Defending Capitalism: Ayn Rand vs. Hayek

by | May 14, 2019 | Economics

Ayn Rand publicly recommended the works of Mises but not of Hayek. Today, when Hayek is much better known than Mises, it’s worth seeing why. I came to the full realization of what’s wrong with Hayek’s approach while re-reading Atlas Shrugged. No, not in Galt’s speech, but surprisingly in the section describing the Minnesota harvest […]

Ayn Rand publicly recommended the works of Mises but not of Hayek. Today, when Hayek is much better known than Mises, it’s worth seeing why.

I came to the full realization of what’s wrong with Hayek’s approach while re-reading Atlas Shrugged. No, not in Galt’s speech, but surprisingly in the section describing the Minnesota harvest disaster, when trains were diverted to harvest the (spoiled) soybean crop of Kip’s Ma.

There was not much that remained in her mind of the last twenty hours, only disconnected bits, held together by the single constant that had made them possible—by the soft, loose faces of men who fought to hide from themselves that they knew the answers to the questions she asked.

. . . Then came the faces of the assistants in the Car Service Department, who would neither confirm the report nor deny it, but kept showing her papers, orders, forms, file cards that bore words in the English language, but no connection to intelligible facts. Were the freight cars sent to Minnesota? Form 357W is filled out in every particular, as required by the office of the Co-ordinator in conformance with the instructions of the comptroller and by Directive 11-493. Were the freight cars sent to Minnesota? The entries for the months of August and September have been processed by— Were the freight cars sent to Minnesota? My files indicate the locations of freight cars by state, date, classification and— Do you know whether the cars were sent to Minnesota? As to the interstate motion of freight cars I would have to refer you to the files of Mr. Benson and of—

This is the answer to Hayek’s basic argument in defense of capitalism. (I should say that I know of Hayek’s arguments only from the comments of writers who agree with him, but I’m pretty sure I’ve got it right; if not, I hope someone will correct me.)

Hayek’s argument, as I understand it, is that no government planners can substitute for the knowledge embodied in market prices. The price-system, he correctly observes, sums up the evaluative judgments of all the millions of people buying, selling, and refraining from doing so, on the market. Freely arrived at prices contain information; the planners’s knowledge cannot remotely equal that.

In a way, this is an argument from ignorance: the planners can’t know enough to issue the right decrees. In its simpler form, it’s the argument that you can’t force a person to do what’s best for him because only he can know what’s best for him, which is an argument one often hears from conservatives.

The Objectivist argument is quite different: you can’t achieve anyone’s good by force, because values are objective—which means they exist as values only if they are rationally judged by the acting party to be beneficial to him. And no one can be forced to make a rational judgment. The only effect of the force is the destruction of the alleged beneficiary (and everyone else).

A value which one is forced to accept at the price of surrendering one’s mind, is not a value to anyone; the forcibly mindless can neither judge nor choose nor value. An attempt to achieve the good by force is like an attempt to provide a man with a picture gallery at the price of cutting out his eyes. Values cannot exist (cannot be valued) outside the full context of a man’s life, needs, goals, and knowledge. (What Is Capitalism? in Capitalism: The Unknown Ideal)

The Objectivist politics rests on Ayn Rand’s identifications: 1. Man’s mind is his basic means of survival, and 2. Force is anti-mind. Conclusion: force is anti-life. (Individual rights are the principle that recognizes and implements this.)

This is light-years away from (and deeper than) Hayek’s argument from ignorance. He holds, in effect, that the few can’t know as much as the many. But, in fact, they often do. The history of man is replete with examples of one man who was right against the mob. Just read the beginning of Roark’s speech. I realize that Hayek is speaking of economic knowledge, knowledge of how to coordinate production and exchange under a vast division of labor, which is indeed something no single mind or small set of minds can deal with. But his argument stems from a wider, skeptical outlook. And, at any rate, it is completely on the wrong track.

Back to Atlas Shrugged. The point is that the statist system, under Directive 10-289, produces men who fought to hide from themselves that they knew the answers. The substitution of force for market freedom produces not ignorance but evasion. The issue, then, doesn’t concern anyone’s quantity of knowledge but whether thinking, problem-solving, decisive action are rewarded or punished. It’s all about preserving the connection of the mind to life: a system either lets rationality reap its rewards or penalizes rationality.

I have written about the economic selection (like natural selection) that operates under capitalism: success creates the means of its own enlargement and failure is self-eliminating. That is what underlies the social objectivity, as Ayn Rand called it, of market phenomena. The reign of force sabotages this economic selection and turns it into its opposite, an unnatural selection in which success is punished and failure bailed-out.

Under capitalism, it pays men to think; under statism, it pays men to fight against knowledge and to concentrate on avoiding blame.

Interestingly, there is a lot of material in Part III of Atlas about the distinction between the metaphysically given and the man-made. Avoiding blame means trying to guess a potential blamer’s emotions not working to identify the facts of an independent reality. For instance, in the same sequence about Minnesota, there’s this:

The men in Washington were last to be reached by the panic. They watched, not the news from Minnesota, but the precarious balance of their friendships and commitments; they weighed, not the fate of the harvest, but the unknowable result of unpredictable emotions in unthinking men of unlimited power.

And, a little earlier:

You could save us now, you could find a way to make things work—if you wanted to!

She burst out laughing.

There, she thought, was the ultimate goal of all that loose academic prattle which businessmen had ignored for years, the goal of all the slipshod definitions, the sloppy generalities, the soupy abstractions, all claiming that obedience to objective reality is the same as obedience to the State, that there is no difference between a law of nature and a bureaucrat’s directive, that a hungry man is not free, that man must be released from the tyranny of food, shelter and clothing—all of it, for years, that the day might come when Nat Taggart, the realist, would be asked to consider the will of Cuffy Meigs as a fact of nature, irrevocable and absolute like steel, rails and gravitation, to accept the Meigs-made world as an objective, unchangeable reality—then to continue producing abundance in that world.

Ayn Rand’s thought moves on a plane never even glimpsed by most of those who consider themselves intellectuals—including, unfortunately, some who are taken to be the strongest advocates of capitalism.

Dr. Binswanger, a longtime associate of Ayn Rand, is an professor of philosophy at the Objectivist Academic Center of the Ayn Rand Institute. He is the author of How We Know: Epistemology on an Objectivist Foundation and is the creator of The Ayn Rand Lexicon: Objectivism from A to Z. Dr. Binswanger blogs at (HBL)--an email list for Objectivists for discussing philosophic and cultural issues. A free trial is available at:

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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