Power and the Market
Talking to the left.
A running theme of these columns over the last 18 months has been how we libertarians communicate, particularly with the contemporary left. We often talk past each other because we work from different analytical frameworks; the questions and issues we think important do not always overlap. Libertarians have a long list of things that the American left should take more seriously, but it’s also true that our friends on the left have a similar list of their own.
Probably near the top of the left’s list is what they see as a failure by libertarians to take seriously the pervasiveness of power relationships in human interaction. By power, I mean the ability of one person to direct the activities of another, whether explicitly or subtly. One way of framing this criticism is that we only see power as political and are either blind to or dismissive of it in other arenas, especially the market. One of my prized possessions is an autographed copy of Murray Rothbard’s book Power and Market. He inscribed it with a little note that captures this view concisely: “For the market and against Power.” That inscription, as well as the very title of his book, suggests that there is a dichotomy between markets and power, with the latter being absent from the former and present only in politics.
Power Omnipresent
This view seems to me to fly in the face of the reality of the market, where power is also omnipresent. It also ignores a variety of other realms of human interaction where power is present, for example, within the family and romantic relationships. In the market the relationship between employer and employee certainly involves the exercise of power. Libertarians look at situations where employees are unhappy yet don’t leave jobs (or where spouses are abused yet don’t leave their relationships) and often too quickly say, “Well, that’s their voluntary choice,” ignoring that the dynamics of the workplace or the family may involve exercises of power that lie outside the realms of politics or physical violence.
Rather than ignore non-State forms of power, libertarians should readily acknowledge those realities but then use the items on our list of what the left overlooks to ask what the implications are. First, the existence of “private” power does not necessarily make “public” power the appropriate solution. Many on the left might argue that firms exercising power undercompensate their employees and therefore government should pass minimum-wage and/or mandatory-benefits laws. But does this exercise of public power solve the problem? The standard economic analysis of such laws would suggest not, once we consider the unintended consequences, such as more unemployment or reduced hours (as well as reductions in noncovered benefits already provided) among the very people the law is supposed to help.
Monopoly Power
By its very nature political power is centralized and monopolized, and this makes it difficult to fine-tune. By contrast the power at play in markets is decentralized and competitive, although no less real. It’s true that firms exercise real power over their employees, but it is no less true that employees have alternatives, however weak, not to mention that competition among employers checks the power of any individual firm. The left has to explain why employees are ever bid away if private power cannot be checked by the profit-seeking of other firms. Such competitive checks on power are far weaker in the political realm, even in a federalist system.
Moreover, to theorize that public power is a check on private power rather than its handmaiden ignores centuries of evidence of the role governments have played in serving the interests of the economically powerful. As I have argued before, this is a feature not a bug of government intervention. When John Kenneth Galbraith argued in the 1950s that government regulation could serve as a “countervailing power” against large corporations, he was either naïve or ignorant of the corporatist origins of much regulation already in existence.
The ultimate countervailing power is not the State but the combination of market competition and social activism. In a free society unions can play a countervailing role as well, though not in partnership with the State. Offering alternatives, organizing collectively, and using boycotts, ostracism, and other forms of social pressure are all ways of limiting power exercised problematically in the market. And as Ludwig von Mises argued, in a market economy it is consumers who hold the real power because their preferences direct the behavior of resource owners.
No society can ever be free of power. The question for the left should be the comparative one: Under what set of institutions will private power do the least damage? Asking that question recognizes the reality of private power and provides libertarians a way to respond to the left without dismissing their legitimate concerns.
Comment by Bruce on 2 June 2011:
Well said! “No society can ever be free of power.”
Also worth considering during debate with the left is this: A decentralized, competitive society has a certain amount of chaos and inefficiency – a small price to pay, we believe, for the individual freedom and prosperity it affords. What’s the most efficient and orderly form of governance? A dictatorship!
Comment by Charlie on 2 June 2011:
Like Bruce, I think the last paragraph summed up everything very neatly.
Power, if weilded badly, can cause great damage. All of us need to consider where does it cause the least amount of trouble, and do what we can to move it to that spot and keep it there until time or experiences prove otherwise.
Comment by Beth on 2 June 2011:
This was a very good article. I am definitely applying the counsel in it with my family.
I agree with the statements by the first two posters that power in society is the norm, and of course many folks, especially on the left are very uncomfortable by that. I think that is an offshoot from the left’s complete aversion to inequality. Inequality produces some who have more power than others. The left in general fights to reduce inequality in the hopes of “evening” everyone out and thus there is no one that has power over others.
Except of course, the government.
Pingback by Four Links | Bleeding Heart Libertarians on 2 June 2011:
[...] Steve Horwitz at The Freeman on Power and Market [...]
Comment by Troy Camplin on 2 June 2011:
This puts Nietzsche’s will to power in proper context as well. Nietzsche was definitely in favor of decentralized power — he argued against socialism and state power repeatedly precisely because they undermined these private power relations. This also helps put the postmodernist concern with power (appropriate, since it is derived from Nietzsche) in proper context as well.
Centralization of power is a far worse situation than decentralization of power. Great points!
Comment by Jerry on 2 June 2011:
Excellent article Steve. Keeping this in my mailbox for future reference in my debates with those who would promote government intervention, control, and power.
Comment by Daniel J. D'Amico on 2 June 2011:
Steve, a great article as usual, but I really hate unions.
Who needs unions when there’s yelp?
Why do we need collectivized social activism? Free market anti-capitalists, left libertarians, and bleeding heart libertarians often articulate these appreciations of non state / free market unions. But are they in part describing fictional entities? I agree unicorns are awesome, but they don’t exist. And in a world where they could exist, we probably wouldn’t need them and they might even do harm.
Yes, it is theoretically possible to have a union unsupported by state power, totally voluntary and collectively organized towards a common goal of increasing working conditions, wages or whatever. But what is the likelihood that such a group will be effective at reaching that goal compared to other channels of action?
To the extent that union members get value from solidarity, that value will cloud their ability to recognize the (potentially negative) influences that union actions have upon real outcomes. The hotter the girls in your union are, the more you continue to support it regardless of whether your working conditions improve. When you get enough people together motivated by zeal rather than results you have the same kind of power that your article is rightly concerned about.
Unions, even voluntary ones, seem comparably prone to constructivist errors as are central planners and democratic voting processes.
We don’t need collectivized social activism but we do need coordinated social activism. What we need are institutions that coordinate social preferences in otherwise inarticulate-able ways – like prices do. Collective action organized by union committees etc. hasn’t done this well in the past and I doubt it will in the future.
IMHO the union model is the wrong horse to back. Cool kids today don’t join unions nor should they, they go online. Rogue advertising, coordinated shopping, user reviews, micro financing, social media and good old market competition have done in the past and are doing more today for lowering consumer prices, increasing product quality and promoting wages and working conditions than unions seem even capable of accomplishing.
Rather than providing a constrained and nuanced appreciation of unions for the sake of finding common ground with the left, let us identify the real mechanism of social change. Knowledge is power. Those systems that allow for the greatest distribution, communication, sharing, replication and coordination of knowledge best check the negative effects of power and best promote the extension of the division of labor.
A charitable reading of Rothbard – markets kick butt at the above and are probably the best known arena for developing such knowledge processes through long lasting and robustly applicable institutional forms.
Comment by Winton Bates on 2 June 2011:
Steve: The analytical framework you are using here seems to be relevant to considering corporate social responsibility. I tend to deny that there is such a thing, but I observe many firms behaving as though it exists. They know that in an environment where there is potential for collectivised social activism it is in shareholder’s interests for firms to have a reputation for social responsibility.
Comment by Allen Dalton on 2 June 2011:
Murray evidently had a method to his autographing books. My prized possession is a copy of Man, Economy, and State that he inscribed “For Man & economy, and against the State.”
Pingback by Links « Economics, Law and Institutions on 3 June 2011:
[...] Steve Horvitz has a piece on Power and the Market in lattest issue of The [...]
Comment by Stephan Kinsella on 3 June 2011:
Steve, I appreciate your post, but a few mild objections.
“Libertarians have a long list of things that the American left should take more seriously, but it’s also true that our friends on the left have a similar list of their own.”
Yes, they do, but I think we ought not treat this as symmetrical. We are libertarians after all, and should realize the libertarians are basically right, in their suggestions for what the left needs to learn. And because as libertarians we see leftism as horribly flawed, we ought not think their recommendations to us are as legitimate as ours to them. In short we should not be relativists.
“Probably near the top of the left’s list is what they see as a failure by libertarians to take seriously the pervasiveness of power relationships in human interaction. By power, I mean the ability of one person to direct the activities of another, whether explicitly or subtly. One way of framing this criticism is that we only see power as political and are either blind to or dismissive of it in other arenas, especially the market.”
But we are libertarians. We realize there is “power” in the market and in social relations, but not in a way that is relevant to our concern as libertarians. I reject the left-thick-libertarian view that our main concern is “power” or “authority” or “oppression” in general. No, as libertarians, our concern is only a specific type of “oppression,” namely that done by means of aggression. We can readily admit there are non-aggressive types of “power,” “dominance,” “authority” in private society or the market, since we do not object to it as libertarians (though we might, as humans, based on other values we might hold–values which are not mandated by our being libertarian).
“One of my prized possessions is an autographed copy of Murray Rothbard’s book Power and Market. He inscribed it with a little note that captures this view concisely: “For the market and against Power.” That inscription, as well as the very title of his book, suggests that there is a dichotomy between markets and power, with the latter being absent from the former and present only in politics.”
Yes, because he is writing as a libertarian who opposes aggression–the violence, the initiation of force, whether private or institutionalized, against the body of private property of individuals.
“This view seems to me to fly in the face of the reality of the market, where power is also omnipresent.”
I think you just engaged in (unintentional, no doubt) equivocation. You are using power in 2 ways: first, as a synonym for aggression (in the Rothbard comments); then, as a more general concept that includes both aggressive and non-aggressive forms of power. The libertarian does not object, qua libertarian, to power-in-general, any more than we object to the use of force or violence per se–we object to aggressive or initiated force or violence, for example, but not to defensive force. In fact in the absence of the state and its aggressively imposed institutions and power relations and dominations, we can expect private authority structures and institutions to emerge in a private and market society to fill the vacuum of what the state was providing (in an illegitimate and violent way) before. So in a sense if we are thick at all we ought to see the value of private authority/power relations and institutions, since these are preferable to aggressive ones; and unless one is some kind of naive egalitarian, we have to realize there will always be “power” or “authority” relations in society–the question is: do we have private, natural, market-based ones, or state-imposed ones.
” It also ignores a variety of other realms of human interaction where power is present, for example, within the family and romantic relationships.”
It doesn’t ignore it exactly, it’s just that this is non-aggressive power so it’s not what the libertarian qua libertarian objects to.
“In the market the relationship between employer and employee certainly involves the exercise of power.”
But we libertarians are not opposed to power as such (implicitly defined in this general way).
“Libertarians look at situations where employees are unhappy yet don’t leave jobs (or where spouses are abused yet don’t leave their relationships) and often too quickly say, “Well, that’s their voluntary choice,” ignoring that the dynamics of the workplace or the family may involve exercises of power that lie outside the realms of politics or physical violence.”
Why is it “too quick” to say this? From the libertarian standpoint, it is voluntary, and so there is not “problem” in that justifies a forceful response–that is, there are no rights being violated. That is not to say we as humans cannot have opinions and evaluations about such situations, but there is an intellectual division of labor, after all, and libertarians specialize in identifying the key *political* problems, which is aggression, the use of force against innocent people without their consent; the violation of individual rights. It is easy to see that the employment relation in a free market does not involve aggression so it is certainly correct to observe that because it is voluntary on the part of the employee, there is no rights violation and no political problem. Once the libertarian establishes this, his job as libertarian is done. What is wrong with this?
“Rather than ignore non-State forms of power, libertarians should readily acknowledge those realities but then use the items on our list of what the left overlooks to ask what the implications are.”
Okay, I like this point. However, in acknowleding “power” we have to be careful not to fall into the left and left-libertarians’ trap of equivocation. Once they get us to admit we are against Power (of the state, and criminals, in Rothbard’s sense), and to recognize there are other forms of “power” in the market, then they will say “aha well why do you oppose legal rectification of the power you have just acknowledged!” See, they have won the game by subtly getting us to frame our libertarian principles in terms of objection-to-power. The left-libertarians and thickers sometimes want to do this too. But of course we are not, qua libertarians, opposed to power-in-general. We are opposed to aggression. This is the danger of careless use of terms; it can lead to confusion, disingenuity, and equivocation.
” First, the existence of “private” power does not necessarily make “public” power the appropriate solution.”
I don’t know why you hedge your libertarian principles here with the “not necessarily.” I would say ““private” power does NOT make “public” power the appropriate solution.” I mean I understand that if we are clear about our libertarian principles, this will “alienate” many lefties–but this is because they are not libertarian! They ARE willing to use state power against private actors who are not violating rights; that is, they are quite willing to condone institutionalized aggression. One reason for this, aside from their economic illiteracy, hypocrisy, inconsistency, emotivism, and insincerity [see the work of R.J. Rummel; Leftism Revisited: From De Sade and Marx to Hitler and Pol Pot, by Erik Von Kuehnelt-Leddihin; Sowell’s Vision of the Anointed], I think, is precisely because they use power too generally and fail to distinguish between private “power” and aggression-power. If we give in to their own sloppy conceptualizing and political “theorizing” then we are just enabling them to continue making the same mistake of being willing to use institutionalized state force not only against real aggression, but also against non-aggression.
“No society can ever be free of power. The question for the left should be the comparative one: Under what set of institutions will private power do the least damage? Asking that question recognizes the reality of private power and provides libertarians a way to respond to the left without dismissing their legitimate concerns.”
Again, I think you have a valid point, but I am leery of the implication of your first sentence, which seems to say that power is bad. YOu seem to be saying: “look, I agree that ALL power is bad, but we cannot get rid of it unfortunately; but we ought to realize aggressive-power is worse and the only way to stop private-power is to use aggressive power, so unfortunately we have to refrain from using aggressive-state-power to stop (bad) private-power, and have to use peaceful, private means to oppose private-power.”
The problem is that it assumes all private power (or authority, whatever) is bad. But the libertarian qua libertarian does not assume that ANY private power is bad at all; that is outside his province. So if you talk about the merits of private power, you are speaking as something other than a libertarian. Which is fine; we are not just libertarians. But if we are talking about private power, I think a more sensible view is that SOME private power is “good” (natural elites and leaders, visionaries, family structures, some aspects of employment, and so on) and some is “bad” (say, racial discrimination in employment decisions). So I think if you want to talk to the left you have to not only make the point you suggest, but also make it clear that not ALL private authority/power relations/structures/institutions are even bad at all; some are good or even necessary.
So in that case I would modify your last comment to be something like this:
“No society can ever be free of power; nor should it. All aggressive (state) power is bad; private power is never a rights violation, though some of it is immoral or bad, while some is neutral, and some is desirable or commendable. The force of law, whether state or private, should be limited only to actual aggression (private-criminal-power), and never to non-aggressive private power, even if it is “bad.” The question for the left should be first, to identify what types of power are aggressive, and which are not; and of the latter, which are bad, and which are not. They should realize that institutionalized state power aimed at non-aggressive private power (even if it is “bad”) is worse than the bad-private-power they are aiming at. They should realize that the legal power should be restricted to only prohibit actual aggression, and them work for private responses to the subset of private power relations that are “bad”. In this way we recognize there are legitimate concerns about one subset of private power, but we recognize also that this cannot be fought with the even more-bad use of state legal power, but only with peaceful, private means.”
Pingback by links for 2011-06-03 « Overton’s Arrow on 3 June 2011:
[...] Power and the Market | The Freeman | Ideas On Liberty (tags: power markets right-left government culture) [...]
Pingback by Vulgarism, Left-libertarianism, Taco Bell on 4 June 2011:
[...] Existing). These 2 are below, plus a related comment of mine on Steve Horwitz’s post Power and the Market: Talking to the [...]
Comment by Jim Henshaw on 4 June 2011:
re this: “Many on the left might argue that firms exercising power undercompensate their employees and therefore government should pass minimum-wage and/or mandatory-benefits laws.”
I think it is a mistake to concede the premise that firms can exercise power and thus undercompensate their employees, and blithely move on to a utilitarian discussion of how best to address that alleged abuse of power.
Unless someone is a slave and chained to their work station and forbidden to quit, they are not being “undercompensated”. They may not be very good at negotiation, and not be very motivated to look for other employment, and thus may be getting paid less than if they possessed these job skills, but that is not “undercompensation”. That is a failure to take classes (or talk to acquaintances good at negotiation) that would teach them the skills necessary to get paid the salary they desire to make.
Never concede a false premise.
Pingback by Power and the Market | The Freeman | Ideas On Liberty | Prokleta avlija on 5 June 2011:
[...] Power and the Market | The Freeman | Ideas On Liberty. [...]
Comment by Rocco Stanzione on 13 June 2011:
I agree with Kinsella here but I’d go a step further. People use words like “power”, “authority” and “leadership” to conflate things that libertarians ought to be able to easily distinguish – voluntary relationships and coercive ones. The employer’s “power” over his employees is not at all analogous to political power. He has provided them with what they have revealed by their choices to be the best of their available, known alternatives. The Left sees this and finds evil in his failure make this best alternative better still, when he would rather just barely out-compete his employees’ less favorable alternatives (other employers, subsistence agriculture, etc.) If I offer you $500 for an hour of your labor, am I exercising “power” in any meaningful way when I refuse to also offer you a comfortable chair to sit in while you work? If the market for your skill set is such that you can command $1,000 an hour you’ll refuse my offer – are you exercising power over me in this case? Is there any reason to use the word here?
The abused wife on the other hand *is* analogous to political power, as she’s a victim of violence, of the initiation of force. It’s unfortunate that the nomenclature we have to work with lends itself so well to the conflation of radically different phenomena, and so poorly to highlighting the crucial distinctions.
Pingback by Freedom and the Market: A Critique of Steve Horwitz | The Social Rationalist on 1 July 2011:
[...] his recent Freeman article, Steve Horwitz, claims that the contemporary left properly recognizes the existence of power in a [...]
Comment by Jake Roundtree on 1 July 2011:
Check out my critical response to this piece by Horwitz. My article contains some elements of my early attempt at an ethical interpretation of the firm.
Freedom and The Market: A Critical Response to Steve Horwitz
http://www.jacobroundtree.com/2011/07/01/freedom-and-the-market-a-critique-of-steve-horwitz/