Multifactor Theory of Value
The multifactor theory of value combines and updates the Labour Theory of Value and the Marginal Utility Theory of Value. It recognizes that labour is the human application of objective energy to create things of subjective value, and that a complete formula for value incorporates this duality. It also suggests that human labour is not necessarily the only form of energy that can be utilized in production.
Value = Energy x Utility
Human Limits
One of the primary reasons why the idealized market does not mesh with reality is that free market theorists tend to make unrealistic assumptions about the rational economic agent.
- Agents can switch jobs at will
In real life it often takes years of experience and focused effort to become competent in a field. Furthermore, in a free country where one can choose an education, different people will eventually end up with different competencies. If these competencies do not fit the job market well, there will be unemployment and underutilization.