Are You A Rand Cultist? Take Our Simple Test.

It's often hard to distinguish people who like Ayn Rand's books and find her work as a general inspiration from those who, at the other extreme, fit in with what Jeff Walker called the Ayn Rand Cult. So the ARCHNblog has created a simple litmus test to help tell the fans from the Randroids. The first three statements are from Nathaniel Branden's description of the original '60s cult, the rest are derived from Rand herself or various of her orthodox followers, such as Leonard Peikoff or Harry Binswanger, or from the ARCHNblog's own observations. Give yourself a point for every statement you agree with.

1) Ayn Rand is the greatest human being who has ever lived.

2) "Atlas Shrugged" is the greatest human achievement in the history of the world.

3) Ayn Rand, by virtue of her philosophical genius, is the supreme arbiter in any issue pertaining to what is rational, moral, or appropriate to man’s life on earth.

4) Acceptance of Objectivist epistemology is essential to mankind's future survival on earth.

5) Immanuel Kant is the most evil person who has ever lived.

6) Immanuel Kant deliberately set out to cause the Nazi Holocaust.

7) Nathaniel and Barbara Branden are only slightly less immoral than Immanuel Kant.

8) James Valliant's book "The Passion of Ayn Rand's Critics" is a profound, brilliantly argued expose of the above.

9) Modern physics, such as Einstein's theories, are philosophically corrupt and must be urgently replaced by a new physics based on Ayn Rand's epistemology.

10) Words have "true" meanings that are only available to superior Objectivist philosophers, whose job it is to inform those in lesser disciplines, such as scientists, of these true meanings. Where these special true Objectivist meanings clash with conventional dictionary meanings, those conventions are false and corrupt.

11) Ayn Rand invented a new, Objectivist super-logic which incorporates the standard bi-valent logic formalised by Aristotle, yet dramatically improves on it, solving among other issues Hume's problem of induction.

12) Ayn Rand is the only true Objectivist that ever lived, and will ever live. Everyone else is merely a student of Objectivism.

0 points = Congratulations, you are an Ayn Rand fan who while rightly inspired by her vision of productivity, reason, and human achievement is nonetheless sensible enough to have avoided her various cultic incitements.

1-6 points = Amber light: definite Randroid tendencies. However, this may be avoided by taking a suitably hard-nosed approach to her work, especially in epistemology and human nature where her defective theories are most evident to the critical eye.

7-12 points = Ultra-Randroid, and proud of it. You are welcome to debate with us here at the ARCHNblog (despite the fact you would be giving your sanction to our evil by doing so) but to be honest you'd be better off talking to a deprogrammer.

Actual 2&1/2 Year Old.

Far be it from us to introduce some reality into Rand's self-deluded musings, but...

(hat tip Neil Parille)

Ayn Rand: An Objectivist Since 2&1/2 Years Old

Along with other fascinating comments, in this interview with Tom Snyder, Rand revises the age she discovered her philosophy of Objectivism to the age of a mere 2&1/2 years old - a big downgrade from the previous 12-ish she claims elsewhere.

(at 8:08)Tom Snyder: When did you discover, or think up, or allow Objectivism to become your philosophy?

Rand: From the time that I remember myself which was two and a half, the first incident I can remember in my life I was two and a half...and from that time on the the present I never changed my convictions - only at two and a half I didn't know as much as I know now, but the fundamental approach was the same. I've never had to change.

This must surely be one of Rand's most bizarre, self-mythologising claims ever - and there's a fair bit of competition for that honour.

"An Air of Intellectualism"

Former Objectivist Lee Stranahan over at The Huffington Post skewers  Objectivism as not just "wrong or misguided" but "destructive and dangerous":

For decades now, Rand's work has given comfort and ammunition to brazen bozos like Rush Limbaugh and McCain economic advisor Phil "Don't Worry Be Happy" Gramm. Its defense of selfishness and unrestricted capitalism provided an air of intellectualism to bad behavior and horrible policy.

Update: This triggered a predictable response from Ayn Rand Institute follower Jim May over at something called The New Clarion, where May amusingly equates Stranahan with those other supposedly evil, Rand-hating opportunists...you guessed it...Nathaniel Branden, Barbara Branden, and David Kelley...

Objectivism & Politics, Part 2

Introducing Vilfredo Pareto. My examination of Rand’s politics will focus on just two aspects of Rand’s theory: (1) the quality (or lack thereof) of its reasoning and (2) the difficulties of implementing this theory. In order to make my case on both these aspects, I will have to rely heavily on the work of the Italian social scientist, Vilfredo Pareto. He’s made occasional cameos on this blog before, but now we have to become more familiar with the so-called “Karl Marx of the bourgeoisie.” From the excellent “History of Economic Thought” website, we learn the following:

After graduating top of his class in 1870, ... Pareto worked as the director of a railway and the managing director of an iron and steel concern, the Società Ferriere d'Italia in Florence. While in Florence Pareto became increasingly frustrated with government regulators.... He sided with the radical democratic movements and the liberals whom, he believed, would replace privilege with meritocracy, restore real democracy, pursue free trade and true competition. Pareto made an unsuccessful bid for office on an opposition platform in 1882.

In 1889, after the death of his parents, Pareto quit his job and moved to a villa in Fiesole... From his retreat, he began writing numerous polemical articles against the government and gave public lectures at a working man's institute. He was quickly targeted as a troublemaker by the authorities. Trailed by police, intimidated by hired thugs, his lectures were often closed down and his applications for teaching jobs blocked (incidentally, being well-trained with the sword, a crack shot with a pistol and equipped with an aristocratic sense of honor, Pareto never let himself be physically intimidated).

[Pareto] would later take up economics and succeed Léon Walras at the University of Lausanne in Switzerland.] In a famous 1900 Rivista article, Pareto suddenly changed direction. Heretofore a radical democrat, Pareto now decided to declare himself an anti-democrat. The disturbances of the 1890s in Italy and France led Pareto to realize that, far from restoring true democracy, meritocracy and promoting social welfare, the radical movements were really just seeking to replace one élite with another élite, the privileges and structures of power remaining intact. The struggle was not for a good society, but a squabble among élites over whom exactly was to ... govern. And the ideals and theories they claimed to fight for? Just propaganda, Pareto declared, the way upwardly-mobile folks incite the helpless, hopeless mob to take to the streets on their behalf. For Pareto, humanitarianism, liberalism, socialism, communism, fascism, whatever, were all the same in the end. All ideologies were just smokescreens foisted by "leaders" who really only aspired to enjoy the privileges and powers of the governing élite. Pareto decided to have none of it—and went on a crusade to expose the sham of political ideology and doctrine. He condemned socialists of all stripes roundly in a 1902 book, but took particular aim at logically demolishing the "new gospel" of Marxian economics. For Pareto ... the promised "classless" society that would emerge under communism was merely ideological fodder for socialist leaders to lay on their flock.

[Pareto’s] sociological observations also begin to indicate the future course of his ideas. In 1900, Pareto had entered into a brief controversy with Benedetto Croce. Croce had criticized economists' positivistic approach, particularly the assumption of "rational economic man". Pareto defended economists, but, at the same time, realized that the conventional defense was not even convincing ... to himself. Why did the predictions of economics fail to correspond to reality? Why were its policy recommendations, to him logically irrefutable, not adopted? The explanation, he concluded, echoing Georges Sorel, was simply that much of human activity was driven not by logical action, but rather by non-logical action.

Pareto ... moved to Villa Angora in Céligny, near Lake Geneva... Pareto used his time at Céligny to write his Trattato di sociologia generale [known in English as The Mind and Society], which was finally published, after wartime delays, in 1916. This was his great sociological masterpiece. He explains how human action can be neatly reduced to residue and derivation. People act on the basis of non-logical sentiments (residues) and invent justifications for them afterwards (derivations). The derivation is thus just the content and form of the ideology itself. But the residues are the real underlying problem, the particular cause of the squabbles that leads to the "circulation of élites". The underlying residue, he thought, was the [most fruitful] object of sociological enquiry.

If we focus on Pareto’s career, up until at least the late 1890s, we might be able to make something of an Objectivist hero out of him. After all, he was director of a railroad and steel concern, and he was a champion of economic freedom and an opponent of “intervention.” He fought to educate working man in the principles of freedom and even showed in courage in facing up to attempts by the government to intimidate and silence him. But in 1900, something happened to Pareto that made him much less the Objectivist hero. What happened? Why did Pareto suddenly lose all his idealism and become so “cynical” (as his critics claim) of human nature, particularly the human nature of political elites?

The answer is really quite simple: it is yet another case of the proverbial “mugging by reality.” Pareto, from his own experience, found that trying to convince large numbers of people (whether workers, intellectuals, politicians, whomever) was a hopeless endeavor, and that his attempts to change the social order through arguments based on sound economic reasonings were a waste of time. Instead of trying to change society, he would seek to understand it. In his The Mind and Society, he examined literally hundreds of “theories, theologies, cosmogonies, systems of metaphysics, and so on,” with the idea of trying to “gain some knowledge of the forces which are at work in society — that is, of the tendencies and inclinations of human beings.” The result is an impressive compendium of the non-logical and non-rational in human nature. In four long volumes, Pareto builds a massive empirical case for the important role that "non-logical conduct" plays in human life and in the social order. By demonstrating the logical and empirical ineptitude of most of the theories put forth by intellectuals and philosophers, Pareto gave ample evidence that rationalization, rather than rational pursuit of truth, is what governs most of what passes for thought outside the hard sciences. After reading his massive treatise, it is difficult to ever again to swallow the romantic notion that social conditions can be changed by winning philosophical arguments.

These Are John Galts Speaking...

Dr Helen interviews three people who claim to be "going Galt." Apparently in reality this means anything from deliberately taking less well paying jobs through to giving up your health insurance (Shome mishtake, shurely? - Ed) to giving up smoking. Yes, really!

Note: segment starts around 9 mins in.

Objectivism & Politics, Part 1

Starting Point. Fred Seddon, in his review of my book, Ayn Rand Contra Human Nature, chastised me for “not willing to consider ... normative political theory.” But as a matter of fact, I do consider it: I simply don’t consider it very highly. The trouble with normative political theory is that it too often degenerates into wishful thinking and unwitting rationalization. Those philosophers and social commentators who indulge in it become far more interested in defending their preferences than in understanding the political scene. What ought to be overshadows what is. Insight is sacrificed on the altar of advocacy.

Rand’s admirers brag about how prescient they find her on social and political issues. But her record (and that of her leading disciple, Leonard Peikoff) hardly bears up well under critical scrutiny. In October, 1963, Ayn Rand claimed that Presidential candidate Barry Goldwater “may become very much worth supporting ... most particularly because he seems to be our last chance to preserve two-party government.” In her last public appearance, Rand claimed that “the threat to the future of capitalism is the fact that Reagan might fail so badly that he will become another ghost, like Herbert Hoover, to be invoked as an example of capitalism’s failure for another fifty years.” After Rand passed from the scene in 1982, her leading disciple, Leonard Peikoff, continued the tradition of dubious commentary about politics. In 2004, Peikoff claimed that “there is no longer a mass base or any crusade for big government” and that “Bush is working to achieve a massive entrenchment of [Christian] fundamentalism into our government and political system.”

These statements by Rand and Peikoff strongly suggest a lack of judgment about political reality. Rand and Peikoff are ideologues who judge politics on the basis of their own unrealistic moral ideals. They are focused so intently upon how things ought to be that they haven’t a clue on how things are or are likely to be. Indeed, if they understood politics realistically, as the Founding Fathers and the Italian Elite School understood politics, they would realize that their political ideals, their “normative” politics, are unrealistic and therefore “utopian.”

My criticism of Objectivist political theory will have a realistic and naturalist base. My focus will be on whether Rand’s political theories can be realized in the world of experience and fact. The starting point will be human nature as it is discovered by the experimental sciences. The philosopher George Santayana gave voice to this position as follows:

There is a double force in repeated the old axiom that man is an animal. In the first place we confirm our initial naturalism, and place man among the wonderfully various living creatures that feed, fight, and reproduce themselves on the surface of the earth. But there is a second implication in that axiom that is no less important. An animal has inward invisible springs of action called instincts, needs, passions, or interests; and it is only in relation to these psychic springs of action that Powers and Dominations can be distinguished. The ... agent in politics is ... an inner proclivity to action and passion that animates [the individual], and that I call the psyche...

This topic, which might seem academic and speculative, is of great moment for the understanding of politics, especially in the present era. The literary philosophy and the psychological novels which have been dominant in modern times assume, if they do not teach, that thought is something substantial and self-developing; that it has no origin or milieu except in other thoughts; and even sometimes that the evolution of this ideation in a vacuum is itself guided by dialectic [i.e., by logic—which is more or less what Rand’s view of the matter amounts to in the end]. Nothing could be better calculated to keep politics in a fool’s paradise of verbal reasoning. [Dominations and Powers, 14-15]

That is precisely where we find Rand’s politics: in a fool’s paradise of verbal reasoning. The following series of posts on “Objectivism and Politics” will seek to demonstrate this assertion.

Colbert on Rand

Stephen Colbert over at the comedy channel skewered Rand last week in a segment entitled "The Rand Illusion." As usual with Colbert, he is far more interested in drawing laughs than in being fair; he is, after all, a comedian, not a critic or philosopher. Colbert's best dig comes at the expense of John Reale, whose site goingjohngalt.org contains a solicitation for programming work.

The Colbert ReportMon - Thurs 11:30pm / 10:30c

The Word - Rand Illusion

Colbert Report Full Episodes
Political Humor

Rap Battle
NASA Name Contest

Hoisted from Comments: Galt's Splashin' Safari

In comments, Michael Prescott discovers a new character in Galt's Gulch:

Galt steered the sedan around a wide curve, through a sun-flooded glen lined with aspens. Dagny leaned back, surrendering to the warm current of air that kissed her face. Then suddenly she jerked upright in her seat.

"Stop the car! Oh, please stop!"

Chuckling, Galt shifted into park. Dagny threw open the passenger door and leaped out, took two quick steps forward, then stopped, gazing in astonishment at the tall, gaunt figure who stood before her on the side of the road.

"It's you, isn't it?" she whispered. "You're here in Galt's Gulch, too."

"Why, yes, Miss Taggart," the man said with a knowing smile.

"You know me?"

"We all know you, if only by reputation. But I'm surprised you know me."

"Of course I do. You're Will Koch, CEO of Holiday World & Splashin' Safari, the last of the fully rational theme parks."

Will Koch inclined his head gravely.

"I used to go there every summer," Dagny said breathlessly. "I would ride the giant water slide and swim in the endless pool - always wearing my Holiday World water wings, of course. It was my refuge from the looters and the hell they'd made of the world."

"As it was meant to be," Will Koch said. "We had a strict no-looters policy. Anyone who had accepted government funds for any reason was barred from admission. I refused to allow my water slide and the other attractions, the products of my intelligence and my dedication to reality, to serve the amusement needs of the parasites and moochers. But when the government told me I had to stop screening visitors and admit anyone with the money to pay - regardless of the source of that money - then I knew I would have to close the park. It was the hardest decision I've faced in my life. I'm honestly not sure I could have gone through with it on my own. But that night, as I sat alone on one of the giant lily pads long after the park had closed, out of nowhere he appeared." He nodded toward Galt, still seated behind the wheel of Midas Mulligan's roadster. "By the time he finished speaking to me, dawn was breaking ... and my decision didn't seem so hard anymore. I took a last walk through the Jungle Jim Maze and left that park and never looked back."

"But how can you stand it?" Dagny moaned. "Leaving it all behind?"

Will Koch smiled, a radiant smile of morning, the smile of a child awakening on a perfect summer day. "Oh, but I didn't, Miss Taggart. I brought it all with me. The plans, the blueprints, the marketing strategies, all of it." He tapped his forehead. "I carry them here. And now, here in this valley, I'm building a new Holiday Park and Splashin' Safari theme park, a recreation place for the men of the mind - and only for the men of the mind. It will be my gift to the producers of society, and my monument to them - a more lasting monument than anything I could have built in the looters' world. It's the proudest accomplishment of my life. Would you like to see it?"

"Yes, please, very much."

"It's right over there," he said, pointing to a small mud hole, three feet wide and six inches deep, ringed by disorderly piles of sapling branches.

"Oh." Dagny felt a brief plunge of disappointment. "It's a bit small, isn't it?"

"Well, what the hell do you expect? I'm a CEO, Miss Taggart. I've never worked with my hands in my life. I don't have a clue how to actually build anything. I got the job because I know how to schmooze the shareholders at the annual meeting. That's how all of us got our jobs. Besides, it would take a small army of construction workers to build an actual theme park, and we have no construction workers in Galt's Gulch. No sanitation workers, either - but that's another story. You don't really believe that a handful of disgruntled corporate executives could build a theme park, much less a whole community, without the proper equipment, training, or skills, do you? Only a small child would buy a crazy story like that."

"Yes," Dagny said, accepting the hard, bright logic of his words. "Yes, of course you're right."

Will Koch smiled. "So ... would you like to go for a dip?"

Objectivism & Economics, Part 23

Conclusion. In The Virtue of Selfishness, Rand makes the following remark:

[T]he Objectivist ethics is the moral base needed by that politico-economic system which, today, is being destroyed all over the world, destroyed precisely for lack of a moral, philosophical defense and validation : the original American system, Capitalism.

We’ll ignore whether the statement about capitalism being “destroyed all over the world," which, even if it were true when Rand made it, is hardly true any more. Our focus instead regards Rand’s view of “moral base” or moral foundation. What Rand means by moral base is a set of ethical arguments that can be made on behalf of capitalism. She is declaring that Capitalism requires moral rationalizations to survive. She appears to believe that if these rationalizations are good (i.e., logical and “rational”), capitalism can survive. If the rationalizations are bad (i.e., illogical and irrational), capitalism cannot survive. In other words, the survival of capitalism depends on how it is defended verbally.

The economist Wilhelm Roepke had a very different view concerning this matter of moral “foundations” and the like. Roepke is little concerned with abstract theories and other such editorial page verbiage. He is more focused on character and conduct. What sort of moral standards do people have to live up to in order for a free market to flourish? “Is it enough to appeal to people’s ‘enlightened self-interest’ to make them realize that they serve their own best advantage by submitting to the discipline of the market and of competition?” Roepke asks. He answers:

The answer is decidedly in the negative. And at this point we emphatically draw a dividing line between ourselves and … a school which we can hardly call by any other name but liberal anarchism, if we reflect that its adherents seem to think that market, competition, and economic rationality provide a sufficient answer to the question of the ethical foundations of our economic system.

What is the truth? The truth is that … we have made it abundantly clear that we will have no truck with the sort of economically ignorant moralism which … always wills the good and works the bad [i.e., “socialism” in the broad sense of the word]. But we must add that we equally repudiate morally callous economism [i.e., capitalism based on self-interest], which is insensitive to the conditions and limits that must qualify our trust in the intrinsic morality of the market economy. Once again, we must state that the market economy is not enough….

Self-discipline, a sense of justice, honesty, fairness, chivalry, moderation, public spirit, respect for human dignity, firm ethical norms—all of these are things which people must possess before they go to the market and compete with each other. These are the indispensable supports which preserve both market and competition from degeneration. Family, church, genuine communities, and tradition are there sources. It is also necessary that people should grow up in conditions which favor such moral convictions [and] fosters individual independence and responsibility as much as public spirit which connects the individual with the community and limits his greed. [Humane Economy, 123-125]

Rand, it goes without saying, would have strongly disagreed with Roepke. She had no use for traditional values or such things as “public spirit” and “connection” with community. Nor would she have approved of putting limits on greed. For Rand, greed is good, and any limits on greed are merely gratuitous concessions to altruism and “self-sacrifice.” She regarded “trade” as “the only rational ethical principle for all human relationships, personal and social, private and public, spiritual and material,” She would probably have disagreed with Roepke’s assertion that society “cannot be ruled by the laws of supply and demand [i.e., by trade].” Nor would she have been willing to accept any limits on her precious ethical principles.

Who is right on this issue? Is it enough to convince everyone they ought to be selfish? Could a society based primarily on enlightened self interest and Rand’s “trader principle” lead to greater wealth and happiness for individuals and society? Or would it simply bring about moral degeneration and collapse?

The evidence strongly suggests that Rand is wrong on this issue: that society cannot be based solely or primarily on enlightened self-interest and the trader principle. The majority of people are not rational, and self-interest, if left to its own devices, quickly degenerates into predatory behavior. Consider Enron, for example. Enron was governed by self-interest and greed. Jeffrey Skilling, Enron’s Chief Operating Officer, believed that “all that matters is money… You buy loyalty with money. This touchy-feely stuff isn’t as important. That’s what drives performance.” And so Enron was run merely as a money making machine by people lacking the “ethical norms” that come from community and tradition. “You were really less thought of if you got a percentage, even if it was 75 per cent of your annual base pay,” noted one ex-employee. In tapes that became public in 2004, Enron employees are heard asking electric companies to shut down production in order to maintain prices. And why shouldn’t they have cut power to increase profits? After all, it was in their self-interest! Another exchange involves “all the money you guys stole from those poor grandmothers of California.” In yet another tape, Enron traders watching a California wildfire are heard shouting “Burn, baby, burn." It was in Enron’s self-interest for California’s electrical infrastructure to be seriously damages by fire: so let it all burn, regardless of who gets hurt (or even killed). Self-interest, it turns out, is not always so benign. Nor can it be counted upon to make people honest or benevolent toward others. Morality cannot depend, as it does in Rand’s Objectivist philosophy, on self-interest and verbiage about honesty. Arguments about the “rational” self-interest of honesty will not convince people to refrain from defrauding and harming others. If the institutions of society don’t instill the values of honesty and empathy for others into the very moral fibre of the individual, “rational” arguments will prove useless.

Dammit, Just Go Already!

Seems like the whole "Going John Galt" meme currently going around the interwebs is not so new after all (we've already commented a few months back). Take this heart-rending story from all the way back in post-Enron 2002, where businessmen in Kansas were apparently feeling so victimised they had to form a kind of Randian support group - where they "fantasized of a modern-day strike of thinkers and creators".

"We are the producers of society," says Will Koch, CEO of a development company that owns the Holiday World & Splashin' Safari theme park in Santa Claus, Ind.

That was seven years ago. When will all these wannabe-John Galts get around to actually leaving?

Huemer vs Ghate

Earlier this week skeptic Michael Huemer debated Rand's ethics with the ARI's Onkar Ghate. Audio here. Give us your score for both sides in comments.

(hat tip Neil Parille)

Objectivism & Economics, Part 22

Ayn Rand's insistence on the separation of the economy and the state means that she opposes all regulations, even those that would prevent serious market failures with widespread externalities. Indeed, there is a tendency among Objectivists to deny that regulations can ever have a positive effect. The implicit argument is that, because regulations infringe on individual rights, they are immoral; and since Objectivists insist on equating the moral with the practical, this suggests that any infringement of "individual rights" must lead to bad results (such as aversely affecting millions of people). But if this isn't true, if certain types of financial instruments produced by the market lead to extreme financial dysfunction which harms millions of people, shouldn't the government seek to regulate those financial instrumen? Martin Hutchinson over at prudentbear.com presents a convincing argument for regulating the CDS (Credit Default Swaps) market:

In the early years of the London insurance market, it was possible to buy a life insurance policy on a complete stranger. Then insurance companies noticed the high incidence of unexpected homicides among their lives assured, and the concept of insurable interest was devised, codified by the Life Assurance Act of 1774. Today, you can’t buy a life insurance policy unless you can demonstrate some loss by the assured party’s death. The business is safer that way!

The same consideration must surely apply to the CDS market. The legitimate hedging purpose of CDS today represents only a tiny proportion of contracts outstanding.... With multiple bankruptcies and huge market instability owing at least part of their provenance to CDS, the public policy consideration for closing or at least sharply restricting the CDS market is even clearer than that promoting the restriction of the insurance market in 18th century London (at least taxpayers weren’t expected to pick up the tab for insurance policies on murder victims!)

As a minimum, therefore, CDS writing should be restricted to those holding bond, loan or swap obligations against which CDS might reasonably hedge. CDS should be distinguished from stock short positions and stock options (which have similar theoretical possibilities) because their greater leverage and higher outstanding volume make them uniquely dangerous. Such a market would be highly illiquid, but it would fulfill CDS’s essential function of enabling credit risk transfer. CDS’s other advantages, of demonstrating credit spreads over a public marketplace, allowing the hedging of baskets of similar credits, providing an instrument for hedge fund “investment” and making huge returns for the major dealers, would be lost. However, CDS’s destabilizing effect on global financial markets would also be lost, and the cost to taxpayers of rescues for those major institutions which had either got the CDS market wrong or were victims of CDS “bear raids” would be eliminated.

The free market is a wonderful thing. However, allowing unrestricted free markets in everything, without regard to the real-world economic effect of those markets, is a Whig shibboleth similar to the “Repeal the Corn Laws” unilateral free trade policies that destroyed Britain’s economic strength in the 19th century. The great and economically highly sophisticated Tory Prime Minister Robert Lord Liverpool, a generation prior to the mid-century free traders, also believed in free markets, but was a realist in their application to the world in which he lived.

The real world is messy and does not conform to simplistic equations either mathematical or moral. The wise policymaker will legislate accordingly, providing the maximum market freedom but inserting restrictions where the temptations to malfeasance are too great. The CDS market forms an open and shut case for restrictive regulation.

Objectivism & Economics, Part 21

Uncertainty. Central to the Objectivist philosophy is the notion that certainy is possible. Rand went so far as to suggest that the denial of certainty “means that no knowledge of any kind is possible to man, i.e., that man is not conscious.” It is also generally believed among the Objectivist faithful uncertainty, or “skepticism,” is a morally deplorable philosophical position, an epistemology that paves the way for dictatorship and tyranny.

Despite these rather eccentric views of uncertainty, Objectivists nevertheless recognize that not all knowledge claims are certain. They tend to assume that most knowledge claims made by Rand or by the denizens of ARI are “certain” and therefore can’t be wrong. But Peikoff does admit the existence of a class of claims that are merely “probable” or “possible.”

How does one distinguish between a claim that can be regarded as certain and one that is probable or possible? Peikoff explains: 


Idea X is “certain” if, in a given context of knowledge, the evidence for X is conclusive. In such a context, all the evidence supports X and there is no evidence to support any alternative.

The problem with this “solution” to the issue of certainty is that it evades the “hidden data” problem. When Peikoff talks about “all the evidence,” what does he mean? All the evidence available to one person? to group of people? to all mankind? The most likely interpretation is that he means the single individual. But individuals are limited in the amount of knowledge they know. Worse, they are not aware of what they don’t know, which means they have no way of knowing whether they are in command of all the evidence or not. As Thomas Gilovich points out in How We Know What Isn’t So:

It should be clear that the problem of hidden or absent data ... affects the kinds of inferences we draw and the beliefs we have about everyday life. Oftentimes, the lifestyles we lead, the roles we play, and the positions we occupy in a social network deny us access to important classes of information and thus distort our view of the world.

Another source of hidden data relates to all estimates dealing with the possible outcomes that arise from choices made by human beings. Since human beings exercise volition, it is impossible to know for certain how they are going to behave. Action within a social context magnifies this uncertainty. How, for example, will Obama’s “stimulus” package affect the economy? Since our estimate depends on attempting to figure out how the stimulus will affect thousands of people whom we don’t even know, to regard any such estimate as “certain,” even in the odd Objectivist sense of the word, would be ludicrous. Yet nearly all non-trivial judgments about economics and business are tainted with this uncertainty, since they all involve guessing how people will behave in general situations that are assumed to arise from a given policy.

The businessman is also afflicted by this kind of uncertainty, as the economist Frank Knight has shown:

Take as an illustration any typical business decision. A manufacturer is considering the advisability of making a large commitment in increasing the capacity of his works. He "figures" more or less on the proposition, taking account as well as possible of the various factors more or less susceptible of measurement, but the final result is an "estimate" of the probable outcome of any proposed course of action. What is the "probability" of error (strictly, of any assigned degree of error) in the judgment? It is manifestly meaningless to speak of either calculating such a probability a priori or of determining it empirically by studying a large number of instances. The essential and outstanding fact is that the "instance" in question is so entirely unique that there are no others or not a sufficient number to make it possible to tabulate enough like it to form a basis for any inference of value about any real probability in the case we are interested in. The same obviously applies to the most of conduct and not to business decisions alone.

Knight’s point about the uniqueness of a given situation is an important insight: each instance is unique because (1) of the inordinate complexity of any given social situation and (2) because the outcome of a given decision or policy must depend on how a great many individuals react to it, and it is impossible to have certain foreknowledge about those reactions, because people have volition.

Now Rand believed that innate tendencies don’t exist. If she were right about this, it would be impossible to make any kind of rational estimate about human behavior, and social science would be a futile exercise. Fortunately, Rand was wrong on this issue: human beings do have innate tendencies, and from these innate tendencies one can fashion estimates or guesses as to what is likely to happen under a specific set of conditions. But these estimates are only guesses. Even when such estimates enjoy a high degree of “probability,” it would be gratuitous to regard them as certain. So when Objectivists declare that the current crisis was caused solely by government interference, they are at best making only a guess. They can’t know such a thing for certain. Nor would such a claim constitute a particularly good or even probable guess, since some of the worst financial dysfunction occurred in the least regulated markets.

To sum up: even if certainty were possible, it would hardly matter, because most of things people argue about in economics and pubic policy are not capable of meeting even Objectivism's standard of certainty. Most of the things people argue about can never be known with certainty. If certainty could be attained, there would exist a consensus among the intelligent and the rational. Where no such consensus exists (as on most issues relating to social and economic policy), certainty is also, in all likelihood, impossible.

Thursday Nite Whim-Worshipping

An oldie but a goodie from Byrne and Eno. Video by Bruce Conner.

The Dubious Parallels

Much is being made of the supposed "uncanny similarities" between "Atlas Shrugged" and the current financial crisis. Yet somehow I don't remember the chapter where at a press conference to announce a new initiative aimed at reducing the regulatory burden on banks, "Representatives of four of the five government agencies responsible for financial supervision used tree shears to attack a stack of paper representing bank regulations. The fifth representative, James Gilleran of the Office of Thrift Supervision, wielded a chainsaw." and where "Two months after that event the Office of the Comptroller of the Currency, one of the tree-shears-wielding agencies, moved to exempt national banks from state regulations that protect consumers against predatory lending." In other words, contra Atlas, the regulations were being systematically repealed in the years prior to the crisis, not increased.

Caption: "June 3, 2003: Determined to cut red tape and reduce the regulatory burden are (l-r), Office of Thrift Supervision Director James Gilleran, Jim McLaughlin of the American Bankers Association, Harry Doherty of America's Community Bankers, FDIC Vice Chairman John Reich and Ken Guenther of the Independent Community Bankers of America"

The ARI's "Practical" Solution

According to the ARI's press release:

Sales of “Atlas Shrugged” Soar in the Face of Economic Crisis

Washington, D.C., February 23, 2009--Sales of Ayn Rand’s “Atlas Shrugged” have almost tripled over the first seven weeks of this year compared with sales for the same period in 2008. This continues a strong trend after bookstore sales reached an all-time annual high in 2008 of about 200,000 copies sold.

“Americans are flocking to buy and read ‘Atlas Shrugged’ because there are uncanny similarities between the plot-line of the book and the events of our day” said Yaron Brook, Executive Director at the Ayn Rand Center for Individual Rights. “Americans are rightfully concerned about the economic crisis and government’s increasing intervention and attempts to control the economy. Ayn Rand understood and identified the deeper causes of the crisis we’re facing, and she offered, in ‘Atlas Shrugged,’ a principled and practical solution consistent with American values."

The total destruction - political, cultural, ethical, economic and philosophical - of American society, followed by its total reformation according to the dictates of a 1950s novel; this is what's called a "practical" solution to the current economic crisis?  

Objectivism & Economics, Part 20

Privatization of Roads. Leonard Peikoff on his mid-90s radio show on KIEV in Los Angeles stated his belief that public roads should be privatized. While this view is entirely consistent with Objectivism's laissez-faire dogmatism, it does raise questions concerning Peikoff’s grasp of basic social realities.

The issue of road privatization illustrates some of the weaknesses of the laissez-faire position, particular on the issue of whether economic behavior can be effectively regulated by mere self-interest. There are basically two main issues: (1) whether the private sector would find it profitable to build roads into undeveloped or underdeveloped areas; and (2) whether private ownership of roads might lead to gross abuses that would greatly inconvenience consumers.

(1) Sometimes infrastructure (such as roads, canals, railroads) is required before a given locality becomes productive. It is not unlikely, for example, that if no road existed between Los Angeles and Las Vegas, private companies would be able to raise the capital necessary to build one. Yet if there had been no road between Las Vegas and Los Angeles to begin with, it’s not clear that Las Vegas would have become the glitzy mecca it has developed into. Hence, building the road before it is needed helps bring about the very development that would render the road profitable later on via private means.

(2) While it is entirely reasonable to think that many people (or maybe even most people) could be trusted to run private roads through self-interest alone, it is grossly implausible to believe that every individual owner of private roads can be trusted. There are always going to be at least a few people who will use their property in ways that seriously harm the so-called public interest. What if the road to my house, for example, was inherited by a radical leftist, or a white supremacist, or an extreme environmentalist? What would prevent such a person from discriminating against any individual he doesn’t like? What would prevent the radical leftist, for instance, from refusing to allow conservatives to use his road? Or the white supremacist from refusing to allow blacks to drive on his street? Or the extreme environmentalist from refusing anyone to drive a car on his property? How would you like to be unable to get to your place of residence because the owner of the road to your home doesn’t, for one reason or another, approve of you? “But the market punishes such irrational people,” advocates of private roads might say. “They will lose control of their road, eventually.” Eventually? How long is “eventually”? One month? One year? Ten years? In the meantime, you can’t access your own property. There’s a very good reason for making roads public property. They are too important to be placed in the hands of whimsical private interests. Rational self-interest cannot be assumed to work in all cases, because not all people are rational.

But what if the advocates of the privatization of roads are willing to make an exception for residential streets? Shouldn’t we at least have highways privately owned? Not at all, for the same logic holds. I live in one of the more isolated areas in the country, along the northern coast of California, in Humboldt County. On one side I am faced by a treacherous Pacific Ocean, a grave yard of many a ship, and all other sides, by steeped, rugged, mountainous terrain. There are only four roads leading out of western Humboldt County: one to the south, one to the north, and two to the east. Suppose these roads were private. In that case, they could be sold. What if some left-wing billionaire (a cross between, say, George Soros and Al Gore) got ahold of all four of those roads: what would prevent him from basically shutting the roads down? After all, they are his property: he may do with them as he pleases, the public be damned!

I haven’t even mentioned the very real possibility of monopoly abuses of roads. Given the immense costs of building the road (and the immense difficulties of acquiring the property for that road), many highways would constitute natural monopolies that could easily be used to exploit consumers.

Even though society may be little more than a collection of individuals, this doesn’t mean there aren’t broader interests shared by most of the individuals in that society. One of the interests that all rational individuals in a society share is to live in a society where roads aren’t at the mercy of the individual whims and eccentricities of private owners.

Greenspan Capitulates

”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.”

- Alan Greenspan, Financial Times

This must be a very difficult retirement for the former Fed chief.

Taking Ideas Seriously - Pt 1

Regular contributor Neil Parille reviews the Objectivist approach to intellectual history.

Objectivists claim to “take ideas seriously.” According to Rand and her followers it is ideas (more specifically abstract philosophical ideas such as metaphysics and epistemology) that determine the course of history. As Rand put it in Introduction to Objectivist Epistemology (“ITOE”) concerning “the problem of universals”: “[T]he fate of human societies, of knowledge, of science, of progress and of every human life, depends on it. What is at stake here is the cognitive efficacy of man’s mind.” (ITOE, p. 3.) Yet despite the supposedly supreme importance of ideas in the Objectivist schema, how well do they deal with intellectual history in practice?

Rand’s first work following Atlas Shrugged was a lengthy essay entitled “For the New Intellectual” which appeared in a book of the same name published in 1961. In this essay Rand traced the history of philosophy and its generally deleterious effects on history through brief (and not entirely accurate) descriptions of thinkers such as Plato, Aristotle, Aquinas, Hume, Kant and Spencer. The first book written by an Objectivist philosopher other than Rand was Leonard Peikoff’s The Ominous Parallels in which Peikoff blamed Nazism on the philosophy of Immanuel Kant.

Although Objectivists often present their views dramatically and hyperbolically, the Objectivist claim about the influence of thinkers on the course of history is not new with Rand (nor, in a rare display of modesty, did she claim it was). For example, the historian Christopher Dawson wrote in his 1953 work Understanding Europe: “What we all tend to forget, however, is the way in which even the most irrational phenomena in the modern world . . . have been conditioned and in some sense created by the ideologies of the past, so that behind the modern demagogue and dictator there stands the ghost of some forgotten metaphysician.” (Dawson, Understanding Europe, p. 152.) Other examples are Richard Weaver’s contention that Western culture got off the wrong track with medieval nominalism and Eric Voegelin’s thesis concerning the influence of Gnosticism on revolutionary ideologies.

The Objectivist version of intellectual history is problematic on a number of grounds:

First, is it really the case that the fate of knowledge depends on the right theory of concept formation? History doesn’t bear this out. To take one example, consider the “fate” of mathematics in the twentieth century. No one can deny the tremendous progress that mathematicians made even though there was no agreement as to the conceptual foundation of mathematics or even the definition of a number. Nor does it appear that physics and chemistry (both heavily mathematical) suffered as a result of this conceptual logjam, contrary to what Objectivist “super logic” might suggest if knowledge is contextual and hierarchical. Is there any reason to doubt that science and technology will continue to make progress even if the Objectivist theory of concept formation remains unheralded?

In addition, a review of individual thinkers and scientists would likely show that a substantial majority did not sympathize with Objectivist or proto-Objectivist ideas. No less than the twentieth century’s greatest scientist, Albert Einstein, considered himself a Kantian. Bertrand Russell and Alfred North Whitehead made seminal advances in logic in their massive Principia Mathematica. Whitehead went on to found the school of thought known as “process theology” writing, among other works, Religion in the Making. Another example is Nicholas Copernicus, who famously advanced the heliocentric view of the solar system in 1543’s De Revolutionibus Orbium Coelestium. Copernicus was a Catholic prelate trained in scholastic theology. Upon a visit to Italy he came under the influence of neo-Platonist mathematicians. It doesn’t appear that Copernicus’ philosophic background prevented him from making one of the most important discoveries in astronomy.

Of course, one could easily conjure up various philosophies that would be destructive of scientific progress (such as the belief that studying the natural world is immoral), but history shows that science is compatible with a variety of philosophical approaches and that a certain eclecticism in method might even be desirable.

Second, Objectivists often look for philosophical explanations for rather mundane events. In a 2007 post I drew attention to Peikoff’s defense of Rand’s claim that the streaker at the 1974 Academy Awards was a Kantian nihilist, when in fact he was a publicity seeker intent on making a statement about public nudity.

Third, Objectivists tend to reduce historical change to a few philosophical ideas and ignore other, non-philosophical factors. For example, in The Ominous Parallels, Peikoff barely mentions the Treaty of Versailles, which fueled German resentment. This, combined with mistakes made by anti-Nazi German politicians and the Great Depression, were far more responsible for the rise of the Nazis than the influence of Kant.

Fourth, for all the Objectivist bluster about “taking ideas seriously,” Objectivism is destructive of the understanding and enjoyment of ideas. The Objectivist approach simplifies and caricatures the history of ideas to such an extent that one wonders at times why Objectivists would study ideas other than their own. This point was made by David Gordon is his review of The Ominous Parallels:

“There is, I think, a deeper flaw in Peikoff's approach to intellectual history than his errors, however grave, about a particular thinker. One has no sense, when reading Peikoff, that Kant (or any of the other thinkers he condemns) was responding to serious intellectual problems. If, for example, Kant differed with Aristotle, the thought never seems to have occurred to Peikoff that he may have had some legitimate reasons for doing so. Peikoff gives us a history of philosophy with the arguments left out. Someone unfortunate enough to derive all his knowledge of Kant from Peikoff's pages would have no conception at all of why Kant's successors regarded him as a profound thinker rather than the proponent of ‘a perverted theory that no one could mean.’”

Fifth, there is a tendency in Objectivist circles to make the thought of various thinkers conform to what the Objectivist theory of history would suggest rather than letting them speak for themselves. To take just one example, Objectivists often portray the ancient Greeks (whom they admire) as secularists when their society was religious to an extent hard to appreciate today.

In the second part of this post I will compare Leonard Peikoff’s The Ominous Parallels with Christopher Dawson’s discussion of Hegel in Understanding Europe and Ludwig von Mises’ discussion of the rise of Nazism in Omnipotent Government.

- Neil Parille

Thomas F. Bertonneau's criticism of Atlas Shrugged

Rand is rarely subjected much in the way of vigorous literary criticism, as most of the criticism is quickly dismissive or shamelessly adulatory. Hence Thomas F. Bertonneau's "Ayn Rand's Atlas Shrugged: from romantic fallacy to holocaustic imagination," published in the conservative periodical Modern Age (Fall, 2004), comes as a welcome addition to the very small collection of intelligent, insightful criticism of Rand's fiction.

Bertonneau begins by detailing Colin Wilson's reaction to Rand. Wilson had thought little of Rand at first, but then decided to give Rand a chance by reading Atlas Shrugged. Although he was hardly an uncritical admirer, he rather liked the book, and thought he had found an ally of sorts. As Bertonneau explains:

As Wilson had "always detested the 'fallacy of insignificance' in modern literature, the cult of smallness and meanness, the atmosphere of defeat that broods over the twentieth-century novel," he "was delighted by the sheer health of Ayn Rand's view." (13) He can even understand, he writes, what Rand means when she extols that virtue of selfishness for which so many applaud or revile her, depending on their perspective: "Selfishness has always been man's vital principle--not in the sense of ... indifference to other people but in the sense of intelligent self-interest." (14) Yet while Rand might lay claim to "a considerable intellect ... it is ... narrow and incurious" so that, "having established to her own satisfaction that all that is wrong with the world is lack of faith in reason and its muddled ideas on self-interest and altruism, she seems to take no further interest in the history of ideas."

Wilson's critical remarks are spot-on. Indeed, I would go further: it is precisely Rand's "narrow and incurious" intellect that constitutes, for me, her worst flaw. It helped turn her philosophy into a weird cult and isolated Rand from scholars and intellectuals who, while sympathizing with some of her philosophy, were far better informed than she was and could have helped her avoid some the embarrassing errors that disfigure her Objectivist ideology. The hostility with which Wilson's letter (and later his essay on Rand) were greeted by Branden and Rand demonstrate an over-sensitivity to criticism that is as unappetizing as it is creepy.

Bertonneau's assessment of Atlas is mixed in its appreciations: he finds plenty to both praise and criticize. He sees the novel as a sacrificial narrative/revenge fantasy:

Atlas Shrugged is, up to a limit, a true revelation of redistributive rapacity, even of the old call to sacrifice in its twentieth-century ideological manifestation; the novel is, up to a limit, a true revelation of ideology as a reversion to the most primitive type of cultic religiosity, collective murder as a means of appeasing a supernatural principle. It is also--it is primarily--a sacrificial narrative, as most of popular, as opposed to high, narrative ever has been and probably always will be. It follows that the novel's borrowed premise is sacrifice: Rand invites us to view with a satisfying awe the destruction before our eyes of those who have mistreated the protagonists, with whom she has invited us to identify. The standard Arnold Schwarzenegger or Clint Eastwood thriller achieves its effect by no different means. Michael Moore's movie Fahrenheit 9/11 works in the same way.

Bertonneau finishes his criticism by examining the infamous tunnel scene in Rand's novel. He notes curious new evidence (from Rand's journals) suggesting "that Rand must have had actual people in mind as models of those who die, with time enough to feel the pain of their deaths."

I assert that Rand plausibly thought of [Hollywood screenwriter Robert] Sherwood ... when she sent the adenoidal, second-rate playwright to his death in the Tunnel. The parallelism leads us to suspect that in the Tunnel episode Rand composes a cataclysme a clef. And what then does Atlas become but a grand fantasy of godlike revenge, a theater of resentment assuaged, a daydream of limitless ego?

ARI's Lockitch Disparages Rand's Views on Evolution

Dr Keith Lockitch, resident fellow of the ARI, in last year's essay "Darwin and the Discovery of Evolution":

One widespread claim that the opponents of evolution have advanced is the notion that evolution is “just a theory”—that is, that evolution is just a speculative hypothesis...The first thing to say about this claim is that it is not true; evolution is not “just a theory,” that is, a theory with no evidentiary support. Even worse than the falsehood of the just-a-theory claim is the fact that it represents a grave injustice. To declare that evolution is “just a theory” is to imply that Charles Darwin was “just a theorist”—that he was some sort of armchair scientist, spinning out scientific guesses in a vacuum instead of drawing his ideas from careful observations of nature...Darwin was not ‘just a theorist’ and evolution is not ‘just a theory.’”

Ayn Rand:

"After all, the theory of evolution is only a hypothesis."

Slight problem.

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.

Objectivism & Economics, Part 18

Limits of free-trade. Ayn Rand and her followers are well known advocates of free trade. In her Playboy interview, Rand explained:

The 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..

Although Rand’s primarily rationalization of free trade rests on moral arguments, nonetheless, Objectivists also contend that free trade is, in terms of economic efficiency and productivity, superior to protectionism. Yet this view is not as irrefragable as laissez-faire and other free trade zealots tend to believe.

The Italian social thinker Vilfredo Pareto, who, early in his career, had been a fervent advocate of free trade, adopted a more impartial view later in life. Although Pareto continued to maintain that protectionism destroys wealth, he came to understand that it had other effects which, under special circumstances, might make up for the wealth lost through the imposition of trade barriers. As Pareto explains in his mammoth The Mind and Society:

We find that protectionism transfers a certain amount of wealth from a part, A, of the population to a part B, through the destruction of a certain amount of wealth, q, the amount representing the costs of the operation. If, as a result of this new distribution of wealth, the production of wealth does not increase by a quantity greater than q, the operation is economically detrimental to a population as a whole; if it increases by a quantity greater than q, the operation is economically beneficial. The latter case is not to be barred a priori; for the element A contains the indolent, the lazy, and people, in general, who make little use of economic combinations; whereas the element B comprises people who are economically wide-awake and are always ready for energetic enterprise—people who know how to make effective use of economic combinations. [§2208]

Pareto’s theory explains why protectionism helped, rather than hindered, wealth creation in 19th century America. American protectionism transferred wealth from agricultural interests to industrial interests—that is, from those who would’ve used the wealth primarily to buy consumer goods to capitalists who invested the money in industrial production. Hence the great success of American capitalism during the latter half of the nineteenth century despite the high tariffs. Entrepreneurial capitalism works best when capital is transferred into the hands of those best fitted to use it. When protectionism manages to accomplish this end, it can be economically beneficial. When protectionism achieves the opposite effect and transfers capital from those best fit to use it to those least fit to use it, the results are economically pernicious.

The typical Objectivist position is that protectionism always diminishes economic efficiency. As Objectivist write Dave Holcberg puts it: [Protectionism] destroys more jobs than it creates because the overall productivity of businesses is diminished by the higher costs imposed on them.” This view, however, flies in the face not merely of the experience of 19th century American capitalism, but of Pareto’s theory, which states that, under special circumstances, protectionism may create more wealth than it destroys.

Joey Rothbard on the Rothard/Rand schism

In this audio recording, Joey Rothbard gives us a laugh-out-loud portrait of the Murray Rothbard/Objectivism schism, including the famous accusations of plagiarism directed at Rothbard.

(hat tip Neil Parille)

Objectivism & Economics, Part 17

Laissez-faire as a rationalization for fraud. In her essay “The Nature of Government,” Ayn Rand wrote,

A unilateral breach of contract involves an indirect use of physical force: it consists, in essence, of one man receiving the material values, goods or services of another, then refusing to pay for them and thus keeping them by force (by mere physical possession), not by right—i.e., keeping them without the consent of their owner. Fraud involves a similarly indirect use of force: it consists of obtaining material values without their owner’s consent, under false pretenses or false promises.

We will ignore Rand’s odd decision to describe fraud as an “indirect use of physical force” and instead merely note that Rand opposed fraud. While we congratulate Rand for opposing fraud, nonetheless there are serious questions at to her willingness to effectively combat it. It is one thing to oppose fraud verbally; the real question is: What are you willing to do about it?

Alex Epstein and Yaron Brook attempt to answer this question when they write:

In an unfettered free market the desire for profit is satisfied by honest, long-range, rational behavior.... As for the real swindlers, existing laws against force and fraud are sufficient to protect us. If our politicians are indeed concerned about the stock market, let them demonstrate it by eliminating, not adding, regulations and making the market truly free.

Epstein and Brook would have us believe that enforcing “existing laws” is “sufficent” in the sempeternal war against fraud. Yet what does this mean? What specific laws are Epstein and Brook talking about? And why, in the very next sentence, do they insist on the elimination of regulations (that is, of laws) in order to make markets “free”?

One of the main goals of regulation is to increase the integrity and transparency of markets. As Charles Morris explains in Trillion Dollar Meltdown:

It is the transparency and integrity of American financial markets that has made them such a magnet for foreign investment… That hard-won reputation was, to a great extent, the consequence of generally superb American market regulations, epitomized by the SEC.

The American regulatory scheme is based on the insight that government can best support financial markets by ensuring that investors get accurate information…. After a quarter century of antiregulatory zealotry, however, and a parade of fiascos from the S&L crash through the Enrons and WorldComs … the credibility of that system, and with it the attractiveness of American markets, is at risk.

Naive intellectuals like Rand, Epstein and Brook apparently believe that, as long as they ennuciate their disapproval of fraud, they won’t have to worry about anyone using their laissez-faire ideology as a rationalization for crippling the ability of the government to combat fraud. Yet this is part of what happened in the current economic crisis. The deregulation of markets and hostility toward government oversight is an important factor in credit market meltdown of the last year. Many unscrupulous operators in the markets become anti-regulatory and laissez-faire zealots for the simple reason that they wish to do as they like, even if doing as they like means committing fraud. They use laissez-faire ideologies such as Rand’s to rationalize crippling the government’s ability to combat fraud.

While Rand and her disciplines may consider themselves opposed to fraud, they certainly do not appear particularly eager to prevent such abuses. Indeed, they seem to oppose many of the attempts on the part of the government to embattle fraud. Take, for example, Leonard Peikoff’s hostility toward the SEC. On his nineties radio show on KIEV in Los Angeles he stated his desire to see the SEC abolished and declared his approval for insider trading.

What Rand, Peikoff, and other Objectivists fail to understand how difficult it is to enforce laws against fraud. Not every act of fraud is easy to detect or, even when detected, easy to prove in a court of law. White collar criminals, in contradistinction to common street criminals, are usually very intelligent and are very good at hiding their tracks. Corporations in which criminal activity has occurred sometimes, out of embarrassment and fear of Stock Market repercussions, try to conceal the criminal act. Investigations and trials of corporate criminals are very complex and expensive. The complexity of market transactions can serve as cover for fraudulent activity—which is one of the reasons why the SEC tries to keep markets as transparent as possible. They also make government oversight a necessary component to government regulation of markets.

In the laissez-faire model embraced by Rand, the courts are assigned the function of protecting private property and contracts from “breach or fraud.” In other words, the primary (if not sole) weapon for combatting fraud is the lawsuit. Fraud would, presumably, under such a vision of things, become an entirely civil matter, which of course would make easier for fraudulent economic behavior, along with other acts of questionable honesty, to go unpunished. The government and its citizens would be powerless to deal with any types of fraud that are not easily identified by the courts. As any in depth analysis of the relevant economic facts would demonstrate, it is not possible to regulate economic action solely (or even primarily) through lawsuits. That would merely bring about a society sunk in a morass of legal pettifoggery.

The role of the government in combatting fraud must go well beyond the old laissez-faire model of property rights and “freedom of contract.” As F. A. Hayek expressed it in The Road to Serfdom:

To create conditions in which competition will be as effective as possible, to supplement it where it cannot be made effective, to provide services which, in the words of Adam Smith, “though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals”—these tasks provide, indeed, a wide and unquestioned field for state activity. In no system that could be rationally defended would the state just do nothing [beyond protecting property rights and enforcing contracts]. An effective competitive system needs an intelligently designed and continuously adjusted legal framework as much as any other. Even the most essential prerequisite of its proper functioning, the prevention of fraud and deception (including exploitation of ignorance), provides a great and by no means yet fully accomplished object of legislative activity.

PARC: The Compleat Debunking

James Valliant's "The Passion of Ayn Rand's Critics" is to literary biography what "Plan 9 From Outer Space" was to cinema. Now the indefatigable Neil Parille has compiled his series of posts critiquing this uber-weird tome - which has become a kind of cultic litmus for Objectivism - into one essential essay. Parille concludes:

"Simply put, James Valliant's PARC is filed with erroneous readings of sources, poor research, double standards, dubious reasoning and a profound unwillingness to come to terms with evidence that undermines its case."

In other words, it is written according to Objectivism's standard operating procedure.

Objectivism & Economics, Part 16

Dishonesty, cheating, and theft. A recent study by the Josephson Institute found that 30% of today’s teenagers admit to having shop lifted in the last two year; that 42% said they lie for monetary gain; that 83% confessed to lying to a parent about a significant issue; and 64% admit to cheating in school over the past year. This sort of behavior is not, unfortunately, confined to teenagers, but afflicts all of society. In 2004, U.S. companies lost $4.7 billion to shop lifting and employee theft.

Corporate fraud remains a huge problem, despite the burdens imposed by the Sarbanes-Oxley regulations. Private equity firms, for example, aggressively buy up companies on the pretext of making these enterprises more efficient, yet statistics demonstrate that far more looting goes on than “value creation.” Subprime lending often was spearheaded by predatory mortgage brokers who made big promises to unsophisticated borrows only to charge immense fees and high interest rates further on down the road. Many of the financial instruments spawned by hedge funds have the whiff of fraud about them. Bad debt is mixed with good debt to create collateralized mortgage obligations (CMOs) which are then sold with triple A ratings, the good debt being used to conceal the bad debt. Then we have all the big news items in the corporate world: Enron, WorldCom, Madoff, etc. It doesn’t make for a particularly edifying spectacle.

Various explanations are given for the rise of dishonesty, cheating, and theft in America. Some blame it on secularization; some on the “greed” and “over-competiveness” of free enterprise; some on the decadence and demoralization caused by living in a wealthy society; some on the failure to discipline and instill self-control in young people. What do orthodox Objectivists blame it on? Consider Alex Epstein’s and Yaron Brook’s take on corporate scandals:

The common explanation that "greed" is to blame makes no sense--the abuses in companies like Enron and WorldCom were not exercises in self-interest, but in self-destruction. The shareholders of these companies lost huge amounts of money thanks to corporate mismanagement--mismanagement reflected by plummeting stock prices long before any scandals broke. Why did they tolerate incompetence for so long?
The reason lies in existing regulations that prevent shareholders from acting in their own interest. Anti-hostile-takeover legislation (passed in 1968 and reinforced by a myriad of state regulations) has made it difficult and costly for shareholders to replace incompetent management, thus allowing bad managers to get rich while driving companies into the ground, à la Enron. Arcane regulations passed in the 1930s limit the ability of the most knowledgeable shareholders to be involved in the board and therefore in decision-making. For example, financial entities, such as pension funds, insurance companies and mutual funds that own large stock positions in corporations, are either prohibited or strongly discouraged by law from board participation. Bankers who possess the financial resources and knowledge to take large positions in companies and promote rational corporate governance (as J. P. Morgan did at the turn of the century) are not allowed to do so.

As would be expected, Epstein and Brook blame government regulation. Is there any merit in their claim? No, not much. Several problems immediately come to mind. Note the dates of the regulations mentioned: the 1930s and 1968. Forty years ago in one instance, over seventy in the other. If these regulations are the prime culprits behind the rise of corporate fraud in recent years, why didn’t they lead to more fraud when they originally passed?

Be that as it may, it is unlikely that government regulations play a major role in shareholder power. The corporation, by dividing ownership into bits and pieces, creates institutional incentives that effectively empower management at the expense of ownership. As Schumpeter put it:

The capitalist process, by substituting a mere parcel of shares for the walls of and the machines in a factory, takes the life out of the idea of property. It loosens the grip that once was so strong—the grip in the sense of the legal right and the sense that the holder of the title loses the will to fight, economically, physically, politically, for “his” factory and his control over it, to die if necessary on its steps.

If you are simply one owner among hundreds, you’re not likely to go any great lengths to defend your “interests.” Indeed, you probably won’t even know about the incompetence of management until it’s too late. After all, that is normally what corporate fraud is all about: to conceal incompetence in management by “cooking” the books.

Brook and Epstein also complain of “complex and contradictory rules” which “encourage bad accounting.” But is that really what happened with Arthur Anderson and other accounting firms that are guilty of fraudulent accounting? Not according to insiders.

One reason for [the failure of accounting] is the well-known problem of conflict of interest [writes Richard Bookstaber, the well known hedge fund manager]. Accountants have a financial incentive to be on the company’s good side so they can keep their mandate. This conflict was the main reason for the erosion in the quality of financial reports over the course of the 1990s.

Brook and Epstein insist that “Rational managers have an incentive to provide accurate information to shareholders--it establishes their credibility and reputation and allows them to raise capital when needed.” This observation, however, misses the point. The problem is that, in contemporary financial markets, the risks are so great and the rewards so immense that it is possible for a manager to make huge amount of money at first only to lose huge amounts later on. Corporate fraud often arises from trading strategies that make huge amounts of money in the short run only to lose huge amounts in the long run. If a brokerage firm that has reputation for making enormous profits hides recent losses, how is anyone to know that the managers are incompetent? Their record seems to state otherwise; and until the fraud is exposed, they will continue to be seen as brilliant. It’s only after the fraud is exposed and investors have lost billions of dollars that the market punishes the fraud. Yet by then it’s too late.

Brook and Epstein conclude:

In an unfettered free market the desire for profit is satisfied by honest, long-range, rational behavior: by innovating, by hiring the best employees, by selling quality products and by providing accurate information to the owners of the corporation--shareholders. As for short-range managers, the markets will not tolerate them. As for the real swindlers, existing laws against force and fraud are sufficient to protect us.

The issue is not whether markets tolerate “short-range managers.” Markets do in fact tolerate such managers in the short-run—but that gives the managers plenty of time to inflict serious damage on financial markets. And when these same “markets” punish such short-term strategies, the greatest victims are never the managers, but the shareholders and investors. In the end, we have to reject the notion that markets, by themselves, will make people honest. Whatever the cause of the epidemic of cheating, dishonesty, and thievery that afflicts our society, such behavior places capitalism at risk. To paraphrase Edmund Burke: It is ordained in the eternal constitution of things, that men of dishonest minds cannot be free. Their mendacity forges their fetters.

Objectivism & Economics, Part 15

Schumpeter’s challenge. The economist Joseph Schumpeter created quite a stir in the forties when he warned that “the capitalist order tends to destroy itself.” Schumpeter issued this warning despite his belief in what he described as “the impressive economic and the still more impressive cultural achievement of the capitalist order and at the immense promise held out by both.” Capitalism would destroy itself because it would undermine its own “protecting strata” and “institutional framework.” One of the reasons he gave for this pessimistic assessment seems rather prescient in relation to the current economic crisis:

Capitalist activity, being essentially “rational,” tends to spread rational habits of mind and to destroy those loyalties and those habits of super- and subordination that are nevertheless essential for the efficient working of the institutionalized leadership of the producing plant: no social system can work which is based exclusively upon a network of free contracts between (legally) equal contracting parties and in which everyone is supposed to be guided by nothing except his own (short-run) utilitarian ends.

In one sentence Schumpeter has put his finger on the greatest flaw of capitalist order. Contrary to what Rand and her followers believe, “rational” self-interest is not an entirely benign psychological force. Rand’s faith in self-interest (and it is only a faith) is not warranted by the facts. In the first place, it is absurd to regard human desires and sentiments as rational. A desire or sentiment can only be criticized in reference to an opposing desire or sentiment. As Spinoza famously put it: “an emotion cannot be destroyed nor controlled except by a contrary and stronger emotion.” Consequently, rationality, as an ideal, can only apply to the means by which desires and sentiments are satisfied. Yet this is not all. Even if there were (per impossible) such a thing as a “rational end,” it is very doubtful that very many human beings would be interested in pursuing it. If we make history and experience our guide in such matters—and whatever guide could possibly lead us to the truth besides history and experience?—then we are forced to conclude that the majority of human beings are largely non-rational in their conduct and are probably not even capable of being rational about any issue in the least complex (as rational methods of analysis tend to break down when applied to complex situations). When Schumpeter talks about “rational” habits of mind, he is not writing in the Randian sense of the word. He means something more along the lines of rationalism—i.e., the belief that no doctrine is true unless it can be proved “verbally,” through clever patter and other exercises of blatant sophistry. As a consequence of this sort of perfervid rationalism, individuals no longer believe in “higher” values or “lofty” moral ideas. Short-term self-interest and “immediate gratification” become the main desideratum, with sophistry being brought in to give the whole thing a window dressing of moral justification.

We see this played out in the financial sector. The birth of complex financial instruments based on computer generated formulas has allowed finance capitalism to mask what ultimately amounts to a vast ponzi scheme which yields huge profits in the short-run but ends in bankruptcy and dishonor. This sort of finance capitalism fits into what is known as the “Minsky cycle”:

Firms participating in the early stages of the cycle typically are not leveraged; Minsky called them hedged firms because their cash receipts cover their cash outlays. The success of the first movers draws in additional players. Speculative firms then engage in leverage to the point where they must borrow to meet some of their interest payments—usually borrowing in short-term markets to finance higher-yielding long-term positions. None of this is irrational behavior; market players are chasing short-term gains, and some of them are getting very rich.

The final stages of the Minsky cycle arrive with a proliferation of Ponzi firms, which must borrow to meet all their interest payments, so their debt burden continuously increases. At some point, a disruptive event occurs, … and markets abruptly reprice—the further along in the cycle, the more violent the repricing. [Charles Morris, The Trillion Dollar Meltdown, p. 133-4]

In other words, what we find in the world of high finance is a system which, by giving individuals the hope of huge rewards in the short-run, encourages them to behave in a ways that are destructive in the long-run. It takes strength of character to resist such huge short-run gains. Unfortunately, the very success of capitalism tends to create a prosperous society that weakens the moral fibre of individuals. Add to this situation the tendency of individuals—particularly intelligent individuals—to cloak their real motives under a thick shroud of ingenious rationalizations (e.g., “portfolio theory,” the “efficient market hypothesis,” “laissez-faire” ideology, etc.), and we have all the elements required to create market failure leading to widespread and socially harmful externalities, as can be readily corroborated by examining the 2008-2009 financial crisis.

Inevitably

We noted this oddity back in 2007. No surprises how it turned out.

NEW YORK (AP) -- A construction official falsely billed $1.2 million for supplies not delivered to clean up a toxic ground zero skyscraper in exchange for cash, clothes and trips to the Caribbean, prosecutors said Tuesday.

Robert Chiarappa was the purchasing agent for the John Galt Corp., which was hired to clean up the former Deutsche Bank tower after it was heavily damaged in the 2001 terrorist attack on the World Trade Center across the street.

Objectivism & Economics, Part 14

Rand’s “objective” value theory. Austrian economics ascribes to what is called the “subjective value” theory:

An individual's actions and choices are based upon a unique value scale known only to that individual. It is this subjective valuation of goods that creates economic value. Like other economists, the Austrian does not judge or criticize these subjective values but instead takes them as given data.

For obvious reasons, Rand did not like this theory. In her essay on capitalism, she provided an “objective” theory of economic value to take its place. The difficulty with all such “objective” theories is that they tend to equate objective value with success in the market. Hence popular music, headed by Elvis Presley and the Beatles, is objectively superior to classical music, because it has sold a lot more recordings and grossed far more profits. The Bible is objectively more valuable than Atlas Shrugged because it has sold more copies and, presumably, netted a greater profit.

To get around this difficulty, Rand introduces a distinction between what she calls “philosophical” and “social” value. The free market value of goods and services, she grants, “does necessarily represent their philosophically objective value, but only their socially objective value, i.e., the sum of the individual judgments of all the men involved in trade at a given time, the sum of what they valued, in the context of their own life.”

If Rand’s “socially objective” value sounds suspiciously like the the subjective value theory, well, that’s because there is very little difference between the two. So in order to draw a larger contrast between the two theories of value, Rand introduces another distinction. She claims that what makes her “socially objective” value truly objective is the discipline of the market:

Within every category of goods and services offered on a free market, it is the purveyor of the best product at the cheapest price who wins the greatest financial rewards in that field—not automatically nor immediately nor by fiat, but by virtue of the free market, which teaches every participant to look for the objective best within the category of his own competence, and penalizes those who act on irrational considerations. [CUI, 24-25]

As with many of this Rand’s theories, this one only remains plausible if we ignore the many facts that fail to accord with it. One of the long lasting criticisms of capitalism is that, under its regimen, business are often forced to appeal to the lowest common denominator to survive. The tacky, the tasteless, the vulgar, the obscene often triumphs over products that, from an “objective” point of view, appear more useful and “edifying.”

As an example of this, consider the most popular non-free iphone application, a piece of software appropriately entitled “iFart mobile.” According to the iFart website, their application is “Ranked #1 in overall sales of all applications in the world.” The video below goes into greater detail:



As amusing as all this may be, one still wonders what sort of “objective” value, even of the “social” type, a product like iFart can possibly have. Obviously, it is little more than an “entertainment” product and shouldn’t be taken too seriously. But where is the “objective” value in such a thing, beyond the obviously subjective humor that some people find in it? Can we really say that iFart, within its category of goods and services offered on the free market, is the “best product and the cheapest price”? How can this be? Is it because it's the best flatulence imitating application for the iphone? Even if this were so, it still doesn’t answer the question why flatulence imitating iphone apps have more objective value than other iphone apps. Beyond mere success in the market, what objective value, established by human “reason,” can be attributed to iFart?

The iFart application merely skims the surface of what is wrong with any objective theory of economic value. One can think of many worse examples: e.g., what about all those astrology books that are sold every year? or the billions of dollars spent on internet porn? or “gangsta” rap? Where is the objective value in these horrors? Yet they all thrive in the market. It simply will not do to mix economics with morality. Economic value—that is, the values people actually pursue in the market (rather than the values they “ought” to pursue) cannot in any meaningful sense be regarded as “objective.” The Austrians show good sense in regarding economic value as subjective.