THE THEORY OF PRICE 6

By M. Northrup Buechner

February 28, 2013

Another in a series of essays elaborating Objective Economics: How Ayn Rand’s Philosophy Changes Everything about Economics by the author.

Ayn Rand said that “the free-market value of goods or services does not necessarily represent their philosophically objective value, but only their socially objective value.” Remember (I have to keep reminding myself of this), the free-market value is the total sales receipts of businesses producing the product. The words “not necessarily” imply that the free-market value of goods or services may or could or sometimes do represent both their philosophically objective value and their socially objective value. I think something like the following is at least part of what she had in mind.

For obvious reasons, new and better products are not instantly embraced by businessmen and/or their employees and/or their customers. Let us take the typewriter as an example. The first commercially successful typewriter was invented in 1868. Up to that time (and indeed long after), written personal communication and record-keeping was predominantly by pen and ink on paper. This method was thoroughly integrated into the operation of businesses across the economy. The invention of the typewriter meant that secretaries (and many others) had to acquire a completely new and different set of skills. At the beginning, no one had this skill-set and very few typewriters were sold. Consequently, the total revenue of typewriter companies was low, and so was the socially objective value of typewriters.

At the same time, the philosophically objective value of typewriters was the value “estimated from the standpoint of the best possible to man, i.e., by the criterion of the most rational mind with the greatest knowledge.” From this standpoint, the typewriter was a wonderful invention which would transform the workplace and multiply the productivity of everyone in the economy—in effect, putting a printing press in the hands of anyone who wanted one. But in the beginning, only a very few saw this.

As time went by, more and more people grasped the philosophically objective value of typewriters, more and more typewriters were sold, and the total sales receipts of the typewriter companies began to exceed their costs—then greatly exceed their costs—then result in fortunes for their owners. This rise in sales receipts represented an enormous increase in the socially objective value of typewriters. Eventually, there came a time when typewriters were completely integrated into the economy, and even the least mentally active typists grasped their philosophically objective value in some form. Then the total revenue of the typewriter companies represented both the socially objective value and the philosophically objective value of typewriters. (And then the personal computer came along.)

The pattern of rising socially objective value is repeated over and over again in the history of economic development. For example, the replacement of the horse and buggy by the automobile,  vinyl records by compact disks, typewriters by personal computers, commercial sailing ships by steamships and then steamships by railroads. More impressive is the rise in socially objective value of all those products for which there is no precedent, such as electricity, telephones, and commercial airlines. At first the demand is low because the product is new and unfamiliar and misunderstood. Then, as time goes by, more and more people grasp the product’s philosophically objective value, more and more people buy the product, and the socially objective value rises apace until it reflects the grasp by everyone (or almost everyone) of the philosophically objective value.

In other words, “The ‘philosophically objective value’ of a new product serves as the teacher for those who are willing to exercise their rational faculty, each to the extent of his ability” (CUI, p. 18).

Next time, I will take up things like psychic hotlines, divining rods, charms, love potions, horoscopes, and all the goods and services of mysticism (relics, bibles, temples, crosses, holy water, priests, etc.). We can call these irrational values or nonobjective values or objective disvalues. Of course, their philosophically objective value is nil. But what about their socially objective value?