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In every life, a little rain must fall. For economies and societies, times of plenty are followed by times of scarcity and deprivation.

In times of plenty, one barely needs to have a government. People are generally busy, happy and well-fed. They don't tend to dwell on coveting their neighbors' property/wealth etc. However, in times of hardship and scarcity (such as those following an economic slump/bust) many are out of work and there can be widespread misery. At these times, you often see demagogues arising who "bleed" for the "people" and use popular anxiety to gain power. They then can use this power to redistribute wealth and largesse all in the name of the "people". This can lead to dictatorships (e.g. Soviet Russia) or can lead to mixed socialist societies (e.g. New Deal America) but they almost always lead away from a society that Objectivists would see as ideal.

Here is my question: in an Objectivist society what prevents the first hard economic bust from leading to socialism-by-popular-demand ? Do Objecivitists feel that economic busts would simply never happen in their ideal society or that people would change and not demand that someone take care of them in a time of great economic hardship? What would prevent the usual human envy that economically challenged times bring out from building socialistic/collectvist programs to "help those in need" ? There will always be fewer wealthy people than poorer ones. What is to prevent mob action in times of stress?

asked Jun 14 '13 at 16:13

Danneskjold_repo's gravatar image


edited Jun 14 '13 at 16:14


People's actions are dictated by their moral code, not by the level of their wealth. A poor person with the right moral code will not create or participate in the mob actions that you're referring to.

(Jun 14 '13 at 17:12) Humbug Humbug's gravatar image

The only reason why the economy goes down is due to government regulation and taxation. The physical use of force slows down progress in an economy. Yes, it is hypothetically possible to be irresponsible and lose either your own wealth or the wealth of other people, but like what Humbug said, a morally consistent person would know better.

(Jun 14 '13 at 17:30) Collin1 Collin1's gravatar image

@Collin1 It is quite possible to be very responsible, honest and hardworking and still lose one's job/money etc. You could, for example, work for someone who acts immorally or illegally and end up on the street. In that case all the "moral consistency" you have doesn't matter. You worked hard. You were honest and you lost your job. The observation I have, given history and what I have seen of human nature, people don't generally shrug off economic setbacks. They want a focus of blame and sometimes demand that someone pay for their misfortunes. In plural, this can make up a mob.

(Jun 14 '13 at 18:41) Danneskjold_repo Danneskjold_repo's gravatar image

@Humbug: sure you can be poor and proud or poor and accepting of your luck. The issue I am talking to is when people who previously may have been doing OK financially are bankrupted or otherwise rendered poor/poorer. It is these people who tend to seek some sort of focus of why things happened to them and when there are enough of them, they vote.

(Jun 14 '13 at 18:43) Danneskjold_repo Danneskjold_repo's gravatar image

Are you saying that it's responsible and honest to work for someone who acts immorally? Or is the claim that this business was based on immoral practices and yet you had no idea?

Why didn't the person have any savings or insurance to handle the possibility that they might undergo a period of unemployment? Was it responsible to have done so?

Most of all, what is the proper action for someone to take when this happens? Start looking for a new job, or start trying to implement socialism?

(Jun 15 '13 at 08:57) anthony anthony's gravatar image

Anyway, a prerequisite to an Objectivist political system is a society that understands and agrees with at least the basic moral principles of Objectivism. Such people generally don't blame their problems on a lack of socialism. I quite strongly disagree with Collin that government regulation and taxation is the only possible cause of an economic bust. It is perfectly possible for people to act irrationally all on their own, without the help of government. But for the most part it is government regulation and taxation which spreads the pain to people who weren't to blame.

(Jun 15 '13 at 09:01) anthony anthony's gravatar image

@anthony I am speaking of a more generalized "slump". This is the kind of event where "looking for a job" starts seeming impossible. Thus (I think) the appeal of socialism. I agree with you that government regulations spreads pain while it spreads wealth. The question is: how would an Objectivist society solve all this and why wouldn't it just collapse at the 1st shock ? Your view that it would be composed of rational people who understand the basic morality makes me question its practicality. How do you get from 9 B people who don't believe this way to there?

(Jun 15 '13 at 09:21) Danneskjold_repo Danneskjold_repo's gravatar image

Well, I know I said I strongly disagree with Collin, but I do think that government programs,such as taxation and unemployment insurance and minimum wage laws and other labor laws, cause the vast majority of unemployment. If someone's willing to work for room and board, because they realize they'd die otherwise, the only thing stopping them from finding such a job are laws making it illegal.

You ask how would an Objectivist society solve all this. I'm not sure what it is you want them to solve. Unlike Collin, I don't think you'd necessarily eliminate slumps. But I do think you'd lessen them.

(Jun 15 '13 at 09:57) anthony anthony's gravatar image

The question was: why wouldn't the first widespread slump do what it always does: make a large mass (possibly the majority) of people agitate for social programs? How would an Objectivist society have a hope of surviving a major economic slump?

(Jun 15 '13 at 10:01) Danneskjold_repo Danneskjold_repo's gravatar image

"How do you get from 9 B people who don't believe this way to there?"

I'm not sure what that means (maybe a typo, but I can't figure it out), but I'm going to assume you're asking the million dollar question of how do we get to an Objectivist society from our current society.

(Jun 15 '13 at 10:18) anthony anthony's gravatar image

The short answer is if I knew then I'd do it. There are a lot of pieces to it which I think can be identified, though. Educating people on proper morality is an important piece. Concentrating like-minded individuals in a single geographic location will probably be key. Eliminating or greatly reducing the burdens of federal income taxes would be tremendously helpful.

One interesting question which just came to my mind about the so-called "FairTax" proposal is whether or not it'd apply to sales which take place outside the US. If not then Objectivists could move to the Cayman Islands and shrug.

(Jun 15 '13 at 10:18) anthony anthony's gravatar image

The simplest answer is that a widespread slump wouldn't make a large mass of people agitate for "social programs" because most people would realize that "social programs" just make things worse.

If most people in the society didn't realize that, then you wouldn't have an Objectivist society in the first place.

Note, of course, that "society" is probably limited to a particular geographic location, be it a small valley in Colorado, or the state of New Hampshire, or the United States, or a village in the Cayman Islands, or an artificial island in the middle of the ocean, etc.

(Jun 15 '13 at 10:38) anthony anthony's gravatar image

By the way, I looked up the (so-called) FairTax. Money spent outside the US isn't subject to it. Unfortunately, that likely means it will never pass in its present form.

Right now, if a US Citizen wants to escape US taxes on worldwide income, they have to irrevocably forego their US Citizenship/passport.

Under the (so-called) FairTax, it'd be legal to form a Galt's Gulch outside the US, and US Citizens could visit and participate without giving up US Citizenship. If no suitable tax haven could be found you could even build one on a cruise ship in international waters.

(Jun 15 '13 at 11:00) anthony anthony's gravatar image

@Danneskjold- If a business owner is irresponsible/immoral, and his actions result in the loss of a person's job, it should be noted that the job never belonged to the employee--it belonged to the employer, who went out of business for whatever reason. He has no moral obligation to "take care" of his employees. The jobs I offer my employees belong to me, and I can take them right back for whatever reason I want. Jobs don't belong to employees.

(Jun 15 '13 at 21:18) Collin1 Collin1's gravatar image

Not all employers are like you, Collin.

(Jun 16 '13 at 07:54) anthony anthony's gravatar image
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The basic premise of this question is well stated in the opening sentences:

In every life, a little rain must fall. For economies and societies, times of plenty are followed by times of scarcity and deprivation.

This may be a very widely held view, but it is not an accurate description of fully free markets (laissez-faire capitalism). This is the "boom-and-bust" view of economics, which doesn't apply to free markets. Whenever one particular free market suffers a downturn, it is either an opportunity for others to profit from lower prices, or a signal that it's time for those who formerly participated in that market to seek other, more economically viable sources, customers and/or methods. A downturn in particular markets need not spread to the whole economy. It is only government interference with the mechanism of a free market that prevents important economic adjustments from occurring naturally, or fosters non-viable economic signals through restrictions on free trade and free pricing, or through government subsidies and special favors that are not representative of the true condition of the economy and thus give misleading economic signals that do spread ever farther throughout the economy.

For more information about various economic fallacies caused and even necessitated by government interference with free markets, refer to Chapter 5 in CUI, "Common Fallacies about Capitalism." That chapter discusses:

  • Monopolies -- In a society of laissez-faire capitalism, what would prevent the formation of powerful monopolies able to gain control over the entire economy?

  • Depressions -- Are periodic despressions inevitable in a system of laissez-faire capitalism?

  • The Role of Labor Unions -- Do labor unions raise the general standard of living?

  • Public Education -- Should education be compulsory and tax-supported, as it is today?

  • Inherited Wealth -- Does inherited wealth give some individuals an unfair advantage in a competitive economy?

  • Capitalism's Practicality -- Is there any validity to the claim that laissez-faire capitalism becomes less practicable as society becomes more comples?
  • The discussion of depressions covers essentially the same issue being raised in this question. Here are a few excerpts from pp. 77-79 in the Signet paperback edition of CUI:

    The most notorious instance of this policy [blaming capitalism for evils caused by government intervention] is the claim that capitalism, by its nature, inevitably leads to periodic depressions.

    Statists repeatedly assert that despressions (the phenomenon of the so-called business cycle, of "boom and bust") are inherent in laissez-faire, and that the great crash of 1929 was the final proof of the failure of an unregulated free-market economy....

    All government intervention in the economy is based on the belief that economic laws need not operate, that principles of cause and effect can be suspended, that everything in existence is "flexible" and "malleable," except a bureaucrat's whim, which is omnipotent; reality, logic, and economics must not be allowed to get in the way.

    This discussion traces how this process operated in establishing the Federal Reserve System in 1913, adopting a "cheap money" policy, the resulting boom and wild speculation, and finally the crash of 1929. Page 83 points out:

    The depression precipitated by the stock market crash of 1929 was not the first in American history -- though it was incomparably more severe than any that had preceded it. If one studies the earlier depressions, the same basic cause and common denominator will be found: in one form or another, by one means or another, government manipulation of the money supply.

    Refer to the CUI discussion for a more complete overview. CUI also discusses many other economic and historical issues concerning capitalism, including "Antitrust" (Chap. 4), "Gold and Economic Freedom" (Chap. 6), "Notes on the History of American Free Enterprise" (Chap. 7), "The Effects of the Industrial Revolution on Women and Children" (Chap. 8), "The Assault on Integrity" (i.e., "consumer protection" laws, Chap. 9), "The Property Status of Airwaves" (Chap. 10), and "Patents and Copyrights" (Chap. 11).

    This question and the follow-up comments also tend to treat "capitalism" as a floating abstraction -- some kind of vague "system in the air" that is imposed on a society by government mandate, like socialism. CUI Chapter 1 explains exactly what "capitalism" is and is not. A key italicized passage states (p. 19):

    Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.

    To favor socialism over capitalism is to favor abridging individual rights. A society that has grown accustomed to individual rights would be more likely to respond to any market downturns by each individual making his own economic adjustments, acting on his own and/or voluntarily in concert with others. Such a society would also be likely to curtail any government infringements of individual rights that may have caused the downturns, rather than seek to adopt new restrictions on individual rights. Any demagogues who might try to exhort the public to infringe individual rights would be likely to be resoundingly opposed from multiple directions, as those who understand individual rights strive to uphold them and explain them to the public. Demagogues would be unlikely to get very far in such a social context. On the other hand, if knowledgeable, committed intellectual defenders of individual rights are absent from the cultural scene for any reason, then of course demagogues can gradually gain influence by default.

    Additional insights on capitalism can be found in The Ayn Rand Lexicon under the topics of "Free Market," "Capitalism," "Mixed Economy," "Welfare State," and numerous other related topics.

    Update: Impossible?

    Are economy-wide depressions impossible in a free-market economic system?

    That point is made quite explicitly (in the affirmative) in the full CUI discussion that I cited (Chap. 5). It is often difficult for me to anticipate in advance exactly which points in a broad discussion are most likely to be raised by others. But yes, that discussion and various other discussions have frequently reiterated that point. For example (from FNI, p. 53 in the Signet paperback edition):

    Let them both [businessmen and intellectuals] discover the nature, the theory and the actual history of capitalism; both groups are equally ignorant of it. No other subject is hidden by so many distortions, misconceptions, misrepresentations and falsifications. Let them study the historical facts and discover that all the evils popularly ascribed to capitalism were caused, necessitated and made possible only by government controls imposed on the economy. Whenever they hear capitalism being denounced, let them check the facts and discover which of the two opposite political principles—free trade or government controls—was responsible for the alleged iniquities. When they hear it said that capitalism has had its chance and has failed, let them remember that what ultimately failed was a "mixed" economy...

    answered Jun 17 '13 at 01:13

    Ideas%20for%20Life's gravatar image

    Ideas for Life ♦

    edited Jun 19 '13 at 01:34

    It it your contention that depressions are impossible in a free market, or merely that they are not inevitable?

    (Jun 17 '13 at 22:29) anthony anthony's gravatar image

    As a further comment to your answer: The crash of '29 was caused in major part by the failure of the banking business model now known as fractional reserve banking. The Great Depression that followed was caused in part by President Hoover's misguided regulations (such as raising tariffs at a time when foreign trade was desperately needed). If the economy would have been allowed recover on its own, people would have been skeptical of the failed banking model and new ones would have appeared on the market. Instead, the government enacted regulations encouraging the bad business model.

    (Jun 20 '13 at 10:41) empiric ♦ empiric's gravatar image

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    Asked: Jun 14 '13 at 16:13

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    Last updated: Jun 20 '13 at 10:41