Objectivism & Politics, Part 35

Politics of Human Nature 19: Businessmen and the state. In the last post, I examined how economic interests can bias even businessmen against laissez-faire. In this post, I will examine another side of this issue illustrated by Rand’s tendency to rigidly divide businessmen into two classes: (1) competent businessmen who, like the heroes of Atlas Shrugged, make “their fortunes by their own personal ability”; and (2) incompetent businessmen who need government help to compete with their betters. Rand’s conviction appears to be that “It is only with the help of government regulations that a man of less ability can destroy his better competition"—and he is the only type of man who runs to government for economic help.

Is that really true? No, not at all. There is a third class of businessmen: (3) competent businessmen who use government as a source of additional capital. This class includes even those businessmen Rand singles out for praise for making their fortunes by their own personal ability, James Jerome Hill, Commodore Vanderbilt, Andrew Carnegie, and J.P. Morgan. Yet each of these men either took government funds or lobbied for funds or supported measures which involved transfers of money to the business class. Early in his career Hill took advantage of several government land grants. For instance, he attempted to reacquire a grant forfeited by a railroad company he had taken over. This grant had already been settled by farmers who, alarmed at the prospect of eviction, appealed to Congress. The dispute was resolved by merely giving Hill valuable timber lands in Montana and Idaho.

Vanderbilt's dealings with government were very complex. Local government in New York City was extraordinarily corrupt, and so bribery was a necessary part of doing business in that city—so in one sense you could argue that Vanderbilt had no choice but to engage in bribery. Yet it would be a mistake to argue, as Rand did, that Vanderbilt engaged in political chicanery merely for defensive reasons, to protect his legitimate interests. Vanderbilt, for instance, persuaded the city to pay him $4,000,000 to replace a dangerous section of his railroad with a tunnel. There are, in addition to this, many other government financed favors done for Vanderbilt of a more ambiguous nature, such as building streets that benefited Vanderbilt’s business interests.

Andrew Carnegie admitted "the single most important event" in prompting him to enter the steel business was the $28-per-ton tariff on imported steel, passed by Congress in 1870. J.P. Morgan, for his stead, rejected the notion of a pure free market, believing it would lead to “ruinous competition.” Morgan began his career selling faulty rifles to the army; and while his subsequent dealings with the government seem to have at least honored the letter of the law, it would be naive to conclude he achieved a Roark-like level of integrity in his affairs with the state.

Rand’s belief that only men of less ability go to the government for economic help is not supported by the facts. Regardless of their ability, entrepreneurs are always looking for ways to get their hands on capital. Their function is to “lead” the means of production into new channels—hardly a trivial task. Economic development did not arise due to capital accumulation or to increases in the quantity of labor. As Schumpeter explained more than a century ago: “The slow and continuous increase in time of the national supply of productive means and of savings is obviously an important factor in explaining the course of economic history through the centuries, but it is completely overshadowed by the fact that development consists primarily in employing existing resources in a different way, in doing new things with them, irrespective of whether those resources increase or not.” [Theory of Economic Development, 68]

So it’s not necessarily how an entrepreneur gets ahold of the necessary resources: it’s what he does with it once he gets control of it that counts. If he makes good decisions with his capital, it will create new products, new jobs, increase productivity, and lead to what is broadly described as economic “development.” In this, we see both the splendor and moral ambiguity at the heart of capitalism. An entrepreneur, a capitalist, a businessmen can enrich himself and help raise society’s general standard of living by resorting to methods that are not entirely honorable. As a zealous advocate of “capitalism,” Rand could not admit the seamier sides of free enterprise. To admit such a thing would hurt the cause. Moreover, Rand tended to resent the very notion of ambiguity, particularly of the moral variety. So she created her rigid division between the heroic entrepreneurs who never soiled themselves with the spoils of the state and the Wesley Mouches who required the state to keep their businesses from going under.

The willingness of even competent entrepreneurs to use the state as a means of raising capital and fending off "ruinous competition" adds yet another obstacle to finding support for laissez-faire. If Rand's vision of Capitalism were correct, we would expect to find the most zealous advocates of laissez-faire among prosperous businessmen. Is that what we find in reality? Not exactly. While most businessmen advocate free enterprise, the majority of them don't exactly embrace the "laissez-faire" version of free enterprise propagandized by Rand and her disciples. Nor should this be in the least surprising: for it is not always clear that laissez-faire is in the interest of the business class. The state is too rich a source of business and capital to be shunned altogether by the intrepid entrepreneur.