Property and Government

Property and Government

Three-fifths to two-thirds of the federal budget consists of taking property from one American and giving it to another. Were a private person to do the same thing, we'd call it theft. When government does it, we euphemistically call it income redistribution, but that's exactly what thieves do -- redistribute income. Walter Williams www.CapitalismMagazine.com

As demonstrated, only simple logic is needed to understand property rights – if something belongs to you, it is yours, not someone else’s. Consequently, if someone else takes your property without consent, it is theft. And, throughout history, governments have been the greatest thieves of all. www.yaliberty.org

Property Rights solve problems :
"Freedom is the societal condition that exists when every individual has full (i.e. 100%) control over his own property."
This is certainly a radical statement. And I believe it to be 100% true.
Provided the word "property" is understood, then there can be no misunderstanding as to how to apply this dictum.
So, what is property? Well, first of all, you are your own property. Your body is your property. Your mind is your property. When you apply your mind to the creation of a physical good, that is your property. When you apply your mind and body to working for someone else, the money you receive in exchange for your effort is your property. When you buy something off someone else, it becomes your property.
The whole free market is the mechanism by which property is exchanged by voluntarily agreed means. If there was no property, there would be no market.
In fact, proper protection of property is a necessary precursor to any economic advancement. And it is this little-understood fact that is causing so much lack of progress in most of the undeveloped world.
If you establish a foundation of justice, based on the protection of property - then a market economy is the natural consequence.
I don't believe the concept of property is hard to understand, and in fact, it has been understood for millennia.
You could say that property is just common sense. Even children have no problem understanding the concept.
Moral dilemmas arise when my property rights come up against yours. And they can be easily sorted out by reference to exactly whose property is at stake.
Obviously, as my body is my property, then I can smoke marijuana and it's nobody else's business - unless I smoke it in your house without your permission. As for driving at 150 km/hour, that depends on who owns the road - and whether they mind or not. And a reference to property rights also sorts out the issue of euthanasia.
In fact, the beauty of enforcing property rights is that everyone is then 100% free to do whatever they want with THEIR property, and equally 100% NOT free to infringe on anyone else's.
This is the ONLY definition of freedom which ensures that every individual can attain it.
The issue of taxation is easily dealt with. Your money is your property, and no one has the right to force you to hand it over against your will.
What about a really contentious issue - like immigration? What does property rights have to say in that regard?
Well, under a property rights based society, you would have the right to emigrate only if you were invited by the owner of the property concerned. And in the case of a town, or city (for remember, everything would be privately owned - the roads, the buildings, the open spaces), then such an invitation would need to be consistent with whatever "body-corporate" bylaws everybody had voluntary signed up to.
Under a property rights based society, there would be no such thing as the "national" interest - only the interest of the individual property owners.
Property rights morality sorts out the problems of free trade. If I want to sell you something, or buy something from you - then no matter where on earth you are - it is nobody else's business as to what you and I agree to.
What about smoking in restaurants? Easily fixed. Who owns the restaurant? That is the only question needing answering, because the restaurant owner is the only one with the right to determine whether his customers smoke or not.
Are you a landlord? No problem, by reference to property rights, you have absolute control as to who you will rent to - and under what terms.
Every currently divisive social, political and moral issue can be rationally solved by applying the question of, "Whose property is it?"
Once the essence of property rights is grasped, and how such rights define the nature of justice, it becomes apparent that freedom is the natural consequence.
On the basis of property rights, there is no such thing as freedom from hunger, freedom from illiteracy, or freedom from unemployment. All these bogus freedoms are unable to be upheld when put under the microscope of property rights.
In the same way, democracy is NOT freedom, and in fact is most inimical to it. Democracy rests on the notion of majority rule, and of the right to determine morality by counting heads.
More often than not, the democratic system is used to undermine property rights - not protect them.
In a society where property rights were 100% protected, there would be no need for democracy, or voting of any kind. The law would be sufficient to cover all contingencies. Everybody would have equal rights - equal property rights.
But the very term "property rights" has been attacked incessantly by those with a vested interest in looting.
How many times have you heard the cry, "But property rights must take second place to HUMAN rights!".
The fallacy of that statement is in the fact that property rights ARE human rights. More fundamentally, it is impossible to have any genuine human rights, without accepting the preeminence of property rights.
Equally fallacious is Proudhon's statement, "property is theft". For how can you have theft - if there is no property to be stolen?
Under a property rights based society, you wouldn't need a judicially proactive government, forever creating new laws. No, the law could be stated simply and forcefully once and for all. And all that remained would be the need to interpret different situations in the light of the foundational respect of property rights.
Property rights also solves another problem - how to achieve genuine justice. Justice can be defined as respect for, and the enforcement of, property rights. No other justice is required.
So called "social justice" is just a figment of the looters' imagination.
So there you have it - the solution to moral greyness, moral equivocation, judicial activism, and a host of other current social evils.
Next time you read or hear of any contentious issue, try applying the question, "Whose property is involved here?", and you'll be surprised how much clarity it brings to bear.
Don't fall for the idea that equates democracy with freedom, and don't fall for the raft of bogus "freedoms" tossed around with abandon. Protection of property is the anchor of justice, and this would result in all the freedom you'll ever need.

Frédéric Bastiat, although best known as an economic journalist, was also a pioneer in what has become known as constitutional political economy. Like James Buchanan and other constitutional political economists, Bastiat considers the nexus between economics and politics, employs methodological individualism, extends the exchange paradigm to collective choice, and traces the implications of alternative property rights structures for economic, social, and political order.

He derives the principles of a liberal social order from a theory of rights in which individuals have a fundamental right to be left alone to pursue their own interests provided they do not violate the equal rights of others. The primary duty of government is to serve the people by protecting their basic rights to life, liberty, and property. In his system of natural liberty—characterized by free trade and the rule of law—a spontaneous order emerges that enhances individual well-being through the process of free choice and wealth creation.

Bastiat recognized that a shift away from a minimal state to a redistributive state would undermine private property rights, attenuate individual freedom, and turn the true meaning of justice on its head. Bastiat saw consent as the only legitimate measure of justice, in both the private and the public sector.

Starting with the nature and rights of man and then proceeding to the role of government, the meaning of justice, and the legitimate function of the law, Bastiat laid the foundation for a constitution of liberty that would narrowly limit the power of government and maximize individual freedom.

Long before Public Choice economists used the term “rent-seeking,” Bastiat showed that when government steps beyond its proper function of protecting persons and property, there will be an incentive for special-interest groups to seek privileged positions and use the power of government to capture benefits at the expense of taxpayers and consumers. Income and wealth will be redistributed and resources will be wasted in the process.

From Bastiat’s perspective, rent-seeking is best seen as a form of “legal plunder,” because the force of law is used to unjustly take from some people, without their consent, in order to benefit others. Tariffs, subsidies, usury laws, and welfare payments all violate the fundamental principle of justice, as understood by Bastiat and classical liberals.

On the 200th anniversary of Bastiat’s birth, it is appropriate to reconsider his work from the perspective of constitutional political economy. The essential issue is how to solve the so-called social problem, that is, how to coordinate self-interested individuals so as to achieve economic, social, and political harmony. In addressing that issue, Bastiat takes individuals as they are and asks, What institutions (rules) are best suited to the perfectibility of imperfect man? Although Bastiat was influenced by those who went before him, especially Adam Smith, the physiocrats, and Jean-Baptiste Say, he has his own unique insights and can be considered a forerunner of Knut Wicksell and present-day constitutional political economists.

Pursuit of Self-Interest

A basic postulate of Bastiat’s economic approach to politics is that all individuals pursue their own self-interest, by which he simply meant that individuals are born with an “instinct of self-preservation.”^[1] It is a universal characteristic of human nature that individuals tend “to seek happiness and to shun misery.”^[2] Individuals, no doubt, will make mistakes, but if they are free to choose and are held responsible for their actions, they will learn.^[3] “In the last analysis,” writes Bastiat, “we must look to the law of responsibility to find the means to achieve human perfectibility.”^[4]

Bastiat is critical of certain political theorists (French socialists, in particular) for their attempt to change the nature of man by asserting that self-interest is socially destructive and should be replaced by the motive of “self-sacrifice” for the “common good.”^[5] Such a “complete transformation of the human heart” is unrealistic and dangerous, according to Bastiat. Any attempt to destroy self-interest will, in his opinion, destroy mankind. Virtue cannot be forced on individuals by government; it must be spontaneous and consistent with self-preservation.^[6]

In his famous 1848 essay, “Property and Law,” Bastiat argued that it is futile to try to “suppress self-interest by decree.” Government and the law cannot change human nature. Moreover, when individuals enter the public sector, they do not abandon their desire for personal gain—self-interest does not die, rather the so-called new motives (such as working for the honor of one’s country or for the common good) become “self-interest of another sort.”^[7] Thus Bastiat was consistent in applying the self-interest postulate to both private and public choice. His starting point is always the individual and the natural motive to improve one’s condition to achieve greater happiness.

The pursuit of happiness, however, cannot take place constructively without constraints on human action. Those constraints—in the form of rules against theft, fraud, murder, and so on—are both practical and consistent with the natural rights of each person to be free from coercion, except when it is used to protect life, liberty, and property.

For Bastiat, as for other classical liberals, the individual and his liberty and property precede government, and it is the duty of government to secure each individual’s pre-existing natural rights. Such rights are not a convention or a creation of government and the law; the law’s function is to protect, not to take, one’s justly (that is, freely) acquired property: “It is precisely because property as well as liberty is a right prior to the law that both exist only on condition of respecting the like right of others, and it is the function of the law to see that this limit is respected, which means to recognize and support this very principle.”^[8]

Freedom, property, and justice are inseparable in Bastiat’s constitutional political economy. Freedom, or consent, is the measure of justice, both in the market and in the choice of constitutional rules: to be just, transactions (exchanges) must be free. “Exchange, like property, is a natural right,” argued Bastiat.^[9] To deny people the right to trade would be to deny them a fundamental human right. Likewise, since individuals’ natural rights precede government, the just or legitimate state must ultimately rest on the consent of the people.

Bastiat understood the term “property,” in a broad sense, as “the right to enjoy the fruits of one’s labor, the right to work, to develop, [and] to exercise one’s faculties, according to one’s own understanding, without the state intervening otherwise than by its protective action.”^[10]

As each person has the right to defend his liberty and property, all individuals have the right to join together to provide a common defense of their natural rights to life, liberty, and property. But neither the state nor any individual has the right to take the property of others or to force others “to be industrious, sober, thrifty, generous, learned, or pious.” Government, or “collective force,” can only “be legitimately employed to further the rule of justice, to defend every man’s rights.”^[11]

In his approach to government, he adopts methodological individualism and asks: “If a right does not exist for any one of the individuals whom collectively we designate . . . as a nation, how can it exist for that fraction of the nation having merely delegated rights, which is the government? How can individuals delegate rights that they do not possess?”^[12]

The obvious answer is that they cannot do so without violating the “rule of justice.” Thus for Bastiat, the state “can have no rationally justifiable functions other than the legitimate defense of the rights of the individual; it can be called upon only to safeguard the liberty and property of all the citizens.”^[13]

Justice and the Law

Justice requires protection of property rights and freedom of contract. When government oversteps its legitimate boundary—that is, when the law is used to attenuate private property rights and violate individual rights—injustice occurs. The results of government overreaching are “the rights of some violated for the advantage of others, liberties sacrificed, property rights usurped, capabilities curtailed, [and] acts of plunder perpetrated.”^[14]

In a free society, the function of the law, according to Bastiat, is “to prevent injustice from prevailing,” rather than “to make justice prevail.” This view makes sense, says Bastiat, because “it is not justice, but injustice, that has an existence of its own. The first results from the absence of the second.”^[15]

To be just, government and the law, both of which operate through the use of force, must remain within the legitimate bounds of that use. Those bounds are defined by a prohibition against injustice, not by a positive directive to do good. As Bastiat notes: “When law and force confine a man within the bounds of justice, they do not impose anything on him but a mere negation. They impose on him only the obligation to refrain from injuring others.”^[16] In this sense, Bastiat first defines “law” as the “collective force organized to oppose injustice” and then adds, “To put it briefly: Law is justice.”^[17]

The Law of Justice and Spontaneous Order

When government is limited to its legitimate functions, property will be protected, and liberty and justice will prevail. Individuals will be held responsible for their actions, and self-interest will be directed by a competitive market process to satisfy consumers’ preferences in the long run. The spontaneous order, or harmony, that develops under free markets thus depends fundamentally on what Bastiat calls “the law of justice”: “Men’s interests, under the law of justice, tend to adjust themselves naturally in the most harmonious way.”^[18]

As Bastiat wrote, when government is limited to its proper role and property is secure, “Everyone would be sure of his future, at least in so far as it could be affected by the law.”^[19] Moreover, in such a regime, “It will be impossible for industry not to develop, for wealth not to increase, for capital not to be accumulated, with prodigious rapidity.”^[20]

Thus Bastiat was a true progressive: he believed that “the best chance of progress lies in justice and liberty.”^[21] His positive outlook is best summarized in this passage from his famous essay The Law, written in June 1850: “It is under the law of justice, under the rule of right, under the influence of liberty, security, stability, and responsibility, that every man will attain to the full worth and dignity of his being, and that mankind will achieve, in a calm and orderly way—slowly, no doubt, but surely—the progress to which it is destined.”^[22]

As a key proponent of free trade, Bastiat argued that trade is not only a human right, it is an important vehicle for promoting world peace: “In virtue of the principle of universal justice, no citizen being able to prevent another citizen from buying or selling abroad, the commercial relations of this nation will be free and widespread. No one will deny that these relations contribute to the maintenance of peace. They will themselves constitute a veritable and precious system of defense, which will render arsenals, fortified places, navies, and standing armies well-nigh useless.”^[23]

The Redistributive State and Legal Plunder

When government goes beyond the limits of universal justice and uses the law for plunder, rent-seeking will replace profit-seeking. The doors of government will then be open for endless interventions and redistributions to benefit some individuals or groups at the expense of others. Civil society will diminish as the rule of law erodes, and wealth creation will slow as the free market is suppressed.

In the redistributive state, self-sacrifice for the common good is regarded as a public virtue, and self-interest is frowned upon. The law is perverted and transformed from its legitimate function of protecting persons and property to forcing the transfer of income and wealth through market interventions, outright takings, and heavy taxes. Artificial rights (welfare rights) replace natural rights (property rights), and justice is turned on its head.

Bastiat clearly recognized that when the government oversteps its legitimate boundary, there is no end to the demand for further interventions and redistributions to benefit some individuals or groups at the expense of others. Instead of a positive-sum game, as occurs under limited government and voluntary exchange, there will be a zero-sum or negative-sum game under the redistributive state and its instrument of “legal plunder.”

By “legal plunder,” Bastiat meant “a violation of freedom and property rights.”^[24] In particular, “When property is transferred without the consent of its owner and without compensation, whether by force or by fraud, . . . I say that property rights have been violated, that plunder has been committed.”^[25] Once the law is used to protect special interests, rather than to protect private property, resources will be devoted to seeking the benefits government has the power to hand out in the form of subsidies, licenses, welfare payments, market access, and so on. Resources will be wasted in the process of rent-seeking, and overall wealth will be lower than in a market-liberal order.

The redistributive state, in addition to interfering with the spontaneous market order and wasting resources, will erode civil society and “weaken the moral fibre of a nation.”^[26] Individuals will lose their sense of responsibility and depend heavily on the state for their self-preservation. When the government is responsible for one’s health, housing, employment, education, retirement, and general well-being, little is left for private initiative. Everyone will have an incentive to live off the state, which means to prey on his neighbors. In such a world, “the law becomes a great school for demoralization.”^[27]

What deeply concerned Bastiat was that the true nature of justice is distorted beyond recognition in the redistributive state, yet legislators pretend to be moral authorities. True justice requires that freedom prevail, that the rights to property and contract be safeguarded by law. Voluntary self-sacrifice to help others is considered a virtue, but forced self-sacrifice is a vice and violates the rules of justice. When the state imposes “fraternity,” it distorts the real meaning of justice under the law: “Legal plunder may borrow the name of fraternity, . . . but it will never be anything but a principle of discord, confusion, unjust claims, terror, misery, inertia, and animosity.”^[28]

Bastiat foresaw that, with universal suffrage, democratic governments would come under increasing pressure to depart from first principles and use the force of law to buy votes rather than to protect property. He understood the danger of trying to use the state to “realize the general welfare by way of general plunder.”^[29] Under universal suffrage, Bastiat predicted that those who were previously disenfranchised and who were victims of legal plunder would now use the power of the law “to redress the balance by means of universal plunder. Instead of being abolished, social injustice [would be] made general.”^[30]

Two consequences of the “perversion of the law,” which Bastiat foresaw under universal suffrage, are (1) “to efface from everyone’s conscience the distinction between what is just and what is unjust” and (2) “to give to political passions and struggles, and indeed to the whole field of politics, an exaggerated importance.”^[31]

The rise of the redistributive state has decreased respect for private property rights and undercut individual responsibility. That should not be surprising: It is only natural for people to become less responsible when they bear only part of the costs of their actions. The politicization of economic life, the erosion of civil society, and the growth of rent-seeking that have occurred in Western democracies over the past 50 years attest to the soundness of Bastiat’s logic of collective choice. It is because “the voter acts not only for himself, but for everyone” that Bastiat placed primary importance on limited government and individual responsibility, rather than on simple majoritarianism and democratic rule.^[32] Like James Madison, his emphasis was on a constitutional republic, in which the powers of the state would be delegated and enumerated, and the rights of the people would be broad and consistent with liberty under the “law of justice.” He was interested in the general welfare, but he would achieve it by narrowly limiting government and relying on “spontaneous fraternity” rather than on “legal fraternity.”^[33]

To restore economic and social harmony, the state must return to its proper role, which means that people must accept responsibility for their actions and respect the liberty and property of others. The imperfect nature of welfare rights as moral rights needs to be widely recognized if the moral pretense of “liberal” activists, operating under the banner of social justice, is to be replaced by Bastiat’s rights-based approach to equality and justice, and legitimate constitutional order restored.

However, if people believe that “the state is responsible for establishing fraternity on behalf of its citizens,” then Bastiat’s prediction that “we shall see the entire people transformed into petitioners” will come true.^[34] The challenge Bastiat presents is to understand the institutional infrastructure of a market-liberal order and to appreciate the moral and constitutional principles that condition the long-run survival of a free society. In this sense, Bastiat fits clearly into the mold of a constitutional political economist.

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Natural rights are those rights which the founders believed come from human nature itself – that is, they belong to all human beings, simply by virtue of their having been created as human beings by God. The founders believed that it was a self-evident truth that the right to life, liberty, and the pursuit of happiness were the fundamental and universal traits which characterize the entire human species. In naming these three natural rights, the founders simply meant that it was a natural entitlement from God that human beings be allowed to live, to govern themselves as they see fit, to work to acquire property, and to keep the property that they earn through their own labor – at least to the extent that in exercising these rights they did not interfere with the natural rights of a fellow human being.

Perhaps the most important thing to know about natural rights is that they are, as the Declaration labels them, “unalienable.” That means that they cannot be taken away legitimately, and that they do not depend upon government recognition of them in order to be valid. You are not entitled to natural rights because the government says so, or because the Constitution or Bill of Rights says so, but because you are a human being and you have these rights by your very nature. Put differently, we do not judge the meaning of natural rights by what governments say; rather, we judge governments as good or bad based on how well they protect natural rights. www.founding.com

One of the most fundamental requirements of a capitalist economic system—and one of the most misunderstood concepts—is a strong system of property rights. For decades social critics in the United States and throughout the Western world have complained that “property” rights too often take precedence over “human” rights, with the result that people are treated unequally and have unequal opportunities. Inequality exists in any society. But the purported conflict between property rights and human rights is a mirage. Property rights are human rights.
The definition, allocation, and protection of property rights comprise one of the most complex and difficult sets of issues that any society has to resolve, but one that must be resolved in some fashion. For the most part, social critics of “property” rights do not want to abolish those rights. Rather, they want to transfer them from private ownership to government ownership. Some transfers to public ownership (or control, which is similar) make an economy more effective. Others make it less effective. The worst outcome by far occurs when property rights really are abolished (see tragedy of the commons).

A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals. Society approves the uses selected by the holder of the property right with governmental administered force and with social ostracism. If the resource is owned by the government, the agent who determines its use has to operate under a set of rules determined, in the United States, by Congress or by executive agencies it has charged with that role.

Private property rights have two other attributes in addition to determining the use of a resource. One is the exclusive right to the services of the resource. Thus, for example, the owner of an apartment with complete property rights to the apartment has the right to determine whether to rent it out and, if so, which tenant to rent to; to live in it himself; or to use it in any other peaceful way. That is the right to determine the use. If the owner rents out the apartment, he also has the right to all the rental income from the property. That is the right to the services of the resources (the rent).

Finally, a private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the owner determines (provided someone is willing to pay that price). If I am not allowed to buy some rights from you and you therefore are not allowed to sell rights to me, private property rights are reduced. Thus, the three basic elements of private property are (1) exclusivity of rights to choose the use of a resource, (2) exclusivity of rights to the services of a resource, and (3) rights to exchange the resource at mutually agreeable terms.

The U.S. Supreme Court has vacillated about this third aspect of property rights. But no matter what words the justices use to rationalize such decisions, the fact is that such limitations as price controls and restrictions on the right to sell at mutually agreeable terms are reductions of private property rights. Many economists (myself included) believe that most such restrictions on property rights are detrimental to society. Here are some of the reasons why.

Under a private property system the market values of property reflect the preferences and demands of the rest of society. No matter who the owner is, the use of the resource is influenced by what the rest of the public thinks is the most valuable use. The reason is that an owner who chooses some other use must forsake that highest-valued use—and the price others would pay him for the resource or for the use of it. This creates an interesting paradox: although property is called “private,” private decisions are based on public, or social, evaluation.

The fundamental purpose of property rights, and their fundamental accomplishment, is that they eliminate destructive competition for control of economic resources. Well-defined and well-protected property rights replace competition by violence with competition by peaceful means.

The extent and degree of private property rights fundamentally affect the ways people compete for control of resources. With more complete private property rights, market exchange values become more influential. The personal status and personal attributes of people competing for a resource matter less because their influence can be offset by adjusting the price. In other words, more complete property rights make discrimination more costly. Consider the case of a black woman who wants to rent an apartment from a white landlord. She is better able to do so when the landlord has the right to set the rent at whatever level he wants. Even if the landlord would prefer a white tenant, the black woman can offset her disadvantage by offering a higher rent. A landlord who takes the white tenant at a lower rent anyway pays for discriminating.

But if the government imposes rent controls that keep the rent below the free-market level, the price the landlord pays to discriminate falls, possibly to zero. The rent control does not magically reduce the demand for apartments. Instead, it reduces every potential tenant’s ability to compete by offering more money. The landlord, now unable to receive the full money price, will discriminate in favor of tenants whose personal characteristics—such as age, sex, ethnicity, and religion—he favors. Now the black woman seeking an apartment cannot offset the disadvantage of her skin color by offering to pay a higher rent.

Competition for apartments is not eliminated by rent controls. What changes is the “coinage” of competition. The restriction on private property rights reduces competition based on monetary exchanges for goods and services and increases competition based on personal characteristics. More generally, weakening private property rights increases the role of personal characteristics in inducing sellers to discriminate among competing buyers and buyers to discriminate among sellers.

The two extremes in weakened private property rights are socialism and “commonly owned” resources. Under socialism, government agents—those whom the government assigns—exercise control over resources. The rights of these agents to make decisions about the property they control are highly restricted. People who think they can put the resources to more valuable uses cannot do so by purchasing the rights because the rights are not for sale at any price. Because socialist managers do not gain when the values of the resources they manage increase, and do not lose when the values fall, they have little incentive to heed changes in market-revealed values. The uses of resources are therefore more influenced by the personal characteristics and features of the officials who control them. Consider the socialist manager of a collective farm under the old Soviet communist system. By working every night for one week, he could have made, say, one million rubles of additional profit for the farm by arranging to transport the farm’s wheat to Moscow before it rotted. But because neither the manager nor those who worked on the farm were entitled to keep even a portion of this additional profit, the manager was more likely than the manager of a capitalist farm to go home early and let the crops rot.

Similarly, common ownership of resources—whether in the former Soviet Union or in the United States—gives no one a strong incentive to preserve the resource. A fishery that no one owns, for example, will be overfished. The reason is that a fisherman who throws back small fish to wait until they grow is unlikely to get any benefit from his waiting. Instead, some other fisherman will catch the fish. The same holds true for other common resources whether they be herds of buffalo, oil in the ground, or clean air. All will be overused.

Indeed, a main reason for the spectacular failure of the 1980s and early 1990s economic reforms in the former Soviet Union is that resources were shifted from ownership by government to de facto common ownership. How? By making the Soviet government’s revenues de facto into a common resource. Harvard economist Jeffrey Sachs, who advised the Soviet government, once pointed out that when Soviet managers of socialist enterprises were allowed to open their own businesses but still were left as managers of the government’s businesses, they siphoned out the profits of the government’s business into their private corporations. Thousands of managers doing this caused a large budget deficit for the Soviet government. In this case the resource that no manager had an incentive to conserve was the Soviet government’s revenues. Similarly, improperly set premiums for U.S. deposit insurance gave banks and S&Ls (see savings and loan crisis) an incentive to make excessively risky loans and to treat the deposit insurance fund as a “common” resource.

Private property rights to a resource need not be held by a single person. They can be shared, with each person sharing in a specified fraction of the market value while decisions about uses are made in whatever process the sharing group deems desirable. A major example of such shared property rights is the corporation. In a limited liability corporation, shares are specified and the rights to decide how to use the corporation’s resources are delegated to its management. Each shareholder has the unrestrained right to sell his or her share. Limited liability insulates each shareholder’s wealth from the liabilities of other shareholders, and thereby facilitates anonymous sale and purchase of shares.

In other types of enterprises, especially where each member’s wealth will become uniquely dependent on each other member’s behavior, property rights in the group endeavor are usually salable only if existing members approve of the buyer. This is typical for what are often called joint ventures, “mutuals,” and partnerships.

While more complete property rights are preferable to less complete rights, any system of property rights entails considerable complexity and many issues that are difficult to resolve. If I operate a factory that emits smoke, foul smells, or airborne acids over your land, am I using your land without your permission? This is difficult to answer.

The cost of establishing private property rights—so that I could pay you a mutually agreeable price to pollute your air—may be too high. Air, underground water, and electromagnetic radiation, for example, are expensive to monitor and control. Therefore, a person does not effectively have enforceable private property rights to the quality and condition of some parcel of air. The inability to cost-effectively monitor and police uses of your resources means “your” property rights over “your” land are not as extensive and strong as they are over some other resources such as furniture, shoes, or automobiles. When private property rights are unavailable or too costly to establish and enforce, substitute means of control are sought. Government authority, expressed by government agents, is one very common such means. Hence the creation of environmental laws.

Depending on circumstances, certain actions may be considered invasions of privacy, trespass, or torts. If I seek refuge and safety for my boat at your dock during a sudden severe storm on a lake, have I invaded “your” property rights, or do your rights not include the right to prevent that use? The complexities and varieties of circumstances render impossible a bright-line definition of a person’s set of property rights with respect to resources.

Similarly, the set of resources over which property rights may be held is not well defined and demarcated. Ideas, melodies, and procedures, for example, are almost costless to replicate explicitly (near-zero cost of production) and implicitly (no forsaken other uses of the inputs). As a result, they typically are not protected as private property except for a fixed term of years under a patent or copyright.

Private property rights are not absolute. The rule against the “dead hand,” or perpetuities, is an example. I cannot specify how resources that I own will be used in the indefinitely distant future. Under our legal system, I can specify the use only for a limited number of years after my death or the deaths of currently living people. I cannot insulate a resource’s use from the influence of market values of all future generations. Society recognizes market prices as measures of the relative desirability of resource uses. Only to the extent that rights are salable are those values most fully revealed.

Accompanying and conflicting with the desire to secure private property rights for oneself is the desire to acquire more wealth by “taking” from others. This is done by military conquest and by forcible reallocation of rights to resources (also known as stealing). But such coercion is antithetical to—rather than characteristic of—a system of private property rights. Forcible reallocation means that the existing rights have not been adequately protected.

Private property rights do not conflict with human rights. They are human rights. Private property rights are the rights of humans to use specified goods and to exchange them. Any restraint on private property rights shifts the balance of power from impersonal attributes toward personal attributes and toward behavior that political authorities approve. That is a fundamental reason for preference of a system of strong private property rights: private property rights protect individual liberty.

Property Rights for “Sesame Street”

Janet Beales Kaidantzis

Ever seen two children quarreling over a toy? Such squabbles had been commonplace in Katherine Hussman Klemp’s household. But in the Sesame Street Parent’s Guide she tells how she created peace in her family of eight children by assigning property rights to toys.

As a young mother, Klemp often brought home games and toys from garage sales. “I rarely matched a particular item with a particular child,” she says. “Upon reflection, I could see how the fuzziness of ownership easily led to arguments. If everything belonged to everyone, then each child felt he had a right to use anything.”

To solve the problem, Klemp introduced two simple rules: First, never bring anything into the house without assigning clear ownership to one child. The owner has ultimate authority over the use of the property. Second, the owner is not required to share. Before the rules were in place, Klemp recalls, “I suspected that much of the drama often centered less on who got the item in dispute and more on whom Mom would side with.” Now, property rights, not parents, settle the arguments.

Instead of teaching selfishness, the introduction of property rights actually promoted sharing. The children were secure in their ownership and knew they could always get their toys back. Adds Klemp, “‘Sharing’ raised their self-esteem to see themselves as generous persons.”

Not only do her children value their own property rights, but also they extend that respect to the property of others. “Rarely do our children use each other’s things without asking first, and they respect a ‘No’ when they get one. Best of all, when someone who has every right to say ‘No’ to a request says ‘Yes,’ the borrower sees the gift for what it is and says ‘Thanks’ more often than not,” says Klemp.

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Armen A. Alchian is an emeritus professor of economics at the University of California, Los Angeles. Most of his major scientific contributions are in the economics of property rights.