Objectivism, Austrian Economics and Evolutionary Economics

[studiodekadent]

The following is a term paper I did for my class on Evolutionary Economics. The paper is a comparison of Evolutionary Economics with both Austrian Economics and Objectivist Philosophy. My professor obviously found it fascinating enough to (in conjunction with a second paper on the Austrian Business Cycle Theory's Evolutionary consequences) get me the highest possible mark in the subject.

Read and Discuss!

The Intellectual Bridges of Evolutionary Economics

A Study of Methodological and Epistemological Commonalities

By Andrew Russell

Evolutionary Economics, as outlined in Potts and Dopfer (2006) provides a theoretical framework for the analysis of structural change in an economic system. Potts and Dopfer portray economic evolution as a process driven by individual agents empirically testing the efficacy of operationally-utilizable rules. Rules are hence a conceptual equivalent of a gene, and as such the most effective rules are spread throughout a population with the least effective rules being used less and less. As the rule-pool of the population human agents changes, the agents (and populations thereof) activity changes accordingly, with the result being that the economy of the agents also changes.

This essay will argue that the Potts/Dopfer framework has a multitude of commonalities, predominantly but not exclusively related to methodology and epistemology, with Austrian economics and also with the philosophy of Objectivism. This essay shall explore and outline these commonalities and as such will demonstrate that scholars of Evolutionary Economics have much to gain from collaboration with scholars of Austrian Economics and scholars of Objectivism.

Economic Value Theory

The first similiarity of interest is in the theory of economic value. A theory of economic value is a theory of what gives an item its market price. Some theories include the Marshallian theory that the price of a good is determined by the prices of its inputs, and the Marxian theory that the price of a good is determined by the value of labour put into its production. Evolutionary Economics, like its intellectual ancestor Austrian Economics, subscribes to the theory that an item's market price is determined by how consumers evaluate the good. In short, potential purchasers of the good judge how useful the item will be for their own purposes, and upon that basis decide how much money they will be prepared to part with for the good. Under this theory, called "imputation" ( http://cepa.newschool.edu/het/schools/austrian.htm), the prices of a product's inputs (including labour) have almost no importance (they would form a seller's reserve price, but thats about it), and the primary locus of economic valuation is in the minds of the subjects (with the only mind-external consideration being the quantity of the item avaliable). Given the subject-centric nature of this theory, it is known as Economic Subjectivism.

It may appear, given the label of this theory, that the philosophy of Objectivism would be opposed to this theory diametrically. However, this is a false conclusion that rests upon a mistaken perception of Objectivist epistemology. First, it must be noted that as Objectivism is a philosophy rather than an economic framework, it has no explicit economic value theory. However, it does have a theory of ethical value, which if employed by agents evaluating items, is completely compatible with Economic Subjectivism.

To explain it in greater detail, Objectivist epistemology considers concepts (including concepts of value) to be Objective, but neither Intrinsic nor Subjective. This "IOS Trichotomy" (for more detail, see Bissell (2003) p4, section 2 onwards) is the most distinctive (and the most overlooked) feature of Objectivism; and overlooking this feature is what is responsible for the mistaken idea that Objectivism is opposed to Economic Subjectivism. The IOS trichotomy stipulates that the history of philosophy is dominated by three theories of concepts, truth and value; the Intrinsic theory stating that concepts exist like mind-external objects (see Plato), that truth is something along the lines of acontextual divine revelation unnattached to experience (see Descartes), and the good is unrelated to individual agents, consequences and contexts (see Kant). The Subjective theory, on the other hand, states that concepts are arbitrary creations of the mind that need not have any relationship to external reality (see Fichte*), that agents essentially invent their own truth (and agent-independent truth is either nonexistent or unknowable (see Postmodernism)), and that values are matters of feeling or whim whereby no 'is' implies an 'ought' (see Hume). These two theories; the Intrinsic and the Subjective, form a false dichotomy that the vast majority of philosophers have been deceived by; in that the 'Intrinsic' theory is often referred to as 'Objective' and constrasted with the Subjective theory, with these two theories said to be the only options. Objectivism believes that the "traditional confusing metaphysical dichotomy between 'objective' and 'subjective'" (Bissell (2003) p7) is a disastrous fallacy, that 'mind-unrelated versus mind-created' is a false choice; that concepts are integrated identifications of things (concretes or other concepts) on the basis of their similarities with eachother, that truth "is contextual" (Kelley (1990) p116) by nature, and moral truths originate within the context of humans that have chosen to live and as such require a biocentric ethic founded upon the facts about human nature. As such, wheras Intrinsicism (mistakenly labelled 'Objectivism' by most philosophers) focusses on reality divorced from human consciousness and Subjectivism focusses on the human consciousness creating (rather than perceiving) reality, Objectivism focusses on human consciousness perceiving a mind-independent concrete reality and deriving its concepts from there. In short, Objectivism emphasises linkages between external reality and the consciousness perceiving it.

As such, the procedure for evaluating something under Objectivism is completely compatible with Economic Subjectivism. If an Objectivist were evaluating a product, the Objectivist would look at how the product could improve their life when judged by the Objectivist standard of value (the maintenance of a life proper to a rational being's nature, or in other words, "man's survival qua man" (Rand (1961) p23)) and use that to perform the monetary evaluation. Notice that the Objectivist would evaluate the causal properties of the product (mind-independent features) in relation to their goals (requiring a chosen aim or aims) which are demanded by the requirements of their rational life (which is a mind-independent feature of the agent, because agents have a specific nature and they are what they are (the mind, of course, has its own requirements and its own identity. However, the mind cannot change its own nature)). As such it can be seen that this method of evaluation is agent-centric, and not based on any alleged intrinsic economic worth. Thus, Objectivism would not deny Economic Subjectivism as a theory of economic value.

Role Of The Mind

In Evolutionary Economics, the ultimate 'means of production' is the human mind. "Means of Production" usually refers to capital, but how did the capital actually 'get there'? It had to be created, and as a result there had to be rules for its creation. This is essentially a corrolary of the first axiom of evolutionary realism; that "all existences are matter-energy actualizations of ideas" (2006, p5)(it should be stated that this does not refer to metaphysical existences (if it did, the axiom would be supporting metaphysical subjectivism (that the mind creates reality)), but to man-made existences). If a human creates something, it was by a process of thought, not some automatically-operating instinct. As such, Evolutionary Economics lionizes the mind, as well as those that use their minds to originate and transmit novel rules (entrepreneurs). Entrepreneurs, according to Evolutionary Economics, are the device that introduces variation into an economic system and hence allowing economic change to take place. Evolutionary Economist Joseph Schumpeter is remembered for his portrayal of entrepreneurship as a heroic activity capable of generating incredible change within a system (change he referred to as 'creative destruction'). To quote www.econlib.org, "Schumpeter presented an heroic vision of the entrepreneur as someone motivated by the...'joy of creating'" (http://www.econlib.org/library/Enc/Entrepreneurship.html). It can hence be seen that the ultimate means of production in Evolutionary Economics is the human mind.

There is no philosophy that would agree more strongly with this view of the mind as means of production and the heroism of the entrepreneur than the philosophy of Objectivism. According to Objectivism, the economic value of something is agent-dependent in nature and hence there is no such thing as intrinsic economic wealth (as per the previous point regarding Objectivism and Economic Subjectivism). Wealth is created by human beings, not automatically, but by a process of rational thought aimed at transforming less valued things into more valued things. As such, it is obvious that Objectivism, like Evolutionary Economics, reifies the human mind, and also entrepreneurship. Objectivism's founding text, "Atlas Shrugged," has as its main characters entrepreneurs, who are portrayed as genuine heroes, as opposed to Robber-Baron charictatures of Ebeneezer Scrooge or Gordon Gecko. Indeed, Ayn Rand and Jospeh Schumpeter seem to have had an identical aesthetic reverence for entrepreneurship as a romantic activity. Looking at the previous quote from econlib.org, one can see the similarities between Schumpeter's 'joy of creating' and a passage from Kelley on the virtue of productiveness (which obviously encompasses entrepreneurship); "Production is not merely a practical necessity; it is man’s glory. Our ability to reshape the world in the image of our values, in a world open to our achievement, is the essence of her view of man as a heroic being" (Kelley (1990) p83).

Austrian Economics, however, does not seem to have an 'official' position upon the role of the human mind, at least explicitly. Indeed, Austrian Economics focusses (explicitly) more upon the operational features of an economy, or Human Action, as opposed to human thought. However, as eminent Austrian Economist Ludwig von Mises makes clear, the Austrian methodology of Praxeology presupposes thought behind every action. The foundation of Praxeology is the action axiom, being "human action is purposeful behavior" (Mises (1949) p11). This presupposes individuals with purposes, meaning they have values which they want to achieve, and to have a value requires a value judgement of sorts, i.e. thought. It also presupposes individuals with some form of plans about how they will achieve their values, planning requiring thought. As such, Austrian Economics rejects a mindless 'economic behaviourism (in the B F Skinner 'the psyche doesn't exist' sense)' and bases its analysis on actions that are in themselves products of thought. This would imply that Austrian Economics does ultimately and implicitly subscribe to the Evolutionary Economics perspective of the human mind as the ultimate means of production.

Epistemic Bimodality

Another point that Evolutionary Economics has in common with Objectivism is that both embrace empirical observation and logical deduction as effacious (see p8 (2006), point 3). In the case of Evolutionary Economics, epistemic bimodality is mentioned as a trait of all agents rather than an explicit endorsement of efficacy. However, if agents use both routinely, then they must both work. If one of them did not work, then the ineffective method would have been abandoned long ago. The agent of Evolutionary Economics is a being with both direct-realist perception of reality to make correct empirical observations as well as a mental model of how the world works (constructed out of concepts). Both are effacious. Objectivism also considers both observation and deduction to be effacious, although with some qualifiers. Objectivism considers the senses to be effacious axiomatically, "we perceive objects directly" (http://objectivistcenter.com/cth--44-Foundations_Study_Guide_Epistemology.aspx) and logic to be effective on some conditions. First, one must use concepts that are connected to empirical reality (in the sense that we observe birds, we integrate all observed birds into the concept of 'birds,' which is then integrated into the concept 'animals' etc. A concept that is not connected to empirical reality is called a "floating abstraction" (see http://ozarkia.net/bill/anarchism/Fallacie...%20Abstraction). Second, one must keep concepts within their proper contexts (for example, the concept 'homosexual' relates to sexual behavior, and as such cannot be applied to things that do not have any sexuality. This is why certain socially-illiberal politicians are mistaken when accusing cartoon characters on Nickelodeon of encouraging homosexuality). Third, one must respect the place concepts have within the logical heirarchy; in that some concepts presuppose the validity of other concepts (the statement 'reality is an illusion,' for example, forgets the fact that 'illusion' (a 'faking' of reality) presupposes 'reality' (there has to be something to fake)). Assuming that these conditions are abided by, Objectivism considers logic to be an effacious tool, and as such is epistemologically bimodal like Evolutionary Economics. One could consider these Objectivist principles of thought, for example, as cognitive rules that would enhance cognitive accuracy and hence efficacy.

Austrian Economics, on the other hand, is much more varied in its epistemological stance. Certainly, the methodology of Austrian Economics, Praxeology, is based in the continental rationalism of Ludwig von Mises. However, not every Austrian economist is/was a rationalist. Murray Rothbard, for instance, was essentially an Objectivist (and hence an empiricist, ultimately speaking), and "he was 'in agreement basically with all [Rand's] philosophy’ and that it was [Rand] who convinced him of the theory of natural rights which his books uphold” (Sciabarra, Sechrest (2005) p243). Objectivists were and continue to be enamoured with Austrian Economics. Frederich Hayek seems to have been influenced strongly by Kant (due to his affiliation with "Neo-Kantian" (White (1988), ch4) Rationalist von Mises) and later by Karl Popper (whom Hayek dedicated a book to). Bohm-Bawerk and Wieser were not as philosophically adept in methodological matters, but their methods were termed by Wieser to be "psychological" (White (1998), ch3). As such, it seems that Austrian Economics, in spite of its rationalistic method, is not epistemologically rationalist in nature; as one does not have to be a rationalist to support it. Indeed, it seems that Mises was the only 'fully fleged' rationalist amongst the Austrians; his predecessors and followers (including Rothbard) defended their first principles empirically.

Methodological Individualism

Evolutionary Economics is, up to a point, methodologically individualistic (as in, an explaination of an economic phenomena must be expressed in the terms of individual agents, see p35 (2006)). Methodological individualism is required for understanding micro-to-meso processes within an economy, such as the formation of a meso population on the basis of a rule trajectory. However, this approach is abandoned when examining meso-to-macro phenomena, in favor of methodological populationism (explainations in the terms of meso populations (carrier populations of rules, see p37 (2006))). Austrian Economics, however, has a rather vigorous dedication to pure methodological individualism. The classic statement of this was made by von Mises: "In studying the actions of individuals, we learn also everything about the collectives and society. For the collective has no existence and reality but in the actions of individuals, It comes into existence by ideas that move individuals to behave as members of a definite group and goes out of existence when the persuasive power of these ideas subsides. The only way to a cognition of collectives is the analysis of the conduct of its members" (Mises, L. ch5 part 5).

At first examination, this would seem to reject methodological populationism on any level of economic analysis. However, this interpretation is false; and all Mises is asking is that it be respected that collectives are composites of individuals, and as such that there be logical consistency between methodological individualism and methodological populationism. In other words, methodological populationism has to be resolvable to methodological individualism. Evolutionary Economics, by basing the methodologically-populationist meso-macro atop a methodologically-individualist micro-meso does this explicitly, and hence there is no actual contradiction. "In Evolutionary Economics, there exists a population of heterogeneous agents" (p36 (2006)) as opposed to Marxian-Hegelian economic forces that individuals are merely passive conduits for.

The philosophy of Objectivism is not economic theory, however it does contain, within its epistemology, a justification for basing economic analysis on methodological individualism, and hence endorsing both Austrian and Evolutionary approaches in this regard. Specifically, any concept of 'collective' (a concept) must be resolvable down to the empirical concretes that it is composed of (specifically, the individuals that make up a group). The concept does not exist above and beyond the concretes that make it up (that would be Platonic intrinsicism). A concept disconnected from empirical reality is a floating abstraction, and hence an invalid concept. As such, all social sciences must begin with the individual.

Praxeology and Evolutionary Realism

The distinctive methodology of Austrian Economics is based on logical deductivism. The most rigourously formulated version of this method was referred to by its originator, Ludwig von Mises, as Praxeology. As von Mises characterised it, Praxeology was the study of human action based upon the notion of purposefulness. Humans act purposefully, "aiming at ends and goals" (Mises (1949) p11). Von Mises referred to this as the 'axiom of human action,' and used the term 'axiom' to refer to an irrefutable statement: one cannot deny it without proving it, i.e. to deny the axiom of human action would imply that the denier is acting purposefully. From this basis, Austrian economics proceeds. As such, it can be seen that what is 'inside the mind,' or the Evolutionary concept of the 'generic level,' is not explicitly discussed. However, it is not ignored per se nor is it ruled out of the equation, given that purposeful acting requires a goal and a plan on how to achieve it. As such, Austrian Economics, although generically grounded, places the theoretical emphasis on operational economics. However, economics (or Cattalactics, in Austrian terminology) is only part of Praxeology; Praxeology is clearly intended to be a method applicable to any social science, because humans act purposefully in all contexts, not just those involving the production, consumption and exchange of goods.

Evolutionary Economics as per Potts and Dopfer is grounded in a theoretical framework (or Ontology) called Evolutionary Realism. Like Praxeology, Evolutionary Realism is not exclusively economic in nature, indeed it can form the base of any social science. However, wheras Praxeology focusses on humans making rational plans to achieve their goals, Evolutionary Realism sees humans as empirically testing various rules for their actions and selecting them (or selecting them out) on the basis of efficacy. In a way, one can see Praxeology as having a more rationalistic picture of agent rationality than Evolutionary Realism's more empirically-based conception of rationality. Like Praxeology, Evolutionary Realism begins with axiomatic first principles. The axioms of Evolutionary Realism are 1) All (man made) existences are matter-energy actualizations of ideas, 2) all existences associate, 3) all existences are processes (The brackets of Axiom 1 are there to clarify that Evolutionary Realism is not a form of metaphysical subjectivism)(see p5 (2006)). These are axioms in the sense that they are "unquestioned during analysis" (p179 (glossary)(2006)). Hence, in philosophical terms, these axioms are much more open to debate than the axiom of human action; axiom one for instance would be attacked by Marxists, who believe the content of the human mind is a product of the economy rather than the economy being a product of the rules inside the mind (or in Mises's terms, "Marxism asserts that a man’s thinking is determined by his class affiliation" (Mises (1949) p5)). Either way, Evolutionary Realism puts strong theoretical emphasis on the rules within the mind, much moreso than Praxeology. Rules can be either Objective (relating to mind-external things) or Subjective (relating to mind-internal things ("subjective" as used here refers to "of the subject" rather than "arbitrary")), Objective rules can be Technical (related to technology) or Social (related to organisations of subjects), Subjective rules can be either Cognitive (related to thinking, such as rationality) or Behavioural (related to how one acts, for example culture). Rules can further be divided into orders of rules, being rules that form a social bedrock for operations, the rules for the operations themselves, and also rules for changing rules (see section 1.4.1 (starting on p10) for a fully detailed rule taxonomy). Certainly this is a much more detailed understanding of the mental process behind human action than Praxeology immediately offers (although as stated before, Praxeology implies the importance of mental processes rather than stating it as openly as Evolutionary Realism does).

Are there any 'contradictions' between Praxeology and Evolutionary Realism? This does not seem to be the case. Certainly there are some differences in their conceptions of rationality, and they place different levels of emphasis on generic and operational considerations relative to eachother. However, the axioms of Evolutionary Realism and Praxeology are not in contradiction, indeed Praxeology embraces them (Bimodality implicitly, Association implicitly, and Process in chapter 5 of Mises (1949)), and it seems that both can benefit from the other. Evolutionary Realism can contribute much to Praxeology's understanding of the generic level, and Praxeology can provide a form of operational analysis to compensate for Evolutionary Realism's initial lack in enthusiasm for operational considerations (of course, this is understandable, as Evolutionary Realism is a very new framework and as such many of its operational implications have not yet been explored).

Conclusion

Evolutionary Economics, and its framework of Evolutionary Realism, have extensive similarities and complementarities with both Austrian Economics (and its framework of Praxeology) and the philosophy of Objectivism. Certainly, this essay on the subject is the proverbial tip of the iceberg. Evolutionary Economics as such has much to gain from Austrianism and Objectivism. Scholarly interaction between the fields is prudent.

*Footnote

Fichte shot to fame by denying the Kantian "Thing In Itself." This means that nothing exists independent of an observation of it. Therefore, there is no concrete reality that concepts need to relate to in order to be valid.

References

Potts, J., Dopfer, K. (2006) "The General Theory of Economic Evolution" Publication Forthcoming

Kelley, D. (1990) "The Contested Legacy of Ayn Rand, Truth and Toleration Within Objectivism" The Objectivist Center, Poughkeepsie NY

Bissell, R. (2003) "Mind and Will as Objective Phenomena" Section 2 (p4 on the pdf file), http://www.objectivistcenter.org/events/ad...MindandWill.pdf, accessed Tuesday 14th November

Rand, A (1961) "The Virtue of Selfishness" Signet, New York

http://www.econlib.org/library/Enc/Entrepreneurship.html, Online Economics Library page on Entrepreneurship, Accessed 14 November

http://objectivistcenter.com/cth--44-Found...istemology.aspx, Objectivist Center Foundations of Epistemology, Accessed 14 November

http://ozarkia.net/bill/anarchism/Fallacies.html, list of logical fallacies, accessed 14 November

http://cepa.newschool.edu/het/schools/austrian.htm, History of Economic Thought website, Austrian School profile, accessed 14 November

Sciabarra, C. Sechrest, L (2005) "Ayn Rand Among The Austrians" Journal of Ayn Rand Studies, Spring 2005, NYU Press

Mises, L (1949) Human Action, http://www.mises.org/humanaction.asp, electronically published at mises.org, Accessed 14 November

http://www.mises.org/books/ufofes/ch5~5.aspx, Mises, L (date unavaliable) "The Ultimate Foundation of Economic Science" electronically published at mises.org, Accessed 14 November

White, L (1988) "The Methodology of the Austrian School Economists" http://www.mises.org/mofase.asp, electronically published at mises.org, Accessed 14 November (chapters 3 and 4 cited via URL in text)

[Michael Stuart Kelly]

Andrew,

This is more than a term paper. This is a very good little essay. Your descriptions of some of the essentials underlying Objectivist and Austrian economics are succinct, to the point, and most important for the general reader, not boring. (Some of the language throughout is a bit jargon-heavy, though.)

I would give you an A+. But I will give you more. Congratulations on a fine article.

Michael

[studiodekadent]

Andrew,

This is more than a term paper. This is a very good little essay. Your descriptions of some of the essentials underlying Objectivist and Austrian economics are succinct, to the point, and most important for the general reader, not boring. (Some of the language throughout is a bit jargon-heavy, though.)

I would give you an A+. But I will give you more. Congratulations on a fine article.

Michael

Michael,

Sincere thanks! Im glad you liked it! I apologise for the jargon, but my Evolutionary Economics professor is one of the originators of the framework I was discussing jargon was unavoidable. Im still glad you liked the paper.

[Guyau]

Andrew,

Thank you for sharing your fine paper.

A deep and knowledgeable examination of the methodological individualism of Austrian economics is given by Robert Nozick in his 1976 essay "On Austrian Methodology." This essay is included in the collection Socratic Puzzles (Harvard 1997). The subsections of this essay are these:

I. Methodological Individualism

II. The A Priori Science of Human Action and Its Application

III. Preference, Choice, and Action

IV. Time-Preference

There was some treatment of the synchrony of Rand's objective theory of value and Austrian subjective theory of value in Leonard Peikoff's 1976 lecture series The Philosophy of Objectivism. This was closely tied to Rand's book Capitalism: The Unknown Ideal (1967).

Peikoff 1976:

Economic value (market value) is not intrinsic (no "fair price").

Philosophically objective value coincides with what would be estimated, in context, by the most knowledgeable person. Socially objective value is value as estimated by anyone.

Market value is socially objective value; it is objective because the market system promotes and fosters consideration of reality. There is a tendency for market value to approach philosophically objective value. Economic value (e.g., wages) is not set by the arbitrary whim of capitalism.

Stephen

Edited January 27, 2007 by Stephen Boydstun

[studiodekadent]

I would actually disagree with the contention that market prices are 'objective social values.' I dont think there actually is such a thing as an objective social value, since objective value by definition is related to individual valuers, their contexts, etc. Prices are an average of valuer's valuations, regardless of how those valuers value. They could value something quite irrationally, for example. If valuers value in accordance with Objectivism however, then prices would reflect objective values. i.e. the prices would be derived from facts about reality and man's relationship with it.

[Guyau]

Peikoff's phrase socially objective values occurs in his discussion of pages 20-28 of Rand's 1965 essay "What Is Capitalism?" This essay leads those in the collection of essays in Capitalism: The Unknown Ideal (1967). When one turns to the Index of this book, one finds that it was prepared by Alan Gotthelf and that under the entry for values there are two subdivisions: economic (23-28) and moral (20-23).

Moral Values

Rand writes that "'good' and 'value' pertain only to a living organism---to an individual living organism---not to a disembodied aggregate of relationships. / 'The common good' is a meaningless concept, unless taken literally, in which case its only possible meaning is: the sum of the good of all the individual men involved" (20).

Rand then introduces her tripartition of "schools of thought on the nature of the good: The intrinsic theory holds that the good is inherent in certain things or actions as such, . . . regardless of any benefit or injury they may cause to the actors or subjects involved. / The subjectivist theory holds that the good bears no relation to the facts of reality, that it is the product of a man's consciousness, created by his feelings, desires . . . . / The objective theory holds that the good is neither an attribute of 'things in themselves' nor of man's emotional states, but an evaluation of the facts of reality by man's consciousness according to a rational standard of value" (21-22).

I would suggest that Rand here uses the name subjectivist rather than subjective in order to not identify the subjectivist school of value theory with the Austrian subjective value theory.

Economic Values

Rand argues that an objective theory of values bars attempting to achieve the good by physical force. This is the fundamental reason that capitalism---a social system in which deliberate force is limited to self-defense and to enforcement of individual rights by the law---is based on the objective theory of moral values, not on the intrinsic theory nor on the subjectivist theory.

Moreover, "the objective view of values permeates the entire structure of capitalist society. . . . / The free market represents the social application of an objective theory of values" (23-24). Since values, on the objective theory, must be discovered by man's mind, men should be left free to discover them. Because values are objective, not intrinsic, every man should be left free to judge values "for himself, in the context of his own knowledge, goals, and interests" (24). Because values are objective, not subjective, capitalism allows the plethora of human values to be arbitrated by the nature of reality, including the reality of economic demand: "if a man's judgment is right, the rewards are his; if it is wrong, he is the only victim" (24).

"The market value of a product is not an intrinsic value. . . . And, within the broad field of objectivity, the market value of a product does not reflect its philosophically objective value, but only its socially objective value. / By 'philosophically objective', I mean a value estimated from the standpoint of the best possible to man, i.e., by the criterion of the most rational mind possessing the greatest knowledge, in a given period, and in a defined context. . . . / The free-market value of goods or services does not necessarily represent their philosophically objective value, but only their socially objective value, i.e., the sum of the individual judgments of all the men involved in trade at a given time, the sum of what they valued, each in the context of his own life" (24-25).

Andrew, do you have this essay of Rand's? When you read this stretch of it, do you find the concept socially objective values more sensible?

Edited January 28, 2007 by Stephen Boydstun

[studiodekadent]

I do have that essay. However, I still consider 'socially objective values' to be incoherent. A market price, if generated by valuers valuing rationally, would descend from objective values but it would not be objective per se. It would be an average of objective values. And remember that most people do not value rationally these days, so market prices represent an average of many different values.

[Guyau]

Rand argues that the market demand for a product can be based largely on an irrational scale of values, yet that market value of the product be a socially objective value. She uses the example of spending one's income on things like cosmetics to the neglect of saving for contingencies such as use of the capital equipment (e.g., a microscope) at the office of one's physician. She then argues that if the market is allowed to operate free of intervention, there are incentives for one to learn a more objectively correct (philosophical objective values) savings habit (WC 25).

There is another, more extreme sort of case to which this strand in Rand's reasoning does not extend, so far as I can see. Suppose crack-cocaine were legal and there were a market demand for it. Would this demand be a case of socially objective value? The market demand for this product is based entirely on the irrational values of the afflicted consumers. It would seem that this market demand could not be fairly characterized as socially objective value in the way of the cosmetics/savings example. There is no prime facie rationality (normative rationality) to using this product, unlike the cosmetics example.

So I doubt that Rand's idea that economic values are socially objective values can be extended to cover absolutely all products and services that bring a price. On the other hand, her idea of socially objective values as rational, objectively correct consumer values joined with, and even dominated by, irrational consumer values seems sensible.

I am not clear on your point about market price being not objective because it is a resultant of the values of the traders. Since I am ignorant of which wines taste wonderful, I go by price, and it has proven to be an extremely reliable guide.

Edited January 29, 2007 by Stephen Boydstun

[studiodekadent]

My point is that something cannot be 'socially objective.' Prices can be derived from facts of reality, but not only will they not always be (as you conceded) but because we cannot verify the mental processes behind the value judgements then we cannot verify correct integration. You can do this with one mind, not with a process that imputes the verdicts of billions of minds.

[Guyau]

Andrew, would it seem sensible to you to think of the prices of something arrived in a completely free market as more objectively determined than prices arrived at in a market having intrusions from government that constrain free choice in production and trade? It seems somewhat sensible to me.

~~~~~~~~~~~~~~~~

Rather apart from that question, I wanted to test the ideas of philosophically objective values and socially objective values in application to Rand’s thoughts about capitalism on pages 1063-65 of Atlas Shrugged. (Those are the page numbers in the hardcopy first edition.)

“When you live in a rational society, where men are free to trade, you receive an incalculable bonus: the material value of your work is determined not only by your effort, but by the effort of the best productive minds who exist in the world around you” (1064). So far so good, although, I might quibble that the value of the dewberries I sold door-to-door as a child (forty cents a quart) were determined not only by (my effort and) the rational judgments of the producers of the cartons I used to contain them and the producers of the hose I used to water the dewberry vines and the producers of the water pump in the well. It was also determined by the consumer’s judgments of my product and their weighing of alternative uses for their money.

But then Rand gets into big error about free-market value of labor in a market with extensive capital structure. In the tool shop at my grandparents’ farm, my father used the coal fire and a hammer to smith the iron poker for our own family to use in our fireplace. If my father had gotten into making fireplace pokers for sale, they would bring whatever price they would bring. Rand puts forth the idea that whatever that market value might be, that much is a measure of the value of the physical labor involved. But if my father goes to work as a laborer in the Rearden steel mills, the increase in the amount of money he makes over what his labor brought as a blacksmith “is a gift from Hank Rearden” (1064).

Rand introduced her distinction of philosophically objective values and socially objective values eight years after Atlas. In Rand’s fullest view, should we think of the deviations between what Rearden contributes and what he is paid in profits as some systematic disparity between philosophically objective value and socially objective value? Even if we do not make those correlations, this description of what is going on in capitalism paints it as being systematically unjust, notwithstanding that implication being contrary the author’s intention. In Rand’s portrait, the industrialists, the saver-investors, the engineers, and the inventors are being systematically short-changed in the free market.

Has anyone here read Peter Boettke’s essay “The Economics of Atlas Shrugged”?($) Does he talk about these ideas on capitalism in Atlas?

Edited July 3, 2010 by Stephen Boydstun

[studiodekadent]

Andrew, would it seem sensible to you to think of the prices of something arrived in a completely free market as more objectively determined than prices arrived at in a market having intrusions from government that constrain free choice in production and trade? It seems somewhat sensible to me.

Stephen,

First, I'm sorry for the slow reply.

You ask whether or not I'd think it sensible to consider prices arrived at in a free market as "more objectively determined" than ones arrived at in a mixed economy.

I would not, since "objectivity" is not something that exists on a sliding scale.

That said, I would obviously argue that prices arrived at in a market are certainly more economically efficient and more correct indicators of the overall level of preference that the participants in the market have towards the good (after all the basic function of a price mechanism is to aggregate all the diverse preference scales of everyone into one "overall" scale, thus allowing means to be prioritized towards the ends which are (overall) most highly valued).

But the rationality of each individual valuation is something that I cannot comment on. If several customers within a market make valuations on irrational grounds, then there is no way any Randian could even hope to make a convincing argument that a market price is socially objective.

Additionally, as said before, I think "socially objective" is arguably an anti-concept by Objectivism's own standards. Objectivism defines "Objective" (in the epistemological sense) as "an aspect of existence insofar as it is held as the object of an act of consciousness and/or an act of consciousness insofar as it holds as its object an aspect of existence" (Bissell "Mind And Will As Objective Phenomena" (2003) p6). And quoting Ayn Rand, there is no such thing as a collective brain (and hence, no such thing as a collective consciousness).

[Guyau]

The following is related to this thread and another.

Thanks much for the quotes from Hayek, Merlin (as well as for your contributions in general on these threads, and for other material you've linked -- e.g., your RoR post on "representation" and your material on "measurement" in relation to Rand's theories).

You're welcome.

I wonder if Rand ever read The Sensory Order. She was quite negative against Hayek, for reasons I'm unclear about, but I wonder how extensive an acquaintance she had with his work.

That's a good "wonder". I will make some guesses about her reasons.

1. Hayek argued that the basic problem with socialism is that it based on the false idea of "constructive rationalism," the belief that some men can rationally order society top-down via government. In doing so he argued against reason. It was an abuse of reason, but I suspect Rand did not approve of deprecating reason in any manner.

2. Hayek is known to have supported government-run welfare programs. Of course, it most likely was not near to the extent they exist today or that statists desire.

3. He was an economist who use the term subjective value.

On the Austrian term "subjective value," I quote from Thomas Taylor, in "An Introduction to Austrian Economics":

"The explanation of all economic activity that takes place in the market economy ultimately rests on the subjective theory of value. The value of various consumer goods and services does not reside objectively and intrinsically in the things themselves, apart from the individual who is making an evaluation. His valuation is a subjective matter that even he cannot reduce to objective terms or measurement. Valuation consists in preferring a particular increment of a thing over increments of alternative things available; the outcome of valuation is the ranking of definite quantities of various goods and services with which the individual is concerned for purposes of decision and action. Theory resorts to the hypothetical concept of the scale of values in seeking to explain and understand the nature of human valuations. The ranking of alternative ends is determined by the person's expectations of satisfaction from each specific choice faced by him at any moment of decision. He will invariably select the alternative that he believes will yield him the greatest satisfaction.

The subjectiveness of valuation rests in the nature of satisfaction--satisfaction is subjective and not open to numerical measurement. The extent to which a thing gives satisfaction is always personal. People derive satisfaction from different goods and services; that is, all people are not alike in terms of the types of things that please them. Experience also demonstrates that a person's preferences vary from time to time. His ranking of alternative choices may undergo a reshuffling at any given moment. His scale of values may also be altered by deletions or additions.

To relate the matter of valuation to the individual person is not to suggest that each individual is concerned only with the satisfaction of his own appetites and needs. A person may find satisfaction or relief in helping another person. Satisfaction can be and often is derived from the attainment of altruistic as well as "selfish" motives. But the point remains that regardless of the form the satisfaction is to take, each choice arises from subjective valuation on the part of the particular person who is doing the choosing. The uneasiness that he seeks to remove is in his own mind, whether such uneasiness pertains to an immediate problem of his own or to a problem faced by someone else. His choice stems from the preference that he has for the removal of a particular uneasiness over another problem to which he could devote his attention."

Alfonso