The Implications of Subjectivism for Economic Policy

0:00It's both an honor and a pleasure to share with you the results of my research on subjectivism and especially to be broadcasted worldwide. I'm particularly excited about this. It's the time of my glory. So let me, maybe sometimes if I fail my argumentation, it will be still and I'm still a Hollywood producer who will find me a job, hopefully. Well, I will talk to you today about subjectivism implications for economic policy. This is a part of a larger project on subjectives that I have with different papers at different stages of publications and hopefully more papers to come. The question I will address here is why all Austrian economists are laissez-faire, in favor of free market.

0:54See, this would be a kind of, it would be more than a coincidence why all the Austrians are free market. And to be sure is not a coincidence, it's more than that. and I will try to explain right now what I think about that. There are two main justifications to answer the question why all Austrian economists are pro-free market. One of them is Ludwig von Mises' consequentialist and utilitarian justification. This is to say that the consequences of free market are more desirable, are more for most of the people than the consequences of interventionism.

1:43The other justification is provided by Murray and Rothbard among others, but Hans-Hermann Hoppe is working on the same path. So the idea would be based on the natural law and the justifications provided in the Ethics of Liberty liberty in favor of self-ownership, we can say that a free market is the only morally justifiable situation, while interventionism is basically immoral. This is the justification on the separate grounds than economics. Because the paradox that should be explained is how The paradox that should be explained is, how come a value-free economy such as subjectivist and the Austrian economist are at the same time also favoring free market?

2:38So this will be the paradox that I will try to address in this paper and in my lecture. The plan that I will follow will be the following, will be the subsequent one, address subjective value in the first place, then discuss some subjective implications for economic policy and assert some further developments, starting with my paper. Well, the subjective value, of course, most of you already know, so I will not tell you new things about that. What is important to notice is that, from my point of view, is Ludwig von Mises who give us the most coherent and complete definition of subjective value, especially because he distinguished from marginal utility, and especially because he explained us a kind of three-partite relationship between the adjunct, the achieved end, and the foregone end.

3:46will be fouling on, suppose you have five dollars, your achieved end will be a beer, this is from my subjective perspective, right? Then you have the same amount of money and you will renounce to some other ends that you could achieve with exactly the same amount of money that is a ticket for the cinema. Well, what Mises explains, it is very simple to to understand is that the achieve end is superior, has a superior value from the point of view of the agent to the means that he employed and also to the foregone end. This is a situation or the agent choose it freely. I will come back in a minute.

4:32Well, there are many implications of that. That is an ordinal evaluation, it's not a cardinal one and many others. Well, an important outcome of this idea of subjective value is developed by Murray Rothbard. He discussed the concept of demonstrated preference in his famous article, To Art of Reconstruction of Welfare. What he points is that, of course, there must be a real action to have subjective preferences. You must have a real action to explain that the agent really demonstrates his preferences.

5:20So the question is, how do you know that the agent prefers this and not that, precisely because you see the real actions. So the important thing is that the preferences in themselves are real. One thing is developed by Hayek, the so-called knowledge problem, and he goes on the same path as Mises, but he puts the accent on the epistemological features of subjectivism by saying that the subjective value helps individuals to coordinate his plan. Well, from my point of view, demonstrated preference and known preference, two parts of the same medal is, again, the famous article of Hayek from 1935.

6:15The second part of my presentation will focus on subjective implications for economic policy. Now, I was briefly explaining things that you probably already know about what is subjectivism. Now, the question is, what do we do with subjectivism? What is subjectivism good for? What are the concrete implications of subjectivism? It is interesting to know, if you go through Human Action, Man Economy and State, and many other Austrian books, that the implications of subjectivism, besides the methodological debate, besides introductory chapters, are coming again when it comes to economic policy. So they are mainly used for tackling interventionism in general, and many are used especially for disputing price fixing regulations and other forms.

7:17Say I will focus as an example on price fixing And it is interesting to see that the objective value is the theoretical ground of price fixing. So the question one should ask is, can we have a price fixing with subjective values? The answer is obviously no, because if the individuals are subjectively choosing The ends of their actions, there is no point to fix prices, there will be a coincidence between the subjective preference and the so-called objective value. The difference arises when objective value is different from the demonstrated preferences of individuals.

8:09The third element, which is the most important, is cohesion. And of course, we cannot have price phasing without an enforcement of cohesion. Because if the price is that individual would choose freely, it would be the same as the so-called the just price or the objective value. There would be no point to introduce cohesion. If we introduce cohesion, it's because we think that they are somehow different. You see, the three main elements of interventionism are, I think this one, objective value, price fissing and coercion.

8:55Speaking of coercion, I will make a step further and I will try to explain that are two elements in coercion. Usually when you're discussing Austrian economics and we are discussing, we are using subjectivism, we are especially focusing on one of them. I will use for my argument the second part of coercion. So how things are going, you have an action someone is forcing you to do something else. So at that point you have demonstrated or known preferences, but you have also undemonstrated and unknown preferences.

9:40Precisely because coercion is a win-lose situation, right? You will have known preferences of the, let's say, the master, the one who coerces, and you have undemonstrated unknown preferences of the, let's say, the slave, the person who is coerced. You must see coercion as something very complex. You know, it's not just one thing question. You have, it's a compound of various situations. For example, one may be coerced on some segments of his action, may be coerced by some parts of the day, not necessarily the whole day. So, contrary to a normal action where you have, as I say, free choose ends, you have a win-win situation, Now, you can see that the no and no preferences are asymmetrical.

10:37Of course, subjective value applies also to a coercion. So you must say also that the slave actually prefers subjectively, objectively prefers to obey than to disobey because the threat must be real and must be aware of that. Anyway, what is probably the important thing to see here is that the question is disrupting this relationship between subject and preferences. These unknown and undemonstrated preferences will never be revealed, and it's very important to see that these are also genuine preferences in the sense that they would have been choose if the individual was free to do it. So, giving this distinction between demonstrated and undemonstrated preferences, we can see that is precisely because we adopt If we adopt a methodological perspective or a subjectivist methodological perspective, we obtain free market policy and vice versa.

12:01If we want an interventionist policy, it's precisely because we must somehow believe that there are objective values. Coming concretely to the implications for economic theory, one point I would like to What I want to make is to show you that there are, how to put it, the subjective preference may be colors on two ways, descriptive and normative, say, value-free and value-oriented economic policy. So you have individual preferences. One of the main consequences that Mises himself derived from individual preferences is the fact that they cannot be evaluated from a moral point of view. You cannot say that one action is perverted. You cannot say that one action is immoral, precisely because you cannot judge, you should not judge what individuals are preferring.

12:58Deferring, and all this is in human action, value-free, based on value-free praxeology. Well it is interesting to see that it's practically the same consequence that a moral philosopher is writing in the tradition of classical liberalism are deriving, Locke and his followers and contemporary libertarians, Walter Block, will probably say the same point of view, there There is no such thing as perversion in as much as there is no coercion, as the perverted are not, is not coercing someone. The second consequence is that the values cannot be measured or compared. Well, the same, again, is the same, this idea can be colored from a moral point of view.

13:46Say, it's the same consequence that a moral philosopher writing classical liberalism are saying. For example, one of the famous writers, Isaiah Berlin, he says basically the same thing, that subjective preferences cannot be compared or measured. This is the case because subjective and objective value, that is, value is a very thick concept. You have altogether descriptive and normative dimension. So they are somehow associated together and I think from my point of view is precisely in this sense that this kind of intuitions that von Mises and other Austrian economists have are going.

14:35So this association between value judgments and subjective value judgments and liberalism. say, you can practically see a perfect opposition between subjectivist and objective value and you can see a perfect opposition between the economic policy that are deriving from these points of view. What I was explaining to you until now was that it's not astonishing that most Austrian and economics are all together value free and they are adopting a free market policy. This is coming from their subjective methodology precisely and there is no problem with that.

15:28Well, what I didn't show you until now and what I will not show you today but the next this year is why should one choose a subjective and therefore a free market economic policy. So this was an explanation of free market orientation of Austrian economics, but I didn't say why should this be the case, why should Austrians, why should one be Austrian, to put it like that. Of course, I didn't explain you by a psychological or a sociological inquiry why all people that are writing in this tradition are precisely writing in this tradition. So this will be a further development that I will try to write down.

16:16So, my guess is that subjectivism can be mobilized to justify a free market policy, not only to explain that, precisely for the reason that I just indicated, because value is a thick concept. And even rhetorically speaking, I think it's much more convincing an argument based on subjectivism, then on argument based on a moral principle. Second, a development that I foresee is because in the light of this subjectivist interpretation, one can better explain, in my sense, the distinction between various intellectual tradition on the free market.

17:03Of course, you are aware of the fact that you have a long range going from classical for liberals, mean-archists and anarcho-capitalist libertarians. Well, there are disagreements between these traditions and I think that is precisely the systematic application of subjectivism that gives this difference. For example, some people think that some scholars, say classical liberals, think that national defense or individual security is objective, is based somehow on an objective value. That's why this should be enforced. And the consequence, of course, would be a price fixing on a security issue.

17:49So, to put it differently, I think that different types of subjectivism that are not based on extensions to knowledge or other ultra-subjectivist points of view, but it's between the segments of reality to which subjectivism is applied. It's the same thing I was explaining to you previously with coercion. So you don't have only one concept of coercion. You have segments of reality that may be under coercion or not. or not, as a parallel, take the example of water. This was the main invention of marginal revolution, that you don't have water, you have glasses of water.

18:41I think the question is the same. And third, the calculation debate. This is an age-old story, I will not go through, especially because I'm out of time, but age-old, that is, age of Austrian economics, right? Well, based on what I've said on subjectivists, until now, I believe that Rothbardians' demonstrated preferences are not incompatible, but precisely they are one side of the known preferences of Hayek and vice versa. There is no opposition on why a socialist society wouldn't work, but is kind of complementarity.

19:33And you can see that because you make one step back and you see that both of them are defending a subjective value. Of course there may be disagreements then about the application of subjective value at the different, as I said, segments of reality. So, I thank you very much for your attention, looking forward to answer the questions.