Freedom or Power? B. Summer

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: ((Polit ical 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 oth erwise. 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 guar antee (~freedom from want." By this they mean that everyone should have Mr. Summers is a member of the staff of The Foun dation for Economic Education.

FREEDOM: OR POWER? 37 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 fa voring national health insurancle, public housing, food stamps, an.d other welfare programs. But before this concept is embraced any fur ther, there are several questions that should be asked. Does everyone deserve freedoIn from want? Do the lazy, the antiso cial, and the criminal elements in society deserve, as a matter of right, relief from poverty? How is ((freedom from want" sup posed 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 frOIn 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 sub ject to coercion by the arbitrary win of another or others." ttFreedom from want" is the ability to purchase cer tain 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 pel'son's freedom doesn't depend on his wealth. We will examine these rela tionships later. For now we merely point out that freedom and purchas ing power are not the same thing. Freedom from Exploitation ((Freedom from exploitation" also has a strong emotion~l 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 grocer ies for $3.00 an hour when the min imum wage is $3.35. They will re main unemployed while customers carry their own packages. If minimum wage laws cost un skilled 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-productiv ity 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 re duce employers' freedom to hire un skilled workers. But the freedom to hire isn't the power to exploit. When a worker freely agrees to a wage 38 THE FREEMAN January rate, he does so because, at the par ticular moment, that is his best op tion. 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 mar ket. Rent Controls Fear of exploitation has also been instrumental in passing rent con trols. These regulations are sup posed to protect tenants from u ex_ ploitation" by ensuring their ((freedom from excessive rent in creases." 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 trans action, consumers (in this case, ten ants) 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 de signed to protect this power. These controls give current tenants the power to keep apartments that pro spective 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 land lords' 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' de mand. In these terms, the only u ex cessive" 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 trols are just two forms of price con trol. All such controls reduce free dom by abrogating prices peacefully agreed upon in the market. And all create conditions so bad that fur ther moves from freedom are quickly proposed. All this, of course, in the name of freedom!

In 1979, for instance, the Depart ment of Energy held pump prices of gasoline below market-clearing lev els. With demand exceeding supply, shortages and long lines soon devel oped. 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 con trolled 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 con sumers' freedom by. denying them 1981 FREEDOM OR POWER? 39 the right to bid for goods and ser vices. Any government intervention in the economy reduces someone's freE~ dom-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 fre€~ doms commonly viewed as noneco nomicfreedom to associate, free dom of speech, and freedom of the press. These cherished freedoms, w,e shall see, are frequently used as slo gans to distract attention from coer cive 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 ab sence of coercive intervention in peaceful activities. But ((freedom to associate" is also used to justify ac tivities that are anything but peace ful. For instance, in the United States, union workers have the freedom to associate. No one may legally inter vene in their peaceful activities. But under Federal law and various Na tional Labor Relations Board and Supreme Court rulings, the govern· ment rarely intervenes when union workers prevent nonunion workers from associating with employers. Thus, in practice, ufreedom to asso·· ciate" degenerates into the ra~' 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 un derstandable desire.

But we should bear in mind that discrimination isn't coercion. When the government steps in with affir mative action, it isn't protecting mi norities from coercive intervention in peaceful activities. And it proba bly 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, col lege 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 affir mative action, can't businessmen arbitrarily discriminate against mi nority workers? Not if they want to earn profits. Profits are not earned by arbitrarily hiring, promoting, and firing em ployees. They are not earned by let ting 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 mo40 THE FREEMAN January tive, regulated by nothing more than free market competition, is the worker's best protection against ar bitrary discrimination.

Freedom of Speech Even freedom of speech and free dom 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 prop erty-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, gjve the owner more power (ability) to set forth his ideas. But it doesn't make his ideas more compelling, or necessarily win them greater ap proval. 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 relation ship vary over time? How does gov ernment intervention affect this re lationship? 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 interven tions, the more freedom people pos sess. 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 peace fully pursue without coercive inter vention, the greater his freedom.

Similarly, the more options he has the capability of attaining-peace fully 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.

1981 FREEDOM OR POWER? 41 Consider, for instance, the differ ent combinations of freedom and power existing around the year 1700. At that time monarchs had great freedom and great power. Nobles at tending the throne often had great power but little freedom from the monarch's arbitrary intervention. Conscripts, serfs, and slaves had lit tle freedom or power. The American colonists had considerable freedom but little power. In a command society, the combi nations of freedom and power re main 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 dy namic relationship between free dom and power develops. As the American colonists, for example, pursued their affairs in relative freedom, they prospered. Their pur chasing 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 free dom, they accumulated capital and tried new ideas. They created new products and new manufacturing processes. These increased the num ber of alternatives their fellowmen could peacefully pursue without coercive intervention. Th~y ac quired more freedom. In short, in terms of peaceful ac tivities, freedom begets more free dom and more power. Despite these favorable trends, many people contend that the free market creates large businesses with powers to coerce-giant corpora tions, conglomerates, and financial institutions. But, we must ask, does the offering of a large number of goods and services constitute coer cion? 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 op tions. In a free market, these busi nesses 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 Ad ministration rulings prohibit con sumers from buying certain products. Taxes, regulations, and price controls decrease the avail ability of other goods and services. Licensing regulations and mini mum wage laws prevent workers from bidding for jobs. All such gov ernment interventions reduce the range of options a person may peacefully pursue. Although government interven42 THE FREEMAN January tions reduce the range of options, the hampered market is still creat ing opportunities. In balance, peo ple 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 asser tion that the government itself cre ates options. Public works, for in stance, 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 em ployment, 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 pur chasing power from the private to the public sector. Some people contend that govern ment interventions make people better off by eliminating undesira ble 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 interven tion affect a person's power (his abil ity to act)? This, for many people, is the crucial question. They will tol erate-even advocate-government programs that reduce the purchas ing 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 pur chasing power will temporarily rise. But purchasing power-the abil ity to buy goods and services-de pends on more than a person's wealth. It also depends on the range of options being offered in the mar ket. In the long run, government in terventions reduce incentives to work and invest, reduce the savings available for investment, reduce the opportunities entrepreneurs notice and pursue-reduce the options of fered in the market. With the pas sage of time, each person's range of alternatives is diminished, com pared to what it would have become in a free market. In the long run everyone-even the intended bene ficiary-has less purchasing power.

1981 FREEDOM OR POWER? 43 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 con trolled apartments becomes less valuable as the controls turn these apartments into slums. Even the gains minorities win through affir mative 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 governmen tally granted privileges. It is the long run that many ad vocates 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 pur chasing 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 con stantly being brought to the mar ket. And in a free society, people may work, save, and invest so as to accumulate wealth. With the pass ing of time-if producers and con sumers are free-the poor can afford more than ten gallons of gas. In the long run, freedom matters espe cially for the poor. Unfortunately, many poor people fail to perceive the fertility of free dom. Concentrating on short term gains, they tend to be more inter ested in the purchasing power they lack than the freedom they may have. This shortsightedness is en couraged by welfare programs that promise immediate gratification while they destroy the conditions which promote long range produc tion. Opportunities Overlooked These arguments in terms of pro duction are buttressed by a seminal observation of Israel M. Kirzner: People tend to notice opportunities that they are free to pursue. Free dom 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 pre vious 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 peo ple living under fuel rationing tend to overlook employment opportuni ties that would, in the absence of ra44 THE FREEMAN tioning, 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 un noticed, opponents of government interventions often fail to gain pub lic support. For instance, at rent control hearings landlords are greatly outnumbered by their ten ants. Absent, however, are prospec tive 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 per ceive that apartments are opportun ities for investment.

No Precise Measure of the Costs of Intervention No one can identify these unwit ting victims of intervention. In fact, many of the victims, because they don't realize that their opportuni ties are being restricted, may be ar dent 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 dis advantage. Because precluded op tions go unnoticed, defenders of freedom can never completely list all the opportunities people have lost. For instance, how many apart ments have never been built be cause of the threat of rent controls? How many jobs have been elimi nated by minimum wage legisla tion? How many systems of private mail delivery have. been precluded by the government's legal monop oly? How many options have been destroyed by government interven tion?

For the same reason, economists can never measure all the purchas ing power destroyed by government intervention. They have no way of knowing what productive opportun ities were never tried-or even per ceived-because they were pre cluded 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 free dom-when they are convinced that coercive intervention in peaceful ac tivities is immoral-freedom will prevail. , Wm. Cullen Bryant On Usury Laws THE FACT that the usury laws, arbi trary, unjust, and oppressive as they are, and unsupported by a single substantial reason, should have been suffered to exist to the present time can only be accounted for on the ground of the general and singular ignorance which has prevailed as to the true nature and character of money. If men would but learn to look upon the medium of exchange, not as a mere sign of value, but as value itself, as a commodity gov erned by precisely the same laws which affect other kinds of property, the absurdity and tyranny of legis lative interference to regulate the extent of profit which, under any circumstances, may be charged for it would at once become apparent.