Freedom's Theory of Value; L.E. Read

FREEDOM'S THEORY OF VALUE LEONARD E. READ THOSE OF US who wish to assist in a reversal of the present trend away from individual liberty must, among other refinements of the mind, understand, believe in, and be able to explain the subjective theory· of value, as forbidding as that term sounds. Except as we understand and apply this correct theory of value, individual liberty is out· of the question. The possessions one accumu lates are a reflection of his values. What a man owns - what is his own.- is what he is.. One's per sonality and property reflect his subjective values. But few of us care to live in isolation. We prefer to exchange ideas and goods and services with others.. And the problem is to work our strictly personal values into a price or value structure for purposes of peaceful trade. The question· to be answered is, .how does the subjective theory of val ue determine the market price?

Here it is: The exchange value 594 of any loaf of bread, of any paint ing, 01 any day's work, or 01 any good or service is whatever anoth er or· others· will offer in willing exchange. When Mrs. Smith· swaps a shawl for Mrs. Jones' goose, the value of that shawl is that goose and vice versa. Yet, each lady gains in her own (subjective) judgment. Were this. not a fact, neither would have willingly ex changed. Value can make no sense ex cept as it is subjectively deter mined, that is, as utility or gain is judged by self. Gain. or value cannot be determined for anyone by another. What has value for one may· have .more or· less value to someone else: there are those who prefer a chinchilla coat to a college education and vice versa, a freedom library to a vacation and vice versa, the theater to a TV performance and vice versa, ad infinitum. Assume that I am an artist and 1967 FREEDOM'S THEORY OF VALUE 595 do a painting· each month. Unfor tunately for me, no one wants "a Read." The value of' my work?

Zero! Now, assume that a change occurs in the minds of buyers (in each instance, subjective); "Reads" become a popular whim to the point that each will bring $1,000. The value of my work? $1,0001 For the sake of this illus tration, there was no change in the quality of the paintings. Buy ers changed their minds and, thus, the value of my work. It is perfectly plain that the practice of subjective evaluations is the practice of individual lib erty or, if you prefer, personal freedom of choice. It is also easily demonstrable that freedom of the press, free dom of religion, freedom of speech, freedom of assembly are impossible in the' absence of eco nomic' freedom. l This correct theory of value is opposed by the objective theory, that is, by arrangements where someone else, by some standard of evaluation otherthan your own, attempts to determine the value·of goods and services to you. An understanding of the fallacious objective theory and an ability to identify it in its many manifes tations helps to accent the im1 See "Freedom Follows the Free Market" by Dean Russell, THE FREEMAN, January, 1963.

portance and the validity of· the subjective theory in practice. Priorto 1870 no one had formu lated the subjective theory. Nor was it invented. Threeecollomists - Menger, Jevons, and Walras from different countries and with out collaboration, formulated the theory almost simultaneously. Their enlightenment came by merely observing how common people behave - produce and ex change - in the absence of gov ernmental or other interference. Thus, before 1870 when there was no understanding of the sub jective theory, objective methods of arriving at value predominated. The classical example of the ob jective theory of value is the labor theory of value. This theory mere .. ly affirms that value is determined by cost of production or, stated another way, by the amount of en ergyexpended. While some classi cal economists knew the theory to be wrong, they were not certain as to what was right.

Pursuing the labor theory to its logical" and absurd conclusion, a mud pie would have the same'value as a mince pie, provided that they were produced by equal expendi tures of energy. If a pearl diver came up with a pearl in one hand and a pebble in the other, they would be of equal value,! Of course, people will not ex change as much for a mud pie or a 596 THE FREEMAN October pebble asfora mince pie ora pearl. So, how does this theory find ex pression in .practice? Simply, use the power of government to take from the; mince pie makers and give to the mud pie makers! Karl Marx gave the formula: "from each according to his ability, to each according to his need." However,even the Russians no longer are strictly addicted to the labor theory of value .. Yet, they largely rely upon objecti ve stand ards of one kind or another. That is, self-determination is at a mini mum; the government arbitrarily prices nearly everything. Willing exchange is not the mode; indi vidual freedom of choice is sub stantially taboo; the subjective theory is less used in Russia than elsewhere.

Note that there is no freedom of the press, of speech, of religion, of assembly in, Russia. It is be cause economic freedom is denied; and economic freedom is impos sible unless subjective value judg ments are respected. One of the most important points to keep in mind is that the amount of effort exerted or the cost of production does not deter mine exchange value. It is deter mined by individual evaluations of personal utility. The market price or value is somewhere with in the range of these evaluations. We who are interested in individual liberty and, thus, in·the ob servance of subjective value judg ments, must know that the. objec tive theory is antithetical to our welfare,and we should be able. to identify its many practices, re gardless of how. cleverly disguised they are. Actually, we need only. keep our eyes on unwilling as distinguished from willing exchanges. All un willing exchanges rest on 0 bj ec~ tive and not on subjective value judgments.

Would you willingly exchange your income or capital for farmers not to grow tobacco, to rebuild someone else's :downtown, to put men on the moon, to underwrite power and .light for the people of the Tennessee Valley, to pay people not to work? If your an swers are negative, you can take the political applications of. the objective theory from there. Ex amples ,abound by the thousands. 2 It is a gross understatement of the case· to say that freedom rests on the practice of the subjective theory; subjective value judg ments, when honored,are free dom! + 2 See Encyclopedia of u.s. Govern ment Benefits (Union City, N. J.: Wil liam H. Wise and Co., Inc., 1965). This tome of more than 1,000· pages lists over 10,000 benefits. Reprints of this article are available at 3c each.