Value

Value describes the ordinal ranking of personal preferences. Subjective judgments by individuals determine Value. Those subjective judgments lay the foundation for sound economic reasoning.

Subjective Value

The ranking of goods on an individual's scale of preferences determines its value. That ranking process determines the value of all economic goods. It determines the value of:

• A house...
• A boat...
• A car...
• A dinner out...
• An iPod...
• Common stocks...
• ...anything the individual finds useful or desirable.

Price

A price consists of the ratio of the quantities of two goods exchanged between two parties.

Prices occur at single points in time and space. Prices transmit information about the relative preferences (or values) of the parties involved.

Each party gives up a quantity of something that they value less than the quantity of the thing they receive. One might say that prices arise when "value meets action."

 

We continue with a brief clarification of the processes of Saving & Lending.