1. There is no such 'thing' as value
The value we accord to different things is very important to us, but value does not reside in objects. An object might have length and breadth and depth, but value is not something that inheres in the object. It exists instead in the mind of the person contemplating that object. We speak loosely of something having value, but that value is neither in the object nor a property of it. It represents instead a person's valuation of the object.
Because value exists only in the mind of someone who contemplates the object, it is necessarily subjective. Different people will accord different valuations to the same thing, making it more valuable to some than to others. Value may change over time even in the mind of one person. Something he or she values highly at one time might be less valued by them at a later time.
Trade and exchange take place precisely because different people accord objects different valuation. A barter deal is done because each person values the other's object more than the one they themselves have. A purchase occurs because the person with the money values the object more, whereas the person with the object values the money more. Both gain from the exchange, because each parts with something they value less, and receives something they value more. Trade thus creates wealth by giving the parties involved more value than they had before.
Because value does not reside in objects, there can be no external or objective valuation. There is no "labour theory of value" telling us, as Marx said, that something is worth whatever labour it took to produce, and that when something sells for more than its "labour value" this represents the "surplus value," or exploitation charged by the producer. Not so; it represents the higher valuation placed on the object by the buyer over the seller.
Similarly there can be no valuation based on factor inputs such as land, capital and labour. Value is in the mind of the person, and is entirely subjective. A thing may incorporate many inputs in its production, but still be worthless if no-one wants it. In practice this tends to limit what is produced to that which people will value more than the production costs. Entrepreneurs seek opportunities to produce goods that people will value, and for which they will pay more than the production costs. They guess ahead what valuation people might place on the future output. Given that our valuations change over time, sometimes they get it wrong; but the rewards go to those who successfully anticipate the value people will place on their output.
This is part of Dr Pirie's ongoing series: Philosophical Observations on Economics.