Market Overview

Capitalism Today: Atlas Shrugging or Atlas on Life Support? (Part 1 of 2)


In the novel "Atlas Shrugged", the philosopher Ayn Rand presented her vision of humanity where the world's entrepreneurs and captains of industry are the heroes of civilization. From Rand's perspective, far from being robber barons, the world's wealthy entrepreneurs and businessmen are like the mythological god Atlas holding up the world. As the government seeks to intervene in the marketplace, the world's captains of industry retreat in the spirit of freedom. Thus, when the world's wealthy entrepreneurs, creators, and inventors shrug owing to state intervention, the entire world falls.

Mark Spitznagel, the founder and chief investment officer of California-based hedge fund Universa Investments, on Thursday discussed in an article for Project Syndicate how though capitalism has been resilient against crises and business cycles in the past, the current global financial crisis is testing that legacy. Spitznagel argued that "Rand's fictional world has seemingly become a reality." In light of government bailouts and the specter of taxation, "[t]he shrug of Rand's heroic entrepreneurs is to be found today within the tangled ciphers of corporate and government balance sheets." In the same spirit as "Atlas Shrugged", the government "simply cannot direct entrepreneurs to lend, borrow, and invest; investment capital will inevitably shrug when faced with oppressive manipulation of free markets." In the end, Spitznagel questioned whether "our own dystopian world" will be corrected of "distorted incentives" one day in the future.

Whereas some may make comparisons of "Atlas Shrugged" to our modern-day predicament, is Atlas shrugging or has Atlas simply reached old age, subsisting on life support?

Also writing for Project Syndicate, economist Kenneth Rogoff recently allegorized current issues with Western capitalism in light of health issues in society. Rogoff eloquently compared contemporary Western capitalism to issues in the food industry and the US political system. Rogoff: "True, market forces have spurred innovation, which has continually driven down the price of processed food... That is is a fair point, but it overlooks the huge market failure here." Owing to market forces, Rogoff argued that consumers are "swamped with disinformation through advertising". Even further, "producers have few incentives to internalize the costs of the environmental damage that they cause." Rogoff contended that owing to the contemporary "regulatory-political-economic dynamic" in contemporary Western capitalism, "[w]e need to develop new and much better institutions to protect society's long-run interest" in order to reach a healthier equilibrium.

Rogoff's commentary alludes to various flaws in the capitalist model, and the implications of these flaws portend substantial problems for humanity going forward. Whereas philosophers like Ayn Rand, Friedrich Hayek, and Ludwig von Mises may have historically viewed laissez-faire free-market capitalism as being market equilibrium in itself with the assurance of economic viability via market forces, current issues with respect to the environment and human activity raise questions regarding the viability of laissez-faire policies.

Though "Atlas Shrugged" may be a popular resource for those who ideologically favor a free-market economy, it is important to note that unlike other economic thinkers, Rand justified laissez-faire free-market capitalism in terms of ethics, i.e., Objectivist ethics. Though capitalism may have economic benefits, for Rand laissez-faire capitalism is to be defended fundamentally on moral grounds. Even aside from economic reasons, for Rand laissez-faire capitalism is the proper system of economic behavior because unlike other economic systems, it guarantees the natural rights of life, liberty, and property.

I think this differentiation of capitalism on economic and moral grounds is necessary in the current debate, and for whatever reason, this line separating economic efficiency and economic morality has been blurred. In contrast, the philosopher Karl Marx viewed the evolution of mankind's historical progress toward communism as unrelated to ethics. Far from what may be the contemporary conceptions of comparative economic systems, for Marx communism was not to be the goal for ethical reasons; rather, Marx viewed the transition from capitalism to socialism as being justified on historical grounds -- with full communism being the end of humanity's historical progression leading into history proper. In comparison, Rand viewed laissez-faire capitalism as the plateau or the pinnacle of human government and human rights. To say the least, this dichotomy between ethics and economic history separating capitalism from socialism appears to be often lost in commentary.

Nevertheless, I would argue that there is a "market of markets" whereas though individuals can perceive laissez-faire capitalism as an option, owing to human activity in this "market of markets", laissez-faire capitalism is being discarded. Owing to American society's appetite for social welfare, American society is not voting with its dollars for a laissez-faire system -- as Rand would have preferred. It is as if we simply do not want a laissez-faire system; even the establishment and the wealthy do not appear to want a laissez-faire system. In the same spirit as Rogoff's analysis, an analogy could be made to a market that sells salmon and beef. Perhaps the salmon is healthier in the long-run, but consumers may purchase more beef than salmon because of personal taste -- in effect, voting with their dollars for the unhealthier option. Maybe we don't have the stomach for a laissez-faire system. It is as if we want to be "healthier", but we may lack the stomach to be eating tuna fish sandwiches on whole wheat bread every day in comparison to eating pizza and hamburgers.

In this way, American society may be rejecting the leaner option of laissez-faire capitalism in favor of greater social welfare because American society does not want to see tent cities and impoverished families roaming with shopping carts next to towering skyscrapers, elaborate high-rising thoroughfares, and luxurious, high-tech self-driving cars (as per Rand's vision of capitalism). A useful image of this idea is in the illustration "Worth Enough?" by Radoxist.

From reading and studying Rand's ideas and theories for years, though Rand's ideology may be appealing when times are tough, I think it helps to put things into a historical perspective. Laissez-faire capitalism, with its concentration of capital, owing to flaws in nature may not be as appealing when we find ourselves living in tent-cities and slums outside of luxurious, high-tech cities reserved for the wealthy. It is important to see that Rand was responding to not only the world of her time, but also her own personal life experiences from the Soviet Union. In this context, one has to notice that even if laissez-faire capitalism is the "objectively" best form of government and economy, there appears to be little demand for such a system and substantial disagreement over "objective reality".

The crux comes back to the differentiation between capitalism-in-theory and capitalism-in-practice. In light of Austrian School economists, in theory capitalism should work in perpetual equilibrium. However, our common reality suggests that perhaps capitalism does not work this way in practice.

In some ways, capitalism appears to be on life support. Zero Hedge's Tyler Durden recently discussed how a strategist named John Embry believes that the "current financial system, as we know it, will be totally destroyed, probably sooner rather than later. The next system will require gold backing to have any legitimacy. This has happened many times in history." Embry's discussion seems to suggest that after the collapse of the financial system, some form of capitalism will survive.

Interestingly though, Reuters reported Thursday that former US Vice President Al Gore is taking "aim at unsustainable capitalism". Gore: "While we believe that capitalism is fundamentally superior to any other system for organising economic activity, it is also clear that some of the ways in which it is now practised do not incorporate sufficient regard for its impact on people, society and the planet." And see, here is the rub with contemporary Western capitalism: the potential for environmental destruction. As we live on a planet with limited resources, cracks in the laissez-faire model become apparent not only with the environment but also with the management of funds and resources. It is interesting to note that even Ayn Rand disciple Alan Greenspan has conceded a serious flaw in the free-market ideology. Maybe it is too much to say that the market will always take care of itself.


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