In Rand’s book Capitalism: The Unknown Ideal there is no succinct presentation of her premises, reasoning and conclusion about laissez-faire capitalism, with or without comparison to alternative economic systems. Her observations are presented as strings of emotion-laden ideas, and as such, our analysis must default to understanding their roots and significance within her system. One of her most ordered presentations is a one-sided debate she has with the Encyclopaedia Britannica.
Early in her book she writes: "I shall cite the article on 'Capitalism' in the Encyclopaedia Britannica. The article gives no definition of its subject; it opens as follows:
CAPITALISM, a term used to denote the economic system that has been dominant in the western world since the breakup of feudalism. Fundamental to any system called capitalist are the relations between private owners of nonpersonal means of production (land, mines, industrial plants, etc., collectively known as capital) and free but capitalless workers, who sell their labour services to employers...The resulting wage bargains determine the proportion in which the total product of society will be shared between the class of labourers and the class of capitalist entrepreneurs.[1] [2]
To recap, the article begins by defining the term capitalism as an economic system, remarks on its historical origin, identifies its participants as capital owners and capitalless workers, the economic trade-off between them, and its effect on the larger economy. Immediately after this paragraph, Rand writes, "(I quote from Galt's speech in Atlas Shrugged, from a passage describing the tenets of collectivism: 'An industrialist---blank-out---there is no such person. A factory is a 'natural resource,' like a tree, a rock or a mud-puddle.')"
Rand once again uses her own words from the mouth of her own fictional character to corroborate her own thought. This is not circular logic per se, but these things are too closely related to marry each other and offer no valuable comment on the article’s content. I am at a loss to infer how the article’s phrase “private owners” can in any way equate in anyone’s mind to a non-existent person or how “the means of production” could be mentally transformed into mud-puddles. The article and her comments don’t correspond. Let’s assume, then, that Rand desires the Encyclopaedia Britannica to be biased in favor of a subjective pro-capitalism viewpoint rather than a more neutral presentation of the facts, harkening us back to training in agitprop.
Rand continues, "The success of capitalism is explained by the Britannica as follows:"
Productive use of the ‘social surplus’ was the special virtue that enabled capitalism to outstrip all prior economic systems. Instead of building pyramids and cathedrals, those in command of the social surplus chose to invest in ships, warehouses, raw materials, finished goods and other material forms of wealth. The social surplus was thus converted into enlarged productive capacity.
To summarize, capitalism makes more money than pre-modern systems because, previously, elite military/political classes decided what to do with extra tax income which was often used to build private or public monuments. Capitalists, in contrast, can invest their private profits back into their means of production, expanding them in order to create more wealth. So, the net monetary product of the society increases, allowing individuals to make more money and again expand production and repeat the cycle. In response to these ideas, Rand asks, "What is a 'social surplus'? The article gives no definition or explanation. A 'surplus' presupposes a norm; if subsistence on a chronic starvation level is above the implied norm, what is that norm? The article does not answer.”
Is not surplus explained in the prior Britannica paragraph? It says that wage negotiations determine what money the workers take home and how much profit remains in the entrepreneur’s pocket after other expenses are deducted, and the word “social” broadens this to all of the capital operations within a society. Profit in the capitalists’ hands, or “command” as the article says, is then converted into more capacity for production. The article’s perspective is that this process is replicated in all capital enterprises within a territory and is quantified for analytical purposes. Next, we should ask if surplus indeed presupposes a norm. The word surplus is defined as “An amount of something left over when requirements have been met; an excess of production or supply over demand,” while norm means “A required standard; a level to be complied with or reached.” So, the article is correct in its usage and the reference to norms is senseless in this context, although not in Soviet Russia where factories were expected to meet norms set by the government.
Rand does not accept the connection of surplus with extra profit, saying, "There is, of course, no such thing as a 'social surplus.' All wealth is produced by somebody. And 'the special virtue that enabled capitalism to outstrip all prior economic systems' was freedom (a concept eloquently absent from the Britannica's account), which led, not to the expropriation, but to the creation of wealth.”
As I look around for a croquet game and the Queen of Hearts (somewhere in the distance a voice is crying “Off with their heads!”) I bring myself back to Rand’s disconnect between “social surplus” and entrepreneurial profits. The croquet game must be out in left field because that is where we find Rand’s next statement that “All wealth is produced by somebody.” Yes. The article established how that is done—by both capital owners of things and free owners of labor. Nowhere does the article refer to expropriation.
Being a traditional encyclopedia, the article appropriately aims to provide facts about capitalism and is not intended as propaganda to advance capitalism over other economic or political systems; rather, it is able to separate the categories of economics and politics to clearly describe each. Rand seems unable to separate her merging of the written word with her interior experiences or to restrain her emotional, ideological responses enough to respond to the actual text. Perhaps part of Rand’s confusion centers around the article’s perspective that economic systems operate within societies. We can ask if, in her mind, it is the use of the word “social” that puts her back into Soviet Russia where her mind leaps to memories of expropriation and where norms of production were indeed established. However, her memories and the words of the text do not relate.
Rand’s dialogue seems to be less with the article’s ideas and “objective” reality and more about memories and the demons that seem to haunt them. It becomes clearer that Rand’s personal experience challenges her objectivity to the extent that she refuses to accept literal definitions of words or the very existence of society. It is not surplus but social surplus that troubles her. In The Virtue of Selfishness; Rand says, “there is no such entity as 'society', since society is only a number of individual men.”[3] However, people in aggregate behave differently from their single counterparts, as any preschool classroom will illustrate. It is useful to examine, as does Aristotle, how things and people change in congregation, whereas denying the existence and effects of social dynamics is neither true nor helpful to any rational economic assessment. Moreover, Merriam-Webster’s definition of capitalism at the beginning of this section recognizes that a central “organization” is needed to provide the infrastructure which enables capitalist enterprises to operate across territories, acknowledging that a functioning society is necessary to all commerce.
Returning to the Britannica article, Rand says: “I shall have more to say later about that disgraceful article (disgraceful on many counts, not the least of which is scholarship). At this point, I quoted it only as a succinct example of the tribal premise that underlies today's political economy. That premise is shared by the enemies and the champions of capitalism alike, it provides the former with a certain inner consistency, and disarms the latter by a subtle, yet devastating aura of moral hypocrisy--as witness, their attempts to justify capitalism on the ground of 'the common good' or 'service to the consumer' or 'the best allocation of resources.' (Whose resources?)”[4]
Let’s try to parse the above sentences to find meaning. Rand defines “tribal premise” as “The basic premise of crude, primitive tribal collectivism [which is] the notion that wealth belongs to the tribe or to society as a whole, and that every individual has the ‘right’ to ‘participate’ in it.”[5] Where exactly is this participatory premise expressed in the Britannica article other than it assumes that those with capital and those owning labor may freely associate? Of course American capital was first obtained by immigrants stealing land from tribal owners, but this concept is not acknowledged. The article does not imply anything like communal ownership but notes instead how capitalist enterprises voluntarily operate. What phrases convey an aura of hypocrisy and do any of the article’s words refer to the common good, or imply service or allocation? Rand imposes subjective interpretations of the printed words that are so far removed from their generally understood meanings that they make her comments incoherent.
Clues in assessing Rand’s psychological state abound here: the unsubstantiated denigration of the article’s scholarship, the use of negative and racially biased code words such as “tribal” meaning “crude” and “primitive”, the need to pit heroes and villains against each other as “enemies and champions”, and attribution of “moral hypocrisy” to the writer’s ”attempts to justify” the work—something that the article again does not do. I hear Rand’s sense of superiority, rage, a need to be combative, and acute suspicion of others, but I do not see a rational response to this article..
A fuller picture of what Rand is trying to convey continues in her statement on page 2 of her book on capitalism:
"Political economists--including the advocates of capitalism--defined their science as the study of the management or direction or organization or manipulation of a 'community's' or a nation's 'resources.' The nature of these 'resources' was not defined; their communal ownership was taken for granted--and the goal of political economy was assumed to be the study of how to utilize these 'resources' for 'the common good.' The fact that the principal 'resource' involved was man himself, that he was an entity of a specific nature with capacities and requirements, was given the most superficial attention, if any. Man was regarded simply as one of the factors of production, along with land, forests, or mines--as one of the less significant factors, since more study was devoted to the influence and quality of these others than to his role or quality."[6]
Like her previously noted unsubstantiated statements, Rand does not specify which advocates of capitalism take communal ownership for granted. Moreover, since the definition of capitalism specifies private ownership, this is an oxymoronic stance unless we view corporations as communal groups. If Rand has any real interest in scholarship, its rubrics demand that economic analysis identify the set of entities being studied and draw boundaries around that set. These boundaries equate to the “community” or “nation” Rand mentions above. Her social alienation is so deep, however, that she seems to be frightened by the very naming of such a group, and projects her fears into it. The last phrase of her comment about the capitalist’s “role or quality,” is key to her emotional roots and deep need for a hero/protector.
[1] (Encyclopaedia Britannica, Inc. 1964)
[2] (Rand, Capitalism: The Unknown Ideal 1966) p. 4
[3] (Rand, The Virtue Of Selfishness 1961) p. 3
[4] (Rand, Capitalism: The Unknown Ideal 1966) pp. 2-3, loc. 198-199
[5] (Rand, [Review of Shirley Scheibla’s Poverty Is Where the Money Is 1969)
[6] (Rand, Capitalism: The Unknown Ideal 1966) p.2, loc. 136