.Objective EconomicsHow Ayn Rand’s Philosophy Changes Everything about Economics
Northrup Buechner (University Press 2011)Table of ContentsChapter One
– Method and ContextThe Method of Economics
: Induction / Other Things EqualLaissez-Faire Capitalism
: MoneyChapter Two
– Objective Economic ValueThe Modern Meaning of Value
: The Role of PhilosophyThe Objective versus the Intrinsic and the SubjectiveIntrinsic Value versus Subjective ValueObjective Value
: The Standard of Objective Economic Value / Knowledge and Objective Economic Value / Optional Values Are Objective Values / Nonobjective Values Are Objective Disvalues / Objective Value versus Subjective Value / Objective Economic ValueChapter Three
– Fundamental Economic ConceptsSupply and Demand
: The Importance of a Theory of Price / The Historical Role of the Law of Supply and Demand / The Meaning of Supply and Demand / The Law of Supply and DemandGoods and ServicesMarketCapital and WealthPrice
: The Doctrine of Relative Prices / The Objective Price / The Opportunity Cost Doctrine / The Intrinsic Conception of the Real PriceCompetitionChapter Four
– Foundational TheoriesThe Theory of Consumer Choice
: Hierarchies of Values / Consumer Choice / The Diminishing Marginal Value of MoneyThe Law of DemandThe Principle of Gains from TradeThe Theory of Objective Business Costs
: Alternative Concepts of Business Costs / Problems in the Calculation of Business Costs / The Theory of Objective CostsChapter Five
– Introduction to the Theory of Objective PricesThe Three Theories of Price
: Intrinsic / Subjective / Marshall / ObjectiveBackground ConsiderationsHow Prices Are Created
: Terminology / The Markets of a Free Economy / The Five Methods of Price CreationChapter Six
– Someone Sets the PriceThe Calculation of ProfitDemand
: Socially Objective ValueUnit Costs
: Average Cost Pricing / Variable Cost Pricing / Marginalism / The Required Relation of Cost to Price / The Structure of Unit CostsCompetition
: The Prices Currently Charged by One’s Competitors / The Quality of One’s Products Relative to Competing Products / Price LeadershipAdditional Issues
: Expectations / ComplicationsThe Long-Run, Profit-Maximizing PriceAlternatives to Long-Run Profit Maximizing PriceAltruism versus the Profit MotiveChapter Seven
– The Other Methods of Price CreationNegotiated PricesSealed Bid PricesAuction PricesBrokered PricesChapter Eight
– The Theory of Objective PricesThe Extent to which Market Prices Are ObjectiveNonobjective PricesMarket Prices and Objective PricesObjective Economic ValueChapter Nine
– The Factors of ProductionThe Original Factor of ProductionThe Law of Demand for Factors of Production
: The Rate of Profit on Investment / Relative Importance to the BusinessmanThe Worker MarketsChapter Ten
– Changes in Objective Prices IThe Effects of Changes in Facts on Set PricesBackground PremisesChanges in Average CostChanges in DemandLong-Run ResultsChanges in CompetitionChapter Eleven
– Changes in Objective Prices IIThe Effect of Changes in Facts on Other PricesNegotiated Prices
. . .Chapter Twelve
– Scarcity and Profit
. . .Chapter Thirteen
– Total Spending and Production
. . .
Appendix A – The Theory of Price in Modern Economics: A Critique
Appendix B – The Method of Modern Economics: A Critique
Appendix C – Marginalism in Modern Economics: A Critique
Appendix D – The Meaning of Scarcity in Modern Economics: A Critique
Appendix E – The Effect of Changes in Cost on Set Prices: Expansion of the Argument in Chapter Ten
. . .
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).
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.
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.
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).
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.
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?
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.
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.
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.
Edited by Stephen Boydstun, 29 June 2011 - 12:28 PM.