Around 1870, the marginalist theory of value was discovered simultaneously and independently by three economists: William Stanley Jevons, Léon Walras, and Carl Menger. Jevons and Walras, whose approach was highly mathematical, continued to regard value as a cardinal quantity—a notion refuted above (p. 4.4:20). Menger, on the other hand, conceived of values as an ordering of an individual's preferences, an approach followed by his successors in the Austrian school of economics, including Ludwig von Mises. With the discovery of marginalism, the diamonds-versus-bread paradox of classical economics was resolved, since the higher value of diamonds was determined by their higher marginal utility. Utility and value were now seen to depend on an individual's purposes and on the total context of resources and alternatives available to him or her.

Although value is determined by utility and not by costs of production, it does not follow that value and cost are unrelated. As we shall show later, there is a causal connection between value and cost, which explains why we often see a rough correlation between them in practice. This causal relationship, however, is almost the opposite of that imagined by the cost-of-production theorists. For example, Crusoe will not devote large quantities of valuable resources to a project, such as the tree house, unless he expects even greater benefits in return. Such projects are not valuable because they are costly. Rather, they are often costly because they were anticipated to be valuable.