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Thursday, March 29, 2012

Ayn Rand: Sovietologist

She got it right when others got it wrong.

Whatever one thinks of Ayn Rand as a novelist, it is fair to say that her books, especially Atlas Shrugged, contain a great deal of sophisticated political and economic thinking. Atlas Shrugged may well be the most economically literate novel ever written. Although Rand does not couch her points in the language of economic theory, there is much in Atlas Shrugged that is consistent with sound economics.  This should not be surprising given that her favorite economist was Ludwig von Mises. Moreover, her chapter “Aristocracy of Pull” is chock full of excellent political economy that fits well with Public Choice economics as well as the long history of classical liberalism dating back at least to Adam Smith. The famous “Love of Money” speech by Francisco D’Anconia contains many astute observations about the nature of money and its role in a market economy.

Less noted in this regard is Rand’s first novel, We the Living. This is a semiautobiographical story set in Russia just after the revolution of 1917. The particulars of the plot are not as interesting in this context as the level of detail Rand provides about life in the Soviet Union in the early years of communist rule. I recently reread it for the first time in 20 or 25 years and was struck by the sophistication of Rand’s analysis of the Soviet economy in practice. Unlike most contemporary western observers, she had first-hand knowledge of the terrible conditions and the reality of Soviet power.

Three Insights

Three insights in We the Living illustrate Rand’s superior understanding of Soviet socialism. First she recognized what has since been called “the myth of the plan.” If Mises, F. A. Hayek, and the other Austrians are right, it’s impossible to plan a complex economy, yet many referred to the Soviet Union as having a “planned economy” right up to its demise in 1991. A variety of plot details and sidelights in Rand’s novel illustrates that the economy was anything but planned, with the two most obvious being how Party insiders had differential access to goods and the thriving black market. Those “in charge” of the economy are accurately portrayed as clueless about how to get things done, while the black marketeers at least get goods moving. Although she never says so explicitly, it’s clear that the “planners” suffer from the exact knowledge problem the Austrians raised.

Second, the novel makes clear that in the absence of any rationality to the plan, those with the power to implement it will use that power to divert resources to themselves. More specifically, Rand understood how a system in which discretionary power is up for grabs will attract those with a comparative advantage in acquiring and using that power. Much of her portrayal of party members revolves around their competition with one another in climbing the ladder — no one hesitating to stab his comrades in the back. Those who are good at such maneuverings are able to gain power and control resources. In the end, much like in Animal Farm, things didn’t change that much: The revolution ended the exploitation of man by man and replaced it with . . . the exploitation of man by man.

Declining Living Standards

Finally, Rand vividly documents the decline in living standards for the average Russian. There are countless descriptions of the impoverishment of the citizenry, from their shrinking living space, to their dwindling food supplies, to their increasingly shabby clothing, to their growing inability to heat their homes. The party elite, of course, lives well, but the average person suffers. Rand’s depiction is important here because so many observers from the 1930s right up through the 1980s argued that the Soviet economy was an economic powerhouse that would overtake America’s. Paul Samuelson’s widely used introductory economics textbook for years had a graph showing just that. Pundits and experts both left and right believed the “official” Soviet statistics, with the left wanting to believe that socialism worked and the right wanting to justify larger military budgets. But just as in the United States during World War II, aggregates such as GDP, which in the Soviet case were not accurate anyway, mostly reflected “conspicuous production” that had little relationship to the well-being of the typical person.

We the Living makes this abundantly clear.

Rand’s novels may or may not be excellent literature, but they are excellent both at deploying good political economy and, in the case of We the Living, getting economic history right in a way most everyone else did not.

  • Steven Horwitz was the Distinguished Professor of Free Enterprise in the Department of Economics at Ball State University, where he was also Director of the Institute for the Study of Political Economy. He is the author of Austrian Economics: An Introduction.

  • Ayn Rand (1905–1982) was a Russian-American novelist, philosopher, playwright, and screenwriter. She is known for her two best-selling novels, The Fountainhead and Atlas Shrugged, and for developing a philosophical system she called Objectivism. She corresponded with FEE's founder Leonard Read and provided a meaningful intellectual influence over free-market thought in the second half of the twentieth century. Her influence continues to expand through her fiction and nonfiction works and the educational work being done on Objectivism.