John Galt is Prometheus who changed his mind.
The order for Taggart rail is the first failure in the history of Rearden Steel. Without the copper, there is nothing Rearden can do, and without the metal, Taggart cannot fix its crumbling mainline track. There are more accidents, and shippers who cannot get goods through go out of business. The economy spirals quickly downward.
Colorado has become destitute, and virtually no businesses remain on the Rio Norte Line. At a board meeting, Dagny is forced to close the line and use the Rearden Metal to repair the worst problems on the main line. A representative from Washington tells Jim that in order to get the permits he needs, he will have to offer Wesley Mouch something. As she leaves the meeting, Dagny finds Francisco D’Anconia waiting for her. He asks her how long she is willing to continue working for people who do not deserve her. She tells him that whatever the cost, she cannot abandon the railroad.
Jim Taggart finds himself pulled in different directions by the politicians and looters, and must find something valuable to use to curry favor. The government wants no trouble from Rearden when they announce another new law, so Jim seeks information about Rearden that might help. He asks Lillian Rearden to dinner. She agrees to help. After some investigation, Lillian discovers that Dagny is Rearden’s mistress. When she confronts him, Rearden refuses to end the affair, saying he would sooner see Lillian dead.
Wesley Mouch, Jim Taggart, Orren Boyle, Dr. Floyd Ferris, Mr. Weatherby, Fred Kinnan (head of the Amalgamated Labor of America), and Mr. Thompson (the Head of State) meet to discuss Directive 10-289. This set of laws is designed to freeze the economy in its present state and prevent further decline. Although they fear the public’s response, they vote to enact the laws.
According to the directive, workers must remain in their present jobs or face prison, and all businesses must remain in operation. All patents and copyrights must be turned over to the government by means of voluntary Gift Certificates. No new devices, inventions, or products can be produced. Every company is required to produce the same amount of goods as the previous year, no more and no less. Wages and prices are to be frozen, and every citizen is required to spend the same amount of money as in the previous year. All research departments must close except for the State Science Institute. To oversee the law, the Bureau of Economic Planning appoints a Unification Board, whose rulings are final.
Dr. Ferris notes that Hank Rearden will fight them for his patent, but Jim assures Mouch that he can control Rearden in exchange for Mouch’s raising his freight rates before the directive freezes all prices.
Along with many other people around the country, Dagny immediately resigns when she learns of the directive. She goes away to a lodge she owns in the country. Dozens of industrialists disappear. Even the Wet Nurse is outraged at what the government has done. He has not been reporting Rearden’s illegal activities. His work at the mills has made him begin to reject the ideologies he has been taught. Dr. Floyd Ferris comes to see Rearden to demand he sign over the patent for Rearden Metal, now to be called “Miracle Metal.” When Rearden refuses, Ferris shows him evidence of his affair with Dagny and threatens to ruin Dagny’s reputation by making it public. He tells Rearden it was Lillian who sold him out. Rearden blames himself for not divorcing Lillian and making his relationship with Dagny legitimate. But he cannot see her destroyed, so he signs.
The country’s economic decline is the logical result of recent events. In a vast ripple effect, the problems are compounded. A lack of copper means Rearden cannot make his metal. As a result, Taggart cannot fix broken track and must run limited service. This leads to shippers losing customers, causing them to go bankrupt, leaving Taggart with fewer customers, forcing them to make further cuts in service, and so on. Everything in an economic system is connected. By outlining these related failures, Rand demonstrates how interference in any part of an economy has consequences on every other part of it. To Rand, the only legitimate role for government in an economic system is noninterference.
The politicians seem surprised at the spiraling economy and never entertain the idea that their policies may be to blame. As consummate bureaucrats, their only response is to enact even more policies, culminating in the overreaching Directive 10-289. The absurd act is riddled with contradictions and double-speak, such as the order that inventors be compelled to “voluntarily” give up their patents. In blindly piling irrational law upon irrational law, the politicians reveal their unwillingness to see the reality before them. They have become so used to feeding off the productive elements in society that they have not noticed that these elements are no longer there. Among the looters, only the Wet Nurse can see how insane the directive really is. He has begun to see that the ideas he believed in were absurd. For some time, he has been keeping Rearden’s illegal activities to himself, partly out of personal admiration for Rearden. Now he can no longer support the system he has been part of. The Wet Nurse is a notable character in that he is the only one of the looters to have such a realization and to accept the reality of what is happening.
Rearden’s transformation is nearly complete. He now understands that he follows the code of life and creative production while the looters, by seeking to destroy his ability to produce, follow a code of death. By allowing them to ensnare him in their false, self-sacrificing morality, he has unwittingly helped them. This knowledge is liberating for him, but there is one more price he must pay. He knows now that his affair with Dagny is a noble and good thing, and he wishes he had been free enough to see it sooner. He does not care how the public views him, but he will not allow Dagny to pay the price for his mistake. He signs the Gift Certificate to protect her, but it is the last time he will do anything to help the looters.