This article was first published in The Objectivist Forum in 1983
To advocates of capitalism, the following scenario is all too familiar.
You are in a conversation with an acquaintance. The conversation turns to
politics. You make it clear you are for capitalism, laissez-faire capitalism.
Eloquently, you explain the case for capitalism in terms of man’s rights, the
banning of physical force and the limitation of government to the function of
protecting individual freedom. It seems clear, simple, unanswerable.
But instead of seeing the “light-bulb look” on the face of your acquaintance,
you see shock, bewilderment, antagonism. At the first opportunity, he rushes
“But government has to protect helpless consumers from the power wielded by
huge multinational corporations.”
Or: “Freedom is impossible under strict capitalism: people must have jobs in
order to live, and they are therefore forced to accept the employer’s terms.”
Or: “In a complex industrial society such as ours, government planning must
replace the anarchy of the marketplace.”
These apparently diverse objections all commit the same logical fallacy, a
fallacy grounded in the deepest philosophical premises of those who commit it.
To defend capitalism effectively, one must be able to recognize and combat this
fallacy in whatever form it may appear. The fallacy is equivocation—the
equivocation between economic power and political power.
“Political power” refers to the power of government. The special nature of
that power is what differentiates government from all other social
institutions. That which makes government government, its essential attribute,
is its monopoly on the use of physical force. Only a government can make
laws—i.e., rules of social conduct backed up by
physical force. A “government” lacking the power to use force is not a
government at all, but some sort of ugly pretense, like the United Nations.
A non-governmental organization can make rules, pass resolutions, etc., but
these are not laws precisely because they cannot be enforced on those who
choose not to deal with that organization. The penalty for breaking the rules
of e.g., a fraternal organization is expulsion from the association. The
penalty for breaking the law is fines, imprisonment, and ultimately, death.
The symbol of political power is a gun.
A proper government points that gun only at those who violate individual
rights, to answer the physical force they have initiated, but it is a gun
Economic power, on the other hand, is the ability to produce material values
and offer them for sale. E.g., the power of Big Oil is the power to discover,
drill and bring to market a large amount of oil. Economic power lies in
assets—i.e., the factors of production, the inventory
and the cash possessed by businesses. The symbol of economic power is the
A business can only make you an offer, thereby expanding the possibilities open
to you. The alternative a business presents you with in a free market is:
“Increase your well-being by trading with us, or go your own way.” The
alternative a government, or any force-user, presents you with is: “Do as we
order, or forfeit your liberty, property or life.”
As Ayn Rand wrote, “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.” (Capitalism: The Unknown Ideal, p. 48)
Economic power stems from and depends upon the voluntary choices of the buying
public. We are the ones who make big businesses big. One grants economic
power to a company whenever one buys its products. And the reason one buys is
to profit by the purchase: one values the product more than the money it
costs—otherwise, one would not buy it. (The savage polemics against the
profits of business are demands that the entire gain should go to one
side—that “the little guy” should get all of the gain and businesses none,
rather than both profiting from the transaction.)
To the extent a business fails at producing things people choose to buy, it is
powerless. The mightiest Big Multinational Conglomerate which devoted its
power to producing items of no value would achieve no effect other than its own
Economic power, then, is purely benevolent. It does not include the power to
harm people, enslave them, exploit them or “rip them off.” Marx to the
contrary notwithstanding, the only means of exploiting someone is
by using physical force—i.e., by employing the principle
of political power.
The equivocation between economic and political power attacks capitalism from
both sides. On the one hand, it blackens the legitimate, peaceful,
self-interested activities of traders on a free market by equating these
activities with the predatory actions of criminals and tyrannical governments.
For example, the “power of huge multinational corporations” is thought of as
the power to rob the public and to coerce employees. Accepting the
equivocation leads one to conclude that government intervention in the economy
is necessary to the protection of our freedom against economic power.
On the other hand, the equivocation whitewashes the interventionist actions of
government by equating them with the benevolent, productive actions of
businesses and private individuals. For example, when the government attempts
to substitute arbitrary bureaucratic edicts for the intricately coordinated
plans of individuals and businesses, this is referred to as “planning.” The
systematic destruction of your savings through legalized counterfeiting is
styled “managing” the money supply. Antitrust laws, which make it illegal to
become too effective a competitor, are held necessary to preserve “free
competition.” Socialist dictatorship is spoken of as “economic democracy.”
Americans have always held individual rights and freedom to be sacred and have
looked with proper suspicion upon the power of government. The opponents of
freedom have flopped grandly whenever their true colors have been perceived by
the American public (e.g., the McGovern campaign). The victories of the
statists have required camouflage. The equivocation between economic and
political power, by reversing the meaning of all the crucial political
concepts, has been essential to the spread of anticapitalism in this country.
The demagogic, rabble-rousing attacks on “Big Business” are the most direct
example of the equivocation in practice. Whether it is multinational
corporations or conglomerates or monopolies or “oligopolies,” the fear of
“concentrations of economic power” is the theme played upon in endless
variations by the left. The anti-bigness theme often appeals to the
“conservatives” as well; the first serious breach of American capitalism, the
Sherman Antitrust Act of 1890, was and is supported by conservatives. Senator
Sherman’s rationale for the Act is a classic case of the equivocation: “If
the concerted powers of [a business] combination are intrusted to a single man,
it is a kingly prerogative inconsistent with our form of government.”
In today’s depressed economy where “obscene profits” have turned into
(lovely?) losses, the anti-business theme is being played in a new key: the
target has shifted to foreign businesses. The equation of the dollar and the
gun remains, however. To wit: “Senator Paul Tsongas (D-Massachusetts) believes
that the hightechnology challenge from Japan is as serious to the United
States’ long-term security as the defense threat posed by the Soviet Union.”
(Infoworld, May 30, 1983)
The Soviet Union threatens us with nuclear annihilation. The Japanese
“threaten” us with the opportunity to buy cheap, reliable computer parts.
One could point out that the law of comparative advantage, a cornerstone of
economic science, dictates that one country’s superior productive ability can
only benefit all those with whom it trades; that if Japanese firms can produce
computer parts at lower cost than U.S. firms can, then our firms will
necessarily have a comparative advantage in some other area of production; that
any government intervention to protect some U.S. firms from foreign competition
sacrifices other U.S. firms and the public at large to inefficiency, lowering
our standard of living. But all this would be lost on the kind of mentality
that equates imports with bombs.
Anti-capitalists go through the most elaborate intellectual contortions to
obscure the difference between economic power and political power. For
example, George Will, a popular columnist often mistaken for a pro-capitalist,
announces that we must abandon the distinction because “any economic
arrangement is, by definition, a political arrangement.” He attacks the idea
that “only people produce wealth; government does not” on the grounds that
“Government produces the infrastructure of society—legal, physical,
educational—. . . that is a precondition for the production of
wealth.” (The New Republic, May 9, 1983)
It is true that laws protecting rights are a precondition for the production of
wealth, but a precondition of production is not production. In enforcing
proper laws, the government does not produce anything—it merely protects the
productive activities performed by private individuals. Guns cannot create
wealth. When a policeman prevents a mugger from stealing your wallet, no value
is created; you are left intact, but no better off.
The absence of a loss is not a gain. Ignoring that simple fact is involved in
the attempt to portray the government’s gun as a positive, creative factor.
For instance, tax relief is viewed as if it were government encouragement. In
reality, tax breaks for schools, churches, homeowners, etc., are reduced
penalties, not support. But socialist Michael Harrington writes:
The Internal Revenue Code is a perverse welfare system that
hands out $77 billion a year, primarily to the rich. The special
treatment accorded to capital gains results in an annual
government benefit of $14 billion for high rollers on the stock
exchange. (Saturday Review, November 1972)
Harrington equates being forced to surrender to the IRS one quarter of your
earnings (the tax rate for capital gains), with being given a positive benefit
by the government. After all, the IRS could have taken it all.
Just as the absence of a loss is not a gain, so the absence of a gain is not a
loss. When government handouts are reduced, that is not “balancing the budget
on the backs of the poor”—it is a reduction in the extent to which the poor
are balanced on the backs of the rest of us.
The distinction between economic power and political power—seemingly
self-evident—is in fact premised upon an entire philosophic framework. It
requires, above all, two principles:
- that wealth is produced by individual thought and effort, and
- that man is an end in himself.
From the standpoint of today’s philosophy, which denies both premises, the
equation of economic power and political power is not a fallacy but a logically
In regard to the first premise, the dominant view today is that “the goods are
here.” This attitude comes in several variants, and most people switch freely
among them, but in every case the result is the idea that economic power is not
In one variant, the production of wealth is evaded altogether; wealth is viewed
as a static quantity, which can only change hands. On this view, one man’s
enrichment is inevitably at the price of another’s impoverishment, and
economic power is necessarily obtained at others’ expense.
For example: in a full-page advertisement run last year in the New York
Times, a pornographic magazine promoted its series of articles on “Big
Oil: The Rape of Free Enterprise.” The ad charged “the oil companies have a
vise-like grip on the production and distribution of oil and natural gas—and
set the market prices. These giants also own vast holdings of coal and
uranium. . . . we’re over a barrel—and it’s an oil barrel.”
(January 25, 1982)
Despite the ad’s use of the word “production,” the language conveys the
impression that barrels of oil, stockpiles of gas, coal and uranium are not
produced, that they were just lying around until—somehow—those demonic giants
seized them in their “vise-like grip.” The truth is that finding, extracting,
refining, delivering and storing oil and other energy sources is such an
enormous undertaking that companies too small to be known to the general public
spend more than $100 million each on these tasks annually.
The notion that wealth is a static quantity overlooks one telling detail: the
whole of human history. If wealth only shifted hands, if one man’s gain were
always at the price of another’s loss, then man could never have risen from
In other moods, people acknowledge that wealth is produced, but, following
Marx, view production as exclusively a matter of using physical labor to
transform natural resources into finished products. In the midst of the
“computer revolution,” when technological discoveries are shrinking
yesterday’s multi-milliondollar room-sized computer down to the size of a
briefcase and making it available for the cost of a used car, people cling to
the notion that the mind is irrelevant to production.
On the premise that muscles are the source of wealth, the accumulation of
wealth by corporations is a sign of the exploitation of the workers: the
economic power of those who do not sweat and toil can have been gained only by
preying upon those who do.
In a final variant, people do not deny entirely the role of intelligence in
production, but view wealth as an anonymous social product unrelated to
individual choice, effort, ambition and ability. If today’s standard of living
is due equally to the work of Thomas Edison, any random factory worker, and the
corner panhandler, then everyone has a right to an equal “share of the pie.”
Again, the conclusion is that any man’s possession of aboveaverage wealth
means that he has exercised some magical power of diverting the “fair share”
of others into his own pocket.
In any variant, the immortal refutation of “the goods are here” approach to
wealth is provided by Atlas Shrugged. As Galt says in explaining
the meaning of the strike he leads, “We’ve heard it shouted that the
industrialist is a parasite, that his workers support him, create his wealth,
make his luxury possible—and what would happen to him if they walked out?
Very well. I propose to show to the world who depends on whom, who supports
whom, who is the source of wealth, who makes whose livelihood possible and what
happens to whom when who walks out.”
Once it is admitted that wealth is the product of individual thought and
effort, the question arises: who should own that product? On an ethics of
rational egoism, the answer is: he who created it. On the moral premise of
altruism, however, the answer is: anyone who needs it. Altruism specializes in
the separation of creator and his creation, of agent and beneficiary, of action
According to altruism, if you create a good and I do not, that very fact
deprives you of the right to that good and makes me its rightful owner, on the
principle, “from each according to his ability; to each according to his
On that premise, anyone who possesses a good needed by another must surrender
it or be guilty of theft. Thus altruism turns businessmen into extortionists,
since they charge money for relinquishing possession of the goods rightfully
belonging to others. A government whose political power is directed to
protecting business’s control over their product is, from the altruist
standpoint, initiating physical force against the rightful owners of those
goods. By this moral code, the economic power of business is political power,
since the wealth of businesses is protected by government, instead of being
turned over to the needy.
Altruism engenders an inverted, death-dealing version of property rights:
ownership by right of non-production.
Is this an exaggeration? Look at the statements of those who take altruism
seriously—for example, George Will, who lauds the “willingness to sacrifice
private desires for public ends.”
Urging “conservatives” to embrace the welfare state, Will quotes approvingly
from the 1877 Supreme Court case of Munn v. Illinois, in which the
Court ruled that a State could regulate the prices of private businesses:
“When, therefore, one devotes his property to a use in which the public has an
interest, he, in effect, grants to the public an interest in that use, and must
submit to be controlled by the public for the common good, to the extent of the
interest he has thus created.” (emphasis added)
One must submit to be controlled—why? Because he created a value.
Controlled—by whom? By “the public”—i.e., by all
those who have not created that value.
Philosophically, the equivocation between economic power and political power
rests on the metaphysics of causeless wealth and the ethics of parasitism.
Psychologically, it appeals to a fear of self-reliance, the fear that is the
dominant emotion of the kind of dependent mentality Ayn Rand called the
The second-hander feels that the distinction between the dollar and the gun is
“purely theoretical.” He has long ago granted the smiles and frowns of others
the power to dictate his values and control his behavior. Feeling himself to
be metaphysically incompetent and society to be omnipotent, he believes that
having to rely on himself would mean putting his life in jeopardy. A society of
freedom, he feels, is a society in which he could be deprived of the support on
which his life depends.
When you talk to him in your terms, telling him that we are all separate,
independent equals who can deal with each other either by reason or by force,
he literally doesn’t know what you are talking about. Having abandoned his
critical faculty, any idea, any offer, any deal is compulsory to him if it is
accompanied by social pressure. You may tell him that in order to survive,
man must be free to think. But he lacks the concepts of independent
survival, independent thought, and even of objective reality; his credo is
Erich Fromm’s: “Love is the only sane and satisfactory answer to the
problem of human existence.” (Man for Himself, p. 133)
I will conclude with another scenario. Imagine that you survive a shipwreck
and have to steer your lifeboat to one of two desert islands where you will
have to remain for several years. On each island there is one inhabitant. The
western island is the property of a retired multi-millionaire, who lives there
in high luxury, with a mansion, two swimming pools and all the accoutrements of
great wealth. The eastern island is inhabited by a propertyless beachcomber
who lives in rags and eats whatever fruit and fish he can scrounge up. Let’s
add that the millionaire is an egoist and strict capitalist, while the
beachcomber is a saint of altruism who will gladly share his mud hut with you.
Would you, or anyone, head east to escape being “exploited” by the
millionaire’s economic power?
So much for the idea that one is threatened by the economic power of others.
But one doesn’t have to resort to desert-island fables. The same practical
demonstration of the life-giving nature of economic power and the fatal nature
of unbounded political power is provided by the hundreds of thousands of
people—Boat People, they are called—who cling to their pathetic, overloaded
vessels, fleeing the lands of the gun and heading toward whatever islands of
even semi-capitalism they can find left in the world.
If for every hundred refugees seeking to flee collectivist dictatorships we
could exchange one intellectual who urges us to fear the dollar and revere
the gun, America might once again become a land of liberty and justice for