Over drinks in a New York bar, four men conduct a meeting that will greatly impact the U.S. economy. Orren Boyle wants Jim Taggart to use his influence with various Washington politicians to pass legislation that will strip Rearden of his ore mines. Taggart agrees to do it. Taggart and Boyle are counting on Paul Larkin, who is present at the meeting, to receive the mines from Rearden and to provide Boyle with first claim on the ore. Taggart, meanwhile, wants Boyle to speak to friends on the National Alliance of Railroads regarding the competition that Dan Conway's Phoenix-Durango Railroad gives Taggart Transcontinental in Colorado. Taggart wants the Alliance to force the Phoenix-Durango out on the grounds that it provides "cutthroat competition" to Taggart Transcontinental in a region where the latter company has historical priority. Boyle states that Taggart's idea is sound, and he'll speak to his friends about it. The fourth member of the party is Wesley Mouch, Rearden's Washington man. In return for not reporting the proposed legislation to Rearden, Mouch will receive a bureaucratic post in Washington, courtesy of Taggart's influence.
Taggart comes to his sister's office. Boyle has told him that on a recent trip to the San Sebastian Mines in Mexico, he observed the limited and archaic train service that Taggart Transcontinental provides. Boyle questions the level of service provided. Dagny reminds Jim of several facts. The San Sebastian Mines, built by Francisco d'Anconia, have produced no copper. Francisco never even presented facts to support the claim that any copper exists there; Jim and his friends invested money based only on Francisco's business reputation. And, in the past ten years, Francisco has degenerated from a remarkable businessman into a worthless playboy. Dagny tells Jim that she's shipped every piece of railroad property that can be moved north of the border, so that when the Mexican government nationalizes the San Sebastian Line, the railroad's loss will be minimal.
Dagny's assistant, Eddie Willers, often eats his meals with a railroad worker in the employees' cafeteria of the Taggart Terminal. He doesn't know the worker's name or job, but because of his rough, grease-stained clothes, Eddie assumes that the job is menial. However, the worker has a deep interest in the railroad, and Eddie feels comfortable speaking to him. He tells the worker that the Rio Norte Line will save Taggart Transcontinental and that Dagny has found a reliable contractor to rebuild the line — McNamara of Cleveland.
This chapter shows readers the way things work in a mixed economy that's moving toward socialism. Private property exists nominally, but the state has steadily increasing control over its use and distribution. In such a system, productive businessmen like Hank Rearden and Dan Conway have no rights; they are at the mercy of any inferior competitor with political friends. Only capitalism provides the economic freedom that great producers like Rearden and Conway require. Under a capitalist society, their productive activities would be unrestricted by government bureaucrats and envious competitors.
The men who meet at the beginning of this chapter insist that the preservation of the steel industry "as a whole" is vital to the public welfare. Therefore, Boyle's virtually bankrupt company must not be allowed to fail. It must be propped up by stripping Rearden of his ore mines and turning them over to Paul Larkin, who will please the Washington planners by giving Boyle first priority for the ore. Rearden's productive company will be sacrificed to Boyle's unproductive one, in keeping with the moral premise underlying socialism, which states that the strong must serve the weak.
As the government acquires power over an economy, the level of corruption necessarily rises. This rise in corruption occurs because, as the state gains power to dispense economic favors, it attracts power-seekers like Wesley Mouch and enables incompetent businessmen like Jim Taggart and Orren Boyle to exist parasitically off of competent men like Rearden. In a free market, where customers can choose unrestrictedly among competitors, customers select companies like Rearden's and Dan Conway's because they get the job done. In a free market, businesspeople like Boyle and Taggart go out of business. But in a state-dominated system, unprincipled businesspeople curry favor with power-seeking politicians, brokering corrupt deals that allow them to stay in business by means of legislation.
In contrast to these unprincipled and incompetent businessmen, Dagny fumes over the corruption and mindless incompetence of a statist economic system. As an engineer, she respects the facts. She makes business decisions based on facts, not political favors. She knows that Francisco d'Anconia showed no evidence to support his claim that the San Sebastian Mines contain any copper. Her brother Jim was eager to build a branch line to the mines at a cost of millions to the struggling railroad so that he could please his political "friends" in Washington. The government regards the branch line as a self-sacrificing, "public-spirited" action to aid the destitute Mexicans. As a result of Jim's decision, Taggart Transcontinental will lose millions of dollars — money desperately needed to rebuild the collapsing Rio Norte Line and save the industrial enterprises of Colorado. Dagny tries to reason with her brother and with the men of Taggart Transcontinental's board, but the government's power over the railroad has become too great. She fights a losing battle.
This chapter also hints at Francisco d'Anconia's past, implying that as a young man, he turned his extraordinary talents to industrial production and was fabulously successful. Jim's remarks indicate that Dagny's relationship with Francisco in the past may have been much closer than it is currently. This chapter raises questions about Francisco's true nature, his motives, and his past relationship with Dagny. We don't yet have answers to any of these questions.
Progressive policies Progressive policies, in this book, are socialist acts of legislation such as the expropriation of Rearden's ore mines by the government and their distribution to "needy" men like Paul Larkin. The term progressive, in matters of economic policy, is a euphemism here for the government's theft of private property and the country's gradual decline into dictatorship. "Progressive" is usually associated with "favoring, working for, or characterized by progress or improvement, as through political or social reform, (or) of or having to do with a person, movement, etc. thought of as being modern or advanced, as in ideas, methods, etc."