Adam Smith, Ayn Rand, and the Power of Stories

By Caroline Breashears. She is a Professor of English at St. Lawrence University. She gives some great examples of how storytelling illustrates economic ideas. It is fairly long but worth reading. Excerpt:

"From Adam Smith to Ayn Rand, advocates of liberty have used stories to convey their theories of economics and morality. In the eighteenth century, Smith made his ideas lucid to contemporaries—starting with the university students he was teaching—by interspersing his writings with literary examples and brief narratives. The tale of the poor man’s son visited by ambition is well-known to readers of The Theory of Moral Sentiments. In the twentieth century, Rand’s novelistic form made economic theory accessible to general readers, who saw in Atlas Shrugged the corruption and inefficiency of government directives such as Rand’s fictitious Directive No. 10-289.1
 
The power of their stories as well as their theories has inspired criticism. Advocates of equality write counter-narratives associating proponents of free markets with villains from popular culture (such as Gordon Gekko) who function as metonyms for corruption. A recent example is Lisa Duggan’s Mean Girl: Ayn Rand and the Culture of Greed (2019).2 Duggan compares Rand to the “Plastics” in the cult film Mean Girls (2004), where a clique of young women maintain their popularity in high school through both fashion and cruelty. She details how Rand, “the original mean girl,” supported “corrosive capitalism” by making “acquisitive capitalists sexy.” Rand’s novels, the key to her influence, “provide a structure of feeling—optimistic cruelty—that morphs throughout the twentieth century and underwrites the form of capitalism on steroids that dominates the present.” The results are “economic exploitation and political domination.” (Duggan xi, xv, 5, 83)

See the EconTalk podcast episode Jennifer Burns on Ayn Rand and the Goddess of the Market. 

Such narratives lack originality as well as accuracy, but those are not their objectives. Duggan acknowledges that she is not writing literary criticism or biography or social history (as we see in Jennifer Burns’s Goddess of the Market: Ayn Rand the American Right). Instead, Duggan is producing something that “belongs to American cultural studies, grasped through a global frame” and created “via analysis and speculation” (Duggan xvii).

Using these strategies, Duggan shapes a familiar story that affirms the cruelty of capitalism and promotes systems designed to create equality. One reviewer notes that Duggan’s book is “an exercise in emotional upheaval. One minute I was laughing out loud, the next crying into my tea.” He adds, “It is a terrific book only partly about Rand, because it is really an intellectual history of neoliberalism—and its toxic outcomes.” Another writes with obvious relief, “Lisa Duggan does a deep dive into Ayn Rand so that we don’t have to.”3 Such readers ironically replicate the snobbery of the Plastics, accepting Duggan’s disdain for Rand’s “middle-to-low brow aesthetic preferences,” as if only those with bad taste could like Rachmaninoff and free markets (Duggan 4).

How does one respond to such counter-stories? How does one make the case for the free society when that ideal has been distorted, its proponents reduced to high-school divas whose brutality is simultaneously mocked and imitated?

Economics and Story-Telling

Here I offer one answer: a short narrative about what key advocates of liberty really say, how their theories evolve, and why their stories illustrating those theories resonate. I focus on Adam Smith and Ayn Rand, two figures critical to what Nicholas Capaldi and Gordon Lloyd call the “liberty narrative,” which runs parallel to and in conversation with the “equality narrative” promoted by philosophers such as Jean-Jacques Rousseau and Karl Marx.4 Rand’s and Smith’s interests in economics, morality, and aesthetics render them a natural pairing. By examining how Smith and Rand contribute to the debate over liberty vs. equality, we can see how Duggan attempts to shut down conversation through smears rather than facts.

These writers depicted the free society from the start of a period of unprecedented prosperity in the late eighteenth century to a point when liberty seemed under attack in the mid-twentieth century. Adam Smith, often called the founding father of modern economics, wrote in the latter half of the eighteenth century, at the start of the Industrial Revolution. In his treatise An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Smith examines how and why nations gain wealth, and the role of government and businessmen in furthering or hindering that growth. There and in The Theory of Moral Sentiments (1790), he often includes brief narratives illustrating his ideas."

Which companies are "Janus-faced entities?"

See When Companies Wielded the Power of States by Andrew Phillips and J.C. Sharman. Mr. Phillips is an associate professor of international relations at the University of Queensland and Mr. Sharman is a professor of international relations at the University of Cambridge.

They refer to these companies as "Janus-faced entities." Janus was the two-faced Roman god, among other things, of duality.

Excerpts:

"After the European voyages of discovery in the 15th and 16th centuries, the most important trading networks between West and East weren’t built by kings or private merchants but by “company-states” like Britain’s East India Company, which combined the profit motive of corporations with the governmental powers of sovereign states."

"The original company-states . . . were founded under royal or parliamentary charters to undertake the long-distance trade and colonization that rulers were too poor to finance themselves but too ambitious to forgo. These companies disposed of wealth and firepower that rivaled and sometimes even eclipsed that of their state patrons. At the peak of its power in the early 19th century, the East India Company maintained an army of over 250,000 troops and ruled one-fifth of humanity. The Hudson’s Bay Company controlled approximately one-tenth of the world’s terrestrial surface, in what is now Canada, while the Royal African Company was pivotal in funding and coordinating the trans-Atlantic slave trade."

"Edmund Burke denounced the East India Company as “a state in disguise of a merchant, a great public office in disguise of a counting house.”"

"this ambiguity wasn’t a bug but a deliberate and highly profitable feature, allowing them to play up whichever aspect of their dual identity served their interests best."

"Who did these interlopers represent, monarchs or merchants? Company-states deftly manipulated local confusion over their identity to overcome resistance and extract the maximum commercial and diplomatic benefit. When necessary, company employees would humiliate themselves before the powerful, kowtowing to the Chinese emperor or trampling crucifixes for the amusement of the Japanese Shoguns. But in Africa and the Spice Islands, company-states didn’t hesitate to deploy soldiers to enslave and exterminate."

"They pioneered the limited liability corporation and the separation of ownership from management through a joint-stock structure, while managing employees and production networks across the globe."

"At their height in the 17th and 18th centuries, European company-states dwarfed today’s multinationals. In 1637, the Dutch East India Company was valued at the equivalent of $7.9 trillion today. But in the 19th century, changing ideas about the proper spheres of state and business fatally diminished their legitimacy; the East India Company was effectively nationalized in 1858."