Atlas Shrugged: The Resource Curse

Atlas Shrugged, part I, chapter VII

Dagny has invited Francisco to her office. She explains that she needs $15 million to finance the completion of the John Galt Line, of which she’s been able to raise about half using the Taggart Transcontinental stock she owns as collateral, but now she’s stuck because no banks will lend to her. She begs Francisco to help her, but he refuses.

But just when all seems lost, she visits Hank with news of triumph – she’s gotten the investment she needs:

She took a paper out of her bag. “Here’s John Galt, Inc.,” she said, handing it across the desk.

He knew most of the names on the list: “Ellis Wyatt, Wyatt Oil, Colorado. Ted Nielsen, Nielsen Motors, Colorado. Lawrence Hammond, Hammond Cars, Colorado. Andrew Stockton, Stockton Foundry, Colorado.” There were a few from other states; he noticed the name: “Kenneth Danagger, Danagger Coal, Pennsylvania.”

…He reached for his fountain pen, wrote at the bottom of the list, “Henry Rearden, Rearden Steel, Pennsylvania – $1,000,000″ and tossed the list back at her. [p.191]

Dagny tries to dissuade him, saying that he’s already invested enough money in this project, but he answers coldly that he never accepts favors and he never asks anyone to gamble more on his ventures than he’s willing to wager himself.

“Incidentally, I don’t expect to lose this money. I am aware of the conditions under which these bonds can be converted into stock at my option. I therefore expect to make an inordinate profit – and you’re going to earn it for me.” [p.191]

I hate to throw cold water on Hank’s little capitalist gleefest, but we just read that Dagny is bound by an agreement to sell the John Galt Line back to Taggart Transcontinental at cost. I’m not sure I see the financial advantage to owning stock in a company that someone else has the right to purchase at a price that doesn’t net you any profit. (In the jargon of the market, this is similar to what’s called a flip-in poison pill.) Do Hank and the Colorado businessmen know about this clause? If not, does Dagny have an obligation to tell them?

Regardless, Dagny gets her money and goes away happy. In the next scene, Hank is in a conference with a businessman who desperately needs steel, when his secretary bursts into his office with terrible news: the Legislature (Rand never uses the word “Congress”) has suddenly and unexpectedly passed the Equalization of Opportunity Bill, which will require Rearden Steel to sell off all its mines and ore businesses. Rearden’s lobbyist Wesley Mouch, who was supposed to prevent this, hasn’t checked in for days and isn’t answering his phone.

Hank spends the rest of that day transacting business as usual, but late that night, still in his office:

He slumped down, halfway, still holding onto some shred of resistance… He sat that way for a few moments, conscious of nothing but pain, a screaming pain without content or limit – he sat, not knowing whether it was in his mind or his body, reduced to the terrible ugliness of pain that stopped thought.

In a few moments, it was over. He raised his head and sat up straight, quietly, leaning back against his chair. Now he saw that in postponing this moment for hours, he had not been guilty of evasion: he had not thought of it, because there was nothing to think. [p.202]

If you had wondered, “evasion” is a philosophical crime in Rand’s peculiar lexicon. It means the deliberate refusal to think. Even in the extremity of her hero’s suffering and despair, she has to pause to inform us, just in case there was any doubt, that he’s still suffering and despairing in the ideologically correct way.

Hank sits at his desk and broods:

Destroyed at the whim of some men who sat and voted… Who knows by what minds?… Who knows whose will had placed them in power? – what motive moved them? – what was their knowledge? – which one of them, unaided, could bring a chunk of ore out of the earth?… Destroyed at the whim of men whom he had never seen and who had never seen those tiers of metal… Destroyed, because they so decided. By what right? [p.202]

Well, these are rhetorical questions, but I’d be happy to answer them. Since this seems to be the America we know, more or less, the people who make laws are placed in power by the will of the voters. The powers of the legislature are defined by a Constitution which, again, was ratified by majority support and which sets out which kinds of laws can or can’t be passed. Natural resources within the boundaries of our country should be held in trust for the collective benefit of all citizens, and the government can and should have the power to manage their use in a way that best delivers that benefit.

Although this all seems like it should be too obvious to need recounting, it clearly isn’t. Implicit in this monologue is the assumption that mining metal is a skill, but making laws isn’t; that organizing and running a society isn’t a legitimate area of expertise or one that a person can be qualified for, and any societal policy other than “business owners can do anything they want” is a wanton trampling on individual rights.

In fact, there are very good reasons why government should be an active steward of its country’s resources. Here’s one of them: countries with an abundant supply of natural resources – oil, minerals, natural gas, diamonds – often don’t benefit from that as much as you’d expect. A study by the economist Jeffrey Sachs concluded that, all else being equal, resource-rich societies grow more slowly and have more poverty than their neighbors. The country of Zambia, one of the poorest in Africa despite its enormous deposits of copper, is a case in point; in a different way, so is the Democratic Republic of the Congo, which has been torn apart by its abundant supplies of gold, diamonds, and minerals.

This is called the resource curse, and there are several theories about the cause. One is that, especially in poor countries, the competition for lucrative mining rights encourages bribery and graft, which undermines competent, responsive government and inevitably exerts a drag on economic growth. Another is that resource wealth motivates civil war and rebellion, since to the victors go the spoils. A third says that resource wealth leads to an unbalanced economy, one that depends on extraction at the expense of every other industry – and then when commodity prices fall, the bottom drops out (this is often called “Dutch disease“).

Whether the real explanation of the resource curse is any of these, all of them, or a combination, a good government will put laws in place to prevent that just as it would prevent any other harm. In the same way, government should work to guarantee that its country’s resources are used wisely and sustainably, to balance conservation with the unavoidably destructive practice of mining, and to prevent the land from being wastefully stripped clean and thereby impoverishing all future generations. If Hank is a typical Randian capitalist, he’ll want to strip-mine as fast as he wants, anywhere he wants, leave a huge toxic mess behind, and pay no taxes or fees in return. Regardless of how the law works in Randworld, in the real world government has both the right and the responsibility to regulate mining and extraction to prevent that outcome.

Other posts in this series:

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  • Loren Petrich

    Also, it seems, oil and democracy don’t mix.

    Visions of Tomorrow: The Democratic Threshold “Nearly
    all countries with a GDP per capita (adjusted for purchasing power
    parity) of at least $10,000 are at least partially democratic, with the
    vast majority being full-fledged democracies, as measured by The
    Economist’s Democracy Index.” Except for oil-rich ones. The Gulf States are especially bad, with some of them having standards of living comparable to what the more advanced industrialized nations have, while being absolute monarchies or systems not much different.

    Egypt, Oil and Democracy – “Michael Ross, a political science professor at U.C.L.A. who is among the foremost proponents of the hypothesis, has concluded that democratic transitions are 50 percent more likely in oil-poor states than in oil-rich ones.”

  • Michael R. Brown

    “Active steward” is fanciness for centralized control, which does not work.

    Also, selling the John Galt Line back to Taggart Transcontinental does not [necessarily] mean selling every single share.

  • Nancy McClernan

    It’s Michael R. Brown, Ayn Rand worshipper and hit and run commenter.

    Like all good Objectivists what he really hates is democracy, which gives irrational losers a say in government, instead of limiting all power to rational Übermensch like Rand and himself.

  • Nancy McClernan

    Rand did not invest her money in the stock market and clearly didn’t understand how it worked.

    And she never provides a clear description of the government and its activities – except when it puts out these silly Bills and even then the Bills just suddenly appear as if by magic, because she didn’t understand how governments work either.

    And in spite of this insane supernatural fog of a “government” the stock market appears to work perfectly and without hindrance – so much so that Hank thinks he’ll make a bunch of money from it.

  • GCT

    Also, selling the John Galt Line back to Taggart Transcontinental does not [necessarily] mean selling every single share.

    Perhaps you missed the last in this series where Jim Taggart tells Dagny to sell it back at cost? Oh wait, that was in this OP too. I can’t believe you missed it twice…snicker.

  • Naked Bunny with a Whip

    Of course not. That’s why successful companies are completely decentralized, with no guiding board or executive officers allocating resources or setting goals.

  • Nancy McClernan

    BTW – Krugman has been snarking about Rand again today – he does it on a regular basis – one more reason to love him:

    …the sociologist Daniel Little suggested in a recent essay, is market ideology: If the market is always right, then people who end up poor must deserve to be poor. I’d add that some leading Republicans are, in their minds, acting out adolescent libertarian fantasies. “It’s as if we’re living in an Ayn Rand novel right now,” declared Paul Ryan in 2009.

  • David Andrew Kearney

    1. Why does everyone end up naming his business after himself? It’s too bad not everyone in the real world does this: “Zuckerbook” or “Bezos’ Books” are pretty hilarious.

    2. I clicked on the evasion link above and read the sections from Galt’s speech. There is just something *odd* about the way she uses the language in her philosophical writings that I can’t put my finger on. She seems to think that hectoring counts as an argument.

  • J-D

    If centralised control does not work, how does Hank Rearden run Rearden Steel?

    And aren’t all laws centralised controls? Does all law fall into the category of not working?

  • J-D

    If no member of the legislature can bring a chunk of ore out of the earth ‘unaided’, how does Hank Rearden do it ‘unaided’? Does not one of his employees aid him? If not, what is he paying them for?

  • Azkyroth

    “Active steward” is fanciness for centralized control, which does not work.

    [Citation needed.]

  • silentsanta

    I think it’s important to note that Rand’s caricature of the government doesn’t simply ignore—but instead actually inverts—some very real concerns regarding governments which have subverted the public good in service to corporate interests, benefactors who of course hold significant leverage regarding campaign financing.

    One doesn’t have to believe that we already live in a Corporotocracy to identify numerous, prominent examples of this, including the deregulation efforts following the financial crisis, or Billy Tauzen’s work leading to massively inflated drug costs for Medicare patients. A systematic failure to recognize, or account for, these kinds of events when proposing one’s own ideal government might be thought of as—dare I say it?—evasion?

  • Jim Baerg

    If democracy is reasonably established *before* the riches are found it can survive the pressures. The countries adjacent to the North Sea had problems from the finding of oil there, but it never threatened to eliminate democracy in any of them.

    BTW read “Why Nations Fail: The Origins of Power, Prosperity, and Poverty”. The thesis of the book is that inclusive political & economic institutions are necessary for more than limited prosperity. The discussion of Botswana & how that country responded to diamonds being found in the country is particularly interesting.

  • Michael R. Brown

    You’re right. Only centralized control works. Hence humanity’s single guiding brain. (Byebye, diversity.)

  • Michael R. Brown

    You towering giants of intellect can’t induce the context of ” active steward of its country’s resources”? Impressive.

  • Michael R. Brown

    Jim Taggart’s notorious for his business acumen. I stand abashed.

  • Michael R. Brown

    I’m an Objectivist? Intriguing news.

  • Michael R. Brown

    Feel free to display the marvelous achievements of economies with central government control of resources.

  • Nancy McClernan

    Yes, and then there’s Wesley Mouch the corporate lobbyist who joins the government, instead of the other way around. The world of Atlas Shrugged is basically Bizarro World.

  • GubbaBumpkin

    He digs into the earth with a shovel, and crawls out with ore in his teeth. He’s a real man.

  • GubbaBumpkin

    Why does everyone end up naming his business after himself?

    Sometimes they don’t. When you find a business with a patriotic or religious sounding name, you know they couldn’t sell it on their own reputation. When that happens, you should run the other direction.

  • smrnda

    On the legislators :

    ” which one of them, unaided, could bring a chunk of ore out of the earth?…”

    First, the assumption that no legislator has ever been involved in the mining business seems a bit reckless to me. I *know* that in Ayn Rand’s world, no politician ever does anything and she can create whatever world she wants, but within reason, this seems like an absurd assumption.

    Second, none of Rand’s protagonists, unaided, could bring anything out of the earth either. Mining is a pretty difficult business that requires lots of cooperation and technology. You don’t have a 1 person mining operation going on.

  • smrnda

    Certain things require centralized control. A diversity of opinions goes into setting up a system in which certain tasks are delegated to certain people, including leadership and planning positions.

    At times, decentralizing control makes sense, at other times, more central control makes sense. It isn’t a one size fits all problem either way.

  • smrnda

    She uses language in a highly idiosyncratic way in order to force people to reach her same conclusions by forcing them to use words the way *she* uses them. At the same time, she leaves her jargon vague enough that she can be inconsistent. The astute reader will pick this up, but the average Randoid is just looking for a wish fulfillment fantasy.

    There is a lot of labeling going on, which is why her proponents will just say you are ‘anti freedom, anti individual and anti reason’ if you disagree with them.

    Her lack of decent arguments probably comes from surrounding herself with sycophants. It’s like bad Xtian apologetics.

  • Nancy McClernan

    Well at least you don’t object to being described as an Ayn Rand worshipper.

    But if you are, then why are you NOT an Objectivist? Rand would denounce you and boot you out of “The Collective” in no time flat.

  • Nancy McClernan

    You don’t get it, do you? Although Rand wanted to portray Taggart as a bumbling idiot, like all the non-Randian supermen, her failure to understand the basics of stock trading resulted in Dagny’s acceptance of his deal, and Rearden gloating about his stock earnings, in spite of the poison pill scenario.

  • Nancy McClernan

    Ah, but it is to any cultist. They fixate on one guiding principle because complexity is just too much work. One size fits all makes everything easy.

  • Nancy McClernan

    And what’s the difference between an Objectivist, and a “Sense of Life” Objectivist? Or are you claiming that this is a different Michael R. Brown?

    I don’t see any differentiation on this site between a Sense of Life Objectivist and a garden variety Objectivist. The Intro to Objectivism certainly doesn’t make any distinctions:

    And in a stunning coincidence, here is another Michael R. Brown with a profile at “Objectivist Living”

  • Nancy McClernan


    Studies by the Urban Institute and more recently by CBPP find that Medicaid is significantly cheaper than private insurance. This is partly because of lower administrative costs; also, Medicaid, more than Medicare, bargains hard, using things like a limited formulary that lets it drive a harder bargain over drug prices.

  • Nancy McClernan

    Nobody knows what you are babbling on about. Of course the failure is our minds, not your inability to communicate.

  • J-D

    Whether I am a towering giant of intellect is something I leave others to evaluate. But my capacities extend at least to this: I can grasp that there is a potential middle ground between a government dictating everything about how natural resources are used and a government placing no restrictions on how natural resources are used. Can you?

  • smrnda

    I suspect if one values ideological purity above real world results, that makes sense.

  • J-D

    Feel free to give details about countries that have no laws affecting the use of natural resources, and how well that works.

  • J-D

    I don’t know about US legislators, but I do happen to know that two former Australian Prime Ministers (Andy Fisher and Joe Cook) were also former miners.

  • Azkyroth

    It certainly works well enough for human bodies; the ones lacking a controlling brain don’t ever seem to rise much above flailing in comment threads unless they’re born rich to begin with.

  • Azkyroth

    That’s not the answer to the question I asked.

  • Science Avenger

    I give you:

    Victory in WWII
    The interstate Highway system
    Landing people on the moon

    from my view of history, central government control seems to do best for the very large, and the very small, while a more lassez faire approach seems optimal in the middle.

  • Science Avenger

    I suspect Ryan is referring to a common experience people have when reading AS of hearing and seeing things that make them feel like they are *in* the novel. This is due, not to any brilliance of Rand, but on the Rorschach-test nature of her writing that allows the reader to attribute most anything to it.

  • Science Avenger

    Implicit in this monologue is the assumption that mining metal is a skill, but making laws isn’t; that organizing and running a society isn’t a legitimate area of expertise or one that a person can be qualified for…

    This is part and parcel of modern conservative philosophy, that anyone can be a good politician, and that nothing is gained from experience being one. Thus all the vitriol directed at “professional politicians”, and the support for term limits. I first realized this while reading Jared Diamond, when he used the term “bureaucrat” as just another positive development in a society, alongside “merchant” and “doctor”. One could peruse conservative writings for eons without coming across such usage.

    They apply this same reasoning to educating as well. The notion that there is value in being a professional educator, and that it takes a skill one is not born with, is completely anathema to them.

  • Science Avenger

    [Implicit in Rearden's monologue is the assumption that] any societal policy other than “business owners can do anything they want” is a wanton trampling on individual rights

    This is not true, and not trivially so. Objectivists recognize individual rights, but that’s all they recognize. There is no recognition of any kind of collective right. So, in an Objectivist society, a businessman would not be allowed to destroy a statue you had carved or purchased were it in his way. Your individual rights would be protected. However, that same businessman could destroy a historical find, owned by no one, say some ancient statue or carving. It’s no coincidence that Rand never writes about any such thing. In her world, the pyramids would have been torn apart for their resources long ago, along with the Grand Canyon, and practically everything the World Heritage Organization protects.

  • Nancy McClernan

    I suspect that Ryan is suffering from the same delusion that frequently strikes other Objectivists/Libertarians/Conservatives – that Rand was a prophet and the world now is similar to that described in Atlas Shrugged. To see how extremely common the delusion is, all you have to do is Google the phrase. Ryan is not alone, by a long shot.

  • Alex Harman

    A lot of her philosophical “arguments” consist of equivocation between her idiosyncratic definitions of words and the standard definitions, while pretending that everyone else is using her definitions as well.

  • J-D

    Either the society would (in effect, even if denying it) recognise a collective right to take action to prevent the violation of recognised individual rights, or else it wouldn’t. So either there would be, in effect, some recognition of collective rights or else there would only be a purely nominal recognition of individual rights that carried no effective protection with it.

  • J_Enigma32

    Which highlights another major problem with both Objectivism and libertarianism:

    The environment.

    You can pollute and foul up the air all you want – as long as it’s your air. But where does “your air” end and “my air” being? Where does “your atmosphere” partition off into “my atmosphere” and what demarcates “your ozone layer” and “your water” form “my ozone layer” and “my water?”

    We all have to share the environment. Since we have to share the environment, we have to act – collectively – in order to protect it from people like Rand’s heroes, who would exploit it and harm everyone on the planet in the process.

  • J_Enigma32

    And the hilarious thing is that Rand would hate Ryan, Paul, and the other libertarians because they’re buddy-buddy with the Theocratic Right.

    Ryan sings her praise when she’d (rightly) regard him as an intellectual abomination.

  • Nancy McClernan

    Yeah, Rand had pretty strict rules about who she found acceptable. She didn’t like Reagan much either, which surprised me.

  • CrunchyRay

    I think it’s fair to say that Rand’s story takes place in an alternate universe of our own, or one with a very divergent history. For somebody who claimed to be a political and economic philosopher, she displays astounding ignorance of both politics and economics.
    As far as the whole repurchase agreement with the John Galt Line, if I were to be overly generous in interpreting it, it seems to be that Dagny only agreed to sell back her controlling share of the company back to Taggart Transcontinental “at cost”, and not the shares purchased by outside investors. So 51% goes back to the company and the remaining investors can sell their 49% at whatever price it could fetch.
    On the other hand, Rearden explicitly says that he’s talking about convertible bonds. So he’s lending her the money and retaining an option to convert his loan into shares. Again, that could be possible if the amount of the stock optioned added up to less than a controlling share in the company.

  • A Real Libertarian

    Labor Party and a founding member of the Labor Party.

    Wow, who’d expect Labor to be the party of working people, huh?

  • A Real Libertarian

    “Feel free to display the marvelous achievements of economies with central government control of resources.”

    Walmart is very profitable.