Sohrab Ahmari has written a passionate indictment of the free market. The core of his indictment is expressed in one of the book’s epigraphs. It is from the Vulgate, and in translation reads: “Behold, the wages you withheld from the workers who harvested your fields are crying aloud, and the cries of the harvesters have reached the ears of the Lord of hosts” (James 5:4, NAB).
Ahmari, a well-known journalist who has written for the New York Post and the Wall Street Journal, is a major participant in a dispute that has divided the American Right. To what extent should conservatives favor the free market? Should free trade give way to nationalist economic policies? Does the market erode culture and religion? Ahmari represents the most extreme faction of the conservative market critics, and in Tyranny, Inc., he embraces views usually found on the left.
When we think of tyranny, Ahmari says, we think of the state, and we are not mistaken to beware of tyrannical governments; but private tyranny likewise poses a danger. “Market utopians” think otherwise, claiming that in a free market, people can make whatever exchanges they find mutually beneficial, but this ignores reality: many workers lack bargaining power and are coerced into “accepting” bad jobs lest they starve.
“Coercion” is a key word, and Ahmari goes wrong at the start. He says that “liberty is ultimately about power.” In this view, if I would like to buy a house but don’t have the money to pay for it, I’m not free to buy it. You can, if you like, think of liberty in this way, and Ahmari cites in support of this conception the philosopher John Dewey; but libertarian writers including Murray Rothbard and Friedrich Hayek have argued that it elides an important distinction. As they see matters, you are coerced if someone uses force against you, or threatens you with force. If you can’t do what you want, because you lack the resources you need to attain your goal, this doesn’t count as coercion. By the way, it’s odd that although Ahmari discusses Hayek’s The Road to Serfdom, he fails to notice that a principal thesis of that book is to contest the equation of freedom with power.
This disagreement is more than a semantic quibble. Suppose you have a nasty boss, terrible working conditions, and low pay. You would like to quit, but you don’t see anything better available. Are you being coerced? In Ahmari’s view, you are, because you lack the power to find desirable employment; but in the libertarian conception, you are not. If the employer doesn’t offer you better conditions, he is simply refusing to make an exchange that you would like. He isn’t coercing you any more than you are coercing me if you refuse to accept my offer of five dollars for your Rolls-Royce.
But that’s just what you are doing, if the legal theorist Robert Hale is to be credited. His “great insight,” we learn, is that “coercion is a permanent feature of the transaction. . . customers also enjoy a measure of power to coerce the owner, by threatening to purchase the same product from a different owner, assuming there is a different owner willing to sell.”
When Ludwig von Mises heard of this bizarre theory, he was astonished:
The way in which Professor Hale describes the operation of the market economy is, to say the least, amazing. Thus he declares, “the customer can deny his money to the retailer, and by threatening to deny it can coerce the retailer to furnish him with the goods.”
Now, millions of people in this way “threaten” the jewelers of Fifth Avenue; they “threaten to deny their money to them.” Yet those “threatened” do not furnish them with bracelets and necklaces. But if a holdup man turns up and threatens the jeweler in his own manner, by brandishing a gun, the outcome is different. It seems therefore that what Professor Hale calls threats and coercion comprehends two entirely different things having entirely different features and consequences. His failure to distinguish these two things from one another would be deplorable in a nontechnical book. In a presumably juridical book it is simply catastrophic.
We have to thank the Harvard law professor and defender of integralism Adrian Vermeule for alerting Ahmari to this nonsense.
But regardless of whether Ahmari is right about coercion, doesn’t he have a point? Don’t many workers have to deal with bad working conditions? So what if this isn’t an example of coercion. Isn’t this situation a major social problem? To answer this question, we must first ask another: Are these workers underpaid? That is to say, is the compensation they receive less than what they contribute to the product? Only if it is do they count as being underpaid, and Ahmari assumes that for the most part this is so. If they are underpaid, why? As mentioned earlier, Ahmari’s reply is that workers lack bargaining power, and his argument for this contention is one of the book’s main points.
He says that if a worker turns down a bad job, the employer will find somebody else to take it; and, even if he can’t, he can live on income from other sources than his place of business. The employee, by contrast, needs a paid job in order to survive.
Ahmari is well aware of the response to this by supporters of the free market. If a worker is paid less than his marginal product, competing employers will offer him more money or work under better conditions. They will do so not because they are more kindhearted than the exploitative boss, but because it will pay them to do so. Ahmari finds this most implausible: “The existence of many producers in any given industry meant that no one of them could wield significant market power over other market actors, be they consumers, suppliers, or workers…. There was one big problem. Even as the market utopians extolled perfect competition, most of America’s major industries were falling into the hands of a few humongous corporations that began in the latter decades of the nineteenth century.” In order to withstand the market power of these corporations, workers need powerful labor unions, which exercise “countervailing power” against them. Here Ahmari has been influenced by John Kenneth Galbraith.
But the argument that competition subverts attempts to pay workers below their marginal product doesn’t assume perfect competition. In the Austrian view, competition does not depend on the existence of a vast number of firms but takes place between firms of whatever size, not only within an industry but also between industries. By the way, it’s again odd that he misreads Hayek. In his discussion of what he takes to be the false position of the market utopians who stress perfect competition, he cites Hayek, who was one of the sharpest critics of the perfect competition model.
Further, Ahmari shoots at the wrong target, and this in a fundamental way. The free market is not a partnership of government and business, in which “crony capitalists” and government officials conspire to mulct the public. (For an excellent criticism of crony capitalism, see Hunter Lewis, Crony Capitalism in America.) Crony capitalism is a variety of interventionism, but Ahmari offers as examples of the evils of the free market cases in which towns contract with private firms to provide fire protection or ambulance services. Customers sometimes get bad service and have to pay exorbitant charges, even though they haven’t contracted to do so. Why is this a problem of the free market?
The reasoning by which Ahmari conflates the free market with interventionism is difficult to follow. He says:
Yet market societies weren’t, in fact, an organic outgrowth of human nature. As the Austrian economic historian Karl Polanyi pointed out in his 1944 classic, The Great Transformation, “Laissez-faire was the product of deliberate State action.” It came about as a result of “a conscious and often violent intervention on the part of government which imposed the market organization on society.”
Polanyi’s argument was that through enclosures of common land, peasants lost their traditional rights and were, as Ahmari puts it, “ground down in prison-style workhouses and factories, their bones and tears forming the workingclass sediments that underlay the glories of Victorian capitalism.” Colorful language; but if the indictment is true, this is hardly an instance of the free market. I say “if the indictment is true,” because there is a well-known controversy, apparently unknown to Ahmari, about whether driving peasants off their open fields in the eighteenth century played a major role in the development of English capitalism. Deirdre McCloskey has argued that it did not.
Ahmari’s criticism of the free market suffers from yet another major problem. Several of his complaints against the market are general problems that any society would have to face, including the heavily unionized welfare state that he supports. He points out that large investors who take over local firms often “economize” by cutting jobs and selling equipment, depriving local residents of products and services they would like to keep. But any society must allocate resources to some uses rather than others. We can have more and better roads, for example, but only if we spend less on other things. Ahmari would respond that in the society he favors, people would decide issues of this sort democratically. The problems of democracy are well-known to readers of the Austrian, and stated most effectively in Hans Hoppe’s Democracy: The God That Failed, but even aside from these problems, having a say in what is decided does not make the problem of resource allocation go away.
If, like Ahmari, you admire the golden age of strong American labor unions, you will enjoy Tyranny, Inc., but I cannot summon up much enthusiasm for the glory that was Truman and the grandeur that was Ike.