Long before General Motors neared collapse, it was a proud and flourishing symbol of American manufacturing. In the 1950s, GM was the first company to ever make $1 billion in a single year, and it had 50% of the domestic automobile market. GM executives used to proudly quip, “we’re still losing 5 out of every 10 sales!” What happened to this great company?

Many factors are acknowledged as contributing to GM’s decline: it juggled too many brands, over-extended its dealer network, failed to respond rapidly to market cues, and struggled to work with its union, the United Auto Workers.

But the extent of its problems with the UAW is astonishing — and the problems themselves warrant explanation. Consider some of the onerous arrangements that GM’s management agreed to.

Labor costs for a typical UAW worker at a GM plant were by some estimates $73 per hour — compared to the $44 per hour for workers at non-unionized Toyota and Honda plants in the U.S.

Or take the infamous “jobs bank”: surplus workers, rather than getting laid off, would receive 95% of their full salaries plus benefits while the company waited to reassign them. But instead of being temporarily idle, thousands of “bankers” would be there for months, if not years, while they watched movies, solved crosswords, and just passed the time. Some senior employees would even pull strings to get “laid off” so they could finish their remaining few years “working” in the bank before retiring with full benefits.

There was also the so-called “thirty and out” rule allowing union workers to retire with full pensions and health care benefits after thirty years of work. A worker might be able to retire in his early 50s and collect an annual pension of $37,500, paid wholly by GM. By 2008 there were 4.6 retired GM employees for each active worker. Did anyone think this was sustainable?

Union work rules made it cumbersome to complete simple and vital tasks in a timely manner. For example, Rand Simberg — a former GM employee who is now at the Competitive Enterprise Institute — explained that, while overseeing the flow of components at a GM factory, he was not permitted to flip a circuit breaker if it tripped in one of the assembly robots. Instead, he had to wait for an authorized electrician to flip the switch. Of course, assembly lines could shut down while waiting for the electrician to arrive, costing the plant thousands of dollars per minute.

Why did GM bear these burdens? Some find it plausible to attribute such problems to inept management. After all, Steve Rattner — President Obama’s auto czar — did call GM’s management “stunningly poor.” But we cannot evaluate GM’s decisions without recognizing a wider context: the coercive nature of labor laws.

If labor relationships were completely voluntary, executives would be free to refuse any union demand that they considered unreasonable, and to even expunge persistently troublesome unions from their facilities. However, businessmen lack this freedom today. Labor laws such as the Wagner Act of 1935 prohibit businessmen from discouraging workers from unionizing, force them to recognize a union if it gets enough votes, and force the company to bargain with its union.

In practice, this pushes business and labor into a forced marriage of sorts. Unions like the UAW can get away with making demands that are hard to imagine employers entertaining, if they were free to say no without legal repercussions. Forced between a rock and a hard place, employers like GM must either cave in to some of the demands or risk facing costly and time-consuming litigation over whether they were negotiating “in good faith.”

Even former UAW president Leonard Woodcock confided to a friend: “Our members have the best contract that people with their skills and education could ever hope to get. But we have convinced them that with every new contract, they are entitled to more.” GM’s management and the UAW were locked into a legally mandated, coercive relationship. And the union knew it.

Whatever one concludes about GM’s history with the UAW, the company made many arrangements that a large employer would want to avoid — not have to keep for decades — if labor relations were fully voluntary.

About The Author

Doug Altner

Doug Altner was an analyst and instructor at the Ayn Rand Institute between 2011 and 2014.

Starting next year, the Affordable Care Act will limit how much health insurance premiums can vary based on age. Health insurers will be restricted to charging older people no more than three times higher premiums than they charge younger people. This is bad news for the young.

It’s a fact that, in general, the older you are, the higher your medical costs (six times higher when you compare 64-year-olds to 18-year-olds). If insurers can’t charge older people according to their risk, they have to make up those costs by charging higher premiums to those younger. According to the American Action Forum, once the new health law’s various rate restrictions and other provisions kick in, 27-year-old non-smoking males may see premiums rise, on average, by 189%, while 55-year-old women who smoke may see their premiums fall, on average, by 18%.

No one, presumably, would be comfortable with the idea of fleecing our children and grandchildren in order to lighten our bills. But supporters of the Affordable Care Act have taken to arguing that forcing young people to subsidize older people isn’t some new consequence of the health law — all insurance, they claim, requires some people to subsidize the expenses of others. Take fire insurance. Ten thousand people might sign up to insure their homes, but only a couple of those homes may end up burning down. The premiums paid by those whose homes did not burn down go toward rebuilding the homes of those whose did.

“That’s how insurance works,” insists health policy analyst Aaron Carroll, who concludes that the health law’s age-related rate restriction is “really not much different than how insurance is supposed to function, by transferring money from the more-healthy to the more-ill.”

But by equating traditional insurance with the health law’s age-related rate restriction, commentators like Carroll ignore a key component of insurance in a market absent government intrusion: the freedom to buy a policy that is priced according to your own risk — a policy that subsidizes no one.

Think about why you buy insurance in the first place — you don’t do it to subsidize the expenses of others. You do it because you think that a particular policy — with the benefits it provides, the premium it calls for and the co-pays and deductibles it charges — best meets your particular risk-management needs.

It’s true that the business model of insurance involves selling policies to people on the statistical premise that only a few will file claims, which will be paid for, in part, by the premiums collected from those who don’t. But what an insurer does with the premiums it collects is no more relevant to me, as a consumer, than what Apple does with the $499 it collects for each iPad it sells. The purpose of my buying the insurance policy and the iPad is the same: my judgment that they will both improve my life.

Insurers know we buy insurance for that reason, which is why, absent government meddling, they offer those with lower expected health costs, such as younger individuals, lower premiums. If an insurer instead charged these individuals higher premiums in order to subsidize those older, the company would risk losing ground to competitors willing to charge young people less. Without attracting lower-risk customers, the insurer’s business model would fall apart. This is why premiums on a free market tend to reflect the individual risk each policyholder adds to the risk pool.

An insurance policy that reflects your risk profile is not a subsidy; an insurance policy that has been engineered by bureaucrats to artificially lower the insurance costs for some people at the expense of others is. The age-related rate restriction is but one of the myriad redistribution schemes in the new health law, designed to milk younger people to lower the premiums of those older.

Underneath all its bureaucratic trimmings, what the ACA’s age-related rate restriction amounts to is the declaration that a 27-year-old who is starting out in life, who wants to save up for a down payment on a home, who has his eye on an engagement ring for his beloved, has no right to pursue his goals until he first pays for the health care bills of every generation that came before him. That’s hardly the way to treat those on the cusp of their lives.

About The Author

Rituparna Basu

Rituparna Basu was a researcher and analyst at the Ayn Rand Institute between 2011 and 2016.

Yielding to the European Union’s threat of massive fines, Google will reportedly change the way it displays search results and, in some cases, even include links to rival search engines.

Earlier this year, the Internet giant capitulated to the U.S. Federal Trade Commission after a 19-month investigation, promising to change its advertising practices.

How do the world’s most powerful governments get away with treating Google like a villain? After all, this is a company that has built a reputation for improving people’s lives in a thousand ways.

Just ask the millions of visitors who type keywords into Google’s legendary search engine, or who use the many other services — email, maps, videos, travel arrangements, comparison shopping, books, and the like — that Google offers for free. Yes, for free.

The answer lies buried in the unavoidable vagaries of antitrust law — an irrational regime that grants competitive grumblings the exalted status of legal injuries, then empowers government enforcers to override market outcomes.

In Google’s case, the grumblings are coming from rivals and advertisers — and when their complaints are boiled down to essentials, they’re angry that Google pursues its own profits without regard to the welfare or viability of competitors.

When rivals complain of “search bias,” for example, what they mean is that Google’s search results display the company’s own services — such as Google Maps, Google Travel, or Google Shopping — in prominent positions, to enhance traffic at those sites.

But why would Google do otherwise? Like any other business, it’s trying to make money for its shareholders. Since more than 95% of its revenues come from advertising, Google stands to gain by attracting more users.

Likewise, when advertisers complain about their contracts with Google, what they mean is that Google makes it difficult for them to transfer ad campaigns from Google over to rival platforms, or to compare the various platforms’ efficiency.

But why would Google act differently? Businesses don’t succeed by bending over backward to make it easier for rivals to take away their customers.

It hardly needs explaining why Google’s practices might generate frustration and resentment in certain quarters — that’s to be expected in the hurly burly of the marketplace.

But what’s not so obvious is how such resentments can be confused with genuine legal injuries that merit the attention of government prosecutors. The explanation is to be found in antitrust laws that actually make it illegal for a company like Google to maintain a laser focus on its own corporate self-interest.

If read literally, the Sherman Act of 1890 (and the European Union’s legal equivalents) prohibit virtually every action a profit-seeking business needs to survive.

For example, any price a company might set can be legally condemned — as “predatory” if it’s lower than the competition, “monopolistic” if higher, or “collusive” if the same.

The laws’ astonishing breadth allows prosecutors, regulators, and judges to pose as kindly protectors of business, reading the laws “reasonably” so as to blunt their draconian terms.

But exactly which practices will be permitted and which penalized? It’s usually impossible to know in advance.

The resulting omnipresent threat of antitrust prosecution forces companies like Google to do business with one eye on the bottom line and the other on their antitrust foes.

Companies must perpetually adjust to the latest threats, pronouncements, and decisions emanating from the worldwide antitrust establishment.

And to complicate matters, today’s victim may be tomorrow’s attacker, if a rival’s success makes it vulnerable to antitrust pressure.

According to the Center for Responsive Politics, Google spent more than $18 million on lobbying last year (about 23 times as much as it spent in 2006), making it the eighth-largest spender among companies in all industries (not counting the costs of dealing with foreign threats).

It now looks as if the EU’s threatened fines have been “traded” for concessions designed to help Google’s competitors.

But before the shakedown, uh, settlement is finalized, Google must demonstrate how its changes will work, in a phase known ludicrously as “market testing,” during which those same competitors can lodge still more objections.

Interesting, isn’t it, how these things work out? Antitrust authorities threaten to inflict massive damage on the world’s most successful companies. Then the targets of these investigations, rather than litigate and risk disaster, simply cave in, “voluntarily” agreeing to change their business practices.

In this way, regulators — who, let’s face it, are just politicians without the charisma — deliver outcomes that those companies’ resentful rivals and customers could never earn on a free market.

Farther down this road, we can foresee an antitrust-hobbled Google that behaves more like a regulated public utility than an innovative tech dynamo. Is that the future we want?

About The Author

Tom Bowden

Analyst and Outreach Liaison, Ayn Rand Institute

Long after he had established himself as one of America’s leading businessmen, as well as history’s greatest steelmaker, Andrew Carnegie reflected that “We all live in the richest and freest country in the world, where no man is limited except by his own mental attitude and his own desires.”

At the time — a decade or so before the First World War — Carnegie’s attitude was nearly universal. In America, anyone could carve out a better life for himself if he worked hard. Today, Carnegie’s attitude is considered almost quaint.

Opportunity? Why, opportunity is a rare thing, and those Americans not lucky enough to be born with it should be given it at other people’s expense. Whether it’s an education, a job, a house, or a grant, opportunity is seen as something that others have to provide you with. If you don’t succeed, it’s not because you failed to capitalize on plentiful opportunities. It’s because you just weren’t one of the fortunate few.

Carnegie would have bristled. “My men began in exactly the same station in life which I occupied a few years ago,” Carnegie once observed. “They have had the same privileges for personal advancement that I had.”

It’s hard to imagine anyone beginning in a lower station. Carnegie had arrived in America, a twelve-year-old Scottish immigrant. With barely a penny to his family’s name, and with only five years of formal education behind him (“Lack of schooling is no valid excuse for failure; neither is an exhaustive schooling a guarantee of success,” he would later say), young Andrew went to work at a textile mill, twelve hours a day, for $1.20 a week.

It wasn’t much, but it was enough. The job gave Carnegie the opportunity to learn and to demonstrate his dedication to hard work. Very quickly he moved on and up: less than a year later he had secured a position at O’Reilly’s Telegraph Company, starting at more than twice what he had earned at the mill.

It was there that Carnegie’s rise began in earnest — not through some “lucky break” but through the habit Carnegie would later refer to as “going the extra mile.” Carnegie, still working incredibly long days, began going to work early in order to learn how to send and receive telegraph messages. He worked so hard at it that he could eventually take telegraph messages by ear rather than by transcribing the Morse code — a feat only two other people in America could perform.

That ability helped him gain the notice of Thomas A. Scott, a superintendent for the Pennsylvania Railroad. Scott hired the young man, still a teenager, to be his secretary and telegrapher at $35 a month — a tidy sum at the time and a far cry from $1.20 a week.

Carnegie soon became indispensable to Scott. The real turning point came not too long after he was hired. Carnegie was in the office alone one day when news came of a wreck on the Eastern Division. Rail traffic started backing up; instead of shrugging his shoulders and saying “not my job, not my problem,” Carnegie chose to take action. “Mr. Scott was not to be found,” he would later write. “Finally, I could not resist the temptation to plunge in, take the responsibility, give ‘train orders’ and set matters going.”

It was no easy decision. Although Carnegie had watched Scott deal with similar problems in the past, lives and property were at stake. “I knew it was dismissal, disgrace, perhaps criminal punishment for me if I erred. On the other hand, I could bring in the wearied freight-train men who had lain out all night. I could set everything in motion. I knew I could.” And he did, forging Scott’s signature and issuing orders until rail traffic was back to normal.

Thanks to Carnegie’s determination and hard-won abilities, Scott started opening doors for the young man and teaching him the skills he would need to succeed in business. Later, he would help Carnegie make his first investment, launching Andrew’s career as a capitalist in earnest. By 1860, at the age of 25, Carnegie was making almost $50,000 — more than enough to count himself as wealthy.

“Opportunity” means a set of circumstances in which a course of successful action is possible. Opportunity is abundant. What’s scarce is the willingness to take advantage of it. To the extent a country is free, a person with no money, no education, no connections can rise as far as his ability and ambition will take him. But developing ability and ambition is a challenging, uncomfortable, even scary process. Relatively few people in any era choose to do it, and as a result, few capitalize on life’s unlimited opportunities.

In Carnegie’s words, a “man may be born in poverty, but he does not have to go through life in poverty. He may be illiterate but he does not have to remain so. But . . . no amount of opportunity will benefit the man who neglects or refuses to take possession of his own mind power and use it for his own personal advancement.”

That was what led Carnegie to success: the constant use of his mind in pursuit of a better life. Whether he was learning a new skill, taking decisive action in an emergency, or forging the most innovative and efficient steelmaking company in the world, the commitment to following the judgment of his reasoning mind was the only opportunity he needed.

That — the willingness to think — is something no one else can give you.

About The Authors

Yaron Brook

Chairman of the Board, Ayn Rand Institute

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

A few years ago, I was in need of some extra cash so I decided to sell my laptop on eBay. A few days later, I got an offer. It wasn’t great, but then neither was my laptop. But before the payment went through, I got a call from the government. 

“We have decided that the offer you got was too low. We’re not going to let you sell your laptop for anything less than three hundred dollars.” 

“But no one is willing to pay me three hundred dollars,” I said. “I’d rather have two hundred bucks than nothing.” 

“Oh, no, you can’t do that,” I was told. “That would be unfair to you.” 

Far fetched? Maybe — it didn’t actually happen to me. But the fact is it happens to defenseless victims every single day, albeit in a somewhat different form: through enforcement of the minimum wage.  

Right now there is a campaign underway to raise the federal minimum wage from $7.25 to $9 or more, and polls indicate that Americans overwhelmingly support it. And who wouldn’t? Who could object to making sure that everyone can earn a living? Who would oppose guaranteeing that every American is paid fairly? 

Well, the problem is that the minimum wage doesn’t ensure everyone can earn a living — it ensures that many of us can’t earn anything. And it doesn’t guarantee that everyone is paid “fairly” — it unfairly denies us the freedom to decide for ourselves what pay to offer or accept. 

I remember when I got my first job. I had just turned seventeen and after a bit of a search — I think I submitted three applications at the local mall — I got a call to interview for an entry-level position as a ticket taker at the mall theater. I sat down with Michelle, the theater’s hiring manager, and after going over my work experience — “I once helped my dad wash his car” — Michelle offered me a starting position at $5.35, just above the minimum wage at that time. I remember thinking: it’s not much, but it’s better than anyone else is offering me, and it’s certainly better than being out of work.

And that’s how employment should work. Employment is a contract — an arrangement between a person who wants to work and someone who wants to hire him. But under minimum wage laws, Michelle and I weren’t the only ones who had a seat at that negotiating table.

Had Michelle only offered me $5 an hour and had I wanted to accept it, Mr. Minimum Wage Enforcement Goon — I picture him as Bluto from Popeye — would have crossed his arms, sat back in his chair, and shook his head. And had he tried to enforce today’s minimum wage of $7.25, well, then, it’s very likely I would have never gotten the job to begin with. 

The question is: Who invited him? Why was my employment agreement anyone’s business but mine and Michelle’s?

Here’s one answer: “But it’s not voluntary! You needed the money, while the movie theater could have afforded not to hire you.”

But the fact that someone badly wants or even needs something doesn’t imply that his efforts to get it aren’t voluntary. I may have needed a job, but it’s not like Michelle could have zapped me with a cattle prod to stop me from going to work at Subway.

Michelle’s only power was the power to offer me a better deal than any of her competitors. We sometimes forget that companies have to compete for employees the same way they have to compete for customers. When I interviewed with Michelle, I was no more powerless than a consumer shopping for condiments: Heinz is free to charge a thousand bucks for a pint of mustard, but it’s not free to keep you from buying a jar of Grey Poupon instead. 

Did I wish I could have gotten more than $5.35 an hour? Sure, but no one was offering me that, and as an ambitious but inexperienced worker eager to get my start, I understood why: I wasn’t worth more yet. I wasn’t just getting the paycheck — I was building the skills and resume that would make it possible for me to make a whole lot more than $5.35 some day.

That’s the logic behind internships, which few people object to. Young people regularly work for low and even no pay in order to build their resume, learn useful skills, and make networking connections. If you forced companies to pay interns significantly higher wages, you would achieve only one result: you would prevent young people from realizing those benefits. By the same token, if the government had stepped in and forced the movie theater to pay a wage higher than what my ability justified, it wouldn’t have magically made me more productive — it would have made me unemployable.

Those who don’t think the world owes them a living understand that they can’t expect to get paid more than the worth of their value to an employer, and that to earn more they have to become worth more. Such people know that a low-paying job can be the best path to a high-paying job. Contra the minimum wage cheerleaders, it isn’t low pay that’s unfair — it’s preventing people from offering and accepting jobs that’s unfair. 

Then again, maybe it’s not those who believe in individual responsibility that the supporters of the minimum wage are trying to appeal to.

About The Author

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

The sequester debate is a national embarrassment — though not for the reasons you might think.

We are debating whether shaving a few percent off the government’s bloated budget will bring the country to its knees. It’s a good thing the Founders are long dead, because if George Washington or James Madison saw this, they would regard it as a shameful farce.

A few percent off the budget? Their question would be: What happened to the idea of principled limits on government — limits which, if adhered to, would mean reducing the size of government more on the order of 60 percent, 70 percent, or more?

What is the sequester?

The sequester is a group of automatic cuts in government spending that resulted from an agreement struck during the debt ceiling compromise of August 2011. It consists of $1.1 trillion in cuts spread over the next nine years, split primarily between defense and discretionary spending programs.

That may sound like a lot, but in the context of how much the government spends, it’s puny. In 2013, for example, sequester cuts will consist of a measly $85.4 billion of the federal government’s projected $3.8 trillion budget — less than 3 percent.

To make matters worse, the word “cut” is deceiving. It does not mean an absolute reduction in government spending. Under the sequester, overall government spending will actually increase — just less than the government had planned. Some cut.

Will the sequester harm the economy?

Sequester doom-and-gloomers like President Obama have argued that spending drives the economy — especially government spending, which exceeds the budget of any single private organization by a mile. They claim that when government spends, the economy grows, when government shrinks, the economy collapses, and so cutting government spending could provoke another recession.

On a scale from “wrong” to “very wrong,” this notion is “very, very wrong.”

Historically, substantial cuts in the rate at which government spending grew, such as the one in Canada in the 1990s, have led not to economic collapse but economic expansion. From 1992 to 1997, the Canadian government nearly froze spending. The results? According to Reuters:

The deficit disappeared by 1997 and the debt-to-GDP ratio began a rapid decline — it is now at about 34 percent…After wrestling the deficit to the ground, Canada enjoyed what Crowley calls the payoff decade, outperforming the rest of the G7 on growth, job creation and inward investment. From 1997 to 2007, it averaged 3.3 percent economic growth, while U.S. growth averaged 2.9 percent.

Same story more recently in Baltic states such as Estonia. Estonia dramatically cut spending — genuine cuts that reduced the overall amount government was spending — and saw its economy outpace even Hong Kong’s.

All of this is to be expected. Spending doesn’t drive an economy. Prosperity comes from production — from free individuals discovering new and better ways to create wealth. But government doesn’t produce anything. When it spends money, that money has to come from people in the private sector who have produced.

Those who claim that the sequester will harm the economy are really saying, “If we take money from the individuals and businesses who earned it and give it to politicians and bureaucrats, we’ll achieve prosperity — but if we allow them to keep what they earned, we’ll sink into poverty.”

Utter nonsense.

If you’re concerned about economic growth, then the sequester cuts are not too big — they are far, far too small.

So is the sequester a good policy?

Government spending is hampering economic progress and has the potential to devastate it. But spending is a symptom. The deeper problem is that our once-limited government is now unlimited.

Sure, there are some things government doesn’t try to do — although there are disturbingly few of those left. But there are virtually no principled limits on what it can do.

Principled limits come from having a clear view of the purpose of government. When America was created, the Founding Fathers assigned to it a strictly defined role: to protect the individual’s rights to life, liberty, property, and the pursuit of happiness — basically, to protect freedom. The fundamental policy question, on that approach, was: Does this measure protect freedom or not? If not, then it wasn’t the province of government. (Whether those limits were always consistently enforced is another matter.)

What about today’s leaders? What do they think is the purpose of government? To the extent they even have a view, it would be something like “Whatever we feel is best for the country.”

That is the basic problem today. Instead of protecting our freedom, the government does “whatever” our leaders, or the majority of voters, or an influential minority want.

And what they want covers basically every aspect of life:

• Subsidizing farmers
• Deciding what we can eat, drink, and smoke
• Restricting imports of certain goods such as sugar
• Prescribing who is allowed to do anything, from selling real estate to cutting hair
• Saving failed companies that are “too big to fail,” or breaking up via antitrust successful companies that they decide are just “too big”
• Dictating the future of energy and funneling billions into “green” boondoggles such as Solyndra
• Corralling older Americans into the government’s own unsustainably expensive health insurance scheme

You get the picture. Is it any wonder that spending is out of control? If there are no limits to what government does, how could there possibly be any limits to what government spends?

On the other hand, if we restore government to its proper function, the spending problem takes care of itself. Wars aside, from the Founding era through the nineteenth century, the federal government never cost Americans more than 3 percent of GDP — about a tenth of what it costs today.

All of this highlights what’s wrong with the sequester: it does not distinguish between the proper, freedom-protecting functions of today’s government and the freedom-destroying functions. On the contrary, its cuts are highly skewed against the military — which is a proper function of the state.

As in any policy debate, our focus here should be: Does this function of government protect American freedom? If yes, then spending is proper. But if not — if money goes toward restricting freedom or redistributing wealth — then that spending should be cut.

We’re going to need a bigger knife.

About The Authors

Yaron Brook

Chairman of the Board, Ayn Rand Institute

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

“Give back” That’s the message sent to successful businessmen. You built a company? You made a lot of money? Fine. Now it’s time for you to use the money you’ve made to do some real good in the world.

Apparently, creating our modern standard of living and our modern lifespan doesn’t count.

Think of the history of America. Its transformation into the world’s leading economy took place during the nineteenth and early twentieth centuries. Virtually every step forward, and every giant leap, was the product, not of philanthropic giving, but of profit-seeking.

It started with energy, namely, James Watt’s steam engine. This invention, created and brought to market as part of a profit-making endeavor, was a game changer. As historian John Steele Gordon notes, “Until the coming of the steam engine, only human beings, draft animals, falling water, and windmills were available to do work.” But with the arrival of “the steam engine, many tasks that had been difficult (and therefore expensive) became easy (and therefore cheap). Many more tasks that had been impossible were within reach.”

One central use of the new energy was transportation. Entrepreneurs began building faster ships, which catapulted America’s productivity forward by opening up new markets and slashing shipping costs. The effect was multiplied by the creation of coal-burning locomotives and the rise of the railroads (thanks again to profit-seekers, such as George Stephenson) — and ultimately by oil and the rise of cars, trucks, and airplanes.

Affordable, fast-paced transportation, and the energy revolution that powered it, became the backbone for America’s Industrial Revolution.

Soon, entrepreneurs were building on this foundation in a thousand ways. John D. Rockefeller, for instance, revolutionized the refining of crude oil into kerosene, enabling Americans to cheaply and safely light their homes at night. Inventor-entrepreneurs such as Samuel Morse and Alexander Graham Bell created new means of communication, which further fostered commerce as well as home life. Willis Carrier, meanwhile, created the modern air conditioner, liberating men from stifling heat.

Perhaps most importantly, this was the time at which profit-seekers solved the problem of hunger. John Deere improved farming machinery. Cyrus McCormick improved it even more with the mechanical harvester. According to Gordon, “With McCormick’s reaper, one man could harvest eight acres a day, not one, and the American Middle West could become the bread basket of the world.”

The results are impossible to overstate. Businessmen seeking profits industrialized America. In the process they increased average incomes, raised the average American’s standard of living, decreased the number of hours he had to spend working, extended the average lifespan from 38 in 1850 to 66 a century later, and generally made life far safer and more pleasant.

But even this understates business’s contribution. Philanthropy has done no small measure of good. It has built schools and libraries and hospitals. It has made great art available to the masses and made historical treasures available to future generations. But most philanthropy is made possible by business and its profit-seeking.

What makes the achievements of business all the more astonishing is that they did not require the sacrifice of anyone to anyone. Contrary to what we’re often taught — and to what’s implied by the notion that businessmen must “give back” — the fortunes of history’s great profit-seekers were not made by “taking” but by trade. American businessmen didn’t become rich at the expense of their customers or employees. Their fortunes were earned by raising their fellow traders’ standard of living. Rockefeller, for instance, became perhaps the richest man in history, but his fortune pales in comparison to the beneficent effects of his achievements. His cheap, safe oil products — and the innovative business methods he developed to produce them — lifted Americans’ standard of living by several degrees of magnitude.

To point to the businessmen who continue to improve our lives and demand that they “give back” is a grave injustice. They haven’t taken anything in the first place. On the contrary, they make human life better off on a scale that is unprecedented in history.

When individuals focus on making their own lives superlative under capitalism, the result is success, prosperity, and progress.

The mystery is why profit-seekers receive so little admiration for their achievements — and virtually no moral credit.

About The Authors

Yaron Brook

Chairman of the Board, Ayn Rand Institute

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

The nineteenth century, many people believe, was an era in American history when workers were forced to toil in sweatshops twenty-eight hours a day for starvation wages. It was only when governments intervened, either directly on behalf of workers or indirectly by empowering unions, that conditions improved.

The facts tell a different story — one that reveals the unmatched power of capitalism to improve human life.

Remember the historical context. As Ayn Rand observed, “Capitalism did not create poverty — it inherited it.” For much of human history, the vast majority of the population was mired in poverty. All too often, the average individual lived in unimaginably wretched conditions. It was only in the nineteenth century, and then only in the West, that the masses started to enjoy prosperity.

Keep that in mind when you hear about living and working conditions during the nineteenth century. Because it’s true — by today’s standards, the living and working conditions of the time were often miserable. But by the standards of everything that had come before, they were not. For the men and women working those jobs, they were often a godsend.

Remember also, the population of the time was growing at a rate never before seen in human history — so fast that early economists like Malthus wrung their hands over whether such growth could be sustainable. How did the West actually sustain those growing numbers? Only through the rising productivity made possible by capitalism. Many of the workers who manned the factories would not have been able to survive at all in the era before capitalism.

Indeed, two basic facts speak more loudly than any statistical study could. First, factory owners did not have the power to force workers to labor in their factories; all they could do was offer work at a given wage to people who were free to accept the offer, or reject it and look for work elsewhere. Second, people flocked to those jobs, emigrating to the cities from America’s farms and from abroad.

How, then, did conditions for workers improve? Just as businessmen had to compete for customers, offering better products and lower prices, so they had to compete for workers, offering them better wages and better working conditions. This process of competition led businessmen to bid wages up to reflect workers’ productivity: the more productive workers became — the more skills they developed, the more efficiently they were managed, the more capital and technology they could employ — the higher their wages tended to rise.

As a result of the era’s mounting productivity, the statistics show steadily rising wages and steadily declining working hours — long before the government intervened to “protect” workers. Real wages more than tripled over the course of the nineteenth century.

In 1870, according to research from Michael Cox and Richard Alm, the average worker worked 3,069 hours a year. But as his productivity increased, by 1913 he could enjoy a much-improved standard of living working only 2,632 hours. Or consider how much easier it got to earn the money for a half-gallon of milk (56 minutes in 1900, down to 31 minutes in 1930) or 100 kilowatt hours of electricity (107 hours in 1900, but only 11 hours in 1930).

What about child labor? Didn’t nineteenth-century capitalism sentence children to hard and dangerous work? Child labor, despite what we’ve heard, was not created by capitalism. It’s a practice that stretches back to prehistory, when children would spend hours toiling in the scorching sun or freezing rain, risking disease, injury, or death, virtually as soon as they could walk.

Why were most children made to work before the twentieth century? Is it because parents were sadistic and governments cruel? Hardly. It’s because, before capitalism made us rich, children had to work if they were to survive at all. When a family lives on the equivalent of a dollar a day, there is no alternative: if you can work, you work.

What eliminates child labor is not government decree but a rising standard of living. That’s what eliminated it in the West during the nineteenth century, and that is what is eliminating it today in countries like China. As parents grow richer, one of the first things they do is use their burgeoning incomes to send their children to school.

If capitalism is what caused the West to grow rich, then it was capitalism, not government intervention, that eliminated child labor in the developed world.

This is not to deny that governments have limited or forbidden child labor by law. But child labor was going away on its own, and the laws were far from benign. By pushing children out of the newer, more visible factories where these laws were easier to enforce, hungry children were forced to seek work at smaller, older, more dangerous factories — or failing that, as economist Ludwig von Mises notes, to “infest the country as vagabonds, beggars, tramps, robbers, and prostitutes.”

To be sure, life during the early days of capitalism was hard (as life had always been), but for anyone willing and able to work, life was better than it had ever been — and getting better.

The lesson for us today? Laissez-faire doesn’t impoverish us, but makes us progressively richer.

About The Authors

Yaron Brook

Chairman of the Board, Ayn Rand Institute

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

Today is the birthday of Ayn Rand, author of the 1957 classic Atlas Shrugged, and one of history’s most celebrated champions of capitalism. Here are three of the crucial lessons Rand offers those of us who want to fight for a freer, more prosperous America.

1. Celebrate Business

Today business is the scapegoat for virtually every evil. Whatever the problem or crisis, “greedy” businessmen take the blame, and the solution is always held to be more controls, more regulations, more taxes. When the financial crisis hit in 2008, for instance, Republican leaders raced to blame “greedy” bankers, not government policy. President Obama has intensified this outlook.

According to Rand, this is one of history’s worst injustices. Businessmen are the ones who create the medicines, food preservatives, sanitation systems, irrigation systems, and millions of other innovations and labor-saving devices that have nearly tripled our lifespans and provided us with a standard of living unimaginable by our forefathers. As she explained in 1961, the businessman “is the great liberator who, in the short span of a century and a half, has released men from bondage to their physical needs, has released them from the terrible drudgery of an eighteen-hour workday of manual labor for their barest subsistence, has released them from famines, from pestilences, from the stagnant hopelessness and terror in which most of mankind had lived in all the pre-capitalist centuries.”

If we want to limit government, Rand warned, this is something we need to celebrate. To slam business is to attack a core part of what makes America great.

Capitalism is good, said Rand, because it protects each man’s ability to make the most of his own life — and government intervention, which strips such men of their wealth and their freedom, is morally wrong.

2. Don’t Apologize for the Profit Motive

Underneath the attack on business is an attack on the motive that drives businessmen: the desire for profits. The profit motive, we’re constantly told, leads businessmen to lie, cheat, and steal their way to a buck — or at minimum taints them morally.

Just recall the criticisms of Mitt Romney. Even his Republican challengers criticized him, not for passing RomneyCare, but for having been a profit-seeking businessman. But if the profit motive is dangerous and immoral, how can we tolerate the profit system?

Rand sets the record straight. A profit, she notes, is the insignia of production: you make a profit when you produce something of value, something that others want to buy because it makes human life better, longer, easier, more enjoyable.

Capitalism is fueled, not by the Al Capones or the Bernie Madoffs of this world who seek to get money by hook or by crook. It is fueled by individuals who make money by creating wealth. This is the actual nature of the profit motive: it is the desire to earn rewards through productive achievement.

That, says Rand, is the kind of attitude toward one’s work, toward one’s wealth, and toward other people that pervades a free market. Free markets drive out of business the short-sighted, unproductive moochers who don’t create value — and a capitalist government locks up predators such as Madoff when they try to defraud others.

Capitalism is good, said Rand, because it protects each man’s ability to make the most of his own life — and government intervention, which strips such men of their wealth and their freedom, is morally wrong.

3. Run from Anyone Trumpeting “The Public Good”

Today government grows at the expense of individuals: at the expense of their rights, their freedom, their wealth. The supporters of Big Government have always justified this by appealing to “the public good.” How have defenders of capitalism responded? Not by challenging the notion of “the public good.” Instead, we have accepted that notion and tried to persuade people that only capitalism can achieve it.

But the justification for capitalism, Rand stresses, is not that it serves “the public good” or “the public interest” or “the common welfare.” All of those slogans are dangerously vague: they can mean anything, and so they can be used to “justify” everything. The justification for capitalism is that it is the only system based on the individual’s inalienable right to pursue his own life, liberty, and happiness.

Society, Rand observes, is not an entity but a collection of sovereign individuals, and the essential political value they have in common is freedom.

Freedom, Rand stresses, means that individuals can exercise their rights free from coercion and compulsion. They can work to make a successful life for themselves, acting on their own independent judgment, keeping the fruits of their labor, and dealing with others through voluntary exchange to mutual advantage. The government’s role is to protect their freedom by barring the initiation of physical force. The economic system that emerges when government is limited and individual rights are secured is capitalism.

If you want to stop the growth of the state, you have to get rid of any ounce of the idea that individuals exist to serve some social purpose or goal. Capitalism is the system rooted in the conviction that each individual is an end in himself and has a right to exist for his own sake.

Ayn Rand’s Winning Formula: Capture the Moral High Ground

If you wanted to boil down what makes Rand so successful and what she can teach us today, it would be that she teaches the free market side to take the moral high ground.

We “must fight for capitalism,” Rand says, “not as a ‘practical’ issue, not as an economic issue, but, with the most righteous pride, as a moral issue. That is what capitalism deserves, and nothing less will save it.”

But how can a system driven by self-interest and the pursuit of personal profit be moral? That is the question Rand answers in her works, and it is the question we address in our book, the national bestseller Free Market Revolution: How Ayn Rand’s Ideas Can End Big Government.

We can limit today’s unlimited government. But to do so we will need to mount an unapologetic moral defense of freedom. The first step is to arm ourselves with Ayn Rand’s unsurpassed stockpile of intellectual ammunition, and then to speak out for freedom.

About The Authors

Yaron Brook

Chairman of the Board, Ayn Rand Institute

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

On the anniversary of Roe v. Wade 40 years ago, there is still no one defending the right to abortion in fundamental terms, which is why the pro-abortion rights forces are on the defensive.

Abortion rights advocates should not cede the terms “pro-life” and “right to life” to the anti-abortionists. It is a woman’s right to her life that gives her the right to terminate her pregnancy. Nor should abortion-rights advocates keep hiding behind the phrase “a woman’s right to choose.” Does she have the right to choose murder? That’s what abortion would be, if the fetus were a person.

The status of the embryo in the first trimester is the basic issue that cannot be sidestepped. The embryo is clearly pre-human; only the mystical notions of religious dogma treat this clump of cells as constituting a person.

We must not confuse potentiality with actuality. An embryo is a potential human being. It can, granted the woman’s choice, develop into an infant. But what it actually is during the first trimester is a mass of relatively undifferentiated cells that exist as a part of a woman’s body. If we consider what it is rather than what it might become, we must acknowledge that the embryo under three months is something far more primitive than a frog or a fish. To compare it to an infant is ludicrous.

If we are to accept the equation of the potential with the actual and call the embryo an “unborn child,” we could, with equal logic, call any adult an “undead corpse” and bury him alive or vivisect him for the instruction of medical students.

That tiny growth, that mass of protoplasm, exists as a part of a woman’s body. It is not an independently existing, biologically formed organism, let alone a person. That which lives within the body of another can claim no right against its host. Rights belong only to individuals, not to collectives or to parts of an individual. (“Independent” does not mean self-supporting — a child who depends on its parents for food, shelter, and clothing, has rights because it is an actual, separate human being.)

“Rights,” in Ayn Rand’s words, “do not pertain to a potential, only to an actual being. A child cannot acquire any rights until it is born.”

It is only on this base that we can support the woman’s political right to do what she chooses in this issue. No other person — not even her husband — has the right to dictate what she may do with her own body. That is a fundamental principle of freedom.

There are many legitimate reasons why a rational woman might have an abortion — accidental pregnancy, rape, birth defects, danger to her health. The issue here is the proper role for government. If a pregnant woman acts wantonly or capriciously, then she should be condemned morally — but not treated as a murderer.

If someone capriciously puts to death his cat or dog, that can well be reprehensible, even immoral, but it is not the province of the state to interfere. The same is true of an abortion, which puts to death a far less-developed growth in a woman’s body.

If anti-abortionists object that an embryo has the genetic equipment of a human being, remember: so does every cell in the human body.

Abortions are private affairs and often involve painfully difficult decisions with life-long consequences. But, tragically, the lives of the parents are completely ignored by the anti-abortionists. Yet that is the essential issue. In any conflict it’s the actual, living persons who count, not the mere potential of the embryo.

Being a parent is a profound responsibility — financial, psychological, moral — across decades. Raising a child demands time, effort, thought and money. It’s a full-time job for the first three years, consuming thousands of hours after that — as caretaker, supervisor, educator and mentor. To a woman who does not want it, this is a death sentence.

The anti-abortionists’ attitude, however, is: “The actual life of the parents be damned! Give up your life, liberty, property and the pursuit of your own happiness.” Sentencing a woman to sacrifice her life to an embryo is not upholding the “right to life.” The anti-abortionists’ claim to being “pro-life” is a classic Big Lie. You cannot be in favor of life and yet demand the sacrifice of an actual, living individual to a clump of tissue. Anti-abortionists are not lovers of life — lovers of tissue, maybe. But their stand marks them as haters of real human beings.

About The Author

Leonard Peikoff

Leonard Peikoff, author of Objectivism: The Philosophy of Ayn Rand, is the foremost authority on Rand’s philosophy. Learn more at his website.