All Commentary
Thursday, January 1, 1981

Freedom or Power?

Mr. Summers is a member of the staff of The Foundation for Economic Education.

One hears a lot of talk about freedom. This is especially true when the subject is public policy. But the closer one listens, the more one finds that people aren’t talking about freedom at all. They are talking about power.

We had best define our terms. Freedom is the absence of coercive intervention in peaceful activities. In the words of F. A. Hayek, freedom is “the state in which a man is not subject to coercion by the arbitrary will of another or others.” Or, as Milton Friedman phrases it: “Political freedom means the absence of coercion of a man by his fellow men.”

Power, on the other hand, is the ability to act. It is the capability of doing something—peacefully or otherwise. If freedom refers to what a person may do, power refers to what he can do.

Most people, unfortunately, fail to distinguish between freedom and power. As a result, many coercive programs have been proposed and enacted in the name of freedom. In fact, some of these programs are nothing more than governmental transfers of power.

Freedom from Want

For example, many people propose that the government should guarantee “freedom from want.” By this they mean that everyone should have sufficient wealth to meet his basic needs.

“Freedom from want” has a strong emotional appeal. It is frequently used as a rallying cry by those favoring national health insurance, public housing, food stamps, and other welfare programs. But before this concept is embraced any further, there are several questions that should be asked.

Does everyone deserve freedom from want? Do the lazy, the antisocial, and the criminal elements in society deserve, as a matter of right, relief from poverty?

How is “freedom from want” supposed to be guaranteed? Do the means involve coercion—benefiting some by reducing the freedom of others? Will the means achieve their stated purpose—or will they create still more poverty?

Before answering any of these questions, we must ask a more basic question: What does “freedom from want” have to do with freedom?

Referring to our definitions, we see that “freedom from want” is not “the state in which a man is not subject to coercion by the arbitrary will of another or others.” “Freedom from want” is the ability to purchase certain items. This is purchasing power the power (ability) to buy goods and services.

Whether someone has this power may depend on his freedom. But, contrary to popular opinion, a person’s freedom doesn’t depend on his wealth. We will examine these relationships later. For now we merely point out that freedom and purchasing power are not the same thing.

Freedom from Exploitation

“Freedom from exploitation” also has a strong emotional appeal. This little phrase has been instrumental in passing many laws—particularly raises in the minimum wage.

But raising the minimum wage does not give workers more freedom. In fact, it reduces their freedom to bid for jobs. For instance, teenagers may no longer offer to carry groceries for $3.00 an hour when the minimum wage is $3.35. They will remain unemployed while customers carry their own packages.

If minimum wage laws cost unskilled workers their jobs, why are they backed by labor unions? The answer might be a well-meaning but misguided concern for the poor. But we should-bear in mind an often overlooked fact: With low-productivity workers legally excluded from the market, minimum wage laws give high-productivity workers greater bargaining power. They don’t have to worry about competition from cheaper, less productive labor.

Minimum wage laws clearly reduce employers’ freedom to hire unskilled workers. But the freedom to hire isn’t the power to exploit. When a worker freely agrees to a wage rate, he does so because, at the particular moment, that is his best option. From his point of view, he is better off accepting the wage than doing anything else. He is only being exploited when he is being coerced—as when union leaders exploit his forced exclusion from the labor market.

Rent Controls

Fear of exploitation has also been instrumental in passing rent con-trois. These regulations are supposed to protect tenants from “exploitation” by ensuring their “freedom from excessive rent increases.”

Again we must, ask: What does this have to do with freedom?

A rent increase isn’t a coercive threat. It is a landlord’s revised offer to do business—to trade continued use of an apartment for a revised price. As in any other market transaction, consumers (in this case, tenants) are free to accept the trade or walk away from it. Rent increases do not threaten freedom.

But rent increases do threaten tenants’ power (ability) to keep apartments. Rent controls are designed to protect this power. These controls give current tenants the power to keep apartments that prospective tenants would gladly pay more to rent.

Of course, this reduces landlords’ freedom. And, by preventing prospective tenants from bidding for apartments, controls reduce their freedom as well.

Rent controls also reduce landlords’ power to charge “high” rents. But, as we have seen, this power isn’t coercive. And it isn’t arbitrary. It is determined by the supply of rental housing and tenants’ demand. In these terms, the only “excessive” rent is a rent that no tenant will freely pay- one that exceeds the supply and demand conditions set by the market.

Minimum wages and rent con-trois are just two forms of price control. All such controls reduce freedom by abrogating prices peacefully agreed upon in the market. And all create conditions so bad that further moves from freedom are quickly proposed. All this, of course, in the name of freedom!

In 1979, for instance, the Department of Energy held pump prices of gasoline below market- clearing levels. With demand exceeding supply, shortages and long lines soon developed. To eliminate these lines, it was proposed that rationing be imposed so that every driver would be “free” to buy a fixed quantity of gas at controlled prices.

But this isn’t freedom. It is the power to (hopefully) obtain a given amount of gas by preventing other drivers from buying more than the legal limit. Rationing restricts consumers’ freedom by denying them the right to bid for goods and services.

Any government intervention in the economy reduces someone’s freedom—what he may do. The effect of intervention on his power—what he can do—is more complicated. More on this later.

Let us now consider some freedoms commonly viewed as noneconomic—freedom to associate, freedom of speech, and freedom of the press. These cherished freedoms, we shall see, are frequently used as slogans to distract attention from coercive activities.

Freedom to Associate

Freedom to associate is the right to interact peacefully with other consenting individuals. This, to be sure, is a form of freedom—the absence of coercive intervention in peaceful activities. But “freedom to associate” is also used to justify activities that are anything but peaceful.

For instance, in the United States, union workers have the freedom to associate. No one may legally intervene in their peaceful activities. But under Federal law and various National Labor Relations Board and Supreme Court rulings, the government rarely intervenes when union workers prevent nonunion workers from associating with employers. Thus, in practice, “freedom to associate” degenerates into the raw power to exclude nonunion workers—even when the union workers have quit and gone on strike.

Minorities also want “freedom to associate.’ They wish to interact with other people without suffering from racial discrimination. This is an understandable desire.

But we should bear in mind that discrimination isn’t coercion. When the government steps in with affirmative action, it isn’t protecting minorities from coercive intervention in peaceful activities. And it probably isn’t reducing the prejudices of those with whom minorities wish to associate. What affirmative action does is give minorities the power to deal with personnel managers, college deans, landlords, and others on more favorable terms. Affirmative action coerces these people—thus reducing their freedom.

Affirmative action may restrict businessmen’s freedom, but what about their power? Without affirmative action, can’t businessmen arbitrarily discriminate against minority workers?

Not if they want to earn profits. Profits are not earned by arbitrarily hiring, promoting, and firing employees. They are not earned by letting prejudice get in the way of sound business practice. They are not earned by employing anyone but the best person for the job to be done. The much maligned profit motive, regulated by nothing more than free market competition, is the worker’s best protection against arbitrary discrimination.

Freedom of Speech

Even freedom of speech and freedom of the press are sometimes used as covers for power. These freedoms guarantee the right to use one’s property to promote ideas. But some people aren’t satisfied .with this. They demand (and often get) the power to use other people’s property—shopping centers, colleges, radio and television stations—as a forum.

Such people perhaps don’t realize that having a bigger forum—having more property—doesn’t give anyone more freedom. It may, of course, give the owner more power (ability) to set forth his ideas. But it doesn’t make his ideas more compelling, or necessarily win them greater approval.

In a free society, the wealthiest person may not interfere with the freedoms of speech and press of the poorest individual. Nor, in a free market, may anyone interfere with an individual’s peaceful efforts to acquire property. He is free to build a bigger forum.

These few examples illustrate the current confusion between freedom and power. Other examples abound. One has only to be a careful listener and reader to pick them up.

With these examples in mind, let us consider the following questions: What is the relationship between a person’s freedom and his power (ability) to act? Does this relationship vary over time? How does government intervention affect this relationship?

These questions call for a careful look at the meaning of freedom—the absence of coercive intervention in peaceful activities. Most studies, unfortunately, simply point out that the fewer the coercive interventions, the more freedom people possess. Other things being equal, this is true. But what about the range of activities a person may peacefully pursue? A more complete analysis of freedom should incorporate both concepts.

The Range of Options

Thus, our questions are perhaps best approached by considering a person’s options-the alternatives he faces. Viewed in these terms, the more options a person may peacefully pursue without coercive intervention, the greater his freedom. Similarly, the more options he has the Capability of attaining—peacefully or otherwise—the greater his power.

At first glance, it might appear that there is no connection between freedom and power. At most points in time, one can find almost any combination of the two.

Consider, for instance, the different combinations of freedom and power existing around the year 1700. At that time monarchs had great freedom and great power. Nobles attending the throne often had great power but little freedom from the monarch’s arbitrary intervention. Conscripts, serfs, and slaves had little freedom or power. The American colonists had considerable freedom but little power.

In a command society, the combinations of freedom and power remain relatively fixed. As long as the ruler stays in power, he continues to have great personal freedom, his henchmen continue to have great power, and the masses continue to have little freedom or power. The command society is a static society.

In a freer society, however, a dynamic relationship between freedom and power develops. As the American colonists, for example, pursued their affairs in relative freedom, they prospered. Their purchasing powers rose-increasing the number of options they could attain by peaceful means. They acquired more power to engage in peaceful activities.

As the colonists thrived in freedom, they accumulated capital and tried new ideas. They created new products and new manufacturing processes. These increased the number of alternatives their fellowmen could peacefully pursue without coercive intervention. They acquired more freedom.

In short, in terms of peaceful activities, freedom begets more freedom and more power.

Despite these favorable trends, many people contend that the free market creates large businesses with powers to coerce—giant corporations, conglomerates, and financial institutions. But, we must ask, does the offering of a large number of goods and services constitute coercion? Is a job offering a threat to freedom? In a free market, the power of large businesses is nothing more than the ability to offer many options. In a free market, these businesses have no powers to coerce.

Freedom and Government Intervention

But government interventions do coerce. When these interventions exceed what is necessary to keep the peace, people become less free.

For instance, Food and Drug Administration rulings prohibit consumers from buying certain products. Taxes, regulations, and price controls decrease the availability of other goods and services. Licensing regulations and minimum wage laws prevent workers from bidding for jobs. All such government interventions reduce the range of options a person may peacefully pursue.

Although government interventions reduce the range of options, the hampered market is still creating opportunities. In balance, people may still be gaining freedom. But they are not as free as they would be if the government didn’t intervene.

One frequently hears the assertion that the government itself creates options. Public works, for instance, are pointed out as employment opportunities created for millions of workers. The tax money spent, we are told, creates more purchasing power and more freedom.

This line of reasoning ignores a simple fact: Every dollar spent on public works is a dollar that won’t be spent on private works. Public works produce no net gains in employment, goods, or services. But they do produce a loss in freedom as taxpayers are coerced into financing projects they wouldn’t voluntarily support. Public works don’t create purchasing power; they reduce free dom by forcibly transferring purchasing power from the private to the public sector.

Some people contend that government interventions make people better off by eliminating undesirable options—low wages, high rents, high gas prices. But the very fact that people pursue these options shows that, for them, these options are preferable to unemployment, no housing, and no gas.

Despite such sophisms, the issue is clear: Government intervention reduces freedom.

Power and Government Intervention

How does government intervention affect a person’s power (his ability to act)? This, for many people, is the crucial question. They will tolerate—even advocate—government programs that reduce the purchasing power of the upper and middle classes if these programs increase the purchasing power of the poor.

In the short run, such programs may work. Send someone a welfare check, give him food stamps, grant him a rent supplement, and his purchasing power will temporarily rise.

But purchasing power—the ability to buy goods and services—depends on more than a person’s wealth. It also depends on the range of options being offered in the market.

In the long run, government interventions reduce incentives to work and invest, reduce the savings available for investment, reduce the opportunities entrepreneurs notice and pursue—reduce the options offered in the market. With the passage of time, each person’s range of alternatives is diminished, compared to what it would have become in a free market. In the long run everyone—even the intended beneficiary—has less purchasing power.

For example, the purchasing power union workers gain by excluding nonunion workers is soon eaten up by taxes, rising prices, and other costs of government intervention. The power to hold onto rent controlled apartments becomes less valuable as the controls turn these apartments into slums. Even the gains minorities win through affirmative action are more than offset by oppressive taxation and stifling regulation. In the long run, all these people would be better off in a free society without their governmentally granted privileges.

It is the long run that many advocates of government intervention ignore. They point out, for instance, that it doesn’t matter to poor people if rationing restrictions or high prices limit them to ten gallons of gas a week. The freedom to buy goods and services, they say, is an empty freedom if people can’t afford them.

It is true, of course, that at any point in time an individual’s purchasing power is relatively fixed. The most he can do, for the time being, is redirect his resources.

But time passes. In a free society, more goods and services are constantly being brought to the market. And in a free society, people may work, save, and invest so as to accumulate wealth. With the passing of time—if producers and consumers are free—the poor can afford more than ten gallons of gas. In the long run, freedom matters especially for the poor.

Unfortunately, many poor people fail to perceive the fertility of freedom. Concentrating on short term gains, they tend to be more interested in the purchasing power they lack than the freedom they may have. This shortsightedness is encouraged by welfare programs that promise immediate gratification—while they destroy the conditions which promote long range production.

Opportunities Overlooked

These arguments in terms of production are buttressed by a seminal observation of Israel M. Kirzner: People tend to notice opportunities that they are free to pursue. Freedom inspires discovery.

For instance, one reason the American colonists discovered new production techniques is simply that they were free to try them. They were free to pursue alternatives, thus creating new options for their fellowmen. This reinforces our previous assertion: In terms of peaceful activities, freedom begets more freedom and more power.

By the same token, Kirzner points out, when an option is precluded, people tend to overlook it. Poor people living under fuel rationing tend to overlook employment opportunities that would, in the absence of rationing, enable them to buy more fuel. Similarly, when businessmen are legally prohibited from carrying first class mail, they don’t perceive alternate means of delivery. It takes a lifting of legal prohibitions for people to notice such opportunities.

Because precluded options go unnoticed, opponents of government interventions often fail to gain public support. For instance, at rent control hearings landlords are greatly outnumbered by their tenants. Absent, however, are prospective tenants who don’t realize that controls are preventing them from getting apartments. Also absent are potential landlords and builders who, if controls were repealed, would perceive that apartments are opportunities for investment.

No Precise Measure of the Costs of Intervention

No one can identify these unwitting victims of intervention. In fact, many of the victims, because they don’t realize that their opportunities are being restricted, may be ardent supporters of the interventions that bring them the most harm. For instance, an unemployed teenager may support the minimum wage law that prevents him from starting a career.

The intellectual defenders of freedom also operate at a seeming disadvantage. Because precluded options go unnoticed, defenders of freedom can never completely list all the opportunities people have lost. For instance, how many apartments have never been built because of the threat of rent controls? How many jobs have been eliminated by minimum wage legislation? How many systems of private mail delivery have been precluded by the government’s legal monopoly? How many options have been destroyed by government intervention?

For the same reason, economists can never measure all the purchasing power destroyed by government intervention. They have no way of knowing what productive opportunities were never tried—or even perceived—because they were precluded by taxes and regulations.

But these disadvantages are more spurious than real. The case for freedom does not rest on lists of lost opportunities and estimates of lost purchasing power. It rests, in the final analysis, on moral principles. When people reject power gained at the expense of another person’s freedom—when they are convinced that coercive intervention in peaceful activities is immoral—freedom will prevail. []