I’m currently reading Ron Pauls “Pillars of Prosperity” and in one chapter he brings up the subjective theory of value and how understanding this theory gives us a better understanding on why are economy is as bad as it is now. Ron Paul basically says that because today we use an intrinsic theory of value the correct messages between producers and consumers cant be sent.
What i would like is a little more in depth answer as to how that applies to companies like Sony or Apple, companies that arent run by government. How do these companies using intrinsic theory of value hurt the economy? And if its so bad how they continue to make profits?
My apologies ahead of time if my post doesn’t make any sense. I’m new to all this and am trying to learn as much as I can so in the future I could better explain myself to others.
Do you think you could quote relevant sections? I think Paul might be specifically referring to the value of money.
-Jon
Sure this is manly the passage im referring to.
There are some who have heard of the subjective theory of
value but are hesitant to accept it because they prefer “objectivity”
to “subjectivity.” Yet if consumers subjectively set prices and
values by affecting supply and demand (and thus sales), this is an
important objective finding. Just because we can measure monetary
aggregates, or hours spent producing a product, we decide these
objective facts can be used to determine value. Yet it is really not
the way prices are determined, so these facts are not objectively useful
for this purpose. Those who would use these “objective” facts
for calculating future “price levels” are quick to reject the objectivity
of certain economic laws that are glaringly apparent, e.g., government
planning leads to chaos; printing money creates no new
wealth; fiat money cannot replace commodity money without
force and fraud, etc. They thus reject subjectivity where it is important—
in understanding how individual prices are set—and ignore
objective economic laws so that their schemes of planning can be
pursued. This is a mechanism of both convenience and ignorance.
It allows planners in Washington to persistently defy all economic
laws so the politicians can pursue preconceived and erroneous
notions of what is best for everyone.
What he’s saying is the central planners are using an objective theory of value in their economic calculations while prices are set in a subjective manner which leads to a disconnect between the goals of the planners and reality.
And to add to this, companies (and anyone in the free market) generally set prices at the point where they will clear their stock of any given good, i.e. at a point where the maximum number of consumers is served consonant with the highest amount of revenue possible. Whether or not their owners understand the subjectivity of value, their M.O. is itself under the “rule” of the subjectivity of value in every way. What Paul probably means in referring to objective value, are things like a “fair wage”, “fair price” etc., all the while the self-same individuals advocating these things repudiate economic laws such as the calculation argument.
-Jon