A General Theory of Value

Ayn Rand defines value as “that which one acts to gain and/or keep” and applies the concept to all living organisms. A value presupposes answers to the questions “to whom?” (or “what?” in the case of lower living species), and “for what purpose?”*
 
Can we apply this definition to the economic concepts of value and utility, especially as used by the Austrian economists? When I was teaching, I would tell my students that the law of marginal utility can more clearly be called the law of marginal value. Was I correct? Let us see what we can come up with.
 
The answer to Rand’s two questions, as applied to all living organisms, is to sustain and enhance that organism’s life. The amoeba takes in nourishment from its environment, the plant strives to get as much sunlight and nitrogen as possible, and the family dog may stare at us and give an affectionate growl to communicate when it is time for dinner.
 
For human beings, the term is not just a moral concept. While Rand uses it to develop her ethical theory, “value” applies to every action humans take in life, moral or immoral, healthy or unhealthy, law-abiding or criminal, productive or indolent, correct or mistaken.
 
Human beings—each one of us as individuals—because we possess free will, must choose what will sustain and enhance our lives. We must declare something to be a value and then pursue it.
 
An important note here: value is not “out there,” intrinsic in the thing that we like. It is a relationship to us that we rate (evaluate) as beneficial. And we may be mistaken in our judgment or choose what is harmful either to ourselves or to someone else.
 
“Value” is also not subjective, as many economists believe. The concept of value arises in our heads, our consciousness, when we judge the something outside of us to be valuable—with emphasis on the last four letters. What is outside of us is only potentially a value. We must recognize it as such, then actualize it by acting to gain and/or keep it.
 
If we are accurate in our judgments, the value is objective—in its epistemological meaning, as Rand would say. It is not metaphysical in the sense that essences and values are “out there,” in the thing. This is the naïve realist view that has caused so much havoc in our understanding of the meaning of objectivity, especially in the field of economics. If we are inaccurate in our judgments and the value is harmful for us, we can then say that we are mistaken and the chosen value is merely subjective.
 
To illustrate further the meaning and role of values in our lives, some of us may choose honesty as a way of life, others dishonesty or theft to acquire values. Some may build bridges for a living, while others become truck drivers. Some may eat vanilla ice cream, while others prefer chocolate, and still others may not eat ice cream at all.
 
Many values that we pursue, as I have written before—a specific food, career, romantic partner, etc.—are optional and do not need to be pursued by everyone, whereas moral values are universal requirements for the sustenance and improvement of human life as a rational being.
 
Now let us look at the meaning of value and utility in economics, taking value first. Austrian economists Carl Menger (pp. 115, 121) and Ludwig von Mises (p. 96) define value as the importance of something to us, Menger adding that it satisfies a need and maintains our lives and well-being. Mises goes on to emphasize that value means preferring one thing to another. Both consider values subjective (cf. Hülsmann, pp. xxxiv–xli).
 
As stated above, values are not subjective. Also, the words “importance” and “preference” are close synonyms of “value,” making the definitions circular: “I value what is important to me and I value what I prefer.” The economic concepts do not clarify the meaning of value, though Menger’s additions that values satisfy needs and maintain our lives and well-being are real properties of accurately identified values.
 
Rand’s definition is general with a broad genus (“that”) and differentia (“one acts to gain and/or keep”).** For human beings, it is the latter, our action, that actualizes those things outside of us to make them values. Iron ore and oil, for example, before they were extracted and turned into steel and gasoline, did not have value for anyone—until entrepreneurs acted to turn them into economic goods.
 
Economic goods, incidentally, are things that have been turned into values that consumers desire and pursue, in contrast to “free goods,” such as oxygen in the air we breathe. Oxygen is a value required for life, but we do not have to pay a price for it, that is, unless we are going deep sea diving. Then it becomes a highly valued economic good (cf. Reisman, pp. 40-41).
 
Now the economic concept of “utility,” as I also said to my students, does not seem to be especially useful. Its meaning is “usefulness” or “serviceableness” to meet our needs, which again is a synonym of value. It predates the philosophy of utilitarianism, but was popularized by the utilitarians who introduced many errors into ethics and economics, not least the subjectivism, relativism, and collectivism of values.
 
The law of marginal utility can indeed be stated as the law of marginal value, meaning the larger the quantity of something that is available to us as a value, the lower the value we will place on a single (or “marginal”) unit.
 
The law, of course, resolves the so-called paradox of value of the classical economists who could not explain why diamonds are so much more valuable, in economic terms, that is, higher priced, than water, the answer being the quantity of each that is available to us. Stranded in a desert, fully dehydrated, we would value a glass of water as equal to life itself. But neither value—diamonds or water—is subjective. The values are contextual and determined by each individual in his or her situation.
 
Thus, Rand’s definition of value gives us a general theory of value, applicable to all living organisms, including the wide range and types of values held by human beings.
 
All human action, to borrow a few words used by Mises (chap. 1 & 4), is guided by a goal that becomes the standard by which we identify the steps or means (intervening values) required to achieve the goal. The goal is the ultimate end or value that we seek. This description of human action applies to ethics, economics, psychology, engineering, and so on. Every action we take is motivated by our desire to acquire and use a specific value.***
 
 
* Rand’s words (her italics): “of value to whom and for what?”
 
** The genus of human values can also be elaborated as anything that we view as sustaining and enhancing our lives, keeping in mind that mistakes can be made and anti-life conduct can be willfully chosen. Action to acquire and use the chosen value remains the differentia.
 
*** This last differs from Mises who says that we are motivated by a “felt uneasiness” to seek those values. Sometimes we might be so motivated. Sometimes we act out of habit, such as eating lunch because it is time, not because we feel any “uneasiness” in our empty stomachs. Sometimes, when we are confident of acquiring a value, the expected pleasure is the motivator.