People in economics and business administration may easily agree that their profession is closely related to “value”. In fact, it is so focal concept for economic theory that its absence would only left us with maths, hopefully logic, and mere historical curiosities. Under scarcity or in the state of “ceteris paribus”, increased emphasis on technical mathematical skills in empirical research shifts the attention away from maintaining robust theoretical understanding and connection to the core that is value. In short, conceptual understanding of value is in danger among modern economists. In turn, people in practice-oriented business seem to appreciate the concept of value so much that they even talk about “value creation”.
While acknowledging the conceptual importance of value, statements about value creation are misleading. Value by its pure essence, is not something that can be created objectively nor even maintained in its subjective nature. In economic sense, the only feature of value that has an objective dimension is action. Action describes change and is not a static state. Action as a manifestation of value has a temporal dimension. It implies that value cannot be regarded as something static that lasts by default. What you are about to read next are not just theoretical philosophy or rhetorics, but something so fundamentally practical that you can reflect and test it in your everyday life.
The first and the very fundamental thing about value in economic sense is subjectivity. This means that personal perceptions take place in each individual mind. It cannot be emphasized enough, that subjectivity does not equal to free will. It does not require nor take any position in that philosophical or empirical debate. Essentially, subjective value approach does not claim that individual mind should be in isolation from any external influence. It only implies that the final judgment of value concerning all information from the external world takes place in an individual human mind. However, subjectivity described above does not sufficiently describe, what value is.
Economics is human action
The future is uncertain
Value is a man-made concept without any objective natural scientific measure in the sense of SI system.
We use action as a proxy for it. However, action is still only the top of a bigger iceberg. It does not tell anything absolute, but at most a relative preference.
A saying “price is what you pay, value is what you get”.
Action tells about value in a short period of time. It would be a strawman argument about subjective value to claim that the value of a transaction would remain the same for an individual. Preferences may change. If transaction
This leads us to consider diversity of motivations behind transactions or actions in general.
There is a valid reason for theoretical concepts and models to remain simple. It is the responsibility of the user to avoid limiting one’s own understanding after these tools have helped to learn the specific thing they are only meant to illustrate. Narrow economic conceptions like monetary prices, supply and demand curves, mathematical textbook models of marginal utility and asset valuation are used to cover only certain parts of more general reality of everyday human action. Formality and exact measures bring comfort for people who require specificities. Ambiguity and uncertainty of the real world have not much to offer for them. The biggest benefits of subjective value theory are indirect. Subjectivity is much more complex that it sounds. For example, abandoning the narrow sociological terms of “economic” and non-economic spheres of society liberate to greater underlying forces. Developing a skill to apply the idea enables to see interconnections and the big picture beyond separate details. After all, facing ambiguity and uncertainty in the exact field teaches scientific humility
Since value creation is a misleading term and identifiable as a buzzword, how should improvements and success be called in economic terms? First of all, compared to all economic fashions we have, any approach that truly recognizes the focal role and nature of value is likely to be intellectually net positive. Theoretically speaking, the success of entrepreneurs lies in imagining an opportunity and discovering a way to match it with the customers who value it. Recalling the subjective nature of value, entrepreneurs discover those who value and demand their supply, that is, they discover value. You can call it value discovery or continue the use of “value creation”. In the end, it is the importance of realizing subjective value in all its complexities that matters. Discussing these terms provides an entertaining opportunity to go deeper and question assumptions of common economic understanding.