The Troubled Economics of Ayn Rand

Published in January, 2001, issue of Liberty Magazine:

THE TROUBLED ECONOMICS OF AYN RAND
by Mark Skousen

“No creator was prompted by a desire to serve his brothers…”

–Howard Roark, The Fountainhead (1994:710)

Ayn Rand, author of the celebrated Capitalism: The Unknown Idea, is honored almost universally as the fountainhead of market capitalism, an impassioned proponent of reason, individualism, and rational self-interest.

There is much to praise in Ayn Rand’s novels and writings, especially her uncompromising defense of freedom and her unrelenting denunciations of collectivism. No one has written more persuasively about property rights, the right of an individual to safeguard his wealth and property from the agents of coercion. Her novels The Fountainhead and Atlas Shrugged have probably done more than any other works of fiction to vindicate and honor the glories of “making money.”

Yet in reading her novels and writings, I was surprised to learn that her work often portrays a strange, distorted view of the money-making process. In a perverse way, her model of business may even give aid to the cause of the enemies of liberty–by giving capitalism a bad name.

Consumer Sovereign in The Fountainhead

Take, for example, Howard Roark’s philosophy toward his architectural work in The Fountainhead. In the beginning, Roark indicates that he chose architecture as a profession because he loves his work. He seeks to set the highest standards of excellence. He tries to be creative. All of these traits are to be admired.

But then Roark denies a basic tenet of sound economics–the principle of consumer sovereignty. When the dean of the architectural school tells Roark, “Your only purpose is to serve him [the client],” Roark objects. “I don’t intend to build in order to serve or help anyone. I don’t intend to build in order to have clients. I intend to have clients in order to build.” (1994:14) This bizarre, almost anti-social, attitude sounds like a perverse rending of Say’s Law, “supply creates its own demand,” or the statement made in the film Field of Dreams, “If you build it, they will come.” But supply only creates demand if the supply can be sold to customers; and people come to a new baseball field only if they want to play or watch. Supply must satisfy demand, or it becomes a wasted resource.

Now I have no problem with an architect who tries to set new standards of design, just as I would applaud entrepreneurs who seek to invent a new product or design a new process. Such actions are often highly risky and financially dangerous, and are often met with derision at first. Ayn Rand rightly points out that they are a major cause of economic progress. History is full of examples of “men who took first steps down new roads armed with nothing but their own vision.” (Rand 1994:710)

But the goal of all rational entrepreneurship must be to satisfy the needs of consumers, not to ignore them! Discovering and fulfilling the needs of customers is the essence of market capitalism. Imagine how far a TV manufacturer would get if he decides to build TVs that only tune into his five favorite channels, the consumer be damned. It wouldn’t be long before he would be on the road to bankruptcy.

Rand Denies the Essence of Business Enterprise

In short, Howard Roark’s conviction is irrational and contradicts a basic premise of Rand’s Objectivist philosophy. For Roark, A is not A. He wants A to be B–his B, not his customer’s A. Thus, Ayn Rand’s ideal man misconceives the very nature and logic of capitalism–to fulfill the needs of customers and thereby advance the general welfare. As Ludwig von Mises writes in his book, The Anti-Capitalist Mentality, “The profit system makes those men prosper who have succeeded in filling the wants of the people in the best possible and cheapest way. Wealth can be acquired only by serving the consumers.” (1972:2) Apparently Howard Roark doesn’t believe in consumer sovereignty. As he states in his final court defense, “An architect needs clients, but he dos not subordinate his work to their wishes.” (1994:714) Really?

Talk to any architects about The Fountainhead. Yes, they will tell you that there are a few self-centered, highly-egotistical, elitist Howard-Roark types in architecture who can get away with making monuments to their egos at their client’s expense. Frank Lloyd Wright, an architect Rand deeply admired, may be one of them. But the book’s thesis is entirely unrealistic in the everyday world of commercial building. Occasionally a client values more the notoriety of living in a home built by a signature designer than getting what he really wants, but not many. Almost all of Rand’s scenarios are extreme and idealistic, a strategy that works to sell novels, but does violence to all sense of reality. Normally architects work closely with the client and make numerous changes in order to fit the client’s needs.

Compromise is a necessary element to a successful completion of a project. And this consumer-oriented approach is true in all areas of capitalistic production. An architect or producer of any product who acts like Roark in The Fountainhead is likely to be out of work. Roark’s fate is even worse–he is guilty of his crime, blowing up a much-needed housing project rather than permit the slightest alteration in his designs. The jury may have exonerated him, but the market punishes his kind of behavior.

Ironically, Ayn Rand herself compromised in the making of the movie “The Fountainhead.” She insisted that only Frank Lloyd Wright would design the models for the film, but her demand was later rejected due to Wright’s outrageous fee. In the end, the models were done by a studio set designer. Rand called them “horrible” and “embarrassingly bad.” But the film was made and released. (Branden 1986:209) Oh, the agonies of dealing with other people!

The fact that Howard Roark represents the ideal man in Ayn Rand’s novel and the fact that she denigrates other characters in The Fountainhead who “compromise” with client’s demands suggest that Ayn Rand is philosophically in denial when it comes to comprehending the nature of business. She denies the very raison d’etre of capitalism–consumer sovereignty.

Assault on the Common Man

In this sense, Ayn Rand is not much different from other artists and intellectuals. Artists often bash the capitalist system. They hate the idea of subjecting their talents to crass commercialism and the crude tastes of the common man. Yet Ludwig von Mises chastised this snobbish attitude in The Anti-Capitalist Mentality: “The judgment about the merits of a work of art is entirely subjective. Some people praise what others disdain. There is no yardstick to measure the aesthetic worth of a poem or of a building.” (1972:75) Mises adds that only through economic progress — the creation of surplus wealth — has the level of taste and art been raised to meet the criteria of the more sophisticated artist. “When modern industry began to provide the masses with the paraphernalia of a better life, their main concern was to produce as cheaply as possible without any regard to aesthetic values. Later, when the progress of capitalism had raised the masses’ standard of living, they turned step by step to the fabrication of things which do not lack refinement and beauty.” (1972:80)

The Flaw in Atlas Shrugged

This brings us to the fatal flaw in Atlas Shrugged. Rand’s basic plot violates the whole rationale of business’s existence–constantly working within the system to find ways to make money. There will never be a Galt’s Gulch, where the world’s greatest entrepreneurs isolated themselves from the rest of the world. There will never be enough principled business leaders to fight the system. The business world does not typically attract ideologues and true believers; it attracts people primarily interested in money making by whatever means. They wouldn’t give John Galt the time of day. As Mises states, “There is little social intercourse between the successful businessmen and the nation’s eminent authors, artists and scientists…Most of the ‘socialites’ are not interested in books and ideas.” (Mises 1972:19) Ayn Rand admired Mises, but apparently she didn’t learn much from his writings. Pity.

Altruism Vs. Selfishness

Howard Roark’s diatribe against consumer sovereignty is undoubtedly a way to introduce Rand’s philosophy of selfishness. There are two extremes here: The philosophy of those who serve and satisfy themselves only, and the philosophy of those who believe that they should strive at all times to serve and sacrifice for others. Rand labels the latter “altruism.” In The Virtue of Selfishness, she opines, “Altruism declares that any action taken for the benefit of others is good, and any action taken for one’s own benefit is evil.” (Rand 1999:80) Obviously, Rand protests against altruism and espouses the opposite extreme. As Francisco d’Anconias tells Dagny Taggart in Atlas Shrugged: “Don’t consider our interests or our desires. You have no duty to anyone but yourself.” (Rand 1992:802) No sacrifice, no altruism, just pure egotistical selfishness.

The Adam Smith Solution

The founder of modern economics, Adam Smith, takes a different approach by trying to incorporate both concepts in his “system of natural liberty.” Smith and Rand are in agreement about the universal benefits of a free capitalistic society. But Smith rejects Rand’s vision of selfish independence. He teaches that there are two driving forces behind man’s actions–in his Theory of Moral Sentiments, he identifies the first as “sympathy” or “benevolence” toward others in society, while in his Wealth of Nations, he focuses on the second, “self interest,” the right to pursue one’s own business. Smith believes that as the market economy develops and individuals move away from their community, “self interest” becomes a more dominant force than “sympathy.” But both are essential to achieve “universal opulence.” (Smith 1965:11)

Adam Smith is famous for making a statement that sounds Randian in tone: “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 interest.” (Smith 1965:14) But this statement is often taken out of context. Smith’s self-interest never reaches the Randian selfishness that ignores the interest of others. On the contrary, in Smith’s mind, an individual’s goals cannot be fully achieved in business unless he appeals to the self-interest of others. Smith says so in the very next sentence: “We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.” (Ibid.) Moreover, he writes earlier on the same page, “He will be more likely to prevail if he can interest their self-love in his favour….Give me that which I want, and you shall have this which you want, is the mean of every such offer.” (Ibid.) Smith’s theme echoes his Christian heritage, particularly the golden rule, “do unto others as you would have them do unto you.” (See Matthew 7:12)

Perhaps a true capitalist spirit can best be summed up in the Christian commandment, “Love thy neighbor as thyself.” (Matthew 22:39) Adam Smith and Ludwig von Mises would undoubtedly agree with this creed, but apparently Howard Roark and John Galt — and their creator — would agree with only half. And that’s a great tragedy for the greatest novelist of the 20th century.

References

* Branden, Barbara. 1986. The Passion of Ayn Rand. Doubleday.
* Mises, Ludwig von. 1972 [1956]. The Anti-Capitalist Mentality. Libertarian Press.
* Rand, Ayn. 1992 [1957]. Atlas Shrugged. Dutton Books.
* Rand, Ayn. 1994 [1943]. The Fountainhead. Penguin Books.
* Rand, Ayn. 1999. The Ayn Rand Reader, ed. by Gary Hull and Leonard Peikoff. Penguin Books.
* Smith, Adam. 1965 [1776]. The Wealth of Nations. Modern Library.

Comments

  1. cher Mac says

    Fact: Ayn Rand was basically an “ethical egoist”. This means that she followed two guiding principals: (1) Self interest WITH integrity, and (2) NOT “sacrificing” others to reach an end. This infers that only selfish acts with LONG TERM benefits are acceptable… you can’t become a thief and claim you’re an ethical egoist.

    Integrity, by the way, means “consistency of actions, values, principles and outcomes” — the opposite of hypocrisy.

  2. JCI says

    One comment: in “Atlas Shrugged,” Ayn Rand does not speak of “businessmen” or “business leaders” very much. In fact, these terms usually appear in negative contexts. The word she uses is “industrialists.” She was writing about creators, inventors, builders, and one of her most important points (in my opinion) is that “making money” has a very literal meaning. In a “service and information economy” where we have a lot fewer factories around, and many of us work with abstractions on computer screens all day, it’s easy to forget this. More importantly, it’s easy to believe that clever fund managers selling bundled debt have earned their money exactly the same way as, say, the persons who first invented and marketed air conditioners or automobiles. When we believe that, we believe the wealth of the former is as based in merit as that of the latter. I emphatically disagree. This is my own thinking, not Rand’s, but she inspired it and I honor her for it.

  3. Jim Valliant says

    Wasn’t it Steve Jobs who said that he didn’t do market research surveys because the consumer doesn’t even know what he wants until Jobs invents it?

    Just as profoundly, you totally misunderstand both Rand’s egoism and Roark’s specific assertion, neither of which require ignoring the customer. Just the reverse. For you, Rand’s “idealism” doesn’t work in practice as it is too rigid in ignoring the client’s desires, when Roark’s clients always got what they wanted — and then a whole lot more — as is made clear in the book. ‘Atlas’ makes this point about the symbiosis of voluntary trade even more emphatically.

    And anyone who seriously thinks that Christian service and sacrifice are what business is all about is the one in need of the serious reality check. No, it’s about profit, i.e., selfishness, as is creativity itself.

    It is the profit motive that needs defending — or some form of slavery is inevitable.

    And this is what Mises himself wrote to Rand about her magnum opus: “… ‘Atlas Shrugged’ is not merely a novel. It is also (or may I say: first of all) a cogent analysis of the evils that plague our society, a substantiated rejection of the ideology of our self-styled ‘intellectuals’ and a pitiless unmasking of the insincerity of the policies adopted by governments and political parties … You have the courage to tell the masses what no politician told them: you are inferior and all the improvements in your conditions which you simply take for granted you owe to the efforts of men who are better than you.”

    However, Rand certainly did NOT tell the “masses” that they were “inferior” — Mises was much more of an “elitist” than Rand. You and Mises both misread Rand in the same way, only Mises evaluated that misread positively.

  4. says

    Too many equivocations for me to even follow this article all the way through. All I have time to say is that I have read every book Ayn Rand published, fiction and non-fiction alike, and I can say with full certainty that Mr Skousen only understands half of what she wrote. He stops at a certain level that doesn’t allow him full understanding.

  5. says

    I agree with Mr. Valliant’s objections to Mr. Skousen here. It is not the preserve of Mr. Skousen to tell us why we should work — only for the consumer, according to him. If I want to write a book — which I am doing — and don’t care if even one person reads it — which I don’t care — then who is Mr. Skousen to tell me that I should write books that please people more? Or perhaps I want to write a book to address a small niche of the reading public. Is that wrong? Why should I have to dumb down my writing to appeal to everyone’s eighth grade education?

    Some people can make money while at the same time maintaining their creative independence. Woody Allen comes to mind. He makes the movies he wants to make, and he makes them the way he wants to. Is Mr. Skousen going to tell Woody to widen his appeal?

    Does Mr. Skousen think Vincent Van Gogh painted for the masses? Or to make money? I think he sold one painting his whole life. Does Mr. Skousen think Vincent should have illustrated books for a living instead of painting pictures? The whole idea is absurd. In short, we don’t need Mr. Skousen to tell us how capitalism should work within the capitalistic system. We need him to help us provide the framework of a free, capitalist society, and then get out of the way and let people make their own decisions about how to please their customers. Or not.

  6. Mike Nelson says

    I know this article was written a while ago, but the criticism in comments of this article is spot on. I’d be interested in the author’s response. And there’s this, (The customer’s interest doesn’t matter?) “Wynand watched her as she walked across the room, as she descended the stairs, as she stood at a window. She had heard him saying to her: ‘I didn’t know a house could be designed for a woman, like a dress. You can’t see yourself here as I do, you can’t see how completely this house is yours. Every angle, every part of every room, is a setting for you. It’s scaled to your height, to your body. Even the texture of the walls goes with the texture of your skin in an odd way. It’s the Stoddard Temple, but built for a single person, and it’s mine.'” (Wynand’s House in _The Fountainhead_) (HT: Stuart Hayashi and Voltaire Press)

Trackbacks

Leave a Reply

Your email address will not be published. Required fields are marked *