UTILITY AND VALUE

in economics, the determination of the prices of goods and services. The modern industrial economy is characterized by a high degree of interdependence of its parts. The supplier of components or raw materials, for example, must deliver the desired quantities of his products at the right moment and in the desired specifications. In economies such as those of western Europe, North America, and Japan, the coordination of these activities is done through the price system. The relative prices of the various inputs (e.g., labour, materials, machinery) tend to determine the proportions in which they will be used. Prices also affect the relative outputs of the various final products, and they determine who will consume them. Value theory, therefore, studies the structure of these decisions, analyzes the influence of prices, and examines the efficiency of the resulting allocation of resources. Value theory is also applied by business firms and government agencies in their decisions that relate to pricing and the allocation of resources. Additional reading Two good introductory discussions of the nature of value theory and its application to the economy as a whole are Robert Dorfman, The Price System (1964), and Prices and Markets, 3rd ed. (1978). The classic work on the history of economic theory, particularly of value theory, is Joseph Schumpeter, History of Economic Analysis, ed. by Elizabeth Boody Schumpeter (1954, reissued 1986). An excellent brief discussion can be found in George J. Stigler, Essays in the History of Economics (1965, reprinted 1987), especially essays 5, 6, and 12. Three rather advanced works on modern value theory are J.R. Hicks, Value and Capital, 2nd ed. (1950, reissued 1974); Paul A. Samuelson, Foundations of Economic Analysis, enlarged ed. (1983); and J. Hsler and R.-D. Reiss (eds.), Extreme Value Theory (1989), containing conference proceedings. Marc R. Tool, Essays in Social Value Theory: A Neo-Institutionalist Contribution (1986), provides very insightful views.Seminal works in the history of value theory include David Ricardo, On the Principles of Political Economy and Taxation (1817, reissued 1981); F.Y. Edgeworth, Mathematical Psychics (1881, reprinted 1967); Vilfredo Pareto, Cours d'conomie politique, 2 vol. (189697); J.R. Hicks and R.D.G. Allen, A Reconsideration of the Theory of Value, Economica, New Series, 2 parts, 1:5276,196219 (1934); R.G.D. Allen, Professor Slutsky's Theory of Consumers' Choice, The Review of Economic Studies, 3:120129 (1936); Carl Menger, Principles of Economics (1950, reissued 1981; originally published in German, 1871); Lon Walras, Elements of Pure Economics; or, The Theory of Social Wealth (1954, reprinted 1984; originally published in French, 1874); W. Stanley Jevons, The Theory of Political Economy, 5th ed. (1957); Alfred Marshall, Principles of Economics, 9th ed., 2 vol. (1961), also discussing price; John Weeks, Capital and Exploitation (1981), a study of Marx's labour theory of value; Hermann Heinrich Gossen, The Laws of Human Relations and the Rules of Human Action Derived Therefrom (1983; originally published in German, 1854); and K.K. Valtukh, Marx's Theory of Commodity and Surplus-Value: Formalised Exposition, trans. from Russian (1987). Two good discussions of the more recently popular theories of utility are David M. Kreps, Notes on the Theory of Choice (1988); and Bill Gerrard (ed.), The Economics of Rationality (1993).Among the best modern textbooks in microeconomics are David D. Friedman, Price Theory, 2nd ed. (1990), an introductory text which includes nonconventional applications of price theory; David M. Kreps, A Course in Microeconomic Theory (1990), for intermediate and advanced readership; and Hal R. Varian, Microeconomic Analysis, 3rd ed. (1992), and Intermediate Microeconomics, 3rd ed. (1993), both at an advanced level. William J. Baumol The Editors of the Encyclopdia Britannica