By Harry Binswanger, as published in Why Businessmen Need Philosophy, pages 153–166

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 to object:

“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 nonetheless.

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 dollar.

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 bankruptcy.

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.” (emphasis added)

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:

1. that wealth is produced by individual thought and effort, and
2. 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 necessary conclusion.

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 earned.

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 the cave.

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 and consequences.

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 need.”

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 “second-hander.”

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 all.