The prophets: Ayn Rand and Adam Smith (libertarian economics part 2)
Libertarian economics, like other religions, has its prophets.
The most important prophet, the equivalent of Jesus, is Ayn Rand.
Now I can hear some people saying that Ayn Rand is a novelist and not an economist, and that no one really takes her seriously. And she didn’t even consider herself to be a libertarian, she said she was an “objectivist” (whatever that means).
Nevertheless, her books have been more widely read than anything else related to libertarian economics. If a libertarianist politician is likely to cite anyone for inspiration, it is more likely to be Ayn Rand than anyone else.
As far as people taking her seriously, people take the Bible seriously even though it’s just as much a work of fiction as The Fountainhead or Atlas Shrugged.
Of her two biggest novels, Atlas Shrugged is the most dear to libertarianists because the message is easier to understand. Atlas Shrugged takes place in a dystopian retro-future where communists have taken over the government of the United States and all other countries; consequently the country and the world are going to hell (somewhat literally since the dystopian retro-future of Atlas Shrugged is the equivalent to Christianity’s Hell, a divine punishment for violating the laws of libertarian economics). Because of the evil policies of the communist government, what is potentially the greatest invention ever, John Galt’s free-energy perpetual-motion engine, cannot be developed and manufactured. (Except in Galt’s Gulch, a hidden valley in the Rockies where the heroes of the book go to form a perfect libertarian society free from government interference.)
The other lesson from Atlas Shrugged is that the value that people create is directly related to how much money they make. Thus when Hank Rearden, the billionaire industrialist leaves society to move to Galt’s Gulch, everything that his company was doing disintegrates, because all of his factories, and the engineers who worked from him, are useless without Hank Rearden to tell them what to do. (In the real world, big companies do just fine after their billionaire founders leave.)
Adam Smith is the world’s first economist. He is to be given much credit for trying to scientifically understand and explain the economy of the 18th century.
Libertarianists believe that Adam Smith was a proponent of laissez-faireism because he explained that the “invisible hand” guides the economy in the absence of government regulation. To quote Wikipedia:
The invisible hand is a metaphor used by Adam Smith to describe unintended social benefits resulting from individual actions. The phrase is employed by Smith with respect to income distribution (1759) and production (1776). The exact phrase is used just three times in Smith’s writings, but has come to capture his notion that individuals’ efforts to pursue their own interest may frequently benefit society more than if their actions were directly intending to benefit society
It needs to be pointed out how vastly different the economy of the 18th century was compared to the economy of today. There was no electricity, no internal combustion engine, no land transportation faster than a horse, no long distance communications except for letters carried by horse-drawn carriages. The large corporations of today were impossible without those enabling technologies. The largest business enterprises of the time were what we would consider small businesses today. The kind of monopoly power that big corporations have today simply didn’t exist in the 18th century. As I’ve pointed out before, Michael Porter’s classic book “Competitive Strategy” is a better guide to understanding the modern economy than anything written by Greg Mankiw.
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It should be noted that Adam Smith himself wrote in The Wealth of Nations:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
Thus Adam Smith realized that without government interference, market participants will attempt to circumvent competition, and often succeed at it.