In a dark bar, four men discuss the state of the nation’s economy. Orren Boyle argues that Rearden Steel has an unfair advantage because it owns iron mines, while his Associated Steel does not. Jim Taggart agrees to use his influence in Washington to force Rearden to give up the mines. Paul Larkin, also at the meeting, agrees to receive the mines from Rearden but give the ore directly to Boyle. In return, Jim wants Boyle to convince friends on the National Alliance of Railroads to force Dan Conway out of Colorado on the grounds that his Phoenix-Durango Line offers “cutthroat competition” to Taggart in a state where Taggart had operations first. Wesley Mouch, Rearden’s Washington Man, is also present. In return for Mouch’s not warning Rearden, Jim agrees to find him a bureaucratic post in Washington. Their conversation shifts to Mexico, where Jim has built the San Sebastian Line. There are rumors that Mexico is going to nationalize the line, but Boyle refutes them. He tells Jim that on a recent visit, he rode in old, run-down trains.
Back at the office, Jim confronts Dagny about the shoddy trains. She tells him she has removed everything of value from the San Sebastian Line to minimize Taggart’s losses if Mexico nationalizes the line. They argue about the San Sebastian Line, the first major project Jim began after becoming president of Taggart, and one Dagny has opposed from the beginning, believing the resources were needed on the Rio Norte Line. Jim reminds her that Mexico has guaranteed their property rights for two hundred years and argues that he built it for the good of the Mexican people. But he also built the line in order to reap a huge profit from the nearby d’Anconia copper mines. Dagny reminds him that Francisco d’Anconia, formerly an industrial genius, has become a worthless playboy in recent years and has yet to produce any copper from the mines.
Eddie Willers enters the cafeteria of the Taggart Terminal. He sits, as he often does, with a grease-stained worker. Eddie has always liked this worker and feels comfortable with him, although he does not know his name. Eddie complains about the decay slowly eating the world and the railroad. He has hope, however, because Dagny has found a reliable contractor and is going to fix the Rio Norte Line. The worker inquires about Dagny’s personal life, and Eddie tells him what he knows. He is surprised by the worker’s interest.
Eddie informs Dagny that McNamara, their new contractor, has just quit, offering no reasons. No one knows where he has gone. The People’s State of Mexico nationalizes the San Sebastian Railroad and the d’Anconia copper mines. In his report to the Board of Directors, Jim takes full credit for Dagny’s decision to remove the most valuable equipment from Mexico before the San Sebastian Railroad was nationalized.
The members of the National Alliance of Railroads approve a proposal known as the “Anti-dog-eat-dog Rule,” designed to reduce competition among railroads. According to the proposal, the interests of the whole industry are to be determined by majority vote, and each company must subordinate itself to the majority’s decision. Dagny goes to see Dan Conway, president of the Phoenix-Durango railroad, which will cease to exist under the new rule. She urges him to fight, but he is too tired and has decided to retire. Dagny had intended to compete with him in Colorado, but she cannot stand to defeat him in this fashion. She feels like a looter. He tells her to get her Rio Norte Line up and running quickly, because the fate of Ellis Wyatt depends on it. Ellis Wyatt comes to see Dagny and tells her angrily that she must fix the Rio Norte Line at once. He issues her an ultimatum. If she does not give him the transportation he needs, he will take her company down with him. She tells him that he will have the transportation he needs in time. He is surprised, having expected excuses and evasion.
Dagny goes to see Hank Rearden. She tells him about the Wyatt meeting and tells him they must rebuild the line in nine months, not twelve. He assures her that he will be able to provide what she needs. Rearden is surprised and delighted that she deals with him on his own level and thinks he has finally met a woman he can understand. He tells her that it is people like them who move the world and who will ultimately pull it through.
In the decaying world, business is now done in backroom bars and involves manipulation and deceit. Instead of trading value for value, the looters trade favors. Influence has become a form of currency and a basis for decisions that defy logic. As a result, the weak profit at the expense of the strong. Taggart lost business to Conway’s Phoenix-Durango Line because Conway offered a better service, but Conway will lose anyway because of the involvement of influence peddlers. Similarly, Boyle will profit at the expense of Rearden, although Rearden’s product is far superior. Although the overall harm to the industries seems minimal now, this trend, if left unchecked, may have grave consequences. In sharp contrast, Dagny, Rearden, and Wyatt engage in straightforward and honest dealings. For these industrialists, business transactions depend solely on mutual self-interest. They buy the best goods at the best prices and sell their best products for the highest price they can get. Wyatt’s shock at the straight answers he receives from Dagny when he confronts her about fixing the Rio Norte Line demonstrate how rare this candor has become in an era of evasion and double-speak.
Jim’s actions reveal the corruption behind the so-called altruism of socialist endeavors. He argues publicly that he has built the San Sebastian Line to bring service to the Mexican people, who have no railroads of their own. In fact, he is motivated by the profits he hopes to make from the d’Anconia mines as well as by the desire to improve his stature among his Washington friends by helping the government appear self-sacrificing in regard to the poor Mexicans. Throughout the novel, laws and directives presented by the government as protection for a fragile economy contain similar hidden motives. Behind them all are looters who stand, not coincidentally, to gain in profit and influence.
Rand’s warnings about the effects of socialism begin to build. The book’s characters still regard the nationalization of the San Sebastian Line, along with the creation of “People’s States” all over the world as a faraway event. For most readers, Communism is a similarly remote threat. But Rand had firsthand experience with the effects of nationalization and the creation of a Communist state, and her hatred of the system is more than just ideological. Throughout the novel, threats become more and more immediate. Rights are gradually eroded, and individuals give themselves up to the group until the government gains control of everything and destroys society in the process. The passage of the Anti-dog-eat-dog Rule illustrates the mistakes that occur when individuals submit to majority rule. Dan Conway knows the rule is wrong, morally and economically, but he feels he has no choice but to abide by the majority’s decision. In effect, he surrenders his mind to the group and allows himself to support the destruction of his own business. For Rand, nothing could be worse than the idea that a rational man must subordinate himself to an irrational group.
Some important mysteries are introduced in these chapters. We learn that Francisco has been one of the most successful businessmen of all time. His endeavors are so successful that Jim willingly risks millions of dollars on his unproved mines. When Dagny points out that Francisco is no longer the man he was, having degenerated from unlimited potential to a playboy’s life of decadence, we learn that she has known him well in the past. The questions raised for the reader are: Why would such a man choose to squander his talents? Why do so many talented men like him continue to disappear? Where do they go? Why do they seem to vanish just when they are needed most, as did McNamara the contractor? Who is the man Eddie dines with in the cafeteria, and why is he so interested in Dagny?