In an earlier post of mine on Menger, Adam Smith makes some very good points in the comments. I think that all Austrians would agree with his claim that, although the distinction I make is compelling, "it seems like subjectivity is still doing the work." It is true that "value derived from scarcity" is dependent upon subjective needs and preferences. But I would repeat my claim that subjective needs only create the condition for value's emergence; it does not in any way determine its magnitude. Menger, in chapter three of his Principles book, is very clear on this: "The value of goods, accordingly, is a phenomenon that springs from the ... available quantities of goods." It is surprising that no Austrian has really picked up on this. Now I have been criticized for my watermelon example, but Menger makes exactly the same argument by using the examples of "wild fruit trees" and "pails of water." Moreover, the distinction Menger makes between "economic" and "non-economic" goods is determined solely on the available quantity of goods. I would continue to insist that the subjective (marginal) revolution as the Austrians understand it is confused and misguided. Subjective needs only tell a small part of the story of value.
Next, adam smith writes:
"I think a meatier argument to oppose Menger on is his distinction between imaginary and real goods. Imaginary goods are those like the paperclip, which do not actually perform the attribute I assign to them. But to distinguish between imaginary and real goods ex ante is to assume an objectively determined value."
Now this is something Ludwig von Mises picked up on and used in an attempt to extend subjectivism. For true subjectivists, Mises argued, there are no imaginary goods. If individuals believe goods to be of use, then they are valuable, regardless of their actual ability to satisfy the appropriate needs. Now I think this is a trivial example in light of my recent post on Menger, but it is a debate that has occurred in the Austrian literature. In particular, Bruce Caldwell and Greg Hill have argued over this point in the pages of Critical Review. Bruce Caldwell argues that "markets provide incentives both to generate such goods, and to identify them as such." Imaginary goods are thus created and destroyed all the time. Greg Hill, in his great and characteristic way, is seen firing back with this passage:
"I share Caldwell's view that markets provide incentives both to create 'imaginary goods' and to reveal their deficient nature, but I cannot resist the temptation to ask whether the balance of market forces favors the creation or the destruction of these goods. If Lexus advertises its luxury line of cars as symbols of 'success,' there may be gains in prospect for entrepreneurs who can show that such high-priced 'success symbols' are merely imaginary goods. But there are much greater gains awaiting entrepreneurs (other car sellers, in particular) who can persuade car buyers that possession of their vehicles signals even greater 'success.'"
Yes, I know, Greg Hill is great. But to respond to Adam Smith more directly, I would say that (1) the debate on imaginary goods has already happened; and (2) it is not as important, in my opinion, as my own post on Menger and the "subjective" revolution. What a paradox it would be indeed if the so-called marginalist (subjective) revolution actually sharpened our understanding of the objective nature of the determination of value.