Objective Value in Economic Theory?

This is really a thinking-out-loud piece.  Something simmering in my mind for quite some time, brought to the fore by a couple of recent essays.  But I will come to those essays later.

The subjective theory of value is a theory of value which advances the idea that the value of a good is not determined by any inherent property of the good, nor by the amount of labor necessary to produce the good, but instead value is determined by the importance an acting individual places on a good for the achievement of his desired ends. The modern version of this theory was created independently and nearly simultaneously by William Stanley Jevons, Léon Walras, and Carl Menger in the late 19th century.

So, why my title?  Am I about to turn economic theory on its head?  Hardly.  I think my quest began here:

Value in the sense of valuation or utility is purely subjective, and decided by each individual. This procedure is perfectly proper for the formal science of praxeology, or economic theory, but not necessarily elsewhere.  For in natural-law ethics, ends are demonstrated to be good or bad for man in varying degrees; value here is objective—determined by the natural law of man’s being, and here “happiness” for man is considered in the commonsensical, contentual sense.

-          The Ethics of Liberty, Murray Rothbard

This rings quite true.  At the same time, something about this didn’t sit right.  The quite true part: in economic goods, we each place different “value” in various goods; if we did not, a trade could never occur.  Of course, that value is expressed objectively, in the price.  But each party in the transaction believes that what is being received is of more value than what is being given.  In ethics, without objective values we will drift into meaninglessness and nihilism.  So, the distinction Rothbard makes holds.

The part that didn’t sit right: Why?  Why the difference?  This question sat, but in a very low-temperature mode.  In the back of my mind, perhaps a related issue…the economic explosion that came after the liberalism of Enlightenment thinking was accompanied by a decline in ethical standards and, therefore, a decline in liberty.

The low-temperature mode would start to change when I came across the following, from E. Michael Jones:

After Foucault made his pact with the devil in 1975, he began teaching Austrian School Economics….

Michel Foucault is identified as a post-modernist, although, apparently, he rejected the label.  Post-modernism is a philosophy that deconstructs without offering anything to fill the void:

Postmodernism is generally defined by an attitude of skepticism, irony, or rejection toward what it describes as the grand narratives and ideologies associated with modernism, often criticizing Enlightenment rationality and focusing on the role of ideology in maintaining political or economic power.

I have done my share of this, being skeptical of many of the grand narratives of the West and criticizing Enlightenment rationality that is devoid of any higher authority.  But post-modernism does more…or less:

Postmodern thinkers frequently describe knowledge claims and value systems as contingent or socially-conditioned, framing them as products of political, historical, or cultural discourses and hierarchies. Common targets of postmodern criticism include universalist ideas of objective reality, morality, truth, human nature, reason, science, language, and social progress. Accordingly, postmodern thought is broadly characterized by tendencies to self-consciousness, self-referentiality, epistemological and moral relativism, pluralism, and irreverence.

Post-modernism tears down without replacing.  It deconstructs without constructing.  It takes away the narrative and says “there are no narratives,” albeit, that is a narrative.  So, what does a post-modernist have to do with the Austrian School of economics?

I looked into this further, considering that the connection could be the idea of subjective value – extended beyond the economic theory of Austrians and others, and into ethics.  This would be meaningful to a post-modernist.  I found the following, from the Jacobins:

Neoliberalism, being more open to pluralism, seems to offer a less constrictive framework for the proliferation of minoritarian experiments.

And the following, from a book by Jean-Yves Grenier and André Orléan:

On the occasion of this course [Foucault] takes another step, in a certain sense an ultimate step, in his rejection of sovereignty. He does so on the basis of a thesis inspired in part by Hayek’s thought: “The market economy escapes any totalizing knowledge.”

I continued my examination of this interaction of Foucault with the Austrians here.  The detail is too much to repeat in this post; I will offer my conclusion:

I can understand the connection of Foucault to the Austrian thinkers: as subjective value liberates markets, applied to ethics it liberates from all constraints of ethics.  Subjective ethics provides no check on the growth of state power.

Rothbard would note this problem, and wrote of this decades ago.  Those who value liberty should take note.

Which takes us back to the opening quote from Rothbard.  What is appropriate in economic theory is not necessarily appropriate for ethics.  And this comes back to my question: Why?  Must this be so, despite seeming contradictory?

Recently, David Gordon wrote a piece, Mises and Moral Relativism.  The pot started boiling a bit more rapidly at this point.  You will rightly imagine that I read it through the lens of the Rothbard quote, and in the comments, I even noted this quote when asking Gordon for some further background.  Even more directly on point, I asked the following:

I begin with two statements from the piece: 1) “[Mises] says that almost everybody values peace and prosperity.” 2) “[Mises] thinks this entire argument is strictly scientific and value-free.”

It strikes me that Mises is making a statement of absolute value here; it is not “value-free.” Is there a reason that it should not be understood this way?

To which Gordon replied:

…I'm not seeing why the claim "Almost everybody values peace and prosperity" is a statement of absolute value. It is claim about what values people have, and this is a descriptive statement. Someone could say, "peace and prosperity are absolute values," but that's another statement from the one Mises made.

I thought at the time that this was reasonable, that Gordon parsed the meaning better than I did.  I still believe so today.  So, this didn’t bring me any closer to squaring what appeared (and appears) to be a circle – back to my question: objective value?  Economics, no; ethics yes.

Then I read this: The Core of Austrian Theory, by Lew Rockwell.  To start:

Because economic value is subjective to the individual.

This, of course, is the problem!  I know it is a true statement for economics, but then why is it not true for ethics?  And then two brief statements jumped off of the page:

… the hallmark of Austrian economics is a profound appreciation of the price system. … But prices must be generated by the free market.

Austrian theory sees private property as the first principle of a sound economy.

Of course, I knew this.  But I hadn’t really thought about it in terms of this now violently boiling pot.  Are these not objective values – derived from man’s nature?  Private property is necessary for a well-functioning a freely-derived price system – which is also necessary?  I am way out of my depth here – both in economics and in ethical philosophy – but it seems so to me.  We do not get to violate private property and the price system – these must be accepted unquestionably, derived from man’s nature and premises to “the hallmark of Austrian economics.”  Given that I am out of my depth, the rest of this is going to be a bit rambling…

Given private property and the price system, humans are free to exercise their subjective choices in the market.  Here the value placed on any economic good is subjective, and subjectively determined by each individual.  Right-down-the-middle economic theory, at least for the Austrians.  So how does this relate to the issue of objective ethics?

Man is made with a purpose, end or telos.  This is happiness: beatitudo, best translated as fulfillment through other regarding action.  From this, various objective ethical norms can be derived.  Objective, because these are based on man’s nature – his purpose.

How this nature or purpose is exercised is subjective, to be determined individually: that which brings fulfillment for one person will be different from that which brings fulfillment to another.  This is determined subjectively – but must not violate the objectively-derived ethical norms of man’s nature, or purpose.

Economic value is determined based on “the importance an acting individual places on a good for the achievement of his desired ends.”  But this is only functional and must occur within the bounds of a private property order with a well-function price system.  Within this objective framework, economic man is free to play.

It is the same in our acting toward our desired ethical ends: happiness, fulfillment.  One may value painting over writing, working in a homeless shelter over a crisis-pregnancy center.  The acting man is free to pursue any one of innumerable subjectively-determined means to achieve such ends of fulfillment, but he cannot do so by violating the objectively derived ethics.

Conclusion

That’s my crack at it.  At least the first baby-step.  I have no idea if it holds water.