What Trustbusters and Marxists Have in Common: Equating Economic and Political Power

by | Nov 1, 1998

Part 2of 6 in a Series of articles on Capitalism, Free-competition, Antitrust, and Microsoft   Just as Marxists do, the proponents of antitrust laws–a century ago and today–actively seek to obscure the crucial distinction between economic power and political power. They insist, against all evidence, that productive giants such as Andrew Carnegie, John D. Rockefeller, […]

Part 2of 6 in a Series of articles on Capitalism, Free-competition, Antitrust, and Microsoft

 

Just as Marxists do, the proponents of antitrust laws–a century ago and today–actively seek to obscure the crucial distinction between economic power and political power. They insist, against all evidence, that productive giants such as Andrew Carnegie, John D. Rockefeller, J.P. Morgan, Henry Ford, Mike Milken and Bill Gates are every bit as “powerful,” especially if left free to reign, as Europe’s kings and feudal land barons; that these business creators are every bit is dangerous as tyrants like Napoleon and Hitler. Big government is bad, but so is big business, they claim. Both can “oppress” us all the same.

When the difference between political and economic power is obscured, it’s easily claimed that big business consists of an army of ruthless “Robber Barons,” bent on destruction unless they’re stopped, so as to reduce their power (their ability to produce), take their weapons (their products), disperse their conscripted troops (their employees), attack their supply routes (customer contracts), rout their divisions (their corporate divisions), and destroy their command structures (their executive suites, trust holdings).

I don’t use these war-like terms to exaggerate my point. Read any textbook on the great industrialists and financiers of history–or any antitrust article from long ago or today–and you’ll see such terms tossed around as if there was no question that economic power is essentially equivalent to political or military power. There are repeated references to allegedly “predatory” behavior, to the “grabbing” of market share, to “dog-eat-dog” or else “cut-throat” competition, to “zero-sum games,” “hostile” takeovers, “price-gouging,” “bullying” tactics, insurmountable “barriers to entry,” “corporate raiders,” “headhunting,” “poison pills,” and “greenmail.” Do such terms describe voluntary production and trade? No, they do not. And such terms are used in describing business activity precisely because the distinction between political power and economic power is being obscured.

When Microsoft issued Windows 95 in the spring of that year, it did so with a new feature, a “web” browser called Explorer. And it freely signed contracts with personal computers makers such as Dell and Compaq to include the browser, along with many other applications it had added to the Windows platform over the years, when the hardware box-makers installed Windows software. Microsoft charged nothing extra for this Windows upgrade and this new feature–in fact, the entire Windows platform–with applications in word processing, spreadsheets, databases, desk-top publishing, office networks and browsers–represents only 5% of the cost of a personal computer system.

A rival browser made by Netscape was losing market share to Microsoft. Netscape and others rivals ganged up on Microsoft, not by offering a better product or better terms, but by running to Washington and getting trustbusters to launch an attack and incorporate their grievances. This is nothing new: 80% of all antitrust cases are initiated and sustained in just this way–by disgruntled rivals using coercion to secure what they can’t achieve voluntarily on a free market. The Ayn Rand Institute, a sponsor of this talk, makes the point dramatically. Recall the Olympics in which top figure skater Nancy Kerrigan was assaulted by the thug friend of a trailing competitor–Tonya Harding. Microsoft’s competitors, says an Institute press release, those “unable to gain profits by voluntary means–have resorted to the Tonya Harding approach: if you can’t win fairly, they physically cripple your opponent.” [iv] Why is it that most people properly despise Harding and sympathize with Kerrigan yet despise Bill Gates while sympathizing with laggards?

Antitrust laws don’t merely sympathize with economic laggards–they subsidize them. An allegedly damaged party gets “treble damages” under antitrust–that is, he gets three times the alleged financial harm shown. Thus, if Microsoft is alleged to cost a rival $100 million in profits, the aggrieved firm gets a $300 million reward. Do you see the motive for initiating an antitrust case? The fact is, when firms like Microsoft sell a winning product there are no victims–not among suppliers or customers. There are only eclipsed rivals. Victimization occurs only when rivals attempt to gain by coercion what they couldn’t gain by voluntary trade. The plaintiffs are the real “robber barons” in the realm of antitrust.

At a press conference in the spring of 1995 Janet Reno, head of the U.S. Justice Department, announced she would fine Microsoft $1MM per day unless it unbundled its browser from Window’s 95. Microsoft argued, correctly, that one of the virtues of its platform is that it’s integrated–the pieces are intended to work together for maximum performance. It’s irrelevant whether there are bugs in the platform or that its integration is less than perfect–surely Microsoft had the right to offer its platform to buyers, in the way it designed it, letting the best platform win. No chance, said Reno. She accused Microsoft of “coercion” and told reporters: “forcing PC manufacturers to take one of Microsoft’s product as a condition of buying a monopoly product like Windows 95 is . . . plain wrong. We won’t tolerate any coercion by dominant companies in any way that distorts competition.” What an obscene travesty. Microsoft, a leading producer using voluntary cooperation is called a coercive thug; its puny rivals- puny because they had difficulty selling their inferior products–are permitted to wield actual coercive power, with the full backing of the world’s most powerful government–worse, from its “Justice” Department.

Let’s make even clearer what’s been obscured. Economic power is the power to create and produce. Political power is the power to coerce and punish. Economic power entails intellectual achievement; political power entails physical aggrandizement. Economic power involves voluntary trade to mutual advantage. Political power involves involuntary subjugation to the state, which has sole discretion over the use of force. Remember this key fact: government is the only social institution having a legal monopoly on the use of force. No other party can use force with impunity. We lodge our natural right of self-defense in an agent called government. It’s the opposite of gang warfare and vigilantism. But what if government offers weapons to gangs, whether gangs on streets or in business?

In a free society government may only use its power in just retaliation against those who initiate force or fraud. Unless it seeks tyranny, no government may use such power to itself initiate force or fraud against innocent parties. To the extent it does, government acts as a robber or a gang–but far worse: a robber or gang with no higher, legal authority above, controlling it. When a government initiates force, not just occasionally, but continually, as a matter of principle and policy, when it lords itself over the entire domain of big business and the economy, dictating, at will, who shall do what and get what and how–as it does in most cabinet agencies and under the antitrust laws–then the government is a Robber Baron. It’s a government in possession, not merely of a legal monopoly on the legitimate use of retaliatory force, but in possession of a legal, unchecked monopoly on the initiation of force against otherwise defenseless innocents.

Economic power is wholly innocent of any hint of the initiation of force–or even of retaliatory force. Productive giants such as Carnegie, Ford and Gates don’t just have less power than politicians or pose less danger than tyrants–they have no political power at all and present no danger whatsoever. Unlike political power, which entails fear and punishment, economic power entails incentives and rewards. Should a businessman initiate force, he is, precisely to that extent, a criminal, not some economic power-lord. Should a criminal take some time out to earn some wealth instead of stealing it, to that extent he is in business, working in a creative role. Economic power means the power of a dollar–how many you earn and how many you can spend determines the extent of your “power.” Economic power involves trading benefits with whomever you choose to deal and with whoever chooses to deal with you. That is, it involves the power to harm no one.

Political power is the power of a gun–of police, the military, the taxman and the jailer. Should you flout the law, whether a just law or an antitrust law, you must submit. No one “must” submit to a business proposition–not even from Bill Gates. If people value his products and services, they’ll freely contract with him for them. The fact that someone might possess more economic power or resources than another may effect the terms of a deal, but it doesn’t alter the fact that the deal is entirely economic, a completely voluntary trade. For those of you still unclear about these distinctions, let me suggest an experiment. After you graduate from Harvard, during your first year in the workforce, don’t buy or use any of Microsoft’s products. That is, send the alleged “Robber Baron” no money. At the same time, send the government no money. That is, don’t pay your taxes. Then wait. Watch who comes after you for your money and how and with what weapons.

Endnotes

[iv] The Ayn Rand Institute, “Antitrust Assault on Microsoft is Immoral: Tanya Harding Approach to Competition is Anti-American,” Press Release, May 22, 1998.
[v] Frank Knight, Risk, Opportunity and Profit (Chicago: University of Chicago Press, 1921).

Dr. Salsman is president of InterMarket Forecasting, Inc., an assistant professor of political economy at Duke University and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored three books: Breaking the Banks: Central Banking Problems and Free Banking Solutions (AIER, 1990), Gold and Liberty (AIER, 1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar Publishing, 2017). In 2021 his fourth book – Where Have all the Capitalist Gone? – will be published by the American Institute for Economic Research. He is also author of a dozen chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. Dr. Salsman earned his B.A. in economics from Bowdoin College (1981), his M.A. in economics from New York University (1988), and his Ph.D. in political economy from Duke University (2012). His personal website is richardsalsman.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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