Ayn Rand on Objective Value
Ayn Rand on an "Objective Theory of Value:"
The intrinsic theory holds that the good resides in some sort of reality, independent of man’s consciousness; the subjective theory holds that the good resides in man’s consciousness independent of reality.
The objective theory holds that the good is neither an attribute of "things in themselves" nor of man’s emotional states, but an evaluation of the facts of reality by man’s consciousness according to a rational standard of value. (Rational, in this context, means: derived from the facts of reality in relation to man and validated by a process of reason.)
The objective theory holds that the good is an aspect of reality in relation to man -and that it must be discovered, not invented, by man. Fundamental to an objective theory of values is the question: "Of value to whom and for what? An objective theory does not permit context-dropping or "concept stealing"; it does not permit the separation of "value" from "purpose," of the good from the beneficiaries, and of man’s actions from reason.
If this means what I think it does, I wholeheartedly agree. The so-called "objective" value-theories of classical political economy did not claim that value inhered in goods as some sort of intrinsic or physical property that was a function of the labor entailed in production. Only that the valuations of the market followed trends that could be described by objective law.
Here's my response on the comment thread:
Most attacks on labor or cost theories of value that I’ve seen rely on a strawman caricature. If you look at the way Ricardo or Marx treated market competition, it’s clear that they saw subjective human valuations as the mechanism by which the law of value operated.
As the Austrians pointed out, IF you operate in an immediate time-frame, and assume existing stocks at the point of exchange, THEN exchange-value is determined by marginal utility to the buyer. But once you treat production as a dynamic factor that changes over time in response to demand, you wind up with the observable phenomenon that production will rise or fall until the price determined by marginal utility equals cost of production.
In other words, value is determined by marginal utility, as the Austrians said–given the basic assumptions of their paradigm. But the price of goods in elastic supply ALSO tends toward production cost–exactly as Ricardo said.
The claims that Bohm-Bawerk "demolished" the classical labor theory of value are based on a dumbed-down version of both Ricardo and B-B.
As Buchanan pointed out in Cost and Choice, Ricardo's theory had two paradigms, one for goods in elastic supply and one for goods in inelastic supply. Ricardo treated cost and scarcity as twin determinants of exchange-value (unfortunately treating scarcity-rents as an equal factor rather than a second-order deviation from the law of cost). The marginalists simply took the paradigm for inelastic supply and treated all goods as fixed in supply at the point of exchange. They made Ricardo's scarcity factor the sole determining factor. In other words, price is determined by utility--if you use language in a very specialized sense and start with some artificial assumptions. For more, see Chapter One of my Studies in Mutualist Political Economy.