Appendix B, On Value
Economics has made such extensive use of the term value that it would be inexpedient to abandon it now.
However, there is undoubtedly confusion because the term is used in a variety of different ways.
It is more important to keep distinct the subjective use of the term in the sense of valuation and preference
Preference, as against the objective use in the sense of purchasing power or price on
the market.
Up to this chapter, value in this book has meant the subjective individual valuing process
of ranking goods on individual value scales.
In this chapter, the term value of capital signifies the purchasing power of a durable
Capital Good in terms of money on the market. If a house can be sold on the market for 250
ounces of gold, then its capital value is 250 ounces. The difference between this and
the subjective type of value is apparent. When a good is being subjectively valued,
it is ranked by someone in relation to other goods on his value scale. When a good is being
The Evaluator estimates how much the good could be sold for in terms of money.
This sort of activity is known as appraisement and is to be distinguished from subjective
evaluation.
If Jones says, I shall be able to sell this house next week for 250 ounces, he is appraising
It's Purchasing Power or Objective Exchange Value at 250 ounces of gold.
He is not, thereby, ranking the house and gold on his own value scale, but is estimating
the money price of the house at some point in the future.
We shall see that appraisement is fundamental to the entire economic system in an economy
of indirect exchange.
Not only do the renting and selling of consumers goods rest on appraisement and on hope of
monetary profits, but so does the activity of all the investing producers, the keystone
of the entire productive system.
We shall see that the term capital value applies not only to durable consumers goods, but to
all non-human factors of production as well.
That is, land and capital goods, singly and in various aggregates.
The use and purchase of these factors rest on appraisement by entrepreneurs of their
eventual yield in terms of monetary income on the market, and it will be seen that their
capital value on the market will also tend to be equal to the discounted sum of their
and their future yields of money income.