Strange times we live in. Markets jump up and down in ways that suggest rationality is lacking, while billionaires, the presumed standard bearers of capitalism, devote their energies to using social media to attack the governments of nations about which they clearly know very little. The loudest voices deride anyone who believes anything, no matter how well documented, that appears on what they term MSM (Mainstrean Media), but are happy to believe the most bizarre of theories as long as they have been posted on Facebook or X.
The Wall Street bull, the symbol of a rising market, in which everybody makes money. Unsurprisingly, there is no statue to the bear market, in which only the fleet of foot make money.
The stock market is particularly intriguing. Talk everywhere this week has been of a ‘correction’, a word that seems to undermine the very foundations of the capitalist/libertarian ideal. Were not markets supposed to be omniscient, representing as they do the aggregated choices of thousands and thousands of individual investors? Yet here we have these same investors milling around in hopeless confusion, one day bear and the next day bull, in a way that leaves the supposed sheep who follow the MSM open-mouthed in amazement.
So what did Ayn Rand, the mid-20th century poster girl of the libertarian right, whose books are still selling in their tens of thousands, have to say about the stock market?
Surprisingly, very little. If you Google ‘Ayn Rand and the stock market’, you get almost nothing that fits the bill. Just an article in the Christian Science Monitor that claims she never invested in stocks or shares, and a Q&A session where various Randians try to either deny that supposed fact or explain it away. After which, very quickly, the focus in the Google listings turns quicjly to 19th century capitalism, a theme on which Rand was happy to expand. Good summaries of her take on that period are provided by passages in the collection of essays amalgamatedunder the heading Capitalism, the unknown ideal.
In one of those essays Rand had something to say about the emergence of monopoly. Since today we live in a world increasingly dominated by very large corporations, it is fair to ask whether Rand had anything useful to tell us about this feature of modern capitalism, and In the essay based on a paper given at the Antitrust Seminar of the National Association of Business Economists, Cleveland in September 1961, she had this to say:
The crucial question which [classical economics] failed to ask is whether “active” competition does inevitably lead to the establishment of coercive monopolies, as they supposed—or whether a laissez-faire economy of “active” competition has a built-in regulator that protects and preserves it. That is the question which we must now examine.
A “coercive monopoly” is a business concern that can set its prices and production policies independent of the market, with immunity from competition, from the law of supply and demand. An economy dominated by such monopolies would be rigid and stagnant.
The necessary precondition of a coercive monopoly is closed entry—the barring of all competing producers from a given field. This can be accomplished only by an act of government intervention, in the form of special regulations, subsidies, or franchises
NO
In claiming that government action is the only cause of monopoly, Rand avoided a truth that undermines her entire argument. It is that in such markets there are plenty of ways in which entry can be barred to newcomers, by companies with large bank balances and few ethics.
There is massive advertising, facilitated by the internet, which can swamp the puny efforts of the innovators. There are legal routes, which can tie a newcomer up in the courts of law with dubious suits claiming infringements of patents, or trademarks, or copyright. Small businesses have been sued for using the name with which their owner was born. In such cases the law may be on their side, but the expensive lawyers very seldom are.
There is, also, a third route to monopoly, much favoured these days. The smaller competitor can simply be bought, and the purchase may even, if it suits the purchaser, be hidden by retaining the name. Many people who love books and, for various reasons, do not like Amazon, proudly avoid it, and buy from AbeBooks instead. But AbeBooks was bought by Amazon in 2008.
That Rand didn’t even consider this non-governmental route to monopoly is a clear indication of her failure to understand capitalism.