When Does Private Power Become a Threat to Liberty?

There is one part of libertarian thought that has always made intuitive sense to me.

Governments are powerful.

They can tax you. Regulate you. Fine you. Imprison you. Conscript you. Search your property. Decide what kinds of businesses may legally exist and under what conditions they may operate. Even a democratic government, constrained by constitutions and elections, possesses powers that an ordinary individual does not.

It therefore makes sense to be suspicious of allowing that power to grow without limit.

The part I have always found more difficult is what happens when power accumulates somewhere else.

A corporation cannot normally put me in prison. Walmart cannot draft me into the Army. Apple cannot make possession of an Android phone a criminal offense. If I dislike what a company offers, the traditional market answer is simple: I am free not to buy it.

That distinction is real.

But I am not sure it resolves the whole problem.

What happens when one company is the only realistic employer in a town? What happens when leaving a communications platform means leaving behind almost everyone you communicate with? What happens when an industry requires such enormous amounts of capital to enter that the theoretical possibility of competition exists much more readily than actual competitors do?

And what happens when a corporation becomes large enough to influence the government that was supposed to provide the counterweight?

These questions do not necessarily lead away from libertarianism.

In fact, libertarians have been arguing among themselves about versions of them for a very long time.

What changes from one school of thought to another is not so much whether liberty matters, but what threatens it, what keeps markets competitive, and how much power government can safely be given to restrain power somewhere else.

The simple case for leaving companies alone

The strongest free-market answer begins with an important distinction.

Political power and economic power are not the same thing.

If I open a coffee shop and nobody wants my coffee, I cannot force anyone to buy it. If customers like the shop across the street better, they can walk across the street. If I charge $25 for a cup of coffee, another entrepreneur has a fairly obvious opportunity.

Government works differently. I cannot ordinarily choose a competing court system because I dislike the judge assigned to my case, or decide that another country's tax code suits me better while continuing to live under the first country's jurisdiction.

This distinction is central to the libertarian defense of markets. Markets coordinate people through voluntary exchange rather than commands.

And for the harder forms of libertarianism, it does much of the work.

Murray Rothbard, one of the major twentieth-century theorists of anarcho-capitalism, took an unusually strict view of monopoly. The essential problem, in his account, was not that a company had grown extremely large. It was that other people had been legally prevented from competing with it. Monopoly was therefore intimately connected with state-granted privilege and restrictions on entry.[1]

Under this view, a company could theoretically supply 90 percent of a market without presenting a special problem.

The important question would be why it had 90 percent.

If people simply preferred its products, then its dominance represented millions of voluntary decisions. A competitor remained free to offer something better. Investors remained free to finance the challenger. Employees remained free to leave. Consumers remained free to buy elsewhere.

Size was not coercion.

And trying to solve the problem through government could produce precisely the thing libertarians feared most: a political institution with the legal authority to decide which companies were too successful, which prices were too high, which business arrangements were permissible, and which firms should be broken apart.

There is considerable force to this argument because governments really do help create economic concentration.

Licensing rules can prevent new competitors from entering an industry. Tariffs can insulate domestic firms from foreign competition. Subsidies can advantage politically favored businesses. Regulations that are merely expensive for a giant corporation may be prohibitive for a small competitor. Intellectual-property law can grant long periods of legally protected exclusivity. Government contracts can transform private companies into institutions whose business models become deeply dependent upon public spending.

This is one reason it is useful to distinguish corporate power from corporatism.

Corporatism has several more specific meanings in political history, but the phenomenon libertarians frequently criticize is the fusion of private economic interests with public power: businesses competing not merely for customers but for subsidies, protections, contracts and rules favorable to themselves.

A free market and a government-business partnership are not the same thing.

But a harder question remains.

What if we remove the privileges and the giant corporation is still there?

What if competition never arrives?

The usual market answer to private power is competition.

If one company becomes inefficient, another can outperform it.

If it raises prices too far, another can undercut it.

If it treats workers badly, another employer can attract them.

The beauty of this mechanism is that nobody needs to be appointed guardian of the market. The possibility of leaving does the disciplining.

But that mechanism depends on something that is easy to overlook.

There has to be somewhere to go.

Milton Friedman, certainly no enemy of capitalism, put the problem with surprising clarity in Capitalism and Freedom. For exchange to be genuinely voluntary, he argued, reasonably equivalent alternatives have to exist. Monopoly limits effective freedom of exchange precisely because those alternatives disappear.[2]

That is a more demanding idea of a free market than merely asking whether anyone signed the contract.

Suppose one company provides the only broadband connection available at my house.

I am legally free not to purchase it.

Suppose I need an internet connection to work.

My freedom remains real in one sense.

It is becoming rather theoretical in another.

This is the point at which a clean philosophical picture starts encountering the strange geology of actual markets.

Some industries require enormous amounts of capital before the first customer can be served. Some become more useful as more people join them. Some depend upon infrastructure that cannot efficiently be duplicated ten times. Some make leaving expensive because customers have accumulated years of files, contacts, purchases, professional relationships or technical knowledge within one ecosystem.

Economists call some of these phenomena barriers to entry, network effects and switching costs.

None necessarily creates a permanent monopoly.

But each can weaken the mechanism by which competition is supposed to discipline one.

A social network provides an intuitive example. If ten people use a network, it is not very useful. If everyone you know uses it, its value changes. A competitor may build a technically superior network and still face a peculiar problem: the people you want to communicate with are somewhere else.

The product is partly the other customers.

That creates a loop. More users make the incumbent more valuable. The additional value attracts more users. The larger network then becomes increasingly difficult to challenge.

Switching costs can strengthen the loop. A person may be perfectly free to move to another service while leaving years of photographs, purchased software, messages, professional contacts or familiar workflows behind.

Modern competition research therefore pays close attention not merely to whether competitors are legally allowed to exist but to whether customers can realistically move among them. The OECD, for example, identifies network effects, access to data, interoperability and switching costs as important factors in determining whether digital markets become concentrated.[3]

The door can be unlocked.

That does not necessarily mean leaving is easy.

The problem looks different from the other side of the paycheck

There is another version of this problem that appears less often in everyday discussions of monopoly.

A monopoly exists on the selling side of a market: one or a few sellers have unusual power over buyers.

A monopsony exists on the buying side.

And labor markets provide one of the most important examples because employers are buyers of labor.

The simplest version is the old company town.

Imagine that one company employs most of the people in a remote community.

Nobody is legally required to work there.

A worker who dislikes the wage is free to quit.

But perhaps the next plausible employer is fifty miles away. Moving means selling a house, changing a spouse's job, transferring children to another school, leaving friends, changing health insurance and uprooting a life.

Freedom to quit exists.

The cost of exercising it may be enormous.

Modern research suggests that employer power does not require anything as extreme as a literal company town. Labor economists Suresh Naidu and Arindrajit Dube describe three important sources of monopsony power: employer concentration, the difficulty of searching for jobs, and differences among jobs that make them imperfect substitutes for one another.[4]

A programmer may not consider every programming job equivalent.

A nurse may need a particular schedule.

A parent may need employment close to home.

A worker may value coworkers, a manager, remote work, health insurance or predictable hours.

Changing jobs is therefore different from changing toothpaste brands.

Even the federal government's merger guidelines recognize this asymmetry. Labor markets can involve unusually high search and switching costs because finding another job requires applications, interviews, matching skills with vacancies, geographic constraints and the disruption involved in actually changing employers.[5]

This complicates the libertarian picture in an interesting way.

A worker may have signed the employment contract voluntarily.

But the strength of that voluntariness partly depends upon what happens if the worker says no.

The hidden importance of the exit door

At some point, I realized that many of these arguments were circling the same object.

The exit door.

Markets do not usually protect me from private power by preventing someone else from becoming powerful.

They protect me by allowing me to leave.

If a restaurant becomes terrible, I eat elsewhere.

If a store becomes expensive, I shop elsewhere.

If an employer underpays me, I work elsewhere.

If an investor offers bad terms, I seek another investor.

The ability to exit transforms what could otherwise become a relationship of dependence into something closer to a continuing negotiation.

The seller knows I can leave.

The employer knows I can leave.

The platform knows I can leave.

Competition gives the threat credibility.

This is one reason market power and government power remain importantly different. Governments usually possess territorial authority. People can emigrate, but changing governments is vastly harder than changing grocery stores.

The market offers thousands of small exits.

But this also explains why monopoly, monopsony, switching costs, regulatory capture and network effects all belong in the same essay.

Each one can interfere with exit.

Monopoly reduces the number of sellers I can turn to.

Monopsony reduces the number of employers I can turn to.

Switching costs raise the price of leaving.

Network effects reduce the usefulness of wherever I go next.

Regulatory capture can prevent alternatives from appearing in the first place.

Once viewed this way, the argument is no longer simply about whether corporations are too large.

It is about whether the institutions surrounding a market preserve meaningful alternatives.

Hayek and the rules of the game

This is approximately where one strand of classical liberal thought begins to diverge from pure laissez-faire.

Friedrich Hayek is sometimes remembered as though his argument were simply that governments should leave markets alone.

His actual position was more complicated.

Hayek distinguished between what he called free enterprise and a competitive order. Private property and freedom of contract were essential, but they did not by themselves settle every institutional question. The legal rules surrounding property, corporations, contracts and competition helped determine what kind of market would emerge.[6]

That distinction matters.

There is a difference between a government deciding which company should win and a government establishing rules under which companies are allowed to compete.

The referee is not supposed to choose the winner.

Removing the referee does not necessarily make the game freer.

A Hayekian approach therefore leaves room for a government that defines property rights, enforces contracts, punishes fraud and collusion, and maintains general rules intended to preserve competition, while refusing to direct production or determine particular economic outcomes.

The difficulty, of course, is deciding where one activity becomes the other.

An antitrust agency breaking up a cartel may be preserving competition.

An agency deciding that a company is simply too large may be substituting political judgment for market outcomes.

A regulation designed to help new firms enter may preserve competition.

The same regulation, captured by existing firms, may become a barrier that protects them.

The machinery used to restrain private power can itself become a source of public power.

The problem has not disappeared.

It has moved.

The libertarian critique of the corporation from the left

There is another response that initially sounds contradictory only because American political vocabulary has bundled together ideas that do not necessarily belong together.

It is possible to be strongly pro-market and strongly skeptical of large corporations.

A family of ideas often described as left-libertarian, market anarchist or freed-market thought begins from many familiar libertarian premises: voluntary exchange, freedom of association, skepticism toward state coercion and relatively strong rights over property and contract.

But some thinkers in this tradition argue that the corporate economy around us should not simply be treated as the natural result of markets.

Existing firms developed inside legal systems containing subsidies, patents, licenses, land rules, financial regulations, transportation policies, government contracts and many other interventions accumulated over generations.

Remove those interventions, these libertarians argue, and the result might not be today's economy minus the Environmental Protection Agency.

It could be structurally different.

The Stanford Encyclopedia of Philosophy describes contemporary left-libertarian currents that expect freer markets to produce more numerous and smaller enterprises, more cooperative forms of organization and less economic inequality. These thinkers sharply distinguish free markets from what they regard as state-supported capitalist domination.[7]

This produces one of the more interesting reversals in the whole debate.

Perhaps gigantic corporations do not prove that markets inevitably concentrate power.

Perhaps some gigantic corporations demonstrate how extensively political and economic power have already become entangled.

Under this view, the answer to corporate power is not more centralized government power.

It is to remove the architecture that helps concentrated private power reproduce itself.

The argument resembles Rothbard's in one sense and differs radically in another.

Both suspect state privilege.

But the left-libertarian version is much more willing to imagine that a genuinely freed economy might look decentralized, cooperative and surprisingly unlike the corporate capitalism normally identified with the political right.

Another liberal answer: keep power dispersed

Just outside the libertarian family sits a tradition that approaches the problem from another direction.

German ordoliberalism, developed in the twentieth century by thinkers including Walter Eucken and Franz Böhm, was deeply concerned with concentrations of both public and private economic power.

Ordoliberals did not think a competitive market simply appeared whenever the government retreated.

Competition had to exist inside a legal order capable of preserving it.

Their fear was that economic power could become politically self-reinforcing. Dominant firms could restrict competition, influence government and transform temporary economic success into an entrenched position. Government could likewise become captured by organized interests or attempt to control the economy directly.

Their answer was neither central planning nor pure laissez-faire.

It was an institutional order designed to disperse economic power and preserve competition.[8]

This produces a different conception of antitrust.

Antitrust is not necessarily an exception to the free market.

It can be understood as part of the machinery required to prevent a market from ceasing to be competitive.

That proposition remains controversial, including among libertarians, because it immediately raises the problem of who decides what level of concentration is acceptable.

But it exposes something important.

There are at least two ways to fear government interference in markets.

One is to fear that government will prevent firms from becoming as successful as consumers want them to become.

The other is to fear that firms which become sufficiently powerful will acquire the ability to prevent future competition themselves.

The first worries about government damaging the market.

The second worries about the market losing the conditions that made it free.

The company town

Suppose a company owns the factory where I work.

It owns my apartment.

It owns the grocery store.

It operates the bus system.

It provides my internet connection.

It owns the local newspaper.

Perhaps it even provides the health clinic.

Nobody forces me to stay.

I can leave tomorrow.

This is an intentionally exaggerated example, but exaggeration has a useful philosophical property: it removes the comfortable middle ground.

Am I free?

One answer is clearly yes.

Nobody owns me. Nobody has legally prohibited me from leaving. I entered these relationships voluntarily. If the company provides all of these services better than competitors could, its success by itself does not give somebody else the right to seize it or dismantle it.

Another answer is that something about my freedom has nevertheless changed.

One institution now possesses extraordinary leverage over almost every important decision in my life.

If I anger it and lose my job, perhaps I also lose my housing.

If I leave its communications system, I leave the people around me.

If I refuse its prices, perhaps there is nowhere convenient to shop.

No individual decision is compulsory.

The collection of them begins to feel different.

This is where the debate reaches something deeper than competition policy.

What do we actually mean by liberty?

If liberty means principally the absence of coercive interference, then the distinction between government and corporate power remains enormous.

If liberty also depends upon having realistic alternatives to relationships of dependence, then private economic concentration becomes harder to ignore.

And those two definitions do not produce identical political systems.

There is no solution without a new problem

At this point it is tempting to choose one answer.

That is exactly where the subject becomes less cooperative.

The pure laissez-faire solution identifies a genuine danger: governments frequently create barriers to competition, and regulators can become captured by the companies they regulate.

Removing privilege can make markets freer.

But it does not guarantee that network effects, economies of scale, geography, switching costs or monopsony disappear.

Antitrust offers another answer.

But antitrust requires public officials to decide when ordinary commercial success has become exclusionary power, and those decisions are not magically insulated from politics.

Regulation can constrain a natural monopoly.

But a regulated monopoly may become more permanent because the regulator itself creates barriers to replacement.

Breaking up a large company may create competitors.

It may also destroy efficiencies that made the company's products inexpensive in the first place.

Worker protections may limit employer power.

They can also make hiring more costly.

Intellectual-property rights can give firms temporary monopolies.

They can also create incentives to spend enormous amounts of money developing things that can later be copied cheaply.

Every solution carries some piece of the problem inside it.

This may explain why the libertarian debate over corporate power never resolves into a clean formula.

The disagreement is not between people who care about freedom and people who do not.

It is partly a disagreement about which form of concentrated power is easiest to escape.

Who keeps the market free?

I began with a fairly simple discomfort.

If libertarianism distrusts enormous concentrations of government power because they can constrain individual liberty, why should enormous concentrations of private power automatically receive a pass?

I no longer think the strongest libertarian answer is that corporations simply cannot threaten liberty.

The stronger answer is that private power is supposed to contain its own escape mechanism.

Competition.

You can leave.

Another seller wants your money.

Another employer wants your labor.

Another entrepreneur wants the incumbent's customers.

Another investor wants the opportunity the dominant company missed.

That is an extraordinarily elegant system when it works.

And perhaps the most interesting question is what happens when it doesn't.

Rothbard's answer is to look for the state privilege preventing competition.

Friedman's answer leaves room for antitrust and recognizes that voluntary exchange becomes less meaningful when equivalent alternatives disappear.

Hayek asks whether the legal framework itself is preserving a competitive order.

Left-libertarians ask whether the supposedly private concentration we observe is already partly the product of political privilege.

Ordoliberals treat the dispersal of economic power as one of the conditions necessary for a durable competitive economy.

Modern economics adds mechanisms that none of these philosophical labels can make disappear: network effects, switching costs, search frictions, geographic constraints, economies of scale and monopsony.

They are different answers.

But almost all of them eventually return to the same door.

Can I leave?

And if I leave, is there somewhere else to go?

That may be the boundary where an abstract commitment to free exchange encounters the difficult architecture of the real world.

A government can threaten liberty because it possesses powers from which exit is extraordinarily difficult.

A market answers that problem by multiplying alternatives.

Perhaps the danger begins when those alternatives collapse.

The question then is not merely whether a market is free from government control.

It is whether the people inside it remain free from becoming dependent upon any single center of power.

Public or private.

Further reading

1. Murray N. Rothbard, Man, Economy, and State with Power and Market, especially Chapter 10, “Monopoly and Competition.” Rothbard provides one of the clearest versions of the argument that monopoly properly understood arises from legally protected privilege and restrictions on entry.

2. Milton Friedman, Capitalism and Freedom, especially Chapter II. Particularly useful for Friedman's argument that genuinely voluntary exchange requires sufficiently meaningful alternatives and for his treatment of monopoly, antitrust and natural monopoly.

3. OECD, The Evolving Concept of Market Power in the Digital Economy and Competition and Consumer Policy in Digital Markets. Useful surveys of how network effects, switching costs, interoperability, data and platform structure complicate competition in digital markets.

4. Suresh Naidu and Arindrajit Dube, “Monopsony Power in Labor Markets”, NBER Reporter, 2024; Sydnee Caldwell, Arindrajit Dube and Suresh Naidu, “Monopsony Makes it Big”, NBER Working Paper 35608, 2026. Accessible overviews of modern research into employer market power, search frictions, worker preferences and labor-market concentration.

5. U.S. Department of Justice and Federal Trade Commission, 2023 Merger Guidelines, especially Guideline 10. A useful practical discussion of competition among employers, labor-market switching costs and monopsony concerns.

6. F. A. Hayek, “‘Free’ Enterprise and Competitive Order,” in Individualism and Economic Order. A useful corrective to the idea that classical liberalism necessarily means simply withdrawing government from economic institutions.

7. Stanford Encyclopedia of Philosophy, “Libertarianism”. Provides an overview of the diversity within libertarian thought, including left-libertarian traditions that distinguish freed markets from existing corporate capitalism.

8. Raphaël Fèvre, A Political Economy of Power: Ordoliberalism in Context, 1932–1950, and Thomas Biebricher, Peter Nedergaard and Werner Bonefeld, eds., The Oxford Handbook of Ordoliberalism. Useful histories of the ordoliberal concern with both public and private economic power and the idea of competition as an institution that must be preserved.