The formulation of the modern subjective theory of value is attributed to three economists in the late nineteenth century: Léon Walras, Carl Menger, and William Stanley Jevons. While they certainly deserve credit for the Austrian understanding of subjective value and marginal utility, the concept of a subjective theory of value has been developing since at least as far back as Aristotle, who wrote that value is determined by human need.
Much of the development of subjective value theory can be accredited to the medieval Spanish Scholastics at the School of Salamanca, which included notable economic thinkers like Juan de Mariana and Doctor Navarrus. Of special importance in regards to the subjective component of value was Archbishop Diego de Covarrubias y Leyva (1512-1577).
Covarrubias appears to be one of the first thinkers to completely and blatantly reject any theory of value based on the nature of an item, instead insisting that value is derived from the subjective preferences of men. Economic historian Marjorie Grice-Hutchinson (the primary source on the economic thought of the School of Salamanca) translates his writings as follows:
“The value of an article does not depend on its essential nature but on the estimation of men, even if that estimation be foolish.
In assessing the just price… we are not to consider how much the article originally cost, nor the labor its acquisition cost the vendor, but only its common market value in the place where it is sold. Prices fall when they buyers are few and goods and vendors many, and rise when the contrary conditions prevail.”
Although earlier Spanish Scholastics favored the subjective component of value, Covarrubias, in his statement above, rejects that labor and cost are part of the true value of an item. As an example, he references the higher price of wheat in the West Indies compared to Spain, pointing out that although the wheat is the same good in both places, it is more expensive in the West Indies because it is more highly desired.
One of Covarrubias’s major achievements was the compilation of many price statistics into a compendium. This collection of statistics was widely read in Italy during his lifetime, and would later be cited by Abbé Galiani, Hugo Grotius, and Carl Menger, founder of the Austrian school, in his Principles of Economics.
Analyzing the information he collected, he was one of the first to conclude the distorting effect that the inflation of money has on the price of goods. This conclusion would soon be further developed by Juan de Mariana.
Beyond economics, Covarrubias was a classical liberal ahead of his time. According to Alves and Moreira, his moral philosophy began with the presumption of a natural state of liberty and equality (of moral right, not of outcome), and he proceeded to conclude what he believed to be a universally valid natural right to property in maintaining the common good. He believed that:
“the state and the legitimate exercise of political power is, therefore, to be subordinated to the requirements of universal rights and the promotion of the common good.”
Any analysis of the history of Austrian economic thought must acknowledge the importance of such a barely known thinker as Diego de Covarrubias y Leyva. Advocates of the Austrian school should acknowledge his contributions and ensure he is not forgotten.