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{{DES | des = Ayn Rand's objectivism and Ludwig von Mises subjectivism are compared with a bizarre, self-parodic test.  "We conclude that the market has spoken: Ludwig von Mises is the more important classical liberal thinker!" Really atrocious statistical bullshit.  Gated.| show=}}
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ABSTRACT:
Objectivism Versus Subjectivism: A Market Test
The terms objective and subjective are considered antonyms, and yet “objectivists”, associated with the ideas of Ayn Rand, and “subjectivists”, associated with the ideas of Ludwig von Mises, are both associated with the same political philosophy: classical liberalism. There are however important apparent differences between the “objectivist” approach of Rand and the “subjectivist” approach of Mises. Who is right? And which intellectual has the greater place in the classical liberal tradition? We propose to test these questions using data from a unique housing development in Charleston, South Carolina. We find objective evidence in favor of Mises’s subjectivism.
Peter T. Calcagno
Associate Professor of Economics College of Charleston
Charleston, SC 29424
Phone 843-953-4279
E-mail calcagnop@cofc.edu
Joshua C. Hall
Assistant Professor of Economics Beloit College
Beloit, WI 53511
Phone 608-363-2376
E-mail halljc@beloit.edu
Robert A. Lawson
Associate Professor of Finance Auburn University
Auburn, AL 36849
Phone 334-844-3007
E-mail rlawson@auburn.edu
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I. INTRODUCTION
Ayn Rand and Ludwig von Mises have inspired multiple generations of classical liberals. Doherty (2007) describes Rand and Mises as being among the five most
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Ask most classical liberals scholars how they got interested in the ideas of a free society and they will point to either
Rand or Mises. For example, J.D. Tucille’s 1972 book It Usually Begins with Ayn Rand extols how Rand’s famous 1957 novel Atlas Shrugged is the first work many young libertarians encounter. Similarly, Mises’s classic treatise on economics Human Action has influenced many economists (Buchanan, [1969] 1999; Tullock, [1997] 2005; Smith, 1999; Leeson, 2009). To outsiders the fact that the work of both Rand and Mises can lead to classical liberalism suggests that the two are very alike in their views. Yet it is obvious from the language used by their followers that they are, in fact, opposites.
The clearest evidence that fans of Rand and Mises are opposed can be seen in how these two groups describe themselves. Randians argue that market prices are “objective” in the sense that they reflect objective reality. Misesians argue in contrast that market prices are “subjective” in the sense that they reflect individuals' subjective preferences.
In addition, Mises thought economics should be a value-free science based on apriorism and subjective value theory. For Rand value is an objective measure based on a man’s life (Greaves, 2005). Mises writes (1985, 23) “Value is not intrinsic. It is not in things and conditions but in the valuing subject.” Mises (1969, 26) goes on to write elsewhere, “There are no such things as absolute values, independent of the subjective
influential libertarian thinkers of the twentieth century.
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preferences of erring men. Judgments of values are the outcome of human arbitrariness. They reflect all the shortcomings and weaknesses of their authors.”
In contrast Rand (1967, 24) explains, “the free-market value of goods or services does not necessarily represent their philosophically objective value, but only their socially objective value, i.e., the sum of the individual judgments of all the men involved in trade at a given time, the sum of what they valued, each in the context of his own life. ... This does not mean, however, that the values ruling a free market are subjective.”
Despite, these differences these two scholars were contemporaries and fans of each other’s work. On January 23, 1958 Mises ([1958] 2007) wrote a fan letter to Rand after reading Atlas Shrugged stating “I am in full admiration for your construction of the plot.” Branden (1986, 189) writes that Rand took pride in Mises referring to him as “the most courageous man in America.” Mises’s widow, Margit von Mises, (1984, 137) wrote in her memoirs that Rand “was one of the strongest believers in my husband’s theories and often spoke and wrote about him in her various lectures and publications.” Similarly, Sciabarra and Sechrest (2005, 241) note that Rand in her personal letters recommended “the works of the great economist Ludwig von Mises.”
While some scholars have tried to rectify the differences between Mises and Rand (Boettke, 2005; Block, 2005; Reisman, 1998), there still exists a considerable tension between the two camps, especially concerning the questions of whose ideas have had more influence. For example, Huemer (2010) notes that according to Amazon.com, Rand is winning when it comes to book sales; Atlas Shrugged was ranked 101 in sales while Human Action was ranked 16,331 as of January, 2010.
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The question of whose economic and philosophical views are more valuable to
classical liberalism is a thorny one. While books sales are important, they do not
accurately control for several important factors, such as the difference in sales between
fiction and non-fiction. In this paper, we argue that one way of answering this question is
through market exchange. Using data from a unique housing development in Charleston,
South Carolina named I’On, where many of the streets are named after prominent
classical liberals, we explore the question of whether “objectivist” street names
associated with Ayn Rand sell for more than “subjectivist” street names associated with
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II. BACKGROUN ON I’On
The I’On Group proposed the I’On development, named after Jacob Bond I’On (1782-1859) the mayor of Sullivan’s Island and a hero in the War of 1812, in 1996 and broke ground in 1998 (I’On Village, 2010a). The developers were inspired by the idea of new urbanism in the tradition of Jane Jacobs. They attempt to combine modern advances with time-tested urban principles, and focused the concept on the traditional walking neighborhood. Since the companies start in 1991 it has participated in building seven neighborhoods around the Southeast. The development captures the charm of a “European village mixed with an American small town” (I’On Group, 2010). I’On consists of 762 homes, 12 Shops, 6 Miles of walking trails, 5 playgrounds, 3 crab docks, 2 churches, and 1 school. The community was the 2003 winner of the Congress for the New Urbanism Charter Award and was Voted Best Smart Growth Community and Best
Ludwig von Mises.
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Community in the Nation. I’On are the street names.
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However, for our purposes what interests us the most about
According to the developers of I’On “Naming the streets was an opportunity for creativity and imagination. Several I'On streets are named for maverick literary figures” (I’On Village, 2010b). These figures include public intellectuals such Thomas Sowell and urban activist Jane Jacobs. As I’On developer Vince Graham notes, “John Galt Way is named for the fictional hero in Ayn Rand’s ‘Atlas Shrugged ... It may bring a smile or laugh to those familiar with this work when a friend asks ‘Who is John Galt?’ Read the book and you’ll understand why” (I’On Realty, 2006). There is also a Mises Street named after Ludwig Von Mises. I’On thus represents a unique opportunity for classical liberals and libertarians to live on a street named after their heroes. So who does revealed preference favor, Rand or Mises?
III. DATA AND RESULTS
We have a unique data set provided to us by the I’On group. The data consists of all lots sold in the I’On development for the years 1998 through the first half of 2009. While nearly all the lots have sold since the development’s opening in 1998, many of the sites have yet to be developed. For that reason we employ data only on the sale prices of unimproved lots in our analysis below. This has the added benefit of obviating the need to control for the heterogeneity among housing units.
Using this data we estimate the following hedonic price function: (1) Price=α0+βXi +γZi +ε
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Where Xi is a matrix containing the streets in question and Zi is a matrix of lot characteristics. Our empirical approach here following on the capitalization literature that began with Oates’s (1967) seminal work on public goods and taxes and that has been extended to many different areas such as public school test scores (Bogart and Cromwell, 1997) and environmental quality (Brasington and Hite, 2005).
Since all lots are in the same development, many neighborhood amenities and other factors such as property taxes and school district are held constant. Recalling that our question is whether the value of living on John Galt Way or Mises Street is being capitalized into the sale price of individual lots, we specify equation 1 as:
(2) Price = β0 + β1Mises + β2Galt + β3 Corner + β4Lake + β5Canal +β6Wetland + β7Large + β8Small + β9Year + ε
The dependent variable is the log of the lot price (Price), and the remaining variables are
dummy variables that describe the characteristics of the lots in the neighborhood. A “1”
for Mises or Galt indicates that the house is located on Mises Street or John Galt Way
respectively. While a “1” for Corner, Lake, Canal, Wetland, Large, and Small indicates
that the house is located on a corner lot, is adjacent to either East Lake or West Lake,
adjacent to the canal, adjacent to a wetland or marsh, and whether the house is on a large 4
orsmalllot. Finally,atimetrendvariable(Year)isincluded.
Table 1 provides the OLS results for equation 2. All of the lot characteristics are
statistically significant at the 1% level, except Corner, and all are positive in sign except Small. All of these results are to be expected in that the favorable amenities of being adjacent to some type of water or marsh increases the value of the lot, and the larger lots sell for higher prices while the smaller lots sell for less relative to an average size lot.
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Year is positive and significant, which is consistent with the housing bubble that was 5
occurringduringthattime. AstoourvariablesofinterestneitherGaltnorMisesare statistically significant indicating the lots on neither street were priced much differently from lots on other streets. However, the sign on Mises is positive while the sign on Galt is negative. To try and further determine whether living on one of these streets affects the lot price we run a constrained version of equation 2 where we constrain Mises and Galt to be the same (Mises+Galt) (column two of Table 1). The other independent variables remain the same in sign and significance in the constrained model. The F-stat comparing the unconstrained model to the constrained model is 2.65 with a p = 10.4%. This result leads us to reject the null hypothesis that Mises+Galt are the same, and thus we can state that we are 89.6% confident in the result that lots on Mises Street will sell for more than lots on John Galt Way.
IV. CONCLUSION
Ludwig von Mises and Ayn Rand were both strong advocates of laissez faire capitalism, and two of the most influential figures in the classical liberal, or libertarian,
th
century. One is unlikely to have been exposed to one of these scholars without being exposed to the other. Yet, Rand’s view of objectivism seems at
odds with Mises’s subjectivism view of how prices are formed in the market. Using a unique data set of the I’On neighborhood in Mount Pleasant, South Carolina we use a hedonic approach to let the market determine which of these two theories has won out over time. Holding lot characteristics constant we find that individuals wanting to live on Mises Street will pay a higher price than those who purchase lots on John Galt Way.
movement in the 20
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The data objectively show that the subjectively-determined market prices are higher for lots located on the subjectivist’s Mises Street compared with the objectivist’s John Galt Way. We conclude that the market has spoken: Ludwig von Mises is the more important classical liberal thinker!
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V ariable Constant
Mises
Galt
TABLE 1 Equation 2 Estimates
Coefficient
-345.12 (-25.47) 0.1434 (0.98) -0.1938 (-1.30)
Coefficient
-347.05 (-25.68)
-
-
-0.0231 (-0.22) -0.01283 (-0.32) 0.54501*** (12.06) 0.35692*** (3.81) 0.32737*** (8.34) 0.24923*** (3.41) -0.36630*** (-9.06) 0.179078*** (26.54) 691 121.29 0.597 0.592
Mises+Galt -
Corner Lake Canal Wetland Large Small
Y ear
N F
2 Adj R
-0.01482 (-0.36) 0.55134*** (12.17) 0.38257*** (4.03) 0.32784*** (8.36) 0.25369*** (3.47) -0.37097*** (-9.17) 0.178111*** (26.33) 691 108.38 .599 .593
R
2
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REFERENCES
Block, W. “Ayn Rand and Austrian Economics: Two Peas In a Pod.” Journal of Ayn Rand Studies, 6(2), 2005, 259-69.
Boettke, P. “Teaching Economics Through Ayn Rand: How the Economy is like a Novel and How a Novel Can Teach Us About Economics.” Journal of Ayn Rand Studies, 6(2), 2005, 445-65.
Bogart, W., and B. Cromwell. “How Much More is a Good School District Worth?” National Tax Journal, 70(2), 1997, 215-32.
Brasington, D., and D. Hite. “Demand for Environmental Quality: A Spatial Hedonic Analysis.” Regional Science and Urban Economics, 35(1), 2005, 57-82.
Buchanan, J. Cost and Choice: An Inquiry into Economic Theory. Liberty Fund, [1969] 1999.
Doherty, B. Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement. New York: Public Affairs, 2007.
The Economist. “The ‘Atlas Shrugged’ Index,” 26 February 2009.
Greaves, B. B. “To What Extent Was Rand a Misesian?” Ludwig von Mises Institute
Daily Article, 11 April 2005.
Huemer, M. “Why Ayn Rand? Some Alternative Answers.” Cato Unbound, 22 January
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I’On Group. “I’On Group Neighborhoods.” I’On Group,
http://www.iongroup.com/projects/ion.html (accessed February 10, 2010). I’On Village. “Jacob I’On History” I’On Village,
http://www.ionvillage.com/about_jacob.html (accessed February 10, 2010a). I’On Village. “I’On Q & A with Vince Graham” I’On Village,
http://www.iongroup.com/projects/ion.html (accessed February 10, 2010b). I’On Realty “Inside I’On Neighborhood News from I’On Realty,” Inside I’On, Winter
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Ayn Rand Studies, 6(2), 2005, 241-50.
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Smith, Vernon. Reflections on Human Action After 50 Years. Cato Journal, 19(2), 195- 209.
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philosopher or geocentric astronomer.
Critics might point out that this is like being the most influential mechanical
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Mises wins before the contest even starts.
NOTES
All of which, of course, relies on the subjective valuation of the consumers. So perhaps
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We speculate that both Rand and Mises might have recoiled at the thought of their names being associated with the left-wing’s favorite causes of smart growth and “new urbanism”!
4
Using a plat of the neighborhood we “subjectively” evaluated the lots into three “objective” sizes: small, medium and large. The medium or average size lot is the benchmark against which small and large are evaluated. Some readers might find this classification too subjective, a form of “radical subjectivism”, albeit not in the sense meant by Lachmann (1976). We agree.
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A bubble that Mises would have predicted.
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