How does one determine the value of a good? Adam Smith argues that value is derived from the labor, land, and capital that went into producing a good - the sum costs being the natural value, but could anything that has inputs be a good? Can a widget with no demand be considered a good? For economist Carl Menger, “All things are subject to cause and effect.” Human beings have needs; goods satisfy these needs. He believes we cannot judge another’s needs - for needs are subjective, he argues that the demand for goods drives their production rather than supply, and he reflects on the inability for governments to increase happiness. Menger takes a scientific view of economics which, although limiting, analyzes what he considers to be fundamental principles of economics.
Adam Smith places derives value from either utility of a good, or its ability to be exchanged for other goods. Smith refuted the Mercantilist belief that all the value of the world is fixed by claiming that, because value is determined by utility, and because value is increased when goods are processed, the total value of goods in the world will increase via labor. Labor, according to Smith, is the root of value - and the division of labor allows more and more goods to
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Menger provides several key economizing insights: humans need to become more efficient, need to make trade offs, and dislike losing. What does this portend for society? It is apparent that there will not be an even distribution of goods, for people have incentives to fulfil as many of their needs as possible. Even if a person has all of the shelter and food required to be happy: what about their posterity? What about legacy? How about a change in their tastes for food, or if that food spoils? Because every person wants to satisfy their needs to the fullest, wealth distortions will occur in society. How do we handle these