World 12 · Philosophy of money · Lesson 4 of 13

What makes something valuable?

Labour, usefulness, scarcity or desire? Classical and modern economics answer differently.

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The idea

Why is water, essential to life, cheap, while diamonds, which we could live without, are expensive? Adam Smith raised this paradox in The Wealth of Nations. Classical economists — Smith, David Ricardo, and later Karl Marx — gave versions of a labour theory of value: goods are worth, in some fundamental sense, the labour needed to produce them. Marx built on this to argue, in Capital, that workers create value that owners capture as profit.

In the 1870s, economists including William Stanley Jevons, Carl Menger and Léon Walras proposed a different answer, now central to modern economics: value is subjective and marginal. What matters is how much an additional unit is worth to someone given what they already have. Water is cheap because we usually have plenty, so one more glass matters little; diamonds are scarce, so one more matters more. Prices, on this view, emerge from many people’s preferences meeting scarce supply.

Both traditions still shape debates today: about fair wages, about what makes a job or a product valuable, and about whether market prices capture everything that matters — such as care work, clean air or community, which can be valuable without having a price.

Why it matters

How we think value is created influences how we judge prices, wages and our own work — and whether we notice valuable things that markets do not price.

A real example

The situation

A nurse and a financial trader discuss why their pay differs so much when both work long, demanding hours.

What happened

The trader points to the value the market places on his work; the nurse points to the value to society of hers. Each is using a different idea of what value means, and neither fully convinces the other.

The takeaway

Market price and social value are two different measures, and they can diverge sharply.

How people actually behave

People often treat price as a measure of worth, which can lead them to undervalue unpaid or low-paid work and overvalue what is merely expensive.

Common mistakes

• Assuming price always equals value.
• Assuming that anything without a price has no value.
• Treating one theory of value as settled beyond debate.

Different perspectives

Reasonable people disagree here. None of these is presented as the answer.

Value comes from labour

The classical tradition, and Marx in particular, emphasises the human work that goes into goods, and asks who captures the value that work creates.

Value comes from subjective preferences at the margin

Modern economics holds that value is what an additional unit is worth to people given scarcity, and that market prices efficiently reflect these many preferences.

Some value lies outside markets

Others argue that care, nature, community and meaning have real value that neither labour nor market prices fully capture, and that societies should account for them in other ways.

Questions to think about

• What is something valuable in your life that has no price?
• Is your own work paid in line with the value you think it creates?

Try it: Price and value

1. List five things you value most in your life.
2. Write roughly what each costs, if anything.
3. Notice where price and value diverge most.