Economic Power and Intervention

Economic Power and Intervention
by Joseph Rowlands

A common view of economic relationships is that a person isn't really free if they have no real choice in a decision. When the stakes are high and the options are limited, a person will have to take the most attractive option. He has no choice. And if he has no choice, it really isn't freedom. Even though no coercion is apparent, has actions can not described as voluntary. "A hungry man is not free".

This view of economic freedom acts as a foundation for another strange concept. It is the concept of economic power. In this view, when some people have no choice in an economic deal, they are in fact coerced. The other party, who has more wealth and presumably needs the deal less, has economic power. He is able to utilize is superior position to coerce others into making a poor deal.

A business that offers a low salary to employees, like third world factories, are said to be coercive. A man who sells goods during an emergency is a profiteer. An employer is always viewed as more powerful than an employee. The rich are always coercive and the poor are always coerced. Business is a perpetual system of bullying and extortion. Do as I say, or I'll let you starve.

These views are all horribly wrong. The man who is hungry is not coerced. His hunger is not caused by others. Poverty is a state that occurs naturally without needing others to cause it. It takes action in the form of production to avoid poverty. Without production, without action, poverty arises on its own. It is not something created by people. It is a lack of creation. It is the absence of production.

Nor is hunger or poverty proof that a person isn't free. His choices may not be very good, but they are still choices. To say that someone is not free because he is poor is to shake your fist at reality. It is devoid of content. If the poor man is not coerced by others, but is just choosing between options, his choice is voluntary. He may wish he could have better choices, but he can't suggest that someone is making him choose one way or another. To force someone to choose one way over another, to coerce him, is to threaten him with some kind of attack on his life if he does not act in a way that you want. If no such threat exists, he is still free.

It's also wrong to say that he is coerced, though economic power, to act in a particular way. What has actually happened is a man with almost no good options is made a relatively attractive offer. This is not coercion. This is not an attack. It doesn't damage his life. It is an offer to improve it. The fact that it is an attractive offer compared to any alternative is what is viewed as coercive. He "can't say no" to the offer. But this is flowery language. He could say no. He is free to. Nobody can stop him, nor do they threaten him. He is free.

The fact that he has a much better option should be viewed as a positive, instead of as a negative. Instead of seeing a fundamental conflict of interests between employer and the employee, one where the winner must be the one with the "economic power", it should be seen for what it is. A potential to trade for mutual advantage. Both sides benefit. And if either side decided they didn't want to continue with the relationship, they are both free to walk away.

Economic power is an idea that tries to ignore the difference between offering someone a better option than he otherwise has, and threatening to use violence against him. Economic power is the power to make beneficial offers. It is the offering of a reward for interacting. And yet it is treated equivalently to political power, which is the power threaten and coerce. It is the offering of a punishment for not interacting.

These views of "freedom" and "economic power" have consequences. The government takes actions it believes will remedy these situations. If an employer pays an employee, and they both agreed that it was mutually beneficial, the government may come in and try to change the nature of the agreement.

A libertarian would argue that the fact that the exchange is voluntary gives it moral standing. It has legitimacy. Each side benefits, and each side is free to walk away. Someone interfering with this exchange will necessarily delegitimize it. An intervention by the government will destroy the moral foundation of the trade.

Those who believe that economic power is coercive have a different view. For them, no exchange can be voluntary. Any inequality in economic resources will mean that one side is not really free. Therefore, there is no legitimacy to the exchange. It has no moral standing.

To make a moral claim about the exchange, they would need to examine the details of the exchange and decide whether it was sufficiently beneficial for the one with less economic power. If it met their expectations, they might leave it alone. But if it was "unfair" in their eyes, it would be entirely appropriate for the government to intervene. Instead of viewing the exchange as morally legitimate on its own due to its voluntary nature, they would see it as necessarily coercive and needing to be set right. Instead of an unwarranted intervention in a voluntary exchange, they would see it as a morally necessary correction to a coercive action. To them, it would be a matter of justice.

Of course, this opens another question. If they are going to analyze the exchange to determine if it is "fair" or not, what possible criteria would they use for that judgment? If both sides profited, and the "poor" side profited more than the "rich" side, would it be fair? Possibly not. The rich side would continue to get richer, creating more injustice. Maybe it is only fair if the rich side is forced to lose money on the venture.

Or maybe they take a Marxian view of the employee and employer, and view all of the profit from such an exchange as being the product of the employee, who deserves all of it.

There are countless possible ideas people might have for what "fair" and "unfair" is. None are legitimate, and most are slippery slopes. A preference to give "a little more" to one of the parties has no ending point, except when there is nothing more to give. And none of this is any more than outsiders substituting their own preferences for those of the people involved in the exchange.

Those who recognize it as a voluntary exchange would have an easy answer. Both sides benefit, and either side can walk away. The question of who benefits more is unimportant, and ultimately decided by the participants of the exchange. There's no place for second-guessing, and there's no rational criteria for doing it even if you want to.

Regardless of the difficulties in deciding how to reorganize a trade, these views of economic power and the poor not being free necessarily lead to government intervention. Economic exchange, in this view, is necessarily coercive and illegitimate. Only some other action, taken by a coercive government, can remedy it and end the injustice. While some may be hesitant to interfere if every exchange, the view that every action taken in a free market is inherently unjust must inevitably lead to greater and greater interventions and regulations.

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