In the ongoing ideological war between cryptocurrencies and government-issued fiat currencies, it is often asked "What is the objective value of Bitcoin?" On the other hand, government-issued fiat currencies allegedly have an objective value because at least you can pay taxes with them. This view should not be nearly as wide spread as it is because we have the subjective theory of value - a perfectly good scientific answer to the question.
All value is subjective. This amazing insight was developed in 1874 simultaneously by three different economists working independently - Leon Walras, William Stanley Jevons, and Carl Menger. Everyone before them (even Adam Smith) had believed that commodities have an objective value because they have a cost, particularly human labor. This view came to be branded as the labor theory of value. I have been shocked to see the labor theory continue operating today, not only when the "objective value" of Bitcoin is invoked, but even more extremely when I recently read comments to the effect of 'Bitcoin isn't worth anything beyond the electricity used to produce it.' The idea that costs lead to value or prices is backwards. Rather, prices lead to costs because suppliers choose the techniques of production based on how much consumers will buy and at what price. By the turn of the century, all economists had jettisoned the labor theory of value in favor of the subjective theory. Famously, the labor theory couldn't even explain something as simple as the price of water and diamonds.1,2
Since all value is subjective, we shouldn't be surprised when an invention like cryptocurrencies gains a powerful subjective value of its own. And since we subjectively value avoiding federal prison, the objective value of fiat currencies may turn out to be subjective as well.
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