Objectivism & Economics, Part 19

Rearden/Mouch dichotomy. It is well known—nor would Objectivists disagree—that many businessmen want government help. What are all these bailouts and stimulus plans that we have seen in recent months but crony capitalism at its most perfervid? Nevertheless, Rand and her disciples have given this unappetizing phenomenon a strange twist. They claim that only businessmen of “lesser ability” go to the government for help. There are, in the Objectivist world-view, mainly two types of businessmen: Rearden types who only wish to be left alone, and Mouch types who are incompetent and require government help to get on in the world. “It is only with the help of government regulations that a man of lesser ability can destroy his better competitors,” claimed Rand—”and he is the only type of man who runs to government for economic help. [CUI, 108, emphasis added.]

The facts, however, tell a different story. Businessmen, whether competent or not, generally have no scruples about seeking government favors. Nor are they doing so merely for defensive reasons, to protect themselves from harmful government interference, as Rand herself suggested. Nearly all businessmen, whether competent or incompetent, brilliant or mediocre, seek government favors and largesse. Indeed, in the 19th century, it’s difficult to find any major ones that aren’t, at least in some degree, “tainted.” Rand mentions Vanderbilt, James Hill and Edward Harriman as examples of competent businessmen who did not seek government favors. She defends Vanderbilt’s bribery of the New York state legislature as merely “to buy the removal of some artificial restriction.” Yet that is hardly the case: Vanderbilt often bribed politicians to get special privileges or to gain an edge against his competition. And he also actively sought government business during the Civil War, hiring out dangerously sub-par and undermanned boats to transport Union troops.

Raising capital, particularly for capital intensive industries such as railroads and steelworks, is an extremely difficult and arduous task. It was impossible for capitalists in the nineteenth century to raise the capital from purely private sources, so various methods, often involving government largesse in the form of tariffs and land grants, were used. Other popular methods involved various forms of financial chicanery, such as watering down stocks, or seizing a business by intentionally sabotaging it, as James Hill and his cronies did with the Minnesota and Northwestern Railroad Company. In a sense, the old charge of nineteenth century industrialists being “robber barons” has a grain of truth in it. Yet, whatever their level of spoliation, whether through government aided means or through sheer fraud, they nevertheless are responsible for building the country, using their ill gotten gains to capitalize their respective industries.