Economic power vs. political power — VOICES for REASON

What follows are three examples of a common fallacy:

1. The FTC brings an antitrust suit against Intel on the grounds that, among other accusations, the company coerced its customers into buying only its CPUs and GPUs.
2. Congress passes legislation preventing broadcasters from forcing TV viewers to listen to “excessively loud” commercials.
3. The government passes laws to stop health insurance companies from forcing high-risk customers to pay higher insurance premiums.

Each of these is an actual example of the fallacy of equivocating between economic power and political power–of treating as identical the power of private individuals or businesses to engage in trade and the power of the government to use physical force. Understanding this fallacy is a crucial step in untangling these and many other issues.

While there is a superficial similarity between these two types of power–both Intel and Obama have a lot of resources at their disposal and a consequent wide capacity for action–they are, in fact, radically different. Economic power is the power of market participants to offer other market participants rewards, while political power is the power of government agents to mete out punishments. Walmart has the power to offer you a shirt, a TV, or a job; politicians have the power to forcibly stop Walmart from offering you anything.

Ayn Rand explained the distinction this way:

What is economic power? It is the power to produce and to trade what one has produced. In a free economy, where no man or group of men can use physical coercion against anyone, economic power can be achieved only by voluntary means: by the voluntary choice and agreement of all those who participate in the process of production and trade. In a free market, all prices, wages, and profits are determined–not by the arbitrary whim of the rich or of the poor, not by anyone’s “greed” or by anyone’s need–but by the law of supply and demand. The mechanism of a free market reflects and sums up all the economic choices and decisions made by all the participants. Men trade their goods or services by mutual consent to mutual advantage, according to their own independent, uncoerced judgment. A man can grow rich only if he is able to offer better values–better products or services, at a lower price–than others are able to offer.

Wealth, in a free market, is achieved by a free, general, “democratic” vote–by the sales and the purchases of every individual who takes part in the economic life of the country. Whenever you buy one product rather than another, you are voting for the success of some manufacturer. And, in this type of voting, every man votes only on those matters which he is qualified to judge: on his own preferences, interests, and needs. No one has the power to decide for others or to substitute his judgment for theirs; no one has the power to appoint himself “the voice of the public” and to leave the public voiceless and disfranchised.

Now let me define the difference between economic power and political power: economic power is exercised by means of a positive, by offering men a reward, an incentive, a payment, a value; political power is exercised by means of a negative, by the threat of punishment, injury, imprisonment, destruction. The businessman’s tool is values; the bureaucrat’s tool is fear.

Thus, Intel cannot coerce anyone into selling or buying its products–it can only offer its products for sale under certain conditions, which others are free to accept or not. TV stations cannot force anyone to listen to loud commercials–they can only run commercials, which viewers are free to watch or not. Health insurance companies cannot make anyone pay anything for insurance–they can merely offer insurance at a price, which customers are free to pay or not. And in all of these cases, choosing not to accept the offer leaves one free to accept a different offer from a competitor.

By branding voluntary actions “coercive,” the government paints businesses as bullies, from whom it will “protect” us by passing laws that are actually coercive, such as antitrust laws and ObamaCare.

Without grasping this distinction–and seeing why it is so crucial–it’s not possible to understand what political freedom means, let alone why it’s desirable. I encourage anyone who is interested to read an outstanding article on the subject, “The Dollar and the Gun,” by Ayn Rand Institute board member Harry Binswanger.

image: flickr