Subjective Valuation

Economics as a science is concerned with the production and consumption of goods and services as well as the creation and distribution of wealth. Like other sciences, economics has several core theories that are used when studying these issues. One of the most important of these theories is the subjective theory of value.

To illustrate the subjective theory of value, let us consider first the barter system. Before the invention of currency, people acquired goods and services through the direct trading of goods and services. For example, a woman who worked as a seamstress would have produced quilts, and if she needed some eggs to feed her family, she would have traded quilts with the man down the street who owned chickens. In the exchange, both benefited. The seamstress received the eggs she needed to satisfy her family’s hunger and the man who gave her the eggs received the quilts he needed.

Currency made these kinds of exchanges much simpler, but it also made it harder to see how both parties benefit in the exchange of goods and services. It is easy to see how the man who sells eggs profits because he receives a sum—five dollars, for instance—for his goods. We might miss, however, the benefit to the buyer. The buyer needs eggs, and he might be willing to pay six dollars for them. He gets a bargain at five dollars because he is paying less than the value he puts on the eggs. On the other hand, if the eggs are priced at seven dollars, the buyer does not pay because he does not value the eggs at seven dollars. If he were to pay seven dollars, he would not profit because he would be paying more for the eggs than he thinks they are worth. Another person might value the eggs at eight dollars, so for him seven dollars would be a bargain.

The subjective theory of value recognizes that each individual is willing to pay a different price for a good or service because of how each individual values that good or service. When people are able to freely trade in an economy, both buyers and sellers benefit when they can buy and sell according to how they value goods and services.

Subjective valuation is at play even in the kingdom. Objectively, God has the highest worth, so we should value Him and His kingdom most of all (Ex. 20:3; Isa. 48:11). But there are numerous ways to advance the kingdom, and we are free to support those ministries whose work we value and to refrain from supporting others.