Is Ayn Rand falling out of fashion?

The financial crisis may claim another victim: Ayn Rand.

The novelist has long had a following in more conservative, libertarian-minded quadrants of the corporate, economic and political worlds. But the profound impact of the housing crash on the economy, and the questions that the collapse raised about capitalism, may be loosening Rand's grip.

Partly, that's because of the recent struggles of noted admirers of Rand. Witness the woes of Sears CEO and hedge fund baron Edward Lampert, who reportedly once gave out copies of Rand's "Atlas Shrugged" to investors. Sears has crumbled under Lampert, with shares of the retail chain plummeting from $120 to $50 since 2007.

After Lampert engineered K-Mart's takeover of Sears in 2005, he modeled his vision of how the company should be run on Rand's "Objectivist" idea, according to Bloomberg Businessweek:

Lampert runs Sears like a hedge fund portfolio, with dozens of autonomous businesses competing for his attention and money. An outspoken advocate of free-market economics and fan of the novelist Ayn Rand, he created the model because he expected the invisible hand of the market to drive better results. If the company’s leaders were told to act selfishly, he argued, they would run their divisions in a rational manner, boosting overall performance.

It seems sound on the surface, but it isn't. In business theory, there is a concept of suboptimization. It means that a company has optimized its parts at the expense of how the whole runs. A simple example is inventory. Cut inventory to next to nothing and a company might free up cash that could be put to other more profitable uses. The people managing inventory may even get plaudits. And yet, without enough stock, any sudden jump in sales means customers have to wait for orders that they might end up taking elsewhere. Those company loses business. Inventory was effectively suboptimized.

People also may not act rationally, turning the power of free markets on its head. Former Federal Reserve chief Alan Greenspan, a Rand acolyte in his professionally formative years, had always professed his belief in human self-interest and the virtue of markets unfettered by regulation -- until the subprime crash made such notions look deeply naive. 

In 2008 testimony before Congress -- three years after stepping down as Fed chairman and after taxpayers were forced to come to the rescue of Wall Street -- he famously confessed that "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity, myself included, are in a state of shocked disbelief."

His rude awakening has turned into backpedaling on his admiration for Rand in the last few years, said Gary Weiss, author of "Ayn Rand Nation: The Hidden Struggle for America's Soul."

Greenspan is "scurrying for cover," Weiss said in an interview with CBS MoneyWatch. "He's basically lied about his record of support for Rand. Flat out lied."

More recently, Rep. Paul Ryan also seems to have tried to distance himself from Rand. The Wisconsin Republican in an interview with The National Review called an "urban legend" comments that he embraced Rand's philosophy of Objectivism:

"I, like millions of young people in America, read Rand’s novels when I was young. I enjoyed them," Ryan says. "They spurred an interest in economics, in the Chicago School and Milton Friedman," a subject he eventually studied as an undergraduate at Miami University in Ohio. "But it’s a big stretch to suggest that a person is therefore an Objectivist."

Ryan said he rejects her philosophy. And yet, in a 2009 interview with the Milwaukee Journal Sentinel, the lawmaker credited Rand's works for his motivation to go into politics.

In the case of Ryan, who describes himself as a devout Catholic, trying to embrace Rand while ignoring her philosophy's negative view of religion is difficult. But then, Rand has proven problematic for many politicians.

"It's deeply atheistic," Weiss said. "It's pro abortion. Its position on immigration reform is much closer to the Democratic position. Virtually every politician that has supported Rand ends up backpedaling because of the toxic nature of the philosophy. If you eat the whole enchilada, you're going to find it laced with strychnine."

Similarly, Weiss says that businesspeople often "cherry-pick" Randian ideas that support their views while ignoring her more radical views. The latter includes what Weiss describes as her militant opposition to "any form of government other than the courts, the police and the military."

The incongruity is clear. As much as corporate chieftains complain about regulation, their companies rely heavily on government for R&D, to protect intellectual property, promote international trade and myriad other reasons.

But Rand's influence may be on the wane even in the upper echelons of American business. Dominic Barton, global managing director of McKinsey & Co., recently called income inequality the biggest threat to capitalism. That is as non-Randian a position as one could imagine. It is also striking coming from the head of what many consider the top management consulting firms in the world and that, in its work with scores of large corporations, has long sung the gospel of free markets.

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.