# Subjective Theory of Value The subjective theory of value, which came out of the [[Austrian School of Economics]], stipulates that **the value of a good or service is solely dependent on the aggregate circumstances of all of its consumers, who value the commodity using [[Marginal Utility]].** ^43pclm ![[Subjective Theory of Value - Wikipedia#^bvmnds]] (The above refers to the [[Utility Theory of Value]], according to which goods are valued based on their *total utility*, and not based on marginal utility) **This is the only theory of value that solves the [[Diamond-Water Paradox|Diamond-Water Paradox]].** The first unit of water will always be more valuable then the first unit of diamonds, but the [[Marginal Utility]] of water quickly drops thereafter, whereas it stays the same for diamonds. ^i0m5k5 This is best illustrated by Eugen von Böhm-Bawerk in his book [The Positive Theory of Capital](https://cdn.mises.org/The%20Positive%20Theory%20of%20Capital.pdf). He imagines a farmer with five bags of grain: ![[Paradox of Value - Wikipedia#^e6ocbw]] The perceived value of each subsequent bag decreases, the first one being worth his life, the last one worth the satisfaction of feeding pigeons. This is an example of [[Maslow's Pyramid]]: ![[Subjective Theory of Value - Wikipedia#^fmpli7]] ## Increasing Wealth Through Trade According to the subjective theory, **any trade increases the total wealth in a society, because both parties subjectively perceive the goods they receive as having higher value than the goods they give away**. One can create value (on the level of the whole society) by simply transferring ownership of an item to someone who values it more.[^1] ![[189. Is Property Theft Dr. Robert Murphy#^t8lsrr]] [^1]: [[Subjective Theory of Value - Wikipedia#^p7q9br]]