On Ayn Rand, capitalism, and altruism

Professor Amartya Sen says that it is good to have debates and discussions and it is good to argue with others on topics of importance. I didn’t have exactly this in mind when I forwarded an article, “Why Ayn Rand Is Still Relevant”, to one of my Singaporean colleagues (I have given his name here as K). He has been recently reading books by Ayn Rand and I thought he might be interested in it. I had read one or two books by her when I was in college and by now I did not exactly remember what she preached in those books which were very popular among the English-speaking students (what I remembered was that she preached capitalism even though it meant the rule of the robber barons). K got back with some feedback on that article and I reverted with my own comments and this way we had a good exchange. Here is the transcript of that exchange.

After this exchange, which ended in an honorable disagreement, I watched some interviews of Ayn Rand and got to know her philosophy better. You can find many videos on her on YouTube. I don’t think major economists or philosophers have taken her philosophy that seriously. And I am sure there are many, like this scholar, who have challenged her views. I have my own philosophy which, in Rand’s epistemology, can be called rational-mythological. Share with us what you think of Ayn Rand and how is her philosophy relevant today?

Her theory or philosophy, to me, comes across as anti-egalitarianism and anti-welfarism (the greater common good is not important for her) and she says many things that Milton Friedman also has said later on.

Me: "From the time we’re young we are taught that the essence of morality is to sacrifice one’s own interests for the sake of others, and that to focus on one’s own interests is immoral and destructive...."

http://www.cnbc.com/id/32285949

I ask, if this is the essence of capitalism (according to Ayn Rand's philosophy of objectivism), how can it be reconciled with Biblical teachings? I think both extremes (extreme capitalism on one hand, extreme socialism or collectivism on the other hand) are bad. There has to be a balance. Middle path, preached by prophets like Buddha and Mohammad, are more reasonable. Enterprise with humanity is more reasonable than enterprise supported by rapacious laws (think of debt prisons or seizure of properties).

From K:

The intriguing perspective I feel I'm taking in regards to Ayn Rand's views and how it would connect to the Biblical perspective is that at the end of the day, sacrifice is not the best ends to make things work out in our relationships to people and ourselves. Perhaps sacrifice is required in many scenarios, but just because 2 - 1 = 1 on the other side of the equation doesn't mean it's the best methodology to help others. Her view that in being 'selfish' to our own goals, we invariably create conditions that would help others as a by result. It's a pictorial of the golden goose - a goose lay eggs not because of sacrifice but self-interest and preservation, yet but lying the eggs, others benefit from her production and output. To sacrifice her for a meal would surely be beneficial for a moment to others, but the cost is great. I recall Jesus saying that when he was hindered by the religious community in healing a man on the Sabbath, he asked,'Is the Sabbath for man, or man for the Sabbath?' The crowd wanted to sacrifice the sick man's welfare in order to preserve their 'religious laws' but Jesus' response was that they got the idea all wrong.

I think beneath the common call for sacrifice, one might sometimes do better by taking a rational view of how other methods might be more effective and proper towards the end result. The Bible mentions that 'as a man thinks, so he is' - that isn't all that different from what Ayn Rand's John Galt is preaching. I think I'm attracted to her views because it's extreme... somehow, I think that might actually be a good medicine for society, which tends to self-destruct and most of the time while it's doing so, lukewarm theories hardly have a chance in altering their march to death.

Just my views though :)

Me: Interesting views and this is exactly how the world is working, and this is where we are headed. Capitalism marches on. But in my view, it is not an absolute view or solution.

Here is my understanding of things:

It is not just sacrifice or just profit. The two don't necessarily have to clash. That's my point. When Jesus says Sabbath for man or man for Sabbath, he is perhaps talking about making a choice. So you have to make a choice--a rational choice depending on the circumstances. But if it is just the profit motive, is infinite profit the good thing? That's my question.

If you are smart/powerful and you amass all the goodies and all your neighbours are hungry, what will you do? You will share your things with your hungry neighbours or you just won't do anything?

The capitalist will open a bank and the socialist will open a cooperative. But you need a government in both the cases to ensure that there is no injustice/rapaciousness in the system. How little or how big the govt will be, let the people decide. The extreme capitalist (free market advocate) will say--very little govt so that it can exploit everybody--make you work as a cheap worker, with minimal rights. It will break the families, make everyone a worker and create a consumerist society and culture (free to pursue what makes you happy). And when people begin to fail to pay the bank debts because they lose jobs (because of its in-built cyclical booms and downturns), they will be put in debt prisons. Then they will use the "little govt." to catch the small guy and put him in jail or seize his property.

I am not saying you sacrifice everything (You can have both--profit with underpinnings of morality). But you MUST have a check on the capitalist. Don't let the market run amok. That's my point. No matter what Ayn Rand and her acolytes say, that is what the current downturn has proved.

K: Indeed, there're multiple views to the idea. But I think it can be easy to dismiss Ayn Rand's views simply due to the unfavourable 'words' she has used to establish and evangelise her cause. Her view of capitalism is not about just inifinite profit, but 'earned' profits - money that one exchanges on a fair weighting based on the simple laws of economics - supply/demand/scarcity/abundance. If a capitalist would exploit people, then it's simply a 'looter' in her terms - the exchange is not fair, but forced. Look to the man of Hank Rearden in Atlas Shrugged - he is a capitalist in every sense, yet nowhere do we see exploitation. It's easy to be biased and think that when one man is made rich, the rest will surely suffer. That is what perhaps she is trying to fight - that the idea of true capitalism is not a dirty word, and any other variant (corrupted) of capitalism that does not base its exchange fairly is not true capitalism at all.

Should the people decide? I've heard from my parents each time the election is near to cast the vote for the opposition, from countless taxi drivers that we should have more say. Ayn Rand's argument is that the voice of the crowds doesn't necessarily count as just, and I agree with it. If Lee Kuan Yew gave in to every whim of the people, where would we be? Can democracy really be the answer? I remember reading somewhere in a crowd psychology book that says the level of the crowd is as high as its weakest link. I read about the witch hunting that led to the massacre of innocent people. I read about how women are abused and oppressed in Tehran for ages because of such a voice.

Are what we view easily as 'oppression' today really that? When a man fails and gets into debts, what proportion of that disaster is his responsibility? None? No, if he is true he understands the risks of his undertakings, both good and bad. So many have preached that the world is to be a fair place, but is it? How do we view justice? Ideal or practical reality? The fact that in Atlas Shrugged all the true capitalists pulled out and went into hiding was because of the misguided voice of the crowd. Is the market amok today because of 'capitalism', or is it really just an easy scapegoat so the masses can point a finger at when things go wrong? Did the average retailer make accusations when times were good? Did the average person refrain from excess when he had bonuses and payouts? The masses' failure to embark on Joseph's lesson from the Bible of using the '7 years of good to prepare for the 7 years of lack' is what caused them their misery today, not capitalism.

If capitalism is truly evil, then the children of Africa should have been spared. The children of China should not be progressing onwards to this evil since Mao. They should be blessed in their previous run, why rush towards capitalism like lemmings to their fall? The current downturn is not to me a byproduct of capitalism, but of foolish indulgence. It's like the kid who screwed his life up with drugs and stuff and points at his own family and calls them dysfunctional and responsible for his downfall. It's the evading of responsibility that has cost us, not the desire for self-interest. If a country suffers, the people cannot evade responsibility. Whether they are ruled by a dictator or not, the truth remains - Hitler is an easy scapegoat, the true culprits are the masses who appointed him their puppet for the promise of a chicken in their pot.

To think otherwise, is to insult the martyrs and revoluntionaries who paid for the truth and their responsibility in blood.
P.S. Seriously though, by not allowing banks and crap companies to fall, isn't it beginning to look like Atlas Shrugged deja vu?

Me: Good debate.

I can see where you are coming from. But you are confusing a lot of issues--I can see that too. The systems (mark that word systems pls) in US, Singapore and Iran are very different. I will not go into details.

I don't know what exactly Ayn Rand preached (but can take her as a preacher of free markets), but perhaps I have some understanding of capitalism (and free markets). Capitalism is just not about money or banks--it is the whole ecosystem that you see in a society. The American kid that grew up there, learnt to have drugs and learnt to run his life on credit--did all that within that system. Who taught him that? Why did he behave in that way? Why did others in other countries not behave that way? Ask yourself that question.

So, you can see where I am coming from.

By blaming the masses for their choices (are there real choices? Even that is debatable) you are delinking democracy from capitalism. That is again a big subject. And let us not go into China or totalitarianism (Hitler, etc).

So, basically, answer these two questions:

1. You believe in capitalism without democracy? If there is no democracy, what will be the form of govt.?
2. If a poor guy, because of his stupidity or for some systemic reason (say downturns or layoffs), falls on bad times, will you let him suffer and die or will you extend a helping hand to him?

With answers to these two questions, we can conclude this discussion.

K: Ok,

1. I believe in capitalism, and the freedom to every man for himself. Let each man govern and be fully responsible for their own actions. Perhaps that may lead us down the trail towards the survival of the fittest, but nature hasn't complain for a while, maybe it's not too bad.

2. I refer to the proverb - 'Give a man a fish, you feed him a day. Give the man a rod, you feed him for life.' I believe in extending a helping hand if he can embrace change and help himself, or else better die a victim, then live a persistent fool.

When ‘growth’ is not good

For a narrative to work, it should have a dramatic resolution. If that is not possible, an emotional resolution is a must. I thought of this thumb rule of storytelling when I read the news today about Bernard L. Madoff’s admission in a US court that he had run a vast Ponzi scheme (US$65 billion)—a representative story of Wall Street’s ‘breathless search for profits’. His ordering to jail may provide emotional resolution to the thousands who lost their money in the Wall Street meltdown but this is definitely not a satisfying denouement.

And I’m not alone in holding this view. “…There can be no restoration of confidence in the banking system—and therefore no hope for an economic recovery—until Wall Street comes clean,” says William D. Cohan, the author of “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street” in his 11 March op-ed piece “A Tsunami of Excuses” in the New York Times. “If the executives responsible for what happened won’t step forward on their own, perhaps a subpoena-wielding panel along the lines of the 9/11 commission can be created to administer a little truth serum.”

I doubt if that’ll ever happen but the seriousness and the sincerity of Cohan’s demand cannot be questioned. The current global financial crisis, issuing from the greed of the ‘prodigals and projectors’ of the Wall Street, has attacked and weakened the very foundations of the capitalistic system—the system that underpins the globalised nature of trade and life in the world today. While for dramatic reasons the spotlight might remain on the Madoff saga for a while, the actual debate has moved on, to focus on the nature and future of capitalism itself.

The future of capitalism

“Capitalism—our ability to buy and sell, move money around as we wish, and to turn a profit by doing so—is in deep trouble,” says Professor Paul Kennedy in an article in the Financial Times.

Nobel Laureate Amartya Sen even argues for making changes in the capitalistic system. “The question that arises most forcefully now is not so much about the end of capitalism as about the nature of capitalism and the need for change....the crisis, no matter how unbeatable it looks today, will eventually pass, but questions about future economic systems will remain,” argues Sen in his piece in the Financial Times.

Surely, this is not the end of capitalism but the questions about the economic system are aplenty.

Peak Credit?

One of the most important questions is about credit and its scant availability (in the current scenario of credit crunch) for companies.

“Credit is the oil of the economic engine, and credit ultimately is a creation of confidence” writes management guru Ram Charan in his recent book, Leadership in the Era of Economic Uncertainty (MacGraw Hill, 2009). “Until all players are confident about the intentions and strengths of the others, there can only be stagnation.”

Charan’s advice to CEOs and business leaders, in this environment, is to conserve cash. “Your focus must shift from the income statement to the balance sheet,” he says. Protecting cash flow is the most important challenge almost all companies face today whether they realise it or not.”

Clearly, the importance of cash flow and credit availability cannot be overemphasised. In the unending cycle of inputs and outputs, driven by profit motive, credit plays the god—both for the producer and the consumer. But peer inside this god and you will say, well, the devil is in the detail. Here are some figures to help you gauge the monstrosity of the credit problem.

For some years, credit growth has been surpassing the growth of economic activity. In 1980, for example, debt levels for US banks were running at 21 per cent of gross domestic product (GDP). By 2007, the figure had grown to 116 per cent of GDP.

Isn’t this jump monstrous? If you thought so, what would you call this one? For the US to create its first trillion dollars took its entire history of two hundred years. To create the next trillion took the last 6 months. We are creating a trillion dollars every 6 minutes!

What kind of growth is this? Does it have any relation to the reality on earth? No wonder then that now even ordinary readers are ranting against the global monetary system. “Banks and Central Banks create money out of thin air,” complaints a reader in a blog. “When you get a loan they give you money by a tract of a pen, just like printing new notes. This is just ‘not fair’ even if the government makes it legal. Moreover, it creates profound imbalances into (sic!) the economy, by permitting people that did not produce anything before to buy goods and service. Invest without produce and save. Investments without real savings… The very basic economic law is that you produce then you save and then you consume. The way around is physically impossible. You cannot consume what you have not produced.”

Repeat of past mistakes

And what’s been the government response to the credit crisis the world over? Cut interest rates, print money, slash taxes, get credit flowing. This might work in the short term but this is not a long term response: a recipe for a W-shaped cycle of bust and boom.

“Expansionary monetary policies are the wrong medicine to solve current problems,” said Dr Doom, Dr Marc Faber, at a dialogue in Singapore in February. “They can address the symptoms of excessive credit growth, but not the cause.”

Moreover, as the US government is pumping trillions of dollars in the rescuing the banks, does anyone know who will purchase the $1,750 billion of US Treasuries to be offered to the market this year? And in 2010, then 2011? China is already saying that it is ‘worried’ about the safety of U.S. Treasuries.

During the crisis, governments have to choose between a rock and a hard place, said Nobel Laureate Joseph Stiglitz, in an interview in the Financial Times. But a long term solution has to be found, he emphasised.

Is there a long-term solution then? Yes, there is.

Go for smart growth

“For the first time since World War II, global growth is forecast to turn negative—and that's an optimistic forecast, relative to the possibility of a global lost decade,” says Umair Haque, director of Havas Media Lab, an innovation advisory company. “Today's leaders are plugging dikes, bailing out industries and banks as they fail. Yet, what negative global growth suggests is that the problem is of a different order: that we have reached the boundaries of a kind of growth.” Umair’s manifesto for smart growth is worth reading.

Obviously, with the changing circumstances, and in the face of the gawking absurdities of our growth model, we ought to respond to the crisis with a paradigmatic shift. Call it smart growth (Haque) or humane capitalism (Sen) or less selfish capitalism (Richard Layard), its time has come. The sooner we set about figuring it out and implementing it the better, for we are running against time.

(First published in MIA Asia blog)