Ayn Rand: The Russian Radical (61 page)

Rand recognized that throughout history, all societies were “a kind of mixture,” since neither the principles of freedom nor those of slavery were “observed consistently.”
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Twentieth-century social formations differed only in their relative mixtures. Western economies were typically skewed toward capitalist principles of organization, while Eastern-bloc economies were predominantly statist in their orientation.

In merging the fundamental principles of two opposing systems, the mixed economy leads to a complex interpenetration of social practices, making it extremely difficult to distinguish the “real producers of wealth” from the “pseudo-producers.” Rand argues that the genuine producers are “money-makers,” in the exalted sense her political theory champions. The money-makers constitute a very small minority of businessmen. They are innovative entrepreneurs and creators who translate their discoveries
into material goods. By contrast, government officials and the vast majority of businessmen are pseudo-producers or “money-appropriators.” The money-appropriator is a looter. He is a parasite on the wealth created by others. He becomes rich not through a process of symmetrical trade, but “by means of
legalized force
,” through government favors, privileges, subsidies, and franchises.
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While the authentic producer earns money as a means to his distinctive ends, the pseudo-producer seeks social-metaphysical prestige by flaunting “his money in vulgar displays of ostentation.” For the money-appropriator, the accumulation of money is an end in itself, a gauge of his pseudo-self-esteem (7–8).

Rand’s distinction between producers and pseudo-producers, moneymakers and money-appropriators, is consistent with the classical liberal and modern libertarian traditions. Such thinkers as
Nock
, Paterson, and
Mises
had proposed similar distinctions.
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Like her contemporaries, Rand attempted to trace historically those economic developments rooted in free production and exchange, and those rooted in government interventionism.
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She argued, however, that as each business became entangled in a network of government regulations and controls, the objective distinction between the earned and the unearned, between the money-makers and the money-appropriators was blurred. The “mixed economy” was “a society in the process of committing suicide.”
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Genuine producers were compelled to seek government assistance, participating in a political process that was destructive of their ultimate aims, while some pseudo-producers entered the realm of production to bolster their “public image” (
New Intellectual
, 48). As the economy muddled through one crisis after another, statist ideologists continued to ascribe to “capitalism” the abuses that were a direct outgrowth of government intervention.
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ECONOMIC DISLOCATION

Rand’s analysis of the political roots of economic crisis and dislocation is derived from the teachings of
Austrian
school theory, specifically the contributions of Ludwig von Mises. The modern Austrian school offered sophisticated theories of monopoly and the business cycle that focused on the interrelationships between state and market. While a full presentation of Austrian theory is beyond the scope of the current study, it is important to explore several key Austrian themes that Rand reiterated in her structural critique of statism.

For Rand,
capitalism
was a historically emergent system that was hampered from its earliest moments by a variety of cultural forces. Attacked by
both the feudal right and the socialist left, capitalism inherited mass poverty but laid the basis for a revolutionary and progressive transformation (N. Branden 1967T, lecture 14). It slowly eradicated the economic necessity for child labor and enabled women to earn their own living and to move away from the social drudgery and stagnation of family life.
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And yet capitalism has been blamed for vast inequalities of wealth, the emergence of
monopolies
, and wild swings of inflation and unemployment. In Rand’s view, such chaotic social and economic tendencies were not an inexorable product of the free and unimpeded market. Following the Austrian theorists, Rand argued that these structural aberrations were an outgrowth of
state
intervention in the market process.

The Objectivist view of the genesis of monopoly is a case in point. Alan
Greenspan
, drawing from Austrian theory, and writing for Objectivist periodicals, argues that the essential precondition for the establishment of any monopoly is a legal obstacle to market entry.
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The Austrians enumerate the various institutional mechanisms that cause monopolistic price and wage rigidities, structural unemployment, and the restriction of the free flow of labor and capital. These include governmental grants of franchise, license, and subsidy; compulsory cartellization; price controls; output quotas; certificates of convenience and necessity; compulsory unionization; product control through standards of quality and safety; tariffs; immigration restrictions; minimum wage laws; maximum hour laws; conscription; conservation laws; and the use of eminent domain. Even government prohibitions on narcotics, prostitution, and gambling engender monopolistic control of black markets.
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In her quest to distinguish between genuine producers and pseudo-producers, Rand referred rhetorically to “big business” as “America’s persecuted minority.” But one of her central historical contentions constituted an indictment of big business. Rand traced the emergence of coercive monopolies to a historical movement initiated by businessmen in their struggle to exempt themselves from the rivalrous competition of the market: “The attempts to obtain special economic privileges from the government were begun by businessmen, not by workers, but by businessmen who shared the intellectuals’ view of the state as an instrument of ‘positive’
power
, serving ‘the public good,’ and who invoked it to claim that the public good demanded canals or railroads or subsidies or protective tariffs.”
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Such business organizations as the National Association of Manufacturers and the various chambers of commerce had done more than any other groups in U.S.
history
to establish a neofascist, corporativist form of statist
collectivism
(Rand 1971T). The United States was racing “toward a plain, brutal, predatory, power-grubbing,
de facto
fascism
… a random,
mongrel mixture of socialistic schemes, communistic influences, fascist controls, and shrinking remnants of
capitalism
still paying the costs of it all—the total of it rolling in the direction of a fascist state.”
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Grants of monopolistic privilege produced a modern, rigidified caste system. The statist ideologists defended this system by claiming that a business-government “partnership” was essential to industrial and technological progress. But in Rand’s view, to call such an incestuous relationship a “partnership” was to engage in an anti-conceptual “linguistic corruption.” The neofascist ideology saw no distinction between production and predation. It regarded “force as the basic element and ultimate arbiter in all human relationships.” Such a “partnership” created an aristocracy of political pull, which benefited “the worst type of predatory rich, the rich-by-force, the rich-by-political-privilege, the type who has no chance under capitalism, but who is always there to cash in on every collectivist ‘noble experiment.’”
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This aristocracy of pull enabled private groups to wield governmental power, without the responsibility it entailed.
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Dishonesty was “inherent in and created by the system.”
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Just as business initiated the movement toward monopoly, it was also responsible for the nineteenth-century passage of the
antitrust
laws
as a means of quelling competition.
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Rand viewed antitrust legislation with particular disdain because it invariably benefited the inefficient at the expense of the efficient. It introduced an element of dictatorial caprice into U.S. law. For Rand, the brutality of a dictatorship was not due to its enforcement of strict and rigid rules. Dictatorships enforce rules in an unpredictable, incomprehensible, and irrational manner. Their goal is to undermine human efficacy by creating social conditions of “chronic uncertainty.”
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The antitrust laws were implemented in the same arbitrary manner. They were a mass of contradictions that could penalize any businessman for pricing his products too low, too high, or at the same level as his competitors. By complying with one law, a businessman risked criminal prosecution under another.
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Rand’s analysis of American neofascism occurred at a time when revisionist scholars of the left academy were engaging in a similar critique. Such historians as
Gabriel Kolko
and
James Weinstein
documented the extent to which big business, faced with the rivalrous rigors of the competitive market, turned to the federal government to establish the industrial consolidation that they were unable to achieve by strictly economic means. Kolko argued that the market, with its decentralizing tendencies and falling relative prices, constantly thwarted the efforts of big business to achieve monopolistic control over the economy. The relatively freer
markets
of the nineteenth century had generated a vast productive capacity that threatened
the economic status of established businesses and ushered in an era of innovation and technological growth. The “political means” were used by each industrial interest in its search for industry-wide cartellization and rationalization. Monopolistic practices were legally sanctioned through the regulatory agencies of the federal government, affecting nearly every industry, including railroads, trucking, farming, communications, iron, steel, oil, medicine, pharmaceuticals, insurance, and banking. With the emergence of “war collectivism” and the welfare-warfare state of the post-New Deal era, the establishment of American corporativism was complete.
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While Rand would have adamantly rejected Kolko’s anticapitalism, her own Austrian-derived analysis provided a provocative complement to the revisionist historical investigations.
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Rand viewed the genesis and persistence of monopolies as a significant component of the statist structure of
power
. It is no surprise then that Rand saw the creation of the banking monopoly as the single most dangerous statist intervention into the economy, the root of the trade cycle. Once again, Rand’s critique draws heavily from the Austrian tradition.

The Austrian theory of the business cycle is built on the insights of
Mises
and Hayek. These thinkers engaged in pioneering work on the nature and use of knowledge in the market economy. The market process, in Austrian theory, is a dynamic mechanism for transmitting information. Prices transmit knowledge of relative scarcities. Entrepreneurs make decisions based on the informational content of market price signals. Prices alert entrepreneurs to discrepancies and disequilibria, offering profit opportunities for capital investment and economic growth. Rand explains:

An industrial economy is enormously complex: it involves calculations of time, of motion, of credit, and long sequences of interlocking contractual exchanges. This complexity is the system’s great virtue and the source of its vulnerability. The vulnerability is
psycho-epistemological
. No human mind and no computer—and no planner—can grasp the complexity in every detail. Even to grasp the principles that rule it, is a major feat of abstraction. This is where the conceptual links of men’s integrating capacity break down: most people are unable to grasp the working of their home-town’s economy, let alone the country’s or the world’s.
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Rand shares the Austrian view that system-wide discoordination in the structure of relative prices is the outgrowth of an inflationary expansion of the
money
supply. Rand recognizes that the preconditions and distortive consequences of inflation are primarily “psycho-epistemological” (159).
Inflation dupes the producers into extending investment capital, what Rand calls “the stock seed of industry,” because of an artificial lowering of the interest rate. Whereas genuine interest rates reflect people’s time preferences, inflation makes it appear that more money, or greater savings, is actually available for investment purposes. By distorting the signals for entrepreneurial decision-making and generating a systemic discoordination of relative prices, inflation prompts entrepreneurial investments that do not reflect the actual savings-investment ratios. When the
boom
is completed, malinvestments must be liquidated as the market reasserts its genuine consumption patterns. A massive cluster of error can only be eliminated if the market is allowed to enter a necessary phase of depression.

Rand argues that this boom-bust cycle is the direct result of political intervention in the market. As the gold standard is eroded and fiduciary media are introduced into the economy through state-sanctioned fractional-reserve banking, it becomes easier to inflate the currency in a process of legalized counterfeiting. With the cartellization of the banking industry through the Federal Reserve System, inflation became a structural component of the political economy, a by-product of sustained, massive credit expansion through the state-banking nexus. This inflationary dynamic sets the boom-bust cycle into motion.

Interestingly, Rand and the Austrians shared this view of the political roots of economic crisis with Marx. Though Marx theorized on the basis of assumptions significantly different from those of the Austrians, he too, saw the state’s central bank as the “pivot” of the credit system. For Marx, the state’s artificially induced monetary expansion engenders an illusory accumulation process in which “fictitious money-capital” distorts the structure of prices. This leads to overproduction and overspeculation. Real prices—those that reflect actual supply and demand—appear nowhere, until the economy begins the necessary corrective measures.
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