Ib Ravn

Positive Psychology and Self-Determination Theory (SDT, Deci & Ryan, 2000) share an ambition to identify the sources of value and human flourishing. In the 19th century, the emerging science of economics similarly investigated the nature of social value in a capitalist society that placed a price on every commodity.

In this conceptual paper, SDTs’ mini-theory of Basic Psychological Needs is applied to solve the “paradox of value” in economics (Weisskopf, 1956): Why are some things that are practically free, such as oxygen, water and fellowship, so valuable to people, while others, often craved by consumers, such as diamonds, are expensive, yet not really valuable to us?

Smith, Marx and Ricardo argued for a labor theory of value. It failed, as oxygen manifestly requires no labor for its extraction. The tautological concepts of “utility” and “marginal utility” fared little better. No one could explain what remains a mystery today: If a diamond or a house doubles in price, does its value double also? The unthinking answer is “Well, yes…”, which leads us to the absurd conclusion that the value of a thing is the price it will fetch in a market. The economist must reason that if enough people want or demand jewelry in limited supply, its value increases, whether it meets human needs or not.

The confusion in economics of value, price, demand, wants and needs reflects the primitive state of the human sciences in the 1800’s. Today, however, these sciences have moved on, unbeknownst to economists. Objective needs for certain kinds of nutrition, like vitamins and trace minerals have been discovered by nutritional science, and researchers in SDT have identified certain psychological needs, that is, psychological nutrients required for people to enjoy psychosocial functioning and well-being.

Researchers in SDT have gathered extensive evidence that needs for autonomy, competence and relatedness must be met for human flourishing and eudaimonia to occur (Ryan, Huta and Deci, 2013).

There is a short step to arguing that what is valuable in life is what satisfies human needs. As has been established by SDT, people do not always want what is good for them; not all goals are equal: ”Intrinsic” goals lead to well-being and flourishing, “extrinsic” (e.g., materialistic) ones do not (Kasser, 2016). Applied to economics, the SDT concepts of needs and flourishing help us realize that demand for a particular good is subject to fashion and may fluctuate wildly, but its value is rooted in its capacity to satisfy human needs. This capacity may not be easily ascertained, but as progress in the human sciences shows, experimental research may help identify which products and services are–-on the whole, and contingent on context—conducive to human flourishing and which are less so.

Thus, SDT’s concept of basic psychological needs provides a research-based foundation for meaningfully addressing the paradox of value in economics: There is no paradox. A commodity may fetch a high price, for a multitude of reasons, but its price has no necessary relation to its value, as this anchored in its capacity to satisfy human needs.