The Austrian Theory of Subjective Value: A Philosopher's View

0:00Let me read a passage, actually a little bit from a comment I made on an article that was recently published in Reason Papers by Nicholas Bergeron in an essay in which he laments the fact that any libertarians would worry about issues like how do we know what is right and wrong? Advocates of a certain set of first-order moral views, such as classical liberalism, should cease trying to construct and present arguments as to the meta-ethical basis of these views.

0:49Now, that was a quote that's basically saying that meta-ethics does not matter. The question of how do you know what is right and what is wrong could be abandoned and nothing much would be lost. Although, notice there is a little should in this. They should cease trying to construct and present arguments. What I ask in a somewhat catty way is, how does he know this to be so that we should do that? If I, such an advocate, keep being concerned about metaethics, am I doing something wrong? Because I'm doing something I shouldn't be doing, according to this author.

1:34How do we know that? Does that not matter? Well, I think it does, and let me just give you a very simple example, but amongst academicians I think it'll ring at least plausible. If my students cheat and I fail them and they found out that my belief that they owe honesty about whether they are the authors of their works is merely something I happen to prefer but I also believe that someone else could as easily prefer being clever and a cheat, neither of you is better grounded than the other, Don't they have a case against me, to the school, to my dean, to my chair? I have imposed on them a standard I believe there are no grounds for and ruin their academic record in the process.

2:24I am in fact doing something like malpractice in education by applying standards of right and wrong in the classroom for which I have no defense. I have no argument. I cannot claim that these are the right standards. According to this view, therefore, I think we need to rethink that. And there is a little bit of this that circulates at least among some Austrian economists and social philosophers. And I want to read you a passage from one such person, Professor Don Bellante, who in the Austrian Economics newsletter on spring-summer 1989 said the following, quote, the Austrian approach is most distinct from mainstream economics in its thorough emphasis on the individual decision-maker as the focus of scientific analysis.

3:26Yet, with the values and motives of individuals being entirely subjective, It is impossible for an analyst to pass judgment on the optimality of the individual's chosen action." Maybe this is a bit of an extreme statement, but then why would I bother using a very congenial statement of this position? I would have nothing to talk about, right? So here is a position that seems to me to be wrong or at least disputable and controversial, and it's associated with Austrian economics, and I think it's worth taking a look at. This claim is what it seems to disturb some moral philosophers, even among those who otherwise find the Austrian economic approach very appealing.

4:19And this is because, for one, such a subjective value theory would appear, at least at first inspection, to undermine the idea that free markets are better arrangements of economic affairs than planned or controlled ones. And obviously this is because of the word better. There is something amiss here. If we think that something is better but our value theory is completely subjective, It would appear that we are doing something odd. We are undercutting our own commitment to this supposedly better economic arrangement by declaring that it's no more than a preference, no more than a subjective value for us.

5:06It also seems flatly contradicted by other ideas on ethics and economics that appear to make entirely good sense. and even amongst many libertarians, myself included, such as the namely that what people do as they act in their capacity as market agents can be morally evaluated. That is to say by the whole field of business ethics, which I know at least six philosophers with libertarian political outlooks and great respect for Austrian economics teach regularly at universities, myself included.

5:51Business ethics assumes that people who are in the commercial arena, who are professionals in that, like people in business, have the capacity to do right things and wrong things and that this can be known. This is known. This is not just something that we happen subjectively to believe. We don't look at somebody who acts somewhat dubiously in the marketplace in various ways, like discriminates against people who have irrelevant traits, and yet he takes them against, holds against them in the trade relationship, and say, this is merely my subjective preference, but if you hate blacks, well, that's okay.

6:36Well, that's okay. That's your subjective preference. This doesn't seem to square, at least, even at the most elementary and primitive level with the field of business ethics. Correct me if I'm wrong, but you can do that later. Anyway, now let me turn a little bit in a little more detail to this subjective value theory and vis-a-vis political economy. As I mentioned before, better is a value assessment, and if it were purely subjective, the claim that free markets are better than alternatives would be nothing more than an expression of a subjective personal preference, which it clearly isn't intended to be.

7:22Now, of course, one may say, but all we mean is that by better is that it's more efficient at accomplishing the goals that we want to have accomplished. However, usually, if it works better, it's more efficient, the question can arise, efficient for what purpose? Is it better for oppressing people? Is it better for, you know, being slothful, or imprudent, or dishonest, or what is it better for? And if you say, well, it's better for, say, creating prosperity, or increasing knowledge, or helping to develop the quality culture, Then you then maybe have to go to a level of discussion in which you have to defend whether those objectives themselves are better.

8:20In other words, once again the question kicks in, have we any grounds for believing that the things for which markets are most efficient are worth being efficient for? I mean, if the market turns out to be a very efficient place for promoting child molestation, I don't think too many people would favor markets. Well, maybe there would be some, but not too many. Let me put it this way, okay? So, you cannot really escape some level of value judgment and then the question of whether it is an objective judgment or merely a subjective preference as you discussed the merits of free markets as against centrally planned or controlled or regulated markets which we generally too, many people in the Austrian school not only engage in what might be called pure scientific economic analysis but they go on from there and say and because of this analysis we ought to have a free market and that ought would have no standing I would maintain if you generalize the way

9:36Bellanta does the Austrian subjective value theory. Now there is another thing about protesting coercive interference in market affairs and it probably couldn't be evaluated as wrong either if it were a matter of subjectivity. What's wrong What's wrong with someone restraining trade? Well, I don't like it. That's not really a very persuasive answer. That you don't like something. Maybe I don't like the color orange. You notice I'm wearing it, and if you don't like it, I'm not going to say, wow, that's very important because that's a subjective preference of yours. This is a subjective preference of mine. And we usually do not impose these on one another.

10:21We don't think that these are vital enough The problem is that if you criticize coercive measures taken by others, whether they be the majority, or their representatives, or just some bureaucrats, or whoever, you are making some sort of value judgment. And here again, the subjective theory would seem to undercut this possibility. So I want to propose that some kind of an adjustment be made on the subjective value theory, an adjustment that would not really undermine some of its most valuable aspects, namely paying attention to individual desires and wants and preferences, but not be so sweeping as to eliminate the possibility of making moral judgments of people's behavior, conduct, your own and those of other people's.

11:31And I would like to substitute for the notion of subjective value theory something that, by the way, is not terribly original with me. It has been proposed by others but not necessarily in this particular discussion or this context. In this context, and I want to call this individualist value theory or as some philosophers would call it agent relative value theory. When people act, these acts can be evaluated as right or wrong, but most often only if one has a clear understanding of these individuals, Their Circumstances, Talents, Purposes, and the broader category of entities to which they belong, such as the human species.

12:17Only in the case of rights violating conduct could it be known generally that they're acting wrongly. I'll give you a little example of how this comes to the fore among some Austrians. When I first ran across Walter Block's book, Defending the Undefendable, he basically endorses all these rather questionable forms of conduct as perfectly okay because they don't violate rights. For example, littering is okay, it doesn't violate rights, prostitution is fine, it doesn't violate rights. Rights. All kinds of things are supposedly morally okay, simply on the basis of not violating rights. On the other hand, I would say that if my child was contemplating a career move and decided prostitution is sort of like, you know, it's a lucrative field, I think I'll embark on it. I'd probably confidently, without too much subjective worry, would claim that that's a bad move.

13:29That's not what I would recommend, and I would try to raise some more objection. I wouldn't make it universal. I could see some circumstances in which prostitution may be an acceptable course of conduct, emergency circumstances, really strange ones where there's no other way to make a living or something like that. So I don't want to make it a universal judgment, but it's a sort of a judgment that I think most parents will sympathize with, and most friends of anybody who might go that way might also sympathize with, and not say, oh, well, it doesn't violate any rights, therefore there's nothing one can say about these things. And this is the extreme to which one can go. And here I am talking about somebody, Walter Block, who is not exactly a tangential figure in the Austrian economic community.

14:22He's a fairly prominent figure and yet at least one of his books seems to perpetrate the kind of redactio ad absurdum that one can point to in order to undermine this subjectivist value theory. Now, such a theory, what I call the individualist or agent-relative value theory, does afford us the possibility of making value judgments that are objective, but rarely universal, just as my example shows. There are lots of cases of this that you know of when you deal with your friends, when you have local knowledge, intimate knowledge of people. You know that they often do bad things that other people, not in the same circumstances or different attributes or characteristics or history, would not be faulted for.

15:17If a parent, for example, squanders his life or money on adventures and risks his life, you can say there is something wrong with that in light of the responsibility that that parent has assumed. If you're a single person and you want to do the same thing, maybe that is indeed your telos, your end, your best way of life, and the two are not comparable. Both, however, can, I think, be objectively evaluated. It's not a mere subjective preference that one expresses when one says, you know, parents ought really to pay some attention to the upbringing of their children. This is not just, well, parents have that preference. So I want to say that we have this view that is individualist enough, and thus serves as a bulwark against those who claim to know the grand scheme of things and pretend to have these universal moral judgments that they'll impose on everybody, And yet it doesn't give away the game by being extremely subjective and by ripping the ground from underneath itself in defense of liberty.

16:35There is another bulwark against central planning and regulation in such a theory and that is that in this particular theory of individual ethics, There is a certain important and undeniable role for choice. Choice is the vehicle of morality. Without choice, morality is just an empty gesture. It may talk about good behavior or desirable behavior, but not about gaining moral credit or gaining moral blame. If you are not free to choose your conduct, And indeed one of the objections we have as libertarians, maybe not as Austrians, but as libertarians to much of statism is that it shortcuts our moral agency.

17:29It makes it impossible for us to be moral agents since we are under the gun and we have to follow marching orders of other people. If you, however, admit to this notion that there is a proper role to objective morality in human life, then I think the idea that the coercers are doing something objectively wrong, rather than you just don't like what they're doing, gains certain credibility and plausibility. Now, I will bring this to a close. Because I don't want to go on too long because I'm sure there will be some interesting questions afoot here. What about economic analysis, pure and simple, in light of this supposedly revised value theory of individual rather than subjective values for human beings?

18:24Now, economics as such does not require making moral judgments about how people act. I'm not saying there is no moral component to the economic game because I think that insofar as economics presupposes private property rights and insofar as private property rights have a normative component, namely I ought to be in charge of what I own or my resources and my life and my labor and not somebody else, it's not entirely possible to remove the normative element from economics, but once that's given, I think the rest of it can kind of fly without much attention to morality. When one purchases a coat, that is a fact that figures into economics. Whether one ought to buy the coat is irrelevant. I mean, I might go home and my, you know, significant other might say, you've got 13 coats, why you buy another one? You idiot!

19:25and blame me for it, you know? On the other hand, for the economist, that is of no significance. They don't care whether you go home and you get beaten up by your spouse for being a splurge, you know? On the other hand, the subjective value theory, when put in the general way that Bellanda puts it above, rules out all objective value judgments. And so, this notion that somebody might criticize you for your behavior in the marketplace and then by a generalized leap of business ethics as such, is kind of wiped clean of it. Whereas in this view, even though for the strictly scientific economic purpose, the value judgments don't matter, because you take out this generalized aspect of subjective value theory, you retain as a social philosopher, maybe not as an economist, But at least as a political economist or a social philosopher, the possibility of making plenty of room for morality in looking at market behavior.

20:33Thank you very much.

20:39We'll take questions. Before we do, I'm going to take the prerogative as the director, just to correct something that people had said about Walter Block. I agree with that, and he did do that, but I was still sort of surprised how readily, sort of, for example, Hayek jumped on the bandwagon endorsing the original version which basically wiped morality clean out of the whole realm of social life except for when it was rights violating.

21:27And so I'm mentioning it only in the first edition. I think there are two conceptions of subjective value that some Austrians I think have been guilty of confusing. I think Mises sometimes confuses them. I think, for example, Rothbard does not. Once a conceptual subjective value is explanatory, you want to explain people's behavior, you explain it in terms of the values and beliefs held by that person. You don't appeal to your own values to explain what they're doing. You appeal to their values to explain why they perform the actions they perform. And then you build up a whole social explanation out of individuals following their values whatever they happen to be. And I think that's the core notion of subjective value that is operative in Austrian economics, I think it's a mistake, and I do think Mises is guilty of this, it's a mistake to slide from that to the view that you're evaluating behavior, that once again it's just a matter of subjective value, and Mises thought that the only recommendations you could give are ones that simply appeal to the values of what we have,

22:32and you can show them the means to the values, but you can't criticize the values themselves, And I think that that's not entailed by the first kind of subjective value, but it's confusing that... Well, it is made often enough, unfortunately. The thing is, of course, that a great many economists, like almost practitioners of every intellectual discipline, engage in a certain bit of imperialism. Philosophers have been guilty of that, and so have... I want to rescue one of the most potent intellectual disciplines and schools in support of a free society from easy rejection.

23:26So I would like to urge those who are taking Austrian economics seriously To resist the temptation to make this leap that you and I both agree is an unwise leap to make, but unfortunately it is a frequent one. And there are lots of people who are sort of heroes of libertarianism, like Thomas Sasse, who make leaps like that, you know. You would say, and I think that this is a mistake, and especially when you are under besieged as a school of thought, When you are not riding the tide of popularity at most universities, you've got to be a little bit careful not to commit these faux pas that otherwise, for others, might be excused as just overstatements and just a little hot-headedness, you know.

24:18And that's why we are here, sound-minded, wise philosophers coming to visit the economists. You summarized Block's point as that he portrays the behaviors in The Defending the Inevitable as okay because they don't violate rights. In the original book, the original edition. I would say that that's kind of a misinterpretation, even in the original version, in the sense that I think what Block is really trying to point out is that the behaviors that are typically deemed as immoral are in fact well-produced. I don't know if it's...

25:26I don't think so, not at all. If you understand the individualist ethics as a genuine moral point of view, rather than just some sort of behavioralistic or behavioristic set of guidelines, then you recognize that although you can criticize others, you can implore them to act differently, or try to convince them to act differently, As a civilized community would hope people would do, when they dislike something about other people instead of going over there with a baseball bat, they would send them an email, you know, which is a far more civilized way of trying to get them to come around to the right way of behaving, but that's not enhanced by saying, oh, this is all subjective, because then when you go over with a baseball bat, that too is subjective and you cannot really condemn it.

26:23So even your move that rights violating is wrong, but everything else is subjective, is undercut by claiming that everything is subjective. Because frankly, why is it wrong then for someone to try to impose his values on anybody else? You may say you don't like it, you may say you don't prefer it, but you can't say it's wrong. And in a way, Block undercuts himself by saying that everything else is subjective except this one thing. Why that one thing? I have no reason from him, at least not in the original edition of his book, to accept that there is this little exception where a bit of objectivity is preserved.

27:10seems like Rothbard never makes this mistake in the video, he is always very careful to, and I appreciate Rothbard, because he is so important to Mario, so even if there are mistakes, like I said, Rothbard's influence is so great that he seems to have overshadowed that in so far as, in his work, in his work, in his work, in his work, in his work, in his work, in his work, in his work, in his work, in his work, in his work, in his work, I don't doubt it. I mean, as I say, if the shoe fits, you can wear it. If it doesn't, then that's fine.

28:05I don't doubt it. I mean, as I say, if the shoe fits, you can wear it. If it doesn't, then I'm not talking to you, you know. Unfortunately, there is a tendency in scientific economics to generalize the explanatory to wipe out the normative. And this, by the way, is not unique to the Austrian School or even to economics of a variety of schools of economics. There is a tendency in much of scientific social analysis to remove the norm of development, which I think has its consequence, something we observe throughout the country and throughout the world, of not ever blaming people for anything they do, whether they are lazy or whether they are angry or whether they are hasty or whatever, but always invoke some sort of a class analysis or poverty analysis or something that explains their behavior and thus, in effect, if you put it all together into a coherent picture, exculpates what they do from any moral judgment.

29:21And you do have to, I think, pay attention to these various areas, how they hang together and make sure that as you defend the subjective theory as perhaps a valuable tool of explanation, you don't make the mistake of extending it too far so that it wipes out the moral dimension. Let me just add something here because the idea that it has explanatory value itself can can, of course, be argued with, and that's one of the reasons that a great many economists, although not necessarily Austrian economists, talk about revealed preferences, where they only look at what people do, and so then the explanation has the great tendency to become tautological.

30:18Why are you doing things? Well, I'm doing them because I have this preference. How do we know that that's the preference that you have, is that I'm doing things. So it's kind of a circular explanation, and I'm not sure how that can be rescued, but I'm sure you've given that more thought than I have. Well, let's just scare the fact of scarcity, that is, that there has to be a ranking of preferences. In a world where not all human wants can be observed by giving an article, then people have to write their preferences. But isn't that the same thing as saying that, well, people will have to behave differently from how they might wish to behave because of scarcity. But it doesn't explain their behavior, it is just something we observe.

31:04We can take notice of the fact that people behave in certain ways in markets in light of scarcity, but is this an explanation or is this just an observation? I think it's a deduction from the fact that scarcity does exist, people can't have all they want, each person's resources are limited, and therefore they have to allocate them. And they're going to allocate them in a way that will, in their view, maximize or optimize their satisfaction. So at that, they may be wrong, ex post, they may have made mistakes, but ex ante, you know, that... Let me put it this way, I don't want to get into this whole thing because this opens another area of investigation which we don't have any time for, nor do I necessarily say that I'm the best one to do so, but anyway, you had a comment.

31:56My comment is that Rothbard says that that's not the task of economics is to figure out why we make the choices we make. He specifically says that's the task of psychology. Well, even that is... ...as given and then evaluates the consequences of the notion of choice. If I think his point was deeper than that, even demonstrated preference, as Rothbard would use that term, is tautological according to what he would say, because I'm reading him.

32:41Reframing the Argument for the Free Society It was published by St. Martin's Press back in 1990 It's available in a cyber edition You can always put it in and it's sold on the internet as a cyber book by some people who are into that And it contains a good many of these things Both the historical analysis, discussions of the neoclassical and the Austrian school and so forth and so on and so on. So, any of you who really want to get into that and don't mind looking through my work, you might want to do so. Tabor, this is a subject that we've been debating for many, many years in different variations and that reminded me that the quote from Bellanti actually came from the 1980s. Yes, 1989. Yeah, we've We've been looking at this issue and I think it comes down to the fact that the Austrian schools label their value theory subjective and you label your philosophical approach objective and therefore you have this sense that there is some need to bring them together in some coherent fashion.

33:55Now it's been my position that know that subjective value in the Austrian approach is not meant to be dismissive as if, okay, something is subjective while, you know, it's not as if we're casting off the problem of moral judgment, we're simply leaving it to the philosophers and the theologians to deal with those type of matters. Now with that being said, you know, with my position being different from yours on the question of is the market better in an ethical judgment sense? I've actually kind of reversed myself since we last took up this issue in a sense, or in the sense that I think that the market actually is a better ethical, ethically generating system and all other approaches and the one thing that really changed my mind in this regard or at least got my attention going in that direction was the Enron fiasco where we had several layers of government, many different types of agencies and agents sort of monitoring the behavior of this social entity and none of them really coming up with any solutions to the problem with Enron and it was really the market.

35:18I'm an entrepreneur, an investment analyst and a newspaper person who found the ethical problem and it was the stock market and the marketplace itself that ultimately made the decision and meted out the punishment in that particular case and as I said that case has sort of got my attention drawn to the fact that the marketplace seems to really be better, systematically better, Well, back in 1983, M. Bruce Johnson and I edited a book called Rights and Regulations for Valentine, which contained a whole bunch of essays, and some of them indeed made that point way before Enron, that one of the big consequences of government regulation is a demoralization effect, that everything becomes a matter of law.

36:14I had a friend who worked for IBM for years and years and she used to tell me that whenever IBM made a decision as to how it should conduct itself overseas, domestically, vis-a-vis employees, customers, anybody, the only question they ever asked, is it legal? And then they sent the lawyers to check out whether there is anything in the regulations that prohibited certain avenues of solving a problem. And if there wasn't, it was perfectly okay. The notion that they had moral responsibilities was completely wiped away by the fact that almost everything that people in business do has a regulatory provision written down someplace, either in a city, a county, a state, or a federal, or now even an international guidebook, you know?

37:10When you are that much regulated, you begin not to look upon yourself as having any personal responsibilities at all. And so it's not a big surprise, at least to those of us who find liberty as a vital element of human life, that this eventually leads to the demoralization of a society, that's at least, so I agree with you, only this has come to some of our attention a little bit earlier than Enron, and so when Enron happened we'd say, oh there we go again, you know, these guys just don't think in terms of they have a moral nature, they think in terms of they have to dodge I think one of the things that drove Mises to our death was that he was very suspicious of the notion that moral norms could just be imposed completely from the outside, from some purely objective source that didn't have any connection with the individual's desire to do something.

38:53that at least Rand thinks that she has made to this debate is that her rendition of objective is not synonymous with intrinsic. And it's the intrinsicist view that seems to allow, and I had this wonderful experience of interviewing Milton Friedman back in 1975, Ralph Reiko and I went to Chicago and interviewed him for Reason Magazine, and I asked him about whether he believes in anything like moral Right and Wrong, and he said, if you knew that another person is doing something wrong, you would have the moral obligation to stop it. And it doesn't mean violating rights, it means anything wrong, like using the wrong fork for crying out loud, you know?

39:41And why? Because he too held this notion that right is an intrinsic property, or goodness, and And then the obligation to pursue the goodness is some sort of an intrinsic property of things independently of any motivation. So the objectivity theory that Rand puts forth, which unfortunately I think a lot of people in the Austrian School are sort of alienated from because she had bad habits and everybody has bad habits and they then generalize that and say she's worthless like David Gordon with her books in this least recent list that he gave up just today on Mises.org that Rand's contribution to the philosophy of liberty is minimal or is wrong-headed but if they really looked at what she did one of the things that she secures is the notion that morality is worthless if it's coerced. Morality She ends, as she used to say, at the point of a gun.

40:45If you make people do these things, then forget about saying they're good people. Now, back to Mark's point. This debate between subjective versus objective may sound like a matter of labeling to some, like maybe even you. But, you know, that runs the risk of having things like coercive versus free being just a matter of labeling. So, most of the statists maintain that when they extort taxes from us, this is voluntary. Now, if you say, voluntary? You're nuts! They say, well, you know, you can label it coercive, we label it voluntary.

41:31So it's a matter of nominal definitions. Well what that does is throw the entire area of intellectual, intelligence, coherent, meaningful debate into a kind of a postmodernist, you can mean whatever the hell you want to mean and there is no coherent objective sense to any of the terms we use. The fact is that is that subjective in the literature has acquired the meaning up to the subject having nothing to do with any evidence or argument or reasons it's entirely up to the subject. Just like my preference for orange, I would consider a subjective preference.

42:18If somebody says, why do you like orange? Well, my mother and my father and my sister, none of that matters. period, end of story. If that's the way we think about ethics and political principles, we're cooked. Well, Seymour, it's not a semantic difference, it's a scientific difference in the sense of what do economists do, how far can they go, in their capacity as economists, that's where it stops. Well, that's what I'm saying when I read to you this line that whether you buy the coat or not is all that matters to the economist. It doesn't have to be subjective, objective, blue hair, you know, whatever.

43:05You bought the coat, millions of people buy the coat, that will have certain effects on the price of the coat, on the supply of the coat. There's no need to put subjective in there at all. This is all mumbo jumbo as far as I can see. There is one need to put it in, and that is because the number of coats any particular person will purchase depends on the marginal utility. So in other words, there has to be a foundation in subjective evaluations of the usefulness of the good. And the subjective evaluation changes in predictable ways with the supply that the individual possesses, the supply of the money that the individual possesses, so this is where the term subjectivism came into use.

43:53But do you think it really does any kind of a productive job other than saying, well, when you have enough coats, you don't want more? Well, for other reasons, because an argument was in the Austrian camp, it may have been better if the people followed Menger's research, who suggested personal instead of subjective, and I think Ido Holtzman has also suggested individual value versus social value over market price. Well, this means to be a mind-teasing exercise, so please, now that your mind has been teased somewhat, you can spend whatever time you subjectively prefer on this problem. Oh, Joe, you're almost tired of teasing. Thank you very much. Okay, thank you very much.

44:39Thanks a lot.