Self-esteem

Self-esteem is one of the three cardinal values of the Objectivist ethics, alongside reason and purpose. It is the conviction that one's mind is competent to think and that one is worthy of happiness — and, like every other value, it has to be earned. The virtue by which it is gained and kept is pride.

“Self-esteem, as his inviolate certainty that his mind is competent to think and his person is worthy of happiness.”
~ Ayn Rand, Atlas Shrugged

Two components, both earned

Rand's definition has two parts, and Nathaniel Branden's psychological work developed each in detail. They answer different questions and can fail independently:

Efficacy — the conviction that one's reason is adequate to the task of living. It is built by the actual exercise of judgment: choosing to think in situations where thinking is difficult, and finding that it works.
Worthiness — the conviction that one deserves the values one pursues. It is built by acting on one's own convictions, which is why integrity and honesty bear on it so directly.

Neither can be conferred. Praise from other people is evidence about them, not about oneself, so a person who derives his self-assessment from approval has not obtained self-esteem but a substitute that has to be renewed indefinitely. See Independence.

Why the ethics needs it

Self-esteem is not a pleasant by-product of the moral life in Objectivism; it is a precondition of living one.

Values require a valuer who thinks he is worth acting for. A person who regards himself as unworthy has no reason to pursue anything, and the pursuit of values is what life consists of.
Long-range action requires confidence in one's own judgment. Committing years to a purpose is only rational for someone who trusts the faculty that chose it.
It determines what a person will accept. Rand's argument is that self-esteem sets the floor on what one will tolerate in work, in friendship and in love — and that a person who does not think he deserves better generally does not get it.

This is the ground of Objectivism's charge against the ethics of altruism: a code that treats self-sacrifice as the standard of virtue makes self-esteem itself a fault. See Sacrifice.

Pseudo-self-esteem

Because the real thing is difficult, substitutes are common, and Branden gave the category a name. Their common feature is that they aim at the appearance of worth rather than its cause:

Deriving one's self-assessment from status, wealth, popularity or the number of people who agree.
Avoiding any test that might produce evidence against oneself, which protects the appearance while guaranteeing there is nothing behind it.
Asserting worth loudly enough to drown out the question, which is what is usually meant by arrogance.

The mark of a substitute is fragility. A conclusion drawn from one's own record survives disagreement; an impression maintained by other people's opinions does not.

Common misunderstandings

That it means thinking well of oneself regardless of one's actions. That is the version taught in the self-esteem movement of the 1970s and 80s, and it is the opposite of Rand's, in which the whole point is that it is earned.
That it is the same as confidence in a skill. Being good at something is evidence, but the value concerns one's competence to live, not one's competence at chess.
That it excludes admitting faults. A person confident in his capacity to correct an error has less reason to deny it, not more. See Pride.
That it is fixed by childhood. Objectivism holds that the underlying choice — to think or not to think — is available at every moment, which is what makes the value recoverable at any age.

Discussion

References

Rand, Ayn. "The Objectivist Ethics", The Virtue of Selfishness. New American Library, 1964.
Rand, Ayn. Atlas Shrugged — Galt's speech, on reason, purpose and self-esteem.
Branden, Nathaniel. The Psychology of Self-Esteem. Nash Publishing, 1969.
Peikoff, Leonard. Objectivism: The Philosophy of Ayn Rand, chapter 9.

External links

Self-esteem at the Ayn Rand Lexicon