The Mezunian

Die Positivität ist das Opium des Volkes, aber der Spott ist das Opium der Verrückten

What the Subjective Theory of Value Truly Means for Meritorious Resource Distribution

The pretend breakthrough of economic thought that is the discovery that resources cannot be objectively qualified is often claimed to be proof that “socialism” is infeasible, despite this idea already being noted by socialists such as Proudhon[1] and even Marx[2] long before the neoclassicals and Austrian-schoolers. It does, indeed, prove that an economy managed by a tiny minority separated from the public is infeasible—if one is naïve enough to support such a society. However, the subjective theory’s implications go beyond “socialism”: It discredits any attempt at creating objective meritorious economic outcomes, period—including market methods.

The conclusion most economists derive from the subjective theory is that, because there is no objective method of qualifying an object’s value, we should just let the people decide for themselves. Cost is based not on effort, but on what consumers “choose” to pay for an object in a “voluntary” trade. Often, this is stated with a metaphor for democracy: People vote with their money on which objects have value[3].

Well, already, we have obvious problems with the claim that the subjective theory supports capitalism: An economy controlled by the “people”—AKA the public—sounds suspiciously socialist. Second, voting only works if it is based on “one-vote, one-person” principles, which is obviously incompatible with capitalism, which is characterized by unequal income distributions. This would make any meritorious economic distribution self-defeating: The inequalities it would create would also create advantages derived from better economic control (more “money votes”), which are independent of skill—and thus unmeritorious.

Furthermore, while promarket economists like to discuss the supposed “voluntary” nature of market trade, what they completely ignore is that trade is inherently reliant on the distribution of resources: It is not enough to say that Person A volunteers to trade Object A for Object B and Person B volunteers to trade Object B for Object A; both Persons A and B, as well as everyone else, must also agree that Person A is the rightful owner of Object A and that Person B is the rightful owner of Object B in order for this trade to truly be voluntary. Those who believe Object B does not belong to Person B would logically question what right Person B has to accept values in exchange for a possession Person B had no right to exchange.

This ownership is usually defended as objectively-proven on the claim that people “create” their property themselves; but this is false: Nobody creates property by oneself; such an action is called “magic.” Instead, all production relies on access to natural resources or capital created from earlier natural resources. Thus, one’s ability to “create” is reliant on one’s access to the world’s resources—it is based on the previous distribution of resources.

Even if we accept the claim that gaining more wealth earlier in life makes one deserve the later economic boost more than those who gain wealth later in life, inequalities of birth date disrupt this: Those born earlier gained an advantage over those born later not based on inherent effort or skills, and thus unmeritoriously.

And even if we accept that, one still must ensure that the current distribution of resources is objectively proven to be just. This leads to the key flaw with the subjective theory’s defense of the market: It is based on circular logic. It attempts to defend the current distribution of resources based on a market system that is backed on the current distribution of resources. This means that the distribution of resources in the past affects the present and distribution of resources in the present affects the future: Unjust riches lead to more unjust riches; unjust poverty lead people to gain much less than they would have if they had the right amount of resources.

This is admitted by a few well-known economists. Sraffa noted that “general equilibrium theory shows that a decentralized market economy leads to an outcome that can be labeled optimum, i. e. a [sic] best. However this best rests upon two very tough assumptions: 1. That the existing distribution of wealth is sacrosanct.”[4] Samuelson and Nordhaus in what is probably the most well-read economics textbook in the US, after two paragraphs hailing Adam Smith and his “invisible hand,” begrudgingly mumble, “A final reservation comes when the income distribution is politically or ethically unacceptable. When any of these elements occur, Adam Smith’s invisible-hand doctrine breaks down and government may want to step in to mend the flawed invisible hand.”[5]

So, how do we objectively prove that the current distribution of resources is “sacrosanct”? We can’t. Because resource distribution is contingent on the past, and that distribution based on its past, and so on, it would require an intellectual god—someone with the knowledge of virtually all past history—to sort through all of the disruptions in the past—every instance of theft, imperialism, slavery, and so on—not to mention the subjective nature of who was responsible for what work in collective jobs.

Sraffa, Samuelson, and Nordhaus all heavily understate the problems the subjective theory creates for capitalism. Keep in the mind, the whole purpose for any market is to distribute resources in a meritorious way—that is what the “invisible hand” is supposed to do (well, the mainstream misinterpretation of what the “invisible hand” is supposed to be, at least)[6]. What Samuelson and Nordhaus’s point essentially means is that the market is useful for distributing resources justly, unlike government-run economies—except when it isn’t. Such a claim is utterly absurd. The very subjective nature of the “invisible hand” breaking down when resource distribution is “politically or ethically unacceptable” means that the level of government intervention needed or not needed is arbitrary—except based on what politics or subjective ethics say: What the people democratically choose. Thus, Samuelson and Nordhaus’s argument does not support capitalism, but democratic socialism. Even if the public chose an economic system and distribution similar to capitalism, their legitimacy comes not from the disproved inherent validity of capitalism, but based on democratic choice. On the other hand, if said public chose a socialist, or even communist, resource distribution, that would be just as legitimate.

More importantly, “property rights”—the core of capitalism—cannot be defended if there is no objective way to prove who rightly owns what. Any claim of unfair theft, from either the government or any other entity, can technically be nullified, since who justly owns what cannot be objectively determined. Until it can be, “property rights” are fiat, and thus capitalist laws that defend said “property rights” are, too.

Indeed, that this makes capitalist resource distribution defended purely on what the state chooses to enforce reveals the absurdity of the whole “capitalism” vs. “socialism” debate entirely: “Capitalism” is inherently a form of “state socialism.” The only reason premarket economists could chide social justice “busy-bodies” for trying to mess with the market was the claim that the resource distribution created by their particular economic system is supposedly objective, unlike the “busy-bodies,” who try to base it on their own biased judgments. Who are they to say who deserves what? But since this claim of objectivity is false, that makes promarketers just as much “busy-body” tinkerers and their markets just as much forced onto the public as any democratic socialist system.

If any economic systems benefit from this epiphany, it would be those that do not hold objectively-proven meritorious resource distribution as a goal, such as an economy in which all citizens share all resources or “parecon” (participatory economics), in which resource distribution is decided by democratic choice. The latter is particularly notable, as it is exactly the solution the subjective theory truly leads toward—economic democracy. It also follows Samuelson and Nordhaus’s accidental logic leading to resource distribution being decided by political and ethical forces.

Moreover, it fits the simple nature of subjectivity: Democracy is how we deal with the subjectivity of general ethics—we certainly don’t call for some supposedly enlightened individual or futilely attempt to create mathematically-perfect models to decide for us how a country as a whole should be run. If resource distribution is truly a subjective issue, it stands to reason that it should be decided by democratic means as well.

[1] “The opinion of the human race on the existing difference between real value and market price may be said to be unanimous.” Proudhon, P. J. (1847). System of Economical Contradictions: or, the Philosophy of Misery. p. 88.

[2] “A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another. The nature of such wants, whether, for instance, they spring from the stomach or from fancy, makes no difference. Neither are we here concerned to know how the object satisfies these wants, whether directly as means of subsistence, or indirectly as means of production.” Marx, K. (1867). Capital, (Vol. 1). Chapter 1, section 1, para 2.

[3] “These innate and acquired tastes—as expressed in the dollar votes of consumer demands—direct the uses of society’s resources.” Samuelson, P. A. & Nordhaus, W. D. (2010). Economics, (19th Edition). p. 28.

[4] Sraffa, P. (1995). “A Positive Program for Successful Capitalism.” pp. 9-10.

[5] Samuelson, P. A. & Nordhaus, W. D. (2010). Economics, (19th Edition). p. 30.

[6] Grampp, W. D. (2000). “What Did Smith Mean by the Invisible Hand?” Journal of Political Economy, vol. 108(No. 3), pp. 441.

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