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An Economic Analysis of Power

Mises Daily: Tuesday, August 02, 2005 by


That man’s power over man is evil may seem to require little or no explanation. To some it is almost a self-evident proposition. To others it is an easy inference from facts such as the 55,000,000 or more dead in World War II alone. Many more will, however, object that the power of the State is a means to an end, for example, a necessity to maintain security or order. There are those who are either willing to trade off individual rights for other pet goals such as security or order, or who justify State power to attain security.

If the power of man over man were widely thought to be an unnecessary evil, would we be living in the kind of world we live in, where States possess enormous power? No. Most people do not believe that power is evil when employed by States. The power of common criminals is roundly condemned. The imaginary power of free-market capitalism is vividly condemned, but the glorification of State power goes on. It seems that we could use many more articles pointing out the negatives of State power if we are to shift the tide of thought.

Many writers better than I have pointed out the manifold evils of States, so I do not direct my thoughts here at particular evils. I will instead present three ways in which power produces evil. There are other complementary approaches that overlap what I say. In a natural rights approach, for example, power is evil the instant that it is used to infringe upon an individual’s rights. And in my three scenarios, there is invariably such infringement in the background. But the more ways in which we illustrate and understand how it is that power is evil, the better.

In Bush’s Folly , I argued that even on the grounds of obtaining a supposed good called national security, the State had failed in Iraq and elsewhere. The approach here is somewhat similar. I argue that the transfer of power to rulers to achieve security not only per seinfringes rights but also results in more mistakes, more corruption, and more discord between what individuals want and what States provide. A companion article will argue that States actually decrease security even though the rulers claim otherwise. 

The State’s Profligacy

I’ll use the law of demand to show that a State’s decision is worse than what the comparable private decision would have been. The law of demand, which is a foundation of economic thought, says that when the price of a good rises, the amount demanded declines. And when the price falls, the amount demanded rises. You can substitute the word “cost” for price if you think of it as your cost, because the price you pay is the cost to you. (Other things are assumed to be held constant when the price variation occurs.)

Suppose you are a merchant trying to decide whether or not to sail to China to trade for silk. The journey can be perilous. If you hold the wrong theory about where to sail and how to provision and protect the ship, the vessel could sink or be robbed and many people might perish. You could be wiped out. What you decide depends on your limited knowledge. It depends also both on the chance of success and on the reward from success as compared with chance of loss and the loss to you if the voyage fails. Not to belabor this, it may well pay you to learn more before you decide yes or no, because if your theory is wrong based on what you now know, you will not be able to recover from the loss. You could be rewarded by seeking more information before you take a chance.

Now suppose that the King of France considers the same voyage, but he will finance the trip using taxpayer money. That is already bad for many reasons that are detailed elsewhere. If the voyage fails, he will not like it, but he won’t be dethroned. He will argue that Nature (the weather) or pirates are at fault, or that the ship’s captain was incompetent. He will probably paint a glowing picture of the silk rewards and seek more public money to make right the voyage.  

Now enters the law of demand. Before making the voyage, the cost (or price) of loss to the King is lower than the cost (or price) of loss to the merchant, because taxpayers shoulder the King’s main burden. Therefore, the King demands a greater amount of the good (the voyage) than the merchant. This means that he is more inclined to go ahead with the voyage and also less inclined to investigate before he invests. He is more inclined to take on more such voyages than the merchants are who carefully consider the risks and rewards. The King is more profligate with taxpayer funds than the merchants are with their own funds because the King can afford the loss better. It’s not his loss, it’s yours. That’s basically argument number one.

When we examine the records of the King’s projects and the merchant’s projects, we will discover that the King made more mistakes and more costly mistakes. This is not because the King is any less intelligent, ethical or moral than the merchant. It is because the law of demand is at work. The King had less incentive to be careful with other people’s money, less incentive to learn and understand, less incentive to make the right decisions.

The taxpayers cannot count on the King’s promises or good will, on his honesty or earnestness, because he is in a different position than a merchant who bears all the loss of his errors. The decisions of the King will turn out to be more brainless, stupid, foolish, senseless, and imbecilic. I am obviously trying to make a point here. The fewer activities that are turned over to the King, the less that he is allowed to do, the better. The optimum amount is zero or near zero, depending on whether you are an anarchist (self-government advocate) or a minarchist.

The mass destruction of human life and property by States in the 20th century are its hellish voyages. The extent is so vast that many say “Let us do away with the murderous State.” But the vast majority of people on the planet are not persuaded by such raw facts. Those who benefit from the evils of States always cleverly concoct and select counter-facts to defuse any widespread anti-state sentiment. The war of man against the State has many battlefields.  So let’s push the analysis further and see what we come up with.

Power Corrupts          

Lord Acton is famous for writing that “Power corrrupts and absolute power corrupts absolutely.” Lord Acton means that there is a tendency for power to diminish a man’s sense of moral responsibility. He does not mean this as a rigid rule that must apply to every single instance in which someone has power. He has used persuasive and effective language to make his point, but it’s not meant as an infallible rule of behavior. In fact, Lord Acton provided a number of examples of despotic rulers that did good things, in his estimation.

I’d like to apply the law of demand to this saying so that we can better understand its meaning.  I’d like to develop a second story of how power is evil.

There are people who can be put into office that “can’t be bought.” They either will not be corrupted or not by much. Those that can be bought will show a greater decline in their morality or ethics. They will be more inclined to make decisions based on their private whims or gain and less on the public interest. Corruptibility varies among individuals. Since they all take an oath, one guide is their past records, but this can be almost worthless as a forecaster of future performance. As for their speeches, they should be carefully analyzed. They can be quite revealing. It’s a shame that so few men in power took Mein Kampf seriously, but they were so used to all their own political hot air and so prone to greater error (explanation one) that they couldn’t distinguish sincerity from deceit.

Everyone (including officeholders) has the capacity for good and evil. Each person’s character and conscience help determine his subjective costs of doing good or bad (things like going to Heaven or Hell, good feelings from doing the right thing, guilt over doing the wrong thing, etc.) These perceptions lie in the realm of “tastes” or preferences or value scales, as economists term them. The conventional wisdom is that they are likely to be fairly stable over time, or that people’s characters do not change overnight typically. The leopard does not change his spots. There are going to be situations where this wisdom fails us, and power may be one of them.

There are also costs imposed by others upon us when we engage in immoral, unethical, or unlawful behavior, all the way from nonacceptance, ostracism, criticism, embarassment, and reputational loss to fines and imprisonment. Some costs are mental, some out of pocket and some physical. If these costs go down, we “buy” or display more of such behavior. Another element is the chance of being caught. A man with no conscience has no chance of catching himself, while one with a strong conscience catches himself. If a burglar robs and is caught, he pays. The price paid depends on the probability of being caught times the expected cost.

These considerations tell us that an officeholder will indulge in more unethical behavior as the cost of it goes down, no matter how worthy or unworthy his initial character is. This is the economist’s way of saying that everyone can be bought, although their prices vary.

To complete this second story that we are unfolding, we have to figure out how having power lowers the cost of unethical behavior. If the power of office allows the relatively evil or unethical  person to do even more evil, if he is induced to more such behavior, how does that happen? If the power of office also encourages even the good person to lose her goodness and do more evil, how does that happen? The political situation is like that of a professional abusing a relationship with a vulnerable client, or a prison guard abandoning conscience and abusing prisoners . There is a plausible empirical relation among these cases in which one person has power over another.

There are several ways in which I understand this to happen. First is that the ruler’s conscience declines or is twisted and perverted. Tastes are not stable. A person in power makes law and pushes other people around. The ruler learns to rationalize his actions. He begins to see that he is different from his subjects, above them. It must be so because he controls them. They are weak beings, easily controlled and manipulated. Carried far enough, the person in power sees those under control as beasts or subhumans. There is no or less guilt from a wrong act if it is done to a nonhuman. There may even be a feeling of reward from imposing one’s will on such a creature. All of this is one way in which power corrupts. It amounts to a shift in the ruler’s tastes for good and evil acts that the very use of power fosters. This alone explains why Lord Acton was correct.

But there is a second way that power leads to more corruption. It is by lowering the price of corruption.

The very existence of a system of subjects and rulers contains within itself unavoidable knowledge and control costs that insulate the rulers from the subjects. Rulers are above their subjects, at a distance, and not fully observed. The subjects cannot know everything the ruler is doing, cannot hold him to account for acts they know nothing about, and cannot without great cost hold him to account for those acts they do hold the ruler responsible for. Monitoring the ruler is costly, so there can be no perfect observation and accountability to a ruler’s subjects. Rulers also are adept at shifting blame and spreading disinformation, which further raise the costs of affixing responsibilities.

Once the power system is in place, the laws and regulations multiply, and the subjects don’t know what they all are. They are taxed, manipulated, and controlled behind the scenes without even knowing it. When some abominable law comes to their attention, it is very hard (costly) to get it changed or even know who was responsible for it. We could look at the situation this way. The power system allows the leader greater latitude to increase his private gain; that’s what Lord Acton had in mind too. Remember that private gain does not necessarily mean money. It can mean indulging your wants rather than satisfying the wants of your subjects.

Power then can corrupt because the price of corruption falls for the ruler. He is insulated from being held accountable for making bad laws and regulations. The bigger the bureaucratic system of subjects-rulers becomes, the more that this becomes the case. If some really big mistake occurs that communicates error clearly to the subjects, then they can react and cause change. This is rather uncommon, but the Vietnam War is an example. The decision of President Johnson not to run for re-election in 1968 comes to mind, but the result was not felicitous.

Finally, I provide a third story to show that power is evil.  In this one we imagine that rulers try to do good. Power allows them to try to do what they personally conceive of as good for their subjects. They think they are doing good, but it’s the good that they think is the good of the voters. But the rulers do not know what the good of the voters is. That’s because the knowledge of the ruler is limited, and knowledge is costly. No ruler can know the many and varying wants or values of his subjects which each one uses to achieve his or her own good. The good of each subject is his own, not someone else’s; there is no “general welfare.”

I conclude that the projects of even well-meaning rulers fail. Even when they try to do good, they end up doing evil or bad. The powerful ruler may have decent motives and honestly believe that prohibiting drugs is the best action, but create more wrong in trying to stamp out the drug trade than whatever wrong existed in the first place, if any.


Power is evil. Political power opposes Life, Liberty, and the pursuit of happiness. Power’s very existence infringes the individual’s exercise of his right of self-ownership.

  Omnipotent Government: The Rise of Total State and Total War Power is evil: $11

This article explains ways in which power comes to work its evil. One is that a ruler is never as careful with public money as with his own, which is true because the power to tax lowers the sovereign’s cost of making mistakes. The second is Lord Acton’s argument that power corrupts, which is true because power both induces a shift in the morality of the ruler and also lowers the cost of acting corruptly. The third explanation is that even when a powerful ruler tries to do what is good, he fails, because he has limited knowledge of the preferences and values of his subjects and less incentive to discover them than his subjects, even if he could.

“Now we see through a glass, darkly.” We seek to rent the veil of darkness. Out of our ignorance and weakness, we ask powerful men to light our way for us, but they cannot. They lead us only further into deeper darkness. Our misplaced faith in their power brings destruction on our heads. 


Michael S. Rozeff is Professor of Finance at the University at Buffalo. His e-mail is msroz@buffalo.edu. Comment on the blog.