Surely the distinction is simply between (a) value from production and (b) values associated with mere transfer payments that involve no real resource costs. Different types of the latter include the markets for (i) land qua land; (ii) the existing stock of buildings qua buildings, second-hand cars, or old masters; (iii) the existing stock of financial assets, including derivatives, whose prices reflect the relative strength of volatile bull and bear sentiment from moment to moment.

Bruce Caldwell, in referring to Menger's experience in reporting financial news, partly captures this point, but his subjective theory of value has great limitations in understanding value from production. On this, cf. Allyn Young's 1927-29 LSE lectures (in Jnl of Econ Studies, 17:3 (1990), pp.32 and 34):
    "Dissatisfied with cost theories, other economists [the Austrians] sought to find the explanation of value in marginal utility. Such a position illuminates some aspects of the problem, but it is quite as one-sided as cost-of-production theory. Relative costs determine how far consumers can and will follow their preferences. Preferences determine what costs shall be encountered... It is a case of relative costs versus relative elasticities of demand."

- Roger Sandilands

________________________________
From: Societies for the History of Economics [[log in to unmask]] On Behalf Of Bruce Caldwell [[log in to unmask]]
Sent: Sunday, October 21, 2012 9:16 AM
To: [log in to unmask]
Subject: Re: [SHOE] finance and a "new" theory of value?

One answer: no, it just means that we should reject the classical theory of value, and embrace a subjective theory of value, at least for such markets.
Carl Menger's inspiration for his approach came from his experience reporting on financial news for a newspaper, a job he had for a while in the 1860s. Presumably he reached the same observation as you did about the explanatory weakness of the classical theory in that realm.
Bruce


On 10/20/2012 9:51 AM, luigino bruni wrote:
One question. The key element of the classical theory of value was that the
value of goods is due to the three basic production factors (land, capital,
labour) with a special role of labour. The economy creates value thanks to these
factors. The neoclassical revolution, in particular in Marshall's mediation,
did not reject the view that in equilibrium value depends on the costs of production.
The question: Can the classical theory of value be applied to today’s financial markets with derivatives, hedge fund, etc? Can the theory of value explain a

creation of value that is tens or hundred times higher than the
original value of the underlying traditional goods (shares, insurance)? Do we require for finance today a new theory of value?
Luigino




--
Bruce Caldwell
Research Professor of Economics
Director, Center for the History of Political Economy

"To discover a reference has often taken hours of labour, to fail to discover one has often taken days." Edwin Cannan, on editing  Smith's Wealth of Nations

Address:
Department of Economics
Duke University
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Office: Room 07G Social Sciences Building
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