What is the difference between economic power and political power?

“….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.” — AYN RAND Capitalism: The Unknown Ideal


Power is the ability to act.

What is economic power? The power wielded by businessmen is the power to create wealth through production, and trade. In regard to trade in a free market, businessmen can only entice someone to do their bidding, by offering something to be of equal or greater value in return. Economic power is the power of persuasion: the power to appeal to one’s mind with economic values. Such power comes from creating values–such as when Bill Gates (Microsoft) creates better products at lower prices. The businessmen’s tool is the mind and the material values it can create.

What is political power? The power of a bureaucrat of a statist society is the power of fear — the power to initiate force. He can force you to do his bidding by legally threatening one’s life and freedom. Such power is derived by destroying or threatening to destroy values — such as when the IRS confiscates ones home for not paying taxes, or when the DOJ threatens one with a jail sentence for being too successful.

The difference between political and economic power is the difference between plunder and production, punishment and reward, theft and trade. Plunder, punishment, and theft belonging to the political realm; production, reward, and trade belonging to the economic realm. The symbol of the businessmen is positive — the dollar — given to you voluntarily by trade. The symbol of a bureaucrat is a negative — a gun — pointed at you. The man who prefers the gun to the dollar is the man who thinks he will be holding the gun. The joke is on him — the results are upon all of us.

Professor Harry Binswanger emphasizes this difference in his essay The Dollar and the Gun:

“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.”