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It was Carl Menger’s profound insight in 1871 to recognize that economic value is imputed by each individual. The value of the tools of production, the value of land, and the value of labor expended in the creation of a final consumer good do not move forward in time from the value of the inputs. They move in response to entrepreneurs’ estimates of future value imputed by customers. This was Menger’s great discovery.
Economic value is subjective. It cannot be measured. There is no objective measuring rod of economic value. Nevertheless, the outcomes of competing bids for specific goods are objective: prices. How can this be?
Each person ranks the importance to him of those scarce resources he is interested in. That is to say, he imputes value to each economic good in relation to all the other economic goods that he is considering. He has a scale of values: first, second, third, etc. He imputes these rankings to specific resources. He then bids for ownership of an array of goods, either as a future buyer (seller of money) or as an existing owner (buyer of money).
Would-be customers compete against other would-be customers. On the other side of the potential transaction, would-be sellers compete against other would-be sellers. Out of these competing bids on an open market comes an array of objective prices. Subjective, imputed value produces objective prices by way of a gigantic auction.
High bid wins…
In a free society, final users of any asset have authority over its free market pricing.
”Gary North
