Objectivism and Austrian Economics: The Connections

Ayn Rand held the Austrian school of economics in high regard. That school of thought emphasizes the role of individual decision-making in the economy, the futility of central planning, and the way government controls contribute to recessions and ultimately breed further controls — themes that appear prominently in Rand’s Atlas Shrugged. In an essay on education reform, Rand once ranked Ludwig von Mises, a leading Austrian economist, among history’s intellectual giants: “Aristotle in philosophy, von Mises in economics, Montessori in education, Hugo in literature.”¹ Her periodicals featured favorable reviews of five books by von Mises and one by Henry Hazlitt, a popularizer of the Austrian approach, and Rand’s “Recommended Bibliography” in Capitalism: The Unknown Ideal features no fewer than eight von Mises volumes.²

But Rand’s admiration was not unqualified. When asked about her view of the Austrian school, she once answered:

I think they are a school that has a great deal of truth and proper arguments to offer about capitalism — especially von Mises — but I certainly don’t agree with them in every detail, and particularly not in their alleged philosophical premises. They don’t have any, actually. They attempt — von Mises particularly — to substitute economics for philosophy. That cannot be done.³

Which of their arguments are proper (and which details are objectionable)? An article by independent scholar Robert Tarr, now available on New Ideal, approaches this question with a fresh perspective. “Economic Theory and Conceptions of Value: Rand and Austrians versus the Mainstream,” originally published in Foundations of a Free Society: Reflections on Ayn Rand’s Political Philosophy in 2019, was lauded by the book’s editors as “groundbreaking.”⁴

For the first time, according to philosopher Harry Binswanger, Tarr’s article thoroughly explores the connection between Objectivism and Austrian economics, explaining what the latter gets right and what it gets wrong.⁵ Notably, the article does not assume expertise in philosophy or economics; Tarr endeavored to “bridge the gap” between experts in these two areas, “trying to write philosophic sections that could be understood by economists who are not philosophers, and trying to write economic passages that could be understood by philosophers who are not economists.”⁶

Those trying to understand Austrian economics should find Tarr’s article clarifying. Readily available introductions to that school present its views as a grab bag of departures from mainstream economics.⁷ Tarr notes that the difficulty of essentializing initially made it difficult for him to evaluate the Austrian school of thought: “At one point, I had made out a list of all the major points of difference between Austrian economics and mainstream economics — several dozen points in total — and struggled for a long time trying to ‘condense’ them into some more general principle or principles. I was becoming resigned to writing an essay simply outlining all these differences, and showing various commonalities between Austrian economics and Objectivism, when it suddenly ‘clicked’ for me that all the Austrian points could be seen as expressions of an objective conception of value (‘objective’ in Ayn Rand’s sense), while all the mainstream points could be seen as expressions of a subjective conception of value.”⁸

Tarr’s article demonstrates how Rand’s original value theory can help explain important disagreements among the three main schools of economic thought: classical, neoclassical and Austrian.

The classical school, Tarr argues, approaches values from what Rand calls an “intrinsic” perspective, regarding values as existing in reality, independent of an individual’s mind grasping reality. Because classical economists viewed values this way, Tarr argues, they held that a product’s economic value reflects inputs (such as labor costs), the value of which is taken as an unquestioned given. This led them to urge collectivist policies, maximizing the aggregate value in an economy by pursuing the “wealth of nations.”

The neoclassical school, according to Tarr, approaches values from what Rand calls a “subjective” perspective, regarding values as rooted entirely in the individual’s wishes and preferences. This view, Tarr contends, led neoclassical economists (who represent today’s mainstream) to emphasize people’s economic preferences, without regard to the thinking behind those preferences. This too led to a collectivist result — in this case, to a focus on maximizing preference-satisfaction across the economy.

By contrast, Tarr observes, the Austrian school approaches values from what Rand calls an “objective” perspective, regarding values as rooted in a conceptual grasp of how something in reality can serve our purposes. This approach stresses that all values are valuable to someone and for some purpose. Tarr argues that this view, though held implicitly, led Austrian economists to some of their key insights, such as the view that a centrally planned economy, without a market pricing system, cannot rationally weigh the economic value of different courses of action. The Austrians instead emphasized that productivity requires the creative discovery of value and grasped, as the competing schools could not, the productive role of the entrepreneur.

Tarr’s analysis also untangles a long-standing confusion in nomenclature. Economists unfamiliar with Rand’s concept of “intrinsic” valuation are forced to classify economic values as either “objective” or “subjective.” And since the Austrians wished to distinguish themselves from the classical school’s “objective” approach, the Austrians mistakenly categorized themselves as subjectivists. But once it’s understood that the classical economists are actually on the “intrinsic” axis, it’s possible to see that both Austrians and Objectivists are united by an “objective” approach to economic values.

Along with Tarr’s article, be sure to check out this interview which dives more deeply into his thinking:

For even more discussion of Foundations of a Free Society, don’t miss this panel discussion featuring contributors Gregory Salmieri, Robert Mayhew, Harry Binswanger, and Onkar Ghate:

1. Ayn Rand, “Fairness Doctrine for Education,” in Philosophy: Who Needs It (New York: Signet, 1984), 235.
2. The reviews are: Barbara Branden, “Planned Chaos by Ludwig von Mises,” Objectivist Newsletter 1 (January 1962): 2; Robert Hessen, “Economics in One Lesson by Henry Hazlitt,” Objectivist Newsletter 1 (February 1962): 8; Edith Efron, “The Anti-Capitalistic Mentality by Ludwig von Mises,” Objectivist Newsletter 1 (May 1962): 18; Nathaniel Branden, “Planning for Freedom by Ludwig von Mises,” Objectivist Newsletter 1 (September 1962): 38; Nathaniel Branden, “Human Action by Ludwig von Mises,” Objectivist Newsletter 2 (September 1963): 34; and Robert Hessen, “Omnipotent Government by Ludwig von Mises,” The Objectivist 9 (August 1970): 11. The bibliography is in Ayn Rand, Capitalism: The Unknown Ideal (New York: Signet, 1967), 389–90. In addition to the above works, it also recommends Mises’s Bureaucracy; Socialism: An Economic and Sociological Analysis;and The Theory of Money and Credit.
3. Ayn Rand, Q&A after “Global Balkanization,” Ford Hall Forum, 1977, edited transcript in Robert Mayhew, ed., Ayn Rand Answers: The Best of Her Q&A (New York: New American Library, 2005, centennial edition), 43.
4. “Foundations of a Free Society,” YouTube video recorded June 25, 2019, at 15:03, https://www.youtube.com/watch?v=6OogCDh22kQ.
5. “Foundations of a Free Society,” YouTube video at 23:57.
6. Robert Tarr, email message to author, March 22, 2022.
7. Mary Hall, “The Austrian School of Economics,” Investopedia, https://www.investopedia.com/articles/economics/09/austrian-school-of-economics.asp, and Wikipedia, “Austrian School,” https://en.wikipedia.org/wiki/Austrian_School.
8. Tarr, email, March 22, 2022.