Separation of Economics and State

The ultimate justification for separation of church and state is our need to come to our own, individual conclusions and act accordingly, no matter what any religion says. This need for intellectual freedom applies more broadly to all thought and action, including in our economic lives: producing, trading, and consuming wealth.

As Ayn Rand identified, the liberated rational mind is our basic means of creating the products and services life requires. Men have developed heart transplants, microprocessors, and skyscrapers only to the extent their minds have been free from coercion by criminals and government.

A proper society respects a complete separation of state and economics. Individuals may engage in any voluntary economic arrangement they choose, no matter how controversial.

For example, individuals can start a fully-free, for-profit medical care network or they can start a socialized, “single-payer” network. But participation must be voluntary; they have no right to force their ideas on doctors and patients. To the extent economic decision-making is liberated in this way—whether in health care, finance, or computers—the result is the discovery and spread of the best ideas, and an ever-increasing standard of living.

Q&A with Ayn Rand

What is capitalism?

When I say “capitalism,” I mean a full, pure, uncontrolled, unregulated laissez-faire capitalism—with a separation of state and economics, in the same way and for the same reasons as the separation of state and church.

What is a mixed economy?

A mixed economy is a mixture of freedom and controls—with no principles, rules, or theories to define either. Since the introduction of controls necessitates and leads to further controls, it is an unstable, explosive mixture which, ultimately, has to repeal the controls or collapse into dictatorship. A mixed economy has no principles to define its policies, its goals, its laws—no principles to limit the power of its government. The only principle of a mixed economy—which, necessarily, has to remain unnamed and unacknowledged—is that no one’s interests are safe, everyone’s interests are on a public auction block, and anything goes for anyone who can get away with it. Such a system—or, more precisely, anti-system—breaks up a country into an ever-growing number of enemy camps, into economic groups fighting one another for self preservation in an indeterminate mixture of defense and offense, as the nature of such a jungle demands. While, politically, a mixed economy preserves the semblance of an organized society with a semblance of law and order, economically it is the equivalent of the chaos that had ruled China for centuries: a chaos of robber gangs looting—and draining—the productive elements of the country.

A mixed economy is rule by pressure groups. It is an amoral, institutionalized civil war of special interests and lobbies, all fighting to seize a momentary control of the legislative machinery, to extort some special privilege at one another’s expense by an act of government—i.e., by force. In the absence of individual rights, in the absence of any moral or legal principles, a mixed economy’s only hope to preserve its precarious semblance of order, to restrain the savage, desperately rapacious groups it itself has created, and to prevent the legalized plunder from running over into plain, unlegalized looting of all by all—is compromise; compromise on everything and in every realm—material, spiritual, intellectual—so that no group would step over the line by demanding too much and topple the whole rotted structure. If the game is to continue, nothing can be permitted to remain firm, solid, absolute, untouchable; everything (and everyone) has to be fluid, flexible, indeterminate, approximate. By what standard are anyone’s actions to be guided? By the expediency of any immediate moment.

The only danger, to a mixed economy, is any not-to-be-compromised value, virtue, or idea. The only threat is any uncompromising person, group, or movement. The only enemy is integrity.

Is there a valid argument for limited government intervention?

There can be no compromise be­tween freedom and government controls; to accept “just a few controls” is to surrender the principle of inalienable individual rights and to substitute for it the principle of the government’s unlimited, arbitrary power, thus delivering oneself into gradual enslavement. As an example of this process, observe the present domestic policy of the United States.

If a detailed, factual study were made of all those instances in the history of American industry which have been used by the statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on businessmen were caused, necessitated, and made possible only by government intervention in business. The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls.

In view of what they hear from the experts, the people cannot be blamed for their ignorance and their helpless confusion. If an average housewife struggles with her incomprehensibly shrinking budget and sees a tycoon in a resplendent limousine, she might well think that just one of his diamond cuff links would solve all her problems. She has no way of knowing that if all the personal luxuries of all the tycoons were expropriated, it would not feed her family—and millions of other, similar families—for one week; and that the entire country would starve on the first morning of the week to follow. . . . How would she know it, if all the voices she hears are telling her that we must soak the rich?

No one tells her that higher taxes imposed on the rich (and the semi-rich) will not come out of their consumption expenditures, but out of their investment capital (i.e., their savings); that such taxes will mean less investment, i.e., less production, fewer jobs, higher prices for scarcer goods; and that by the time the rich have to lower their standard of living, hers will be gone, along with her savings and her husband’s job—and no power in the world (no economic power) will be able to revive the dead industries (there will be no such power left).

Is it possible to have a mixed economy without corruption?

If parasitism, favoritism, corruption, and greed for the unearned did not exist, a mixed economy would bring them into existence.

Since there is no rational justification for the sacrifice of some men to others, there is no objective criterion by which such a sacrifice can be guided in practice. All “public interest” legislation (and any distribution of money taken by force from some men for the unearned benefit of others) comes down ultimately to the grant of an undefined, undefinable, non-objective, arbitrary power to some government officials.

The worst aspect of it is not that such a power can be used dishonestly, but that it cannot be used honestly.

In a controlled (or mixed) economy, a legislator’s job consists in sacrificing some men to others. No matter what choice he makes, no choice of this kind can be morally justified (and never has been). Proceeding from an immoral base, no decision of his can be honest or dishonest, just or unjust—these concepts are inapplicable. He becomes, therefore, an easy target for the promptings of any pressure group, any lobbyist, any influence-peddler, any manipulator—he has no standards by which to judge or to resist them. You do not know what hidden powers drive him or what he is doing. Neither does he.

Every government interference in the economy consists of giving an unearned benefit, extorted by force, to some men at the expense of others. By what criterion of justice is a consensus-government to be guided? By the size of the victim’s gang.

What principles govern human interaction in the free market?

In a free economy, where no man or group of men can use physical coercion against anyone, economic power can be achieved only by voluntary means: by the voluntary choice and agreement of all those who participate in the process of production and trade. In a free market, all prices, wages, and profits are determined—not by the arbitrary whim of the rich or of the poor, not by anyone’s “greed” or by anyone’s need—but by the law of supply and demand. The mechanism of a free market reflects and sums up all the economic choices and decisions made by all the participants. Men trade their goods or services by mutual consent to mutual advantage, according to their own independent, uncoerced judgment. A man can grow rich only if he is able to offer better values—better products or services, at a lower price—than others are able to offer.

Wealth, in a free market, is achieved by a free, general, “democratic” vote—by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs. No one has the power to decide for others or to substitute his judgment for theirs; no one has the power to appoint himself “the voice of the public” and to leave the public voiceless and disfranchised.

Now observe that a free market does not level men down to some common denominator—that the intellectual criteria of the majority do not rule a free market or a free society—and that the exceptional men, the innovators, the intellectual giants, are not held down by the majority. In fact, it is the members of this exceptional minority who lift the whole of a free society to the level of their own achievements, while rising further and ever further.

A free market is a continuous process that cannot be held still, an upward process that demands the best (the most rational) of every man and rewards him accordingly. While the majority have barely assimilated the value of the automobile, the creative minority introduces the airplane. The majority learn by demonstration, the minority is free to demonstrate. The “philosophically objective” value of a new product serves as the teacher for those who are willing to exercise their rational faculty, each to the extent of his ability. Those who are unwilling remain unrewarded—as well as those who aspire to more than their ability produces. The stagnant, the irrational, the subjectivist have no power to stop their betters. . . .

The mental parasites—the imitators who attempt to cater to what they think is the public’s known taste—are constantly being beaten by the innovators whose products raise the public’s knowledge and taste to ever higher levels. It is in this sense that the free market is ruled, not by the consumers, but by the producers. The most successful ones are those who discover new fields of production, fields which had not been known to exist.

A given product may not be appreciated at once, particularly if it is too radical an innovation; but, barring irrelevant accidents, it wins in the long run. It is in this sense that the free market is not ruled by the intellectual criteria of the majority, which prevail only at and for any given moment; the free market is ruled by those who are able to see and plan long-range—and the better the mind, the longer the range.

All the evils, abuses, and iniquities, popularly ascribed to businessmen and to capitalism, were not caused by an unregulated economy or by a free market, but by government intervention into the economy.

The economic value of a man’s work is determined, on a free market, by a single principle: by the voluntary consent of those who are willing to trade him their work or products in return. This is the moral meaning of the law of supply and demand.

How would government be funded in a free society?

In a fully free society, taxation—or, to be exact, payment for governmental services—would be voluntary. Since the proper services of a government—the police, the armed forces, the law courts—are demonstrably needed by individual citizens and affect their interests directly, the citizens would (and should) be willing to pay for such services, as they pay for insurance.

The question of how to implement the principle of voluntary government financing—how to determine the best means of applying it in practice—is a very complex one and belongs to the field of the philosophy of law. The task of political philosophy is only to establish the nature of the principle and to demonstrate that it is practicable. The choice of a specific method of implementation is more than premature today—since the principle will be practicable only in a fully free society, a society whose government has been constitutionally reduced to its proper, basic functions.

Is it possible for a mixed economy to immediately implement a program of voluntary government financing?

Just as the growth of controls, taxes and “government obligations” in this country was not accomplished over-night—so the process of liberation cannot be accomplished overnight. A process of liberation would be much more rapid than the process of enslavement had been, since the facts of reality would be its ally. But still, a gradual process is required—and any program of voluntary government financing has to be regarded as a goal for a distant future.

What the advocates of a fully free society have to know, at present, is only the principle by which that goal can be achieved.

The principle of voluntary government financing rests on the following premises: that the government is not the owner of the citizens’ income and, therefore, cannot hold a blank check on that income—that the nature of the proper governmental services must be constitutionally defined and delimited, leaving the government no power to enlarge the scope of its services at its own arbitrary discretion. Consequently, the principle of voluntary government financing regards the government as the servant, not the ruler, of the citizens—as an agent who must be paid for his services, not as a benefactor whose services are gratuitous, who dispenses something for nothing.