Of all the tools in the leftist intellectual toolkit, I find power analysis one of the most useful, especially given the poverty of the natural rights approach. This tool is used to ill effect in conjunction with the labor theory of value. If one denies that trade results in a surplus to both parties â if one sees the “just price” of something as the amount of labor that went into it â then one will see exploitation everywhere, and in utopian zeal tear apart the sinews of society.
Wedded to a sounder theory of value, however, the idea of power can be quite illuminating. I take the term to mean bargaining advantage: the party with the greater bargaining power takes the greater share of the surplus value from a trade. When one party is consistently in a position to collect the greater share of the surplus, dissatisfaction and unrest tend to arise.
If, therefore, economic value is subjective, then as a function of potential value surplus from a trade, bargaining power must also be subjective. This has nothing at all to do with the claim that actual power depends on subjective perceptions of the other party’s power: the subjectivity does not arise from perception (which is perhaps interesting psychologically, but irrelevant here), but from valuation.
Let’s look at the standard reductio ad absurdum which seems to suggest the objectivity of bargaining power: a man selling bottled water to wandering millionaires dying in the desert. The salesman can afford not to make the trade; the wanderer cannot. The salesman is therefore in a position to reap a vast trade surplus from the wanderer â anything for which he would not trade his life.
The objectivity of the wanderer’s need obscures the subjectivity of the trade. Just because man requires water to survive, we do not say that his valuation of water is objective. He can substitute many things for the marginal cup, choosing to be thirsty in order to go on a hike, for example. Even down to the margin of survival there are things he may value over his own life. Biological necessity strongly influences, but does not determine, valuation.
It follows that, as we cannot speak of valuation in the abstract until it has been expressed in a choice, we likewise cannot speak of bargaining advantage until it has been expressed in a trade. This is not so much of an obstacle in the former case: to say that one prefers a new Mercedes over 2,000 pounds of oranges requires the construction of a hypothetical choice â not a difficult exercise, even if the choice itself is difficult. However, an additional layer of uncertainty is added when constructing hypothetical transactions: without an actual trade, the terms of the trade are indeterminate. And without that knowledge, analysis of power relations is nothing more than speculation. If we do not in fact make a deal, a bank telling me “take it or leave it” is in reality no different from me telling them “take it or leave it” where “it” is more favorable to myself. Both parties have been willing to not make a deal on terms acceptable to the other. The more favorable set of terms is no less nonexistent than the less favorable. To analyze a power relationship, there must first be a relationship.
We can see then that the concepts of “price setter” and “price taker” are ideal types on the scale of the supplier’s power over the buyer, the setter typically taking the bulk of the surplus and the taker losing the bulk. The power of a price-taking seller in a competitive market has significantly diminished bargaining power over the buyer. It is indeed an old complaint in the left-libertarian tradition that labor is allowed to compete among itself and lose its bargaining advantage, whereas capital is cartelized so as to increase its bargaining advantage relative to labor. Capital has many options in labor, it is said, whereas labor has few options in capital. This illuminates both the appeal of unionism â the defensive cartelization of labor â as well as its unsuitability as a response to the cartelization of capital. I myself am suspicious of the claim that this disparity is a significant factor in the employer-employee bargaining dynamic except during a recession, but an empirical study using subjectivist power analysis should prove fruitful.