Value is a loose and seemingly paradoxical concept. While we humans constantly look for objectivity when evaluating things, all the world really offers is utter subjectivity. Is there any escape from this to come up with real, economic value?
Hardly any other thing seems so misunderstood, paradoxical and yet so essential. Since time immemorial, however, our species has been asking itself what exactly value is and where it actually comes from? What makes a thing valuable and why? Why do things lose their value while others gain in value? What really constitutes value after all?
In moral philosophy and the field of economics that grew out of it, the following idea gradually became established: value results from work. Work ultimately causes stress and exertion and must therefore be valuable because people shun work and prefer pleasure. Economic value is thus the objective result of labor expended. Soon, however, this theory stumbled upon problems. How can the "extent" of work performed be measured? What might be hard work for one person is easy work for another. Work effort was therefore translated into a measurable quantity: Working hours. The higher the number of working hours required to complete something, the higher the costs and therefore also the value of this thing. The measurability was not able to offer a satisfactory solution though. The problem was quickly recognized: a text written by an inexperienced scribbler with more effort does not necessarily have to be more valuable than a text written by an experienced author who takes less time. The opposite is much more likely to be the case.
To the incomprehension of many, value turns out to be a subjective thing. Value does not adhere to goods, is not objective and therefore also no measurable property of the same. The value of a good results from the subjective evaluation of an evaluator of the very thing at hand. It is the acting human being as an economic subject who evaluates the usefulness of a thing on the basis of his subjective needs. If the thing helps to achieve subjective needs and goals, the thing is consequently valued as a means to successfully achieve desired goals; the thing is simply valuable. Subjective therefore ultimately means that any act of valuation is always done by the economic subject and (economic) value is therefore always a relation between the subject and the world. Value is never an objective, quantifiable phenomenon.
Since value does not exist objectively at all and is therefore not measurable, it can only be ranked ordinally. The ordinal ranking of values, expressed in a preference order, allows us to see what is valued higher by a subject, but not by how much exactly it is valued higher. A numerical determination of value is by definition impossible. Nor can values ever be definitively determined from history. Because any value ultimately depends on an evaluating subject, the value of a thing can also change because the evaluation done by the subject changes. Nothing seems clearer than that, as a human being is not determined at all and is subject to constant change in his thinking, his desires and his preferences.
The repeatedly heard formulation of the so-called intrinsic value must therefore also be viewed critically. In strict economic terms, there can be no such thing as an intrinsic value of a thing, a good, a service, precisely because value itself is subjective and not an inherent property of any things. The various models for determining intrinsic value always have to make a variety of assumptions. In doing so, they try to reduce subjective elements as far as possible. It is clear, however, that every model is and remains always at least partially subjective itself. Nevertheless, the attempts to determine an intrinsic value are always to be understood as mental crutches in order not to wander around completely in the dark. It is like Newtonian physics: It is certainly wrong, considering the actual reality, but in practical matters it offers reasonable approximations for certain narrow areas.
The example of intrinsic value shows the whole paradox of value and its relation to reality. Even if the concept is actually false, it can still be useful in the context of human action. For example, subjective is often equated with arbitrary. Value is subjective, but not arbitrary. There are things that are better suited than other things for achieving certain goals. So while things do not have their value objectively in themselves, they have real properties that are more useful for achieving a specific goal than do other things. Value is therefore always relative. To a certain extent it originates in the minds of individual subjects, but their effective action in the world gives rise to an intersubjective evaluation and thus valuation, which establishes value as a quasi-objective essence of reality. In short: In the world, subjective desires rub up against "objective" possibilities.
We also see this fact illustrated in the case of money. Thus, there are things whose quasi-objective properties make them good money or just better money. As we have seen, a thing never has value simply by itself. The value (or non-value) is derived from the goal for the achievement of which the thing is suitable (or not suitable) as a means. The better a thing is suited as a means for the achievement of an intended goal, the higher its value. A thing can said to have economic value or philosophical meaning, if its characteristics let it fulfill its goal or purpose in the best possible way. The ancient Greeks already knew that a good knife can be recognized by the fact that it fulfills its purpose of cutting well. Analogously, it can be said that money has its value from the fact that it fulfills its purpose of being a universal and most marketable commodity in the best possible way.
Money is what proves to be the most marketable good in the marketplace. The value of money therefore consists in being exchangeable for as many other goods and services as possible and for as long a time as possible into the future. Whoever exchanges things such as time, labor or other things for money thus acquires the possibility of universal exchange. The possibility of being able to exchange the acquired money as the most marketable good for any other good in the future has a higher value for the exchanger than the thing given in exchange. Money has thus evolved to communicate (economic) values most efficiently and thus most beneficially. In this sense, money can also be seen as a form of language in and of itself - the language of value.
Money is the language for the mutual communication of value(s). Prices are, so to speak, the syllables of this language. In order to be able to speak this language in the form of prices in an economic system, money is still a necessary prerequisite. By means of relative prices, values can be communicated in an economy, but beware: Price and value are musn’t be the same thing. There are inevitably values behind prices, but not always prices behind values. As the great investor Warren Buffet is said to have stated: "Price is what you pay. Value is what you get." However, prices can also be distorted. That is, if the basis on which values are communicated, i.e. money, is subject to inherent distortions.
In our economy today, this is the case. A steadily accelerating expansion of the money supply, whether base money or other forms of money, leads to a continuing distortion of value within our current economy. As money is continuously created, that standard for communicating value relations is continuously distorted. The standard has thus degenerated into an elastic rubber band, which is why it can no longer properly perform its function of efficient information transmission. The information that prices transmit via money is distorted. The signal-to-noise ratio shifts to the disadvantage of the signal. More and more "noise" is introduced disturbing the information processing that money does through prices in an economy. The result is a deeper and deeper misallocation of capital due to distorted relative price signals. The fact that value investing, in particular, has performed poorly in recent years is a consequence of this very fact.