|Rand, Friedman, and The Death of Capitalism
by Andy Joppa
As is almost always the case, Ayn Rand is a go-to source for comprehending America’s current issues. The fact that she wrote more than forty years ago makes her no less reliable a primary source of understanding. This is particularly true as we trace her analysis of American business from her early years, to the years just preceding her death.
I’ll let her words describe the contribution of the business environment and then show how her perceptions changed, not because her values had changed, but because American business had changed. We are seeing today where her awareness has proved to be prescient in understanding one of the major reasons for this nation’s precipitous decline. We are being abandoned by American businessmen, and women. (Note: I will only use the term “businessmen” from this point forward. Not to negate women, but to avoid the constant reiteration of saying, “men and women.”
Ayn Rand wrote in the 1950’s….
“The professional businessman is the field agent of the army whose lieutenant-commander-in-chief is the scientist. The businessman carries scientific discoveries from the laboratory of the inventor to industrial plants and transforms them into material products that fill men’s physical needs and expand the comfort of men’s existence. By creating a mass market, he makes these products available to every income level of society. By using machines, he increases the productivity of human labor, thus raising labor’s economic rewards. By organizing human effort into productive enterprises, he creates employment for men of countless professions.
He is the great liberator who, in the short span of a century and a half, has released men from bondage to their physical needs, has released them from the terrible drudgery of an eighteen-hour workday of manual labor for their barest subsistence has released them from famines, from pestilences, from the stagnant hopelessness and terror in which most of mankind had lived in all the pre-capitalist centuries—and in which most of it still lives, in non-capitalist countries.”
There can be little doubt, that is was businessmen who were the agents of fulfilling the promises of America. It was those businessmen, largely unencumbered by government, that were able to build the middle-class and make the benefits of science available to the average person. However, in the 60’s, we can begin to see a new, and troubling component entering the business environment. Rand wrote:
“All the evils, abuses, and iniquities, popularly ascribed to businessmen and to capitalism, were not caused by an unregulated economy or by a free market, but by government intervention into the economy. The giants of American industry—such as James Jerome Hill or Commodore Vanderbilt o Andrew Carnegie or J. P. Morgan—were self-made men who earned their fortunes by personal ability, by free trade on a free market. But there existed another kind of businessmen, the products of a mixed economy, the men with political pull, who made fortunes by means of special privileges granted to them by the government, such men as the Big Four of the Central Pacific Railroad. It was the politic power behind their activities—the power of forced, unearned, economically unjustified privileges— that caused dislocations in the country’s economy, hardships, depressions, and mounting public protests. But it was the free market and the free businessmen that took the blame.”
Rand once again extols the virtues of the American businessman, but she adds a troubling disclaimer at the end. She saw many businessmen no longer functioning in the competitive marketplace, but entering into a cooperative process with government, where their success was no longer a factor of quality, but of the increased use of privilege gained through government power. She also notes that this corrupting influence was not accurately identified but, instead, it was laid on the doorstep of capitalism and the free market system itself.
As Rand entered her later years in the 1970’s, her concerns became amplified. We can read that when she wrote:
“As a group, businessmen have been withdrawing for decades from the ideological battlefield, disarmed by the deadly combination of altruism and Pragmatism. Their public policy has consisted appeasing, compromising, and apologizing: appeasing their crudest, loudest antagonists; compromising with any attack, any lie, any insult; apologizing for their own existence. Abandoning the field of ideas to their enemies, they have been relying on lobbying, i.e., on private manipulations on pull, on seeking momentary favors from government officials. Today, the last group one can expect to fight for capitalism are the capitalists.”
It is obvious Rand’s words could have been written about America businessmen in 2022. Nearly fifty years ago, Rand was able to see the patterns that were evolving. Those patterns have reached their total fulfillment in today’s America. While we are often cognizant of the problems we face in education, justice, government and culture, far too little focus is turned on American business per se. Certainly we hear an occasional lament about Big Tech or Wall Street, but seldom do we talk about the problems that are created by the ideological decline and directions in the entirety of business itself…across the board. There are many ways to illustrate that, but what follows should offer proof positive of the problem that Rand saw nearly fifty years ago.
As I taught business management and ethics, I ascribed to Milton Friedman’s view of corporate responsibility. He saw the trends that were negatively affecting the appropriate directions of the business community. He proposed a guiding principle for business ethics in a New York Times article titled: “The social responsibility of business is to increase its profits”:
“… there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays in the rules of the game, which is to say, engages in open and free competition, without deception or fraud.”
Friedman argued for a direct form of capitalism and against any activity that distorts economic freedom. Socially responsible activities conducted by a corporation are, according to Friedman, distorting economic freedom because shareholders are not able to decide how their money will be spent. Friedman thus argued that corporations should focus on those activities that are causally related to company profit, effectively excluding charitable activities that do not directly generate revenue:
…[there] has been the claim that business should contribute to support charitable activities and especially to universities. Such giving by corporations is an inappropriate use of corporate funds in a free-enterprise society.”
Friedman was not against charity. He felt that the corporation’s job was to make the profit that fuels the society, creates growth, and provides the funds, through taxes and wages, for charity to exist, if someone chooses to be charitable. He felt those choices were best made outside of the corporate environment since, if made internally, they would corrupt the corporation’s primary function…to make a profit, legally and ethically.
In 2022 America we can see Rand’s dire projections coming to fulfillment, and the wisdom of Friedman being rejected…both to the detriment of the American system. We are now fully immersed in the world of “woke capitalism.”
Conscious Capitalism is a feel-good story until one considers that when philanthropy subverts the profit motive and the business is no longer responding to the demands of the marketplace, the business no longer serves a purpose at all. Merely meeting the demand of the public while employing thousands of people in local communities is in itself a public good.
ESG stands for Environmental Social Governance, and in ESG investing, a qualitative score is applied to businesses based on how well they conform to leftist social movements. In 2015, ESG assets stood at $2.8 billion. By 2020, those assets had hit $40 trillion and are estimated to hit $53 trillion by 2025. The onslaught of leftist activism over the past few years has coincided with exorbitant growth in these ESG funds. As leftist businesses, municipalities, and investors look to virtue-signal their ESG bona fides, they have diversified their holdings like pensions into these ESG funds, which explains the exorbitant fund growth.
Now, with ESG funds, a company like Nike, can continue to manufacture its shoes in a foreign sweatshop, so long as it speaks out against white privilege and achieves the coveted ESG label, or gets bundled into larger ESG funds. A company can afford to lose a percentage of its consumer base if it can still grow by users investing in its activism.
As the corporations have yielded the virtues of making profit to the ideologically driven world of social activism, the essential value of business is sacrificed to the newest cause du jour. A society cannot remain competitive, nor can true charities even exist, as corporate investment funds are diverted into projects of dubious worth, if not measurable negative impact. Rand and Friedman both saw this coming. I saw it coming. Any rational being saw it coming…that, in itself should tell you something about America in 2022.