Theories of Value and how to measure Value

I’m profoundly curious about what makes things in our world valuable.


According to philosopher Immanuel Kant, there are generally two “worlds” we can speak of, that is, the external world of human experiences (Kant calls this the phenomenal world); contrastingly, there is also the noumenal world, or “things in themselves,” or intelligible world. Side note: there can certainly be other “worlds,” as well as other types of knowledge besides empirical knowledge and noumenal knowledge.


I want to strictly talk about the external world right now – the noumenal world is too vast and difficult for me to comprehend in a short blog post – and surely, Kant admits himself, is rather difficult if not impossible to discern with pure reason.


The external world is what we know as empirical reality. This is where science lives. Physics – not metaphysics – can be proven, experimented with, and discerned with data. Only once you have mastered physics, can you study beyond physics – the metaphysics – as Ancient Greek philosopher Aristotle noted.


So how do we describe ‘value’ in this external world of human experiences?


Let’s talk for example the famous water-diamond paradox of value. Let’s assume a 500-ml bottle of water and a 24-karat diamond.


In the rich western world, we have mutually agreed that diamonds have high value. (Well perhaps mutually agreed-upon may be the wrong language – I certainly wouldn’t want to discredit decades of savvy marketing and psychological warfare in convincing the general population of the value of this rock). However, as a general population, it would be hard-pressed to find someone who doesn’t recognize the value of a diamond – if not for personally valuing it, then recognizing its value on the ‘market’ IE selling it to someone else for a quick buck.


Now, in the market economy, we can objectively declare this 24-karat diamond to be more ‘valuable’ than a 500-ml bottle of water. Yet, some context can be easily applied here: what if you are planning a trip to the Sahara desert, a solo trek across the dunes? I would be shocked if you packed a bag of diamonds rather than several bottles of water. A dehydrated, stranded individual in the desert would value that bottle of water as equivalent to life – surely that is priceless.


This scenario we’ve painted suggests that value, at least to some degree, requires context. And I would suggest precisely this. But my frustration here is that if value requires context, then how do we discern between objective value and contextual value?


In economics, intrinsic value is considered objectively measurable – if you were, say, wanting to measure the intrinsic value of Microsoft stock, you could technically calculate its net present value by using historical growth and dividend data, inflation rates, interest rates, etc. Of course, there are still some certain assumptions you might have to make, such as constant growth vs linear growth vs. exponential growth, and the assumption of no Black Swan events in the near future (like the panorama 19…) I won’t get into the nitty-gritty of it but in one of my calculations (purposely in the plural, because there are other calculations), Microsoft stock should range from roughly $100-180 based on intrinsic value, with a best-case scenario of $250. As of October 10th, 2021, Microsoft stock is trading at $300. Why?


That’s because the stock market is not strictly a mathematical game – it is a war ground for financial chaos, psychological warfare, and profound uncertainty. When sentiment is confident, and people are overzealous to make money, they buy and prices go up. When things look grim, and blood is on the streets, the stock markets will bleed red. The reason I mention the stock market is because I want to emphasise that intrinsic objective value is not the only way we value things – humans are not strictly rational objectively measuring deciding agents.


So now we have given some criteria on value. How we value things depends on context, as the water-diamond paradox shows. A physical polaroid picture of your dog becomes much more valuable to you, personally, when your best friend passes away. That picture becomes astronomically more valuable when all your digital pictures of them disappear, and that polaroid is the last remaining.


The stock market example showed us that value isn’t just objectively measured – yes, we do have fancy theorems for measuring objective value with math, but not everyone adheres to it, and I would suggest most people don’t even know compeltely how these objective measurable theories work (myself included) if they even know that they exist. This extra value away from the intrinsically measured value in Microsoft stock is extrinsic, or, I will call irrational/hopeful value. People don’t buy Microsoft stock at $300 without hoping, mostly irrationally, that it’s worth more than $300.

  1. Contextual value
  2. Objective/Intrinsic Value
  3. Extrinsic/Hopeful Value

Now, bear with me, because this is where things get a little abstract and confusing. Philosophers have their own definition of intrinsic value, and it is loosely defined as “things in themselves as a final end.” Everything else that isn’t a final end, as in a means to an end, is not intrinsically valuable.

Things for their own sake are what we should consider valuable. This usually excludes things like money and materialism. Instead, it includes abstract ends: happiness, beauty, beatitude, truth, love, the sublime, friendship, peace.
In the external world, it becomes incredibly hard to describe to one another why we value things. Why is this friendship valuable? Why is a rising/setting sun beautiful? Who dictates these values? And how do we go about measuring them? It might be a futile endeavour to do so, but that result is unsatisfying to the economist who wants to measure decision making.


Ultimately I don’t know the answers to all these questions; there are so many different theories of value, and I only proposed a primer on a few. What I do want to suggest, if you ended up reading this far, is to start questioning how you personally value things in your human experience. If we being to ask ourselves why we do the things we do, and what ultimate good, or end, that we consider intrinsically valuable according to the philosophers, then maybe we can start figuring out what type of life we want to live.

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