Posted on 06/06/2009 7:23:17 AM PDT by Publius
Synopsis
Dagny awakens to the face of John Galt! He is surprised that Dagny braved his cloaking device to reach the valley. It is too painful for her to walk, so John picks her up and carries her. She hears the strains of Halley’s Fifth Concerto, played by the composer himself, coming from his house. She spots a three-foot statue of a dollar sign cast out of solid gold seated on a stone column – Francisco’s private joke, says John.
A car arrives, driven by Midas Mulligan, with Hugh Akston as his passenger. Akston is stunned by her arrival, having previously told her that she would never find the designer of the motor and now finding her in his arms. Mulligan profanely gives her a rich tongue lashing for having endangered her life by crashing into the valley rather than entering by the front door; he is flummoxed by the arrival of the first “scab”. John takes responsibility for Dagny and thanks her for hiring Quentin Daniels.
As they drive along, Dagny finds that Mulligan owns the valley, John works there, and Akston is one of John’s two “fathers”. The final penny drops. John Galt was the mysterious third student of Akston and Stadler, the second assistant bookkeeper, the designer of the motor – and The Destroyer.
At his house, John admits he has been watching her for years. The famous Dr. Hendricks, who had disappeared six years before, tends to Dagny’s injuries. As John cooks and serves breakfast, Dagny finds that Lawrence Hammond runs a grocery store, Dwight Sanders a pig farm, and Judge Narragansett a dairy farm. John Galt is merely the handyman. Dagny realizes that John’s motor is the power source for the valley and badly desires to see it in action. But she is astonished that Mulligan is charging John twenty-five cents to rent his car; she quickly learns that the word “give” is banned in the valley.
Quentin Daniels delivers the car. He apologizes to Dagny for skipping out without notice and tells her how John had come to his lab, erased his work and written down one simple equation. After that, he would have happily followed John Galt to the ends of the earth. With pride, he tells her that he is now a janitor and hopes to rise to the position of electrician!
The first stop on the grand tour is Dwight Sanders, who agrees to fix her plane for a mere $200 – in gold. But she can’t buy the gold, and all her cash and stock is worthless in the valley.
The second stop is Dick McNamara, the former rail contractor, who is in charge of the valley’s utilities. He now has three helpers: a former professor of economics who taught that one can’t produce more than one consumes, a former professor of history who taught that the poor of the slums did not build America, and a former professor of psychology who taught that men are capable of rational thought. Dagny understands that John is taking her on a tour of the men he had taken from her. The fourth stop is Ellis Wyatt’s oil shale facility. One of Wyatt’s two employees is the young brakeman caught by Dagny in the first chapter whistling the theme from Halley’s Fifth Concerto; he is now Halley’s best student. Wyatt is producing two hundred barrels of oil a day from shale.
Along the way she discovers that Ted Nielsen runs the lumber yard and Roger Marsh grows vegetables. The fifth stop is at Andrew Stockton’s foundry; he had to ruin a competitor, who is now his employee, to run it. Stockton says he would be happy to be ruined by Hank Rearden, who would revolutionize life in the valley. Ken Danagger turns out to be his foreman.
The sixth stop is the valley’s Main Street, home to Hammond Grocery, Mulligan General Store, Nielsen Lumber, and Mulligan & Akston Tobacco. Actress Kay Ludlow, who had disappeared five years earlier, now runs a cafeteria. Down the street is Mulligan Bank and Mulligan Mint, which produces coins of gold and silver like those from America’s past.
The seventh stop is the house of Francisco d’Anconia. Dagny now has figured out that John was the man to whom Francisco had pledged his life twelve years ago.
The eighth stop is the powerhouse. On the building is the inscription, “I swear by my life and my love of it that I will never live for the sake of another man, nor ask another man to live for mine.” As John pronounces the oath, the door to the powerhouse swings open, but he closes it quickly. When Dagny is ready to say those words and accept the consequences, he will show her the motor.
At dinner at Mulligan’s house, Midas introduces her in the US Navy manner as “Taggart Transcontinental”. Dagny dines with Ellis Wyatt, Ken Danagger, Hugh Akston, Dr. Hendricks, Quentin Daniels, Richard Halley and Judge Narragansett. To Dagny it is like going to heaven, meeting again the great people of one’s past. Danagger tells her what John had told him: “Well done.” Perhaps too well, in Dagny’s case.
Halley has composed more in the past decade than in all the previous years of his life. He appreciates Dagny’s recognizing his new piece from hearing just a few notes whistled by a brakeman, and he wants her to come over to his house for a private recital. Dr. Hendricks has made a breakthrough in treating strokes, the judge is writing a treatise on the philosophy of law, Mulligan is financing everything in the valley, and Akston is writing a book on moral philosophy. But no product of this work will ever be seen outside the valley; these men are on strike. John Galt launches into a speech about the mind, reason and how these men are on strike against the moral code that demands their martyrdom.
Each man at the table each went on strike for his own reason: Akston because he could no longer share his profession with those who denied the existence of the intellect; Mulligan because of the appeals court decision in the Hunsacker case, likewise Judge Narragansett; Halley because he could not forgive the public’s view of his success, seeing themselves as Halley’s compositional goal; Dr. Hendricks because the government took over the health care system; Wyatt because he decided not to be a meal for the cannibals; Danagger because he discovered that the men who wished to rule over him were impotent; Daniels because he did not wish to place his mind at the service of brute force; Galt because he refused to feel guilty about his abilities. After leaving Twentieth Century, John looked for any sign of talent in the world and pulled that man out of the world and into his. The men whom he recruited took an oath to deny their talents by withdrawing from the world or taking menial jobs. They would pursue their true interests in Mulligan’s valley – Galt’s Gulch – but share nothing with the world. Once a year they would come to the valley and meet for a month. Now things in the world are collapsing at a rate they had not foreseen. Soon they will be ready to return to rebuild the world.
At the Galt house, there is momentary pause at John’s bedroom, but the moment passes. Instead, Dagny is placed in the guest bedroom bearing the inscriptions of the men who had spent their first night at Galt’s Gulch there, each in his own private purgatory.
Rand and Technology
The first operational laser dates from 1960. Rand’s refractory ray and its magnetic effect on motors is interesting, but wide of the mark. The hologram that hides Galt’s Gulch is more on the order of the technology in the later “Star Trek” universe. For Fifties science fiction, however, it’s not bad.
The idea of extracting oil from shale was barely a glimmer in an oil man’s eye in the Fifties; not until the Seventies did the price of oil rise to the point where recovery from oil shale might be profitable. Here Rand was far ahead of the curve.
Rand never saw the possibilities of a global positioning system and spy satellites as a means of making it truly impossible to hide a site like Galt’s Gulch from the all-pervading eyes of government. The surveillance state’s technology was not on her horizon.
America’s Mixed Relationship With Gold
After of the Treaty of Paris in 1783, tensions with Britain eased, and the country got around to governing itself under the Articles of Confederation. But the war debt caused major problems, not the least of which was a deflationary depression. A few states took their debts seriously, but others engaged in partial or total repudiation. At the same time, the Continental Dollar, supposedly backed by one Spanish Milled Dollar each, was collapsing in value because there was no real backing except for a nebulous promise to pay. Enlisted men in the Continental Army had been paid in paper dollars, and they expected those dollars to be honored at full value.
There were only three banks in the entire country; these banks didn’t care about the farmer, the shopkeeper, or the wage slave, but only the owner of the textile mill in Lawrence, Massachusetts, the import-export business in Manhattan, or the iron foundry in Batsto, New Jersey. Ordinary Americans held their wealth in their mattresses and under their floorboards. Without a genuine coin of the realm, people relied on coins of gold and silver minted in Spain, England and France, along with base metal coins minted by the states. Coins of precious metal were often “clipped”, so merchants weighed them to see just how much gold and silver were really present.
While farmers and shopkeepers could survive without a coin of the realm, the owners of the banks and large businesses could not. How could a capitalist perform the Italian art of accounting if there is no coin of the realm? How can he construct a balance sheet or income and expense statement if there is no standard by which to measure value?
The states that wanted to treat their war debts honorably had a problem. The basic unit of governance in America was the county. The county collected the property tax, and a voter had to show his tax receipt at election time to the county clerk in order to vote. The county built the roads and maintained the poorhouse for indigents. States collected taxes for their own purposes, but repaying war debts would require a major hike in taxes, and a war had just been fought over that.
There is an old saying in the word of taxation: “Don’t tax him, don’t tax me, tax the guy behind the tree.” The states that wanted to retire their war debts found a way of taxing the guy behind the tree – they taxed the residents of other states. After all, residents of other states could not vote in state elections, so the states charged tariffs on goods crossing state lines. The Connecticut farmer who loaded his wagon and took his produce to New York to sell now found himself confronted at the state line by a New York customs agent who slapped taxes on his produce. Quickly other states took up the idea, and a full scale trade war erupted.
Then the issue of the legality of the Continental Dollar came to a head when Massachusetts refused to accept it in payment of taxes in spite of the words “legal tender”. And that led to Shays’ Rebellion, which led to the Constitutional Convention.
In 1790, Alexander Hamilton, now Secretary of the Treasury under Washington, pushed for assumption, the act of taking the debts of the states and nationalizing them. What Hamilton wanted was financial ballast. A ship without ballast is gyroscopically unstable and tosses and turns on the sea. Hamilton believed that a properly managed national debt would act as ballast and be a blessing. Hamilton didn’t figure this out on his own but copied Sir Robert Walpole who established the Bank of England in 1694. The key was “properly managed”. Hamilton saw a national debt as a way of encouraging a basic conservatism in American finance. By rolling the state debts into a national debt, Hamilton effectively monetized all those Continental Dollars whose value had dropped almost to zero. On a weekly basis, Hamilton’s clerk at Treasury went down to the New York Stock Exchange and either bought or sold Treasury bills, thus managing the money supply; this is similar to what the Federal Reserve does today. Was each new American dollar backed by the proper amount of gold or silver as mandated by the Constitution? No. And that is one of our lesser known financial secrets: the US Dollar started out as a fiat currency in violation of the Constitution’s Gold and Silver Clause.
It should be noted that the Gold and Silver Clause has been honored more in the breach than in the observance.
Hamilton intended the US Mint in Philadelphia to fix the gold and silver problem. Congress established gold and silver coins of different denominations, and people who owned foreign coins or bars of gold and silver could take them to the Mint, which would smelt them to the correct purity and mint coins of the realm, which would in turn be handed back to the owner to be placed in circulation.
Hamilton’s consolidated war debt was paid off by James Monroe’s first term, and the new debt accrued during the War of 1812 came close to being paid off by the end of Andrew Jackson’s first term. That led to a problem. Under Nicholas Biddle, the Bank of the United States had put aside its function of neutral arbiter of capital allocation and had played favorites. Biddle saw this as a prudent form of industrial planning, making him the father of Japan’s MITI, Max Palevsky, Felix Rohatyn – and Jimmy Carter.
When Jackson ran for reelection in 1832, his campaign slogan was “Jackson and No Bank”. Jackson referred to the Bank as “The Monster” and made its abolition the cornerstone of his second term. Biddle inadvertently helped Jackson when he fought the president in Congress by allocating capital to congressmen who were the Bank’s friends and punishing its enemies via foreclosure. It was a fatal mistake. With the end of the Bank, the national debt was gone – and so was the financial ballast. And the sharp practitioners of Wall Street were ready for a world under a gold exchange standard.
In the world of finance, there is Smart Money, Stupid Money, and Widows’ and Orphans’ Money.
With the end of good, safe government bonds, an asset bubble began to form on Wall Street in stocks. The Smart Money had already staked a claim, and the Stupid Money followed; next came the Widows and Orphans. It should be noted that the primary business of Wall Street is to fleece investors by inflating and bursting bubbles, known as “pump and dump” in the trade.
The bubble in stocks created the illusion of prosperity, and Jackson never understood what he had wrought. With the luck of the Scots-Irish, Jackson left the presidency to Martin van Buren before the Panic of 1837 erupted. People lost their savings, their homes, their farms, and froze to death in the cities. The road back was slow, arduous, and interrupted by other financial calamities, such as the Panic of 1857, when a ship full of gold coins minted in San Francisco was lost at sea in a hurricane off the coast of South Carolina. That hole in the money supply launched a panic from which the Cotton South recovered more rapidly than the industrialized North. In 1860, that led to a fatal miscalculation by the southern states.
To avoid usurious interest rates from the House of Morgan, Abraham Lincoln issued a paper fiat currency known as the greenback, which was to finance the War Between the States and then get mopped up via federal tax collections afterward. Upon being withdrawn from circulation, the disappearing fiat money triggered deflation and the Panic of 1873, which set off a depression.
In 1913, America established the Federal Reserve, which was not exactly a national bank because it was owned by a cartel of private banks. But the country was still on the gold standard. The calamity of October 1929 and the events that followed inadvertently made the dollar stronger with respect to European currencies. To permit expansion of the money supply via inflation, Franklin Roosevelt closed the gold window for domestic payments and made the possession of gold by Americans illegal. This permitted America to fight a deflationary depression and a world war by printing massive amounts of money.
The Bretton Woods Agreement of 1944 made the US Dollar the world’s reserve currency linked to gold at the 1934 price. This functioned well until Lyndon Johnson’s disastrous “guns and butter” decision of 1965, which led to the London Gold Pool as an attempt to support the dollar by suppressing the gold price. Charles de Gaulle put an end to that by demanding payment in gold for France, which prompted Richard Nixon to close the gold window to foreign payments, which in turn set off the double-digit inflation of the Seventies. In 1975 Americans again were permitted to possess gold as a result. Fed Chairman Paul Volcker pushed interest rates above 20%, thus ending the inflation of consumer prices, but the liquidity spigot was never turned off, which led to the inflation of asset prices in the 1982-2007 bull market in stocks and real estate.
Fiat currencies can be very messy and full of unintended consequences. But so can gold.
Discussion Topics
Apropos of nothing...
Recently, I got in a discussion with a good friend of mine over the cost of drugs. The end of the conversation reminded me of Francisco’s speech and the woman who “felt that Francisco was wrong.”
The friend of mine, who is a staunch Republican, got one of those emails detailing the cost of ingredients in prescription drugs. It was one of those emails slamming big pharmacy for charging hundreds of dollars for a drug that cost pennies to manufacture.
I pointed out the drug in question very likely cost the upward of a billion dollars to bring to market. That cost has to be made up at somehow. I also pointed out the limited window that drug companies have in order to recoup R&D costs.
Anyway, bottom line is that she let her “feelings” get in the way of facts and couldn’t agree with the points I made.
I’ve come to the conclusion that “I think, therefore I am” has been supplanted by “I feel, therefore you are wrong.”
Several chapters back, Hank gave Eddie Willers a delay in paying for Rearden Metal because the railroad was in trouble financially. (Dagny was off building the John Galt Line at the time.) Eddie felt badly about accepting the delay because it would help Jim Taggart, but he appreciated it anyway. Hank simply thought it was good business for his company.
So I think you're right.
I also loved this chapter. All but one of the pieces of the puzzle fall into place, and that last piece falls into place in a few more chapters. It's satisfying to see the mysteries solved and almost everything explained.
And those compromises defined the loose construction versus strict construction debate that ended with the War Between the States -- but has been revived of late with the return of a movement toward genuine federalism.
The names of Marshall, Jefferson, Webster, Clay, Hayne, Jackson, Calhoun, Crawford -- and the very elderly Madison -- figure in here.
I would strongly suggest a reading of Forrest McDonald's States' Rights and the Union to examine what you've brought up in deep detail.
That one's a keeper!
Unfortunately, I see the government removing the ownership of property and distributing it on a temporary and arbitrary basis to favored constituencies. The government will assume the debt and convert it to an asset it bestows, removing the ballast from the people, leaving them to flounder at the whim of government.
Very, very perceptive. The asset then gets packaged with derivatives (insurance) that cannot be priced accurately, which compounds the problem. It's recipe for collapse.
At the beginning of the chapter titled “Anti-Life” there is an incident that corresponds directly to the points you are making. In a few weeks, I’ll expect you to work on the discussion topic I’m building around that incident.
Actually, the word penis is 3rd Declension Masculine, which means the plural would be penes. (Not to be picky, but I had three years of Latin.)
Well, it needs some editing.
Perhaps:
“However, greed and envy is used by our political class to justify taking from those who produce, and giving to those who envy, through greedy redistribution policies.”
Without the comma, it looks like I’m saying those who envy, envy because of the greedy redistribution policies.
Polish it until it’s ready to be used as a tag line.
Actually, I was kidding, and didn’t actually think penii was correct. Even so, I didn’t know penes was correct and appreciate the education. Thanks, Pub, your varied background never ceases to amaze!
Aw, shucks. (blush blush)
"Greed and envy: From mortal sin to political paradigm in under 100 years!"
Very good. As they say in the movie business” “Cut! Print it!”
“Greed and envy allows our political class to exploit the rich and poor.”
I like it!
Or:
“Greed and envy is used by our political class to exploit the rich and poor.”
Political hucksters mine greed and envy to make citizens into serfs.
That's a keeper right there. You just conjured up the memory of a conversation I had with a neighbor a few years ago that convinced me that Rand's villains are real. In my Seattle days I used to work for a biopharmaceutical firm - Publius may even recall which one - that made the Big Strike and came up with a very effective and successful drug. That one cost between $350-500 million in R&D - the amount is indeterminate because your R&D doesn't stop once the drug hits the market, you have to keep researching to unearth unexpected effects. (This particular drug turned out to be harmful to active tuberculosis patients, for example - best of luck figuring that one out in a test population).
So this neighbor of mine confronted me one day about how much the drug cost and I explained that it was really expensive to produce due to the process being sort of exotic and she says, "Well, you should find a way to make it cheaper." Yeah, I said, that's what process science is all about, but in the meantime there are patients who need the stuff, and anyway the R&D for that new process would cost us money...she wasn't listening. She was absolutely convinced that the whole thing was a plot to squeeze money out of sick people.
My mistake was mentioning our next drug, one that looked promising and (worst case) didn't fail until very late in the process, costing us maybe another half a billion, and she was outraged that patients using one drug should have to pay money to develop other ones. I told her we had to do that or the company would fold and there wouldn't be any new drugs for anyone, and her reply was, "Well, that's what you get for soaking your patients."
She participated in a drive somewhat later to turn the successful one into a generic so the prices would go down. Remember what Orren Boyle did to Rearden Metal? That's exactly what she wanted to do. What was scary was that this woman actually wanted to hurt people - I'm not kidding, "the government" seizing the company, the bank accounts (that's where the filthy profits were), making the researchers and manufacturers work for free (yes, slave labor) in order to make up for the exploitation we'd committed - I got to thinking that if this woman were ever in the position to do that stuff, she would, and would feel perfectly justified about it.
Atlas Shrugged didn't come to mind at the time but it probably should have because she's in there. The psychological mechanism was very simple - she thought she'd found "injustice" and therefore anyone having anything to do with it needed to be punished. You read AS and you think hey, it's a novel, people like these are caricatures, but they're not, they're all around us. You can never be disarmed in the presence of these people, they will kill you, or order someone else to kill you. And feel great about it.
There's cognitive dissonance for ya. You tell her the consequences of NOT doing the way it is today, and she equates that with the consequences FOR doing it that way. Moron.
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