds of moon rocks on earth at this time (brought back by space exporers). Yet according to this site, I estimate that there are about 625 million pounds of gold on the planet.
So my question is this: are moon rocks more valuable than gold because they are rarer? Or is value completely subjective and rarity does not determine value?
If lots of people value a thing they bid up its price.
Value is definitely subjective, but when it comes to money there are several traits that make some forms of money more attractive to people than other forms. Since nobody owns moon rocks and nobody really likes moon rocks they're not worth much. People have consistently chosen gold as money for thousands of years because they love the way it looks (so it has value that is not merely speculative) and it has the following important traits: portability, divisibility, scarcity, durability, and uniformity.
See here.
</thread>
Clayton -
Rarity could certainly affect your subjective valuation of a good.
Well, marginal utility is an explanation that incorporates both factors of utility and scarcity. So to answer your question, it is both.
Clayton, thank you for the link, but I was aware of this paradox already, and it doesn't answer my question.
Concerning value, is it determined by subjectivity or rarity?
tabularasa: Please read the whole article which does answer your question, see here. Diamonds are not unconditionally more valuable than water. They're more valuable in the ordinary state of affairs where your thirst is quenched... but there is no reason why any valuation must be the same at all times or the same for everyone. If you are dying of thirst, you will value water more than diamonds. That is, you rank the value of things in accordance to your preferences at the moment. How can there be any confusion here?
Both. Something needs to be desired in order for it to be saleable, but if the supply is lower than demand, people will bid the price upwards in order to get it. So subjectivity determines whether or not something will be sold, and rarity determines the price.
Clayton: tabularasa: Please read the whole article which does answer your question, see here. Diamonds are not unconditionally more valuable than water. They're more valuable in the ordinary state of affairs where your thirst is quenched... but there is no reason why any valuation must be the same at all times or the same for everyone. If you are dying of thirst, you will value water more than diamonds. That is, you rank the value of things in accordance to your preferences at the moment. How can there be any confusion here? Clayton -
I understand. So value is inherently subjective. Might I beckon Aristippus who made the claim that value is determined by rarity?
Aristippus never said that. We can generally conclude that very non-rare things are unlikely to be more valuable than very rare things of similar quality just on purely analytical grounds - why should I pay a lot of money to you for dirt, for example, when there is dirt all around me? But if for some reason I want fuller's earth or French clay, which are comparatively more rare than just plain old dirt, I will have to either live somewhere where it is widely available, or I will have to pay someone for it.
But just because something is rare doesn't mean people will want it. For example, if some random homeless guy has only ever signed his name once in his life, that would make his signature extremely rare. Is it therefore valuable? Of course not. This is the basic idea of demand and supply. It is the relative abundance of demand and supply that together determine price.
You have taken the entire discussion completely out of context. I wasn't making any kind of general praxeological or economic statement. I was giving a purely thymological or psychological idea. My point was that part of the demand for goods desired for purposes of social status is that other people are less likely to have them, and so one shows their own superiority through possessing such items. Rarity can mean that it is more expensive to obtain such objects (which means one must be wealthy in order to get them), or perhaps that others can't get the objects at all. Have you never heard of 'keeping up with the Joneses'?
This all has nothing to do with any general statements about valuation. As others have noted, this is related to economics only due to the fact that rare things can be expensive as a result of certain relations between supply and demand.
Relevant:
http://www.learnliberty.org/content/thinking-margin/?utm_source=twitter&utm_medium=social&utm_content=Why%20are%20diamonds%20more%20expensive%20than%20water?%20&utm_campaign=social%20referrals%2013
There's value and there's price.
I might value my laptop so much that if it broke I would pay $10,000.00 for it, if need be. That is its value to me in dollars.
But the market price is not determined exclusively by my valuation, and I won't have to actually pay $10,000. That's because of the laws of supply and demand. What these laws say basically is that at a given price, there will be a certain amount of people willing to sell laptops, and a certain amount willing to buy them. At $500 a laptop, I am ceratinly one of the buyers, since I would pay much more than that if need be. Luckily for me, there are plenty of sellers who want money so badly they will part with their laptops for $500.
Where does rarity fit in here? Rarity means low supply. Now the higher the supply, the more willing the suppliers are to settle for a low price. This is for two reasons. First, because they can make more money usually selling a large quantity, even if it as a lower price. Second, because a large supply often means more people supplying, which increases competition, as well as the odds of some of them willing to settle for less money than if the amount of suppliers was less, obviously.
Does rarity make me value something more? In other words, if laptops were extremely rare, would I be willing to pay more than $10,000? For some items, yes. Usually these are items whose main use is showing off. If I have the only moon rock on Earth, I have bragging rights, which may give the rock more value to me than if everyone had a moon rock in their living rooms.
Bottom line, in some cases, rarity increases the subjective value of an object. It will also usually increase the price, by the laws of supply and demand.
Of course, some objects will always have zero value, no matter how rare. Camel dung from a three legged camel who could juggle is pretty rare, but I doubt anyone would want it. Maybe that's not the best example, but I hope I got the idea across.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer