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.”13 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.”14
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.’”15 This aristocracy of pull enabled private groups to wield governmental power, without the responsibility it entailed.16 Dishonesty was “inherent in and created by the system.”17
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.18 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.”19 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.20
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.21
While Rand would have adamantly rejected Kolko’s anticapitalism, her own Austrian-derived analysis provided a provocative complement to the revisionist historical investigations.22 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.23
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 overp
roduction and overspeculation. Real prices—those that reflect actual supply and demand—appear nowhere, until the economy begins the necessary corrective measures.24
One of the major differences between Marx and the Austrians lies in their respective resolutions. Marx saw the boom-bust cycle as destructive, but historically progressive because it magnified class struggle and facilitated socialized control of production and capital investment.25 By contrast, Rand and her Austrian contemporaries saw the trade cycle as retrogressive, necessarily benefiting some groups at the expense of others.
Rand recognized that sustained government intervention in the market was partially designed to quell the deleterious effects of boom and bust for which it was ultimately responsible. But continued political intervention thwarted the reassertion of genuine price patterns. Ultimately, the state-banking nexus enables the government to free itself from the limits of its revenues and to engage in deficit financing of its various welfare and warfare schemes. Stepping far beyond its legitimate functions, cutting “the connection between goods and money,” the government becomes a parasite on the private economy, consuming its “stock seed.”26
While the emergence of the welfare state attempts to deal with structurally generated poverty, its primary task is to dilute growing discontent by creating classes of politically privileged dependents. The actual welfare recipients become the “visible profiteers” of institutional altruism. But they “are part victims, part window dressing for the statist policies of the government.” As the government increases the scope of its interventions, it establishes a bureaucratic system of subsidized consumption for the benefit of proliferating pressure groups and economic interests (161–62). The predatory rich wish to rule, while the victimized poor wish to be ruled.27 Rand argues that “morally and economically, the welfare state creates an ever accelerating downward pull” serving the needs of the groups making demands and the needs of those in power “who require a group of dependent favor-recipients in order to rise to power.”28
But Rand argues that the predatory rich, the pseudo-producers, are the predominant material beneficiaries of the welfare-statist expansion. Welfarism froze the status quo and perpetuated “the power of the big corporations of the pre-income-tax era, placing them beyond the competition of the tax-strangled newcomers.”29 Having initiated the policy of government interventionism, businessmen became ever more dependent on a political, rather than an economic, process of accumulation. Like Hayek, Rand maintained that the more the state came to dominate social and economic life, the more political power became the only power worth having.30
Rand believed that organized labor was potentially a bulwark against state expansion because it often recognized the differential economic and political benefits that certain businesses derived from interventionism. But the organized union movement sought to counter pro-business controls with pro-labor controls. Though labor was “much more sensitive to the long-range implications” of statist interventionism than business, it too, was involved in an internal contradiction.31 Although Rand supported the right of voluntary union association, the use of the boycott, and the strike, she opposed compulsory unionism. She argued that unions had joined in the statist game of their business counterparts, fueling structural unemployment by forcing wage rates above their market levels.32 In Rand’s view, both business and labor were perishing in an orgy of mutual self-sacrifice. She warned: “He who lives by a legalized sword, will perish by a legalized sword.”33
THE WELFARE-WARFARE STATE
The welfare state and its widening cartellization did not cease at the nation’s borders.34 Rand maintained that economic dislocation leads to an expansion of interventionism at home and abroad. Too often, in the face of economic chaos, statists resort to their “favorite expedient … in times of emergency: a war.”35 In Rand’s view, there is an organic link between statism and militarism. A government that does not respect the rights of its own citizens will not respect the rights of others living in foreign lands. Just as the rule of physical force comes to predominate in statist domestic policy, so too does it determine the direction of statist foreign policy. Statism “needs war.” It “survives by looting.” It makes war both possible and necessary. Moreover, it creates a context that benefits those pseudo-producers who are unable to survive on a free market. Such businessmen amass huge fortunes by means of colonialist conquest and foreign exploitation.36
By contrast, “[t]he essence of capitalism’s foreign policy is free trade—i.e., the abolition of trade barriers, of protective tariffs, of special privileges—the opening of the world’s trade routes to free international exchange and competition among the private citizens of all countries dealing directly with one another.”37 Even though capitalism has never existed in its purest form, historically constituted semi-capitalism was powerful enough to demolish the remnants of feudalism, mercantilism, and absolute monarchy throughout the Western world. But with the rise of the collectivist, paternalist ideology and nationalistic imperialism of progressive “reformers” such as Theodore Roosevelt, Woodrow Wilson, and Franklin Delano Roosevelt, relatively free markets gave way to government regulation and privilege.38
The twentieth-century history of U.S. foreign policy, according to Rand, was a history of “suicidal” failure and hypocrisy.39
Failure—because the U.S. had abdicated the moral high ground, destroying economic and civil liberties from within and losing any rational sense of the country’s moral significance. Pursuit of a reckless foreign policy requires corrosive intrusions into the lives of the citizenry. An advocate of all-volunteer armed forces, Rand maintained that under conditions of freedom, few would choose to become cannon fodder in the pursuit of irrational foreign policy goals. This is why statism often relied on the institutionalization of a military draft. Rand saw the draft as the worst statist violation of individual rights, based upon the premise that a citizen’s life belonged to the state. It allows the state to sacrifice its citizens in wars, such as Korea and Vietnam, that have no clear bearing on national self-defense.40
Hypocrisy—because the U.S. often fought evil with evil. So, for example, Wilson had led the charge “to make the world safe for democracy,” but the folly of World War I gave birth to fascism, Nazism, and communism. FDR had led the charge for the “Four Freedoms,” but he empowered the Soviets in the process, “surrender[ing] … one-third of the world’s population into communist slavery.”41
Rand’s various Objectivist periodicals featured essays discussing the parasitism of the Soviet Union, a topic that surely had profound personal significance for the Russian-born author. A series of review essays by various contributors noted that the Soviets had stolen military and other technology from the West, and that it was U.S. foreign policy that had stabilized that regime. Drawing from John T. Flynn’s book The Roosevelt Myth, Barbara Branden stressed that FDR was inspired by Bismarck, Mussolini, and Hitler in establishing a corporatist—albeit a liberal corporatist—“New Deal” that further devastated a depressed economy.42 Provoking war in the Pacific, Roosevelt used “national defense” as a pretext for resolving the unemployment problem of the government-caused Great Depression by drafting American boys to fight and die in foreign wars. He sent $11 billion in Lend Lease assistance to the Soviets, and developed secret postwar agreements with Stalin, sealing the fate of Eastern Europe. Rand herself believed that this strategy made “Russia … the only winner of … World War II.”43
Rand invoked the spirit of the Old Right critics of U.S. involvement in World War II, who had been smeared as “America First” chauvinists.44 This “Old Right” consisted of antiwar opponents of the New Deal, stretching from Albert Jay Nock and John T. Flynn to Rose Wilder Lane and Isabel Paterson. Rand despised those who had coined the “anti-concept” of “isolationism” as a means of denouncing “any patriotic opponent of America’s self-immolation.”45 Like many of the Old Right, Rand questioned the wisdom of entering the Second World War’s European theater on the side
of the Soviets—suggesting that a Nazi-Soviet conflict might have severely weakened the victor.46 Taking on one of her left-wing critics, writer Lillian Hellman, who had criticized her in the book Scoundrel Time, Rand argued:
How many people died in this country, and in Russia or in Russian-occupied countries, because of Miss Hellman’s ideas? God only knows. Nobody could compute the evil of what those Communists in the 1930s did. To begin with, they pushed this country into World War II. What would have been a better policy? Let Hitler march into Russia, as he had started to. Let the two dictatorships fight each other, then the West—England, France, and the United States—should finish off the winner. Then maybe, today, the world would be safe. (Except … the ultimate safety of the world depends on philosophy, and nobody has the right ideas.) People like Lillian Hellman were pushing the policy of this country to the left and in support of only one country—not the United States, but Soviet Russia.47
Rand repudiated the claim “that isolationism is selfish, immoral, and impractical in a ‘shrinking’ modern world.”48 She stood firmly against the “altruistic” evil of foreign “interventionism” or “internationalism” that had undermined long-term U.S. interests.49 She recognized that such foreign interventionism mirrored domestic interventionism in one significant respect: each problem caused by statist intervention led to new interventionist attempts to resolve it. Just as World War I begat World War II, and World War II begat the Cold War, so too did the Cold War beget “hot” wars in Korea and Vietnam, in which more than one hundred thousand drafted Americans lost their lives. Vietnam especially had laid bare the inner contradictions of U.S. foreign policy, according to Rand. “There is no proper solution for the war in Vietnam,” Rand counseled at the time; “it is a war we should never have entered. We are caught in a trap: it is senseless to continue, and it is now impossible to withdraw.”50
Ayn Rand: The Russian Radical Page 44
