It is not surprising that the value theory deals with the determinants of the “value “of a good. The study of this subject is a central part of modern microeconomic theory, and is closely related to the issue of the allocation of scarce resources for alternative purposes. The logical place to start is the definition of the term value. Unfortunately, the meaning of this term has not always been the same throughout the development of this topic. Today we consider the as a synonym of the “price” of a good. The first philosophers-economists, however, differentiated between the price of a market for a good and its value.
The term “value” was then used as a synonym, in a certain sense, of “importance”, “essentiality” or (sometimes), “goodness”. Since “value” “price” and “value “Different concepts could differ, and most of the first economic analyzes focused on these divergences. For example, St. Thomas Aquinas believed that value was fixed by God. Since prices were set by humans, it was possible that the price of a good differed from its value. A person accused of charging a price higher than the value of the good was guilty of charging an “unfair” price. Any lender who demanded a payment for the use of money was charging an unfair price and could be, and frequently was, judged by ecclesiastical officials.
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In the latter part of the eighteenth century, philosophers began to adopt a more “scientific” approach to economic issues. The publication of The Wealth of Nations by Adam Smith (1723-1790) in 1976 is generally considered the beginning of modern economics. In his extensive comprehensive work, Smith created the basis of thinking about economic forces in an orderly and systematic way.
Even so, Smith and his immediate successors, such as David Ricardo (1772-1823), continued to differentiate between value and price. For Smith, for example, the value of a good means its “use value”, while its price represented its “exchange value”. The distinction between these two concepts was illustrated by the famous paradox of water and diamonds.
Water, which obviously has a high use value, has a low exchange value (a very low price); diamonds have little practical use, but a great exchange value. The paradox that the first economists tried to solve is based on the observation that some very “useful” items have very low prices, while other “non-essential” items have very high prices.