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Ayn Rand, Adam Smith, and the 2012 Election

By - Last modified: July 12, 2012 at 6:35 PM

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    If Adam Smith had written a novel instead of The Wealth of Nations, the novel would have been Ayn Rand's Atlas Shrugged.

    Smith lived at a time in history when absolutist governments attempted to monopolize the world's resources and to increase their wealth through protectionist trade policies. Smith proposed an entirely different idea about national wealth: That it arose from the work, innovation and productivity of a nation's people, not from gold or trade policies that distorted markets. Based on that foundational concept, economic markets should be guided by an "invisible hand," propeled by each individual's self-interest. The role of government should be limited to providing an orderly framework of laws and to providing specific public goods and services.

    As we approach the 2012 election, we can reflect on the fact that Adam Smith's masterpiece was first published in 1776, the same year as the Declaration of Independence. And just as our founding fathers argued for the democratization of political decision-making, Smith believed that individuals are fully capable of managing their own affairs including the exchange of their own goods and services at the prices they deem just. He argued in favor of free trade, a minimalist government and opposed special interests. Indeed, he warned that one of the greatest threats to economic freedom occurred when powerful business people used the government and laws of a nation to exact an unfair advantage over competitors at home and abroad.

    And this is the starting point of Ayn Rand's Atlas Shrugged. The narrative occurs in the United States at some future time. The central figure of the novel is a brilliant woman, Dagny Taggart, who is the vice president of operations for Taggart Transcontinental Railroad. As she strives to rebuild the neglected Rio Norte Line that serves the growing industrial areas of Colorado and the oil fields of an innovative businessman, Ellis Wyatt, the country is in the throes of economic stagnation with businesses closing and people out of work.

    Countries in other parts of the world have become socialist "Peoples' States" and witness a steady deterioration of their economies and quality of life. Because of Wyatt's pioneering method of extracting oil from shale, Colorado remains a vibrant industrial center. Dagny wants to meet Colorado's growing demand for train service and to make the Rio Norte line one of Taggart Transcontinental's most successful. She believes that the future of her railroad is inextricably bound to the future of the Rio Norte line. Her brother James Taggart, president of Taggart Transcontinental, tries to block her from getting new rails from Rearden Steel, the last reliable steel manufacturer who has developed a steel alloy that is vastly superior and more cost effective than any product on the market.

    Fearing that the new steel alloy will harm the producers of inferior products, the State Science Institute, a government research organization, tries to bribe and threaten Reardon to withhold his metal from the market. Reardon will not relent and the Institute issues false facts alleging possible weaknesses in the structure of Rearden Metal. Taggart stock declines, Dagny's general contractor quits, and the railroad union forbids its employees from working on the Rio Norte Line.

    In the meantime, the government passes an "Equalization of Opportunity Bill" that prevents an individual from owning companies in different industries. At the same time, James Taggart uses his political friendships to influence the vote of the National Alliance of Railroads to pass an "Anti-dog-eat-dog rule", prohibiting "cutthroat" competition. The rule puts the profitable and efficient Phoenix-Durango Railroad, Taggart Transcontinental's competitor for the Colorado freight traffic, out of business. With the Phoenix-Durango line gone, Dagny must restructure the Rio Norte Line quickly.

    To help accelerate the re-building of the line, Reardon designs an innovative bridge that avails itself of the unique properties of his new alloy. Although the State Science Institute's innuendo has turned public opinion against them and an inept contractor stymies their efforts, Dagny and Rearden build the Rio Norte Line.

    Inefficient producers and opportunistic government officials continue to intrude in the nations' economy. Economic pressure groups, seeking to benefit from the industrial success of Colorado, want the government to compel successful companies to share their profits with inefficient ones. The legislation puts Wyatt Oil and other successful Colorado companies out of business, and in the process, destroys the Rio Norte Line.

    In response to devastating economic conditions, the government passes a directive requiring that all workers stay at their current jobs, that all businesses remain open, and that all patents and inventions be voluntarily turned over to the government. Because Reardon refuses to "voluntarily" turn over the patent to Reardon steel, he is blackmailed into doing so in connection with his extra-marital affair with Dagny. Eventually, the government's manipulation, confiscation, nationalization and "planned society" lead to the US following in the footsteps of other countries in the world by becoming a socialist Peoples' State.

    Although no one knows the origin or exact meaning of the question, "Who is John Galt?", people use the unanswerable question to express their sense of despair. On one of her trips to inspect her deteriorating lines, Dagny meets a hobo who is riding the rails. He had once worked for the Twentieth Century Motor Company. He tells her that the company put into practice the communist slogan, "From each according to his ability, to each according to his need." The policy ended up weighing down the capable with the demands and the whims of the incapable. The first person to quit was an engineer, who stormed out of a mass meeting saying that he would put an end to this system by "stopping the motor of the world." As the years passed and the hobo saw factories close, production drop, and great minds retire and disappear, he wondered if the young engineer, whose name was John Galt, was somehow responsible for the breakdown of society.

    Worsening the economic depression is the unexplained disappearance of the most talented people in society. Major industrialists, composers, poets, artists were simply disappearing. Nobody knew where they were going.

    For the readers of this publication who have not read Atlas Shrugged (all 1,100+ pages of a paperback edition with small print), I will refrain from disclosing the novel's dénouement. But as the title suggests, Atlas, who held the earth on his shoulders, shrugs and the most talented individuals go on strike. They refuse to provide unearned gain to the "looters": Incompetent producers, opportunistic elites that use laws as a barrier against competition, exploiters, demagogues, the indolent, idle and slothful. And the welfare state learns that without the innovators, the creators, the entrepreneurs, the producers, the conscientious workers, the nation cannot survive.

    Atlas Shrugged is a work of fiction and we can forgive a writer of fiction her hyperbole and exaggeration. But what is disturbing about this novel that was first published in 1957 is that in many ways it describes aspects of the America of 2012, where politicians of both major parties seem to have forgotten the ideals of economic and personal liberty so eloquently articulated in the The Wealth of Nations: That a citizen should have the right to own the product of her or his effort and to trade it voluntarily with others; that government has no moral basis for outlawing the voluntary exchange of goods and services; that taxation is a form of confiscation that should not be abused; that the principles of liberty upon which our nation was founded are worthy of preserving.

    Limitless freedom is untenable and achieving such an objective was not the goal of our founders. This was evident by the fact that many of them were not completely committed to direct democracy, although they favored freedom. Their distrust of Greek style democracy is reflected in the The Federalist Papers which were authored by Alexander Hamilton, James Madison, and John Jay on the proposed Constitution of The United States.

    They expressed a concern that direct democracy could not achieve justice and protect natural rights because people's innate inclination is to advance their own self-interest. Indeed, Adam Smith himself had written in The Wealth of Nations that, "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own neccessities but of their advantages."

    The Federalists did believe in the "consent of the governed." From their perspective, the ideal was a republican form of government in which elected representatives reflected the will of the people. This was generally the view among the authors of the Constitution, who believed that by establishing a republic they would institutionalize the central ideals of the revolution. The Bill of Rights sets forth protections of individual liberties.

    In terms of our personal liberties, our government has passed laws like the Patriot Act. Few citizens know what it does, but the law dramatically expands the ability of government to conduct surveillance of American citizens. The government can monitor web surfing records, use roving wiretaps to monitor phone calls made by individuals "related" to a suspect, and monitor the private records of people involved in legitimate protest. The government can even add samples of our DNA to their DNA databases.

    Government spying requires no court order. Wiretaps are allowed for any suspected violation of the Computer Fraud and Abuse Act, offering possibilities for government spying on any computer user. And if the law eliminates privacy rights for individual Americans, it creates more secrecy for government activities, making it extremely difficult to know what our government is doing.

    The story of the growth of government, both in terms of the size of government, its budget and its impact on the nation's economy, is eloquently told in the charts below. In 2011, the United States recorded a Government Debt to GDP ratio of 103.00 percent of the country's Gross Domestic Product. Historically, from 1940 until 2011, the United States Government Debt to GDP ratio averaged 60.2900 Percent reaching an all time high of 121.7000 Percent in September of 1946 and a record low of 32.5000 Percent in September of 1981. Our current government is only 18.7% away from reaching that historic watermark and we are not engaged in a world war or a cold war.

    As in the United States of Atlas Shrugged, I fear that our nation is trending in a direction that is counter to the ideals of The Wealth of Nations and the faith of our founders. Our government has incurred enormous public debt and directly controls almost 20% of the economy. We have endured restrictive regulations, growing government, bailouts of Wall Street, union ownership of General Motors, earmarks, mandates, protectionist policies and a tax policy that borders on the confiscatory.

    We have arrived at this point through fear of the people and arrogance on the part of our leaders who believe that they can manage the economy where generations of social engineers have failed.

    It is enough to make us ask, "Who is John Galt?"

    But a better question is, "Where is John Galt when you need him?"

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