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All too frequently we hear free marketers in America bemoan regulatory action, suggesting such action actually hampers a sorely needed economic recovery. Free markets, they state, will ultimately sort things out. Yet, do we ever hear these voices caution against economic tyranny? It seems economic tyranny is simply not in their vocabulary. Why?

To blindly submit to market forces creates an atmosphere for economic tyranny to arise, every bit as dangerous as political tyranny. This singular belief in markets, to the exclusion of all other considerations, is folly. Both the economic and the political institutions that arise in a society are there for the betterment of the individual, not the converse. The German American political theorist Hannah Arendt understood this when she observed that

“Free enterprise… is a minor blessing compared with the truly political freedoms, such as freedom of speech and thought, of assembly and association, even under the best of conditions. Economic growth may one day turn out to be a curse rather than a good, and under no conditions can it either lead into freedom or constitute a proof for its existence” (On Revolution, Chp. 6).

Any doubt about these sentiments, written in 1963, can be placed aside when one considers China, a country that has fully embraced capitalism and has taken a commanding lead in global economic growth because of it. Yet, the Chinese enjoy very little in the way of political freedoms. Capitalism does not need political freedom to thrive; in fact, centralized capitalism can create tyrannies of its own.

Economic tyranny arises when the vast majority of citizens are wage laborers. By the very need of an income, wage laborers are at the mercy of centralized economic forces that are seemingly beyond control; one’s fate rests in the hands of others unseen, unknown. Such forces are not part of the “invisible hand” of which Adam Smith spoke.

So it comes as some surprise that libertarian economist F.A. Hayek, that stalwart of liberty from political tyranny, could not bring himself to admit that powerful economic forces can also play a role in tyranny:

“It was men’s submission to the impersonal forces of the market that in the past has made possible the growth of a civilization which without this could not have developed; it is by thus submitting that we are every day helping to build something that is greater than any one of us can fully comprehend” (The Road to Serfdom, Chp. 14).

Perhaps Hayek meant to reference Smith’s invisible hand, but submitting to impersonal forces is not the proper way to frame the argument. It suggests a passivity that opens the door to economic tyranny.

During America’s Founding Era, 87% of the American populace was self employed; the menace of centralized economic power was but a phantom on the horizon of the future. Yet, the founders held no difficulty in eventually making the connection. In a November 12, 1816 letter to George Logan, written well before the American Industrial Revolution took hold, Thomas Jefferson wrote:

“I hope we shall take warning from the example (of England – ed.) and crush in it’s birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.”

Alas, history moved along a different path.

As it turns out, Hayek suggested the possibility of economic tyranny:

“What is called economic power, while it can be an instrument of coercion, is, in the hands of private individuals, never exclusive or complete power, never power over the whole life of a person. But centralized as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery.”

If Hayek had simply dropped the phrase “as an instrument of political power” in that last sentence, he would have moved closer to the complete truth. For while economic power cannot gain control without the collaboration of government, in fact it can control the halls of governmental power, not to an absolute but nevertheless large degree. Campaigns are funded by these economic powers. Regulatory agencies are compromised with the act of “agency capture.” And economic power most certainly can control our lives, when society is nestled within the economic, rather than the economic within society.

The conservative German economist Wilhelm Röpke, in A Humane Economy, (1957) pressed against this state of affairs, calling it “economism”:

“It is economism to allow material gain to obscure the danger that we may forfeit liberty, variety, and justice and that the concentration of power may grow, and it is also economism to forget that people do not live by cheaper vacuum cleaners alone but by other and higher things which may wither in the shadow of giant industries and monopolies.”

In parallel, the liberal Swedish economist Gunnar Myrdal, in The Political Element in the Development of Economic Theory (Chp. 2), noted,

“The prosperity of a nation depends upon the acquisitive efforts of its citizens. But acquisitiveness has its roots in such immoral qualities as the desire for power, ambition, the love of luxury, etc.”

And so, we satiate our desires for material goods and to accomplish such ends we pursue a paycheck from an employer. That chain is strengthened when the employee uses his or her income as leverage to obtain ever-increasing debt loads for satisfying the need for material goods.

The connection to the threat of losing individual liberties, that Röpke speaks of, can now be made.

Part 2 of this discussion follows tomorrow.

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