There are a couple of typical theories of how Value is given to economics goods. One is the Intrinsic Theory of Value, where the value of the good is intrinsic to the good itself. Meaning all value is contained within the economic good itself. This theory of value is more often seen when using fundamental analysis to evaluate companies, maybe less so when evaluating food or production tools, but still used. Another theory is the Labor Theory of Value, which is probably the more common theory. This theory holds that the value of an item is in how much labor goes into it. This theory is more common because the average person is going to place value on their own work based on how expensive it was for them to produce. “It took me 10 hours to make this, I’m not selling it to you for 5$”. A classic mindset that isn’t worth refuting. In Robinson Crusoe, Daniel Defoe uses Crusoe to discuss an alternative theory of value, and one that is more inline with Austrian Economics and one that tends to be more accurate in its valuation over the Intrinsic or Labor theories of value. It is not known to this author whether Defoe meant to discuss economic theory or not, but regardless he beautifully illustrated the Subjective Theory of Value. The Subjective Theory of Value holds that all value is placed on an economic good, by economic actors. Value is subjective. Rather then explaining, let’s take a look at the following quotes:
Pg 61 – The Life and Adventures of Robinson Crusoe
However, this put me upon rummaging for clothes, of which I found enough, but took no more than I wanted for present use; for I had other things which my eye was more upon-as, first, tools to work with on shore; and it was after long searching that I found out the carpenter’s chest, which was indeed a very useful prize to me, and much more valuable than a ship-loading of gold would have been at that time.
The Labor theory of value may seem accurate from Crusoe’s eyes at this point. Doesn’t it make sense that a carpenter’s chest is more valuable than gold pieces, or maybe equally valuable? Gold is relatively easy to work with, easier than the Iron in the carpenter’s tools. Yet while Crusoe correctly places value here, it seems that the rest of the non-isolated world places much more value on the gold pieces than the carpenter’s chest. Is the rest of the world “wrong” or is the labor theory just a bit off?
Pg 69 – The Life and Adventures of Robinson Crusoe
…I discovered a locker with drawers in it, in one of which I found two or three razors, and one pair of large scissors, with some ten or a dozen of good knives and forks; in another I found about thirty-six pounds (~7k USD) value of money, some European coin, some Brasil, some pieces of eight, some gold, some silver.
I smiled to myself at the sight of this money. ”O Drug!” said I, aloud, “what art thou good for? thou art not worth to me, no, not the taking off the ground. One of these knives is worth all this heap. I have no manner of use for thee, even remain where thou art and go to the bottom, as a creature whose life is not worth saving.”
The Subjective Theory of Value seems accurate here because while Value of economic goods may typically approach a similar value to the Labor Theory, the Subjective Theory of Value allows for circumstances and volatility to change the value of goods. In times of crisis it is obvious that people aren’t placing value on what it cost to produce something, nor on what the intrinsic value of the good is; but rather people value goods simply by place their subjective valuations on the economic good. If they value it more than anyone else, chances are they will be the net buyers versus those who place little subjective value on the economic good. Robinson Crusoe placed more value in a knife then a significant amount of gold/silver coins. His valuation wasn’t wrong at all, it was subjective and accurate for his situation.
This post is the start of a short series of commentary based on quotes pulled from The Life and Adventures of Robinson Crusoe, by Daniel Defoe. The book was an enjoyable, pretty short and easy read. Here are some quick links to posts related to this book: Short review of the book itself, all the quotes in one place, and a list of other commentary like this one.