Property Rights

THE CLASSICAL LIBERAL POSITION

THE SOCIALIST POSITION

EXTERNALITIES AND THE TRAGEDY OF THE COMMONS

BIBLIOGRAPHY

Property rights consist of a person’s ability to own, transfer, and use that which a person owns without government coercion. Property rights and economic freedom are interrelated in that a person cannot engage in economic activity if the state does not recognize and defend that person’s right to own property, and because it is meaningless to have the ability to speak and act freely if one lacks the ability to monetize one’s words and actions.

The way in which property rights are defined depends on which of two premises is taken as the starting point. Rights of ownership either originate with society as a whole and are bestowed by society on individuals from time to time or originate with individuals and are bestowed by individuals on society from time to time. The former is the position of socialist philosophers; the latter, that of classical liberal philosophers.

THE CLASSICAL LIBERAL POSITION

Classical liberalism begins with the premise that an individual’s life belongs to that individual. This ownership of self, classical liberalists believe, is not something that is bestowed by human-made law but is a natural right that arises by virtue of an individual’s status as a human being. Starting from the assumption that individuals own their own lives, classical liberals argue that it logically follows that individuals own their own labor because labor is the action of the self and individuals own themselves as a matter of natural law. Because individuals own their own labor, they also own the wages they earn from that labor because the wages are what they receive in exchange for the labor they own. Similarly, an individual owns the things that individual buys with his or her wages because those things are traded for the wages that were traded for labor that is the result of action by the self that the individual naturally owns. Thus, classical liberals maintain that property rights are sacrosanct as a matter of natural law.

The principle of natural law is invoked in the U.S. Bill of Rights, which speaks of “inalienable rights”: rights that exist as a matter of people’s state as humans and that can be neither established nor revoked by government action. Although the individual may choose to give up some property rights to society for the common good or in exchange for protections granted by society, classical liberals maintain that those rights are the individual’s to give up, not society’s to take.

THE SOCIALIST POSITION

Socialism begins with the position that it is the responsibility of society to ensure an equitable distribution of ownership. That obligation falls to society because, socialists believe, when individuals are left to their own devices, political and economic power become concentrated in the hands of the strong, who then exploit the weak. Thus, because it is the responsibility of society to protect all its members, property rights must belong to society as a whole. In the socialist framework the society bestows property rights on individuals to maintain equality of income and wealth.

The socialist position was greatly influenced by the exploitation of western workers in the late nineteenth century. The German philosopher Karl Marx maintained that workers had a right to the value of their labor and that a system that allowed employers to profit from the fruits of workers’ labors is destined to bring about the exploitation of those workers. Marxist socialists maintain that the way to avoid this exploitation of labor is for the state to own the means of production. Removing private ownership means that the government must decide how the means of production are to be used. This is accomplished by a central planning board that decides how much output industries will produce, what prices they will charge, and how much they will pay their workers.

Communism is regarded as the next evolutionary step beyond socialism. In the socialist system, the government owns the means of production only. Individuals still maintain ownership of their personal property. In the Communist system, the government keeps all property rights to itself and the individual owns nothing. In the Communist system, people work for no wage and receive everything they need from the government at no cost. What is common to the socialist and Communist frameworks is that property rights originate with society, not with the individual. Despite the use of the term, no modern country has ever achieved a Communist framework. Even those that have come closest, Russia, China, and North Korea, have not succeeded in attaining government control of all property. Modern examples of Communist systems are seen in religious communities whose members take vows of poverty. In these communities, the individual owns nothing but is granted use of property owned by the community.

EXTERNALITIES AND THE TRAGEDY OF THE COMMONS

Economists argue that it is important that property rights be well defined. When they are not, there is a disconnect between individuals who make decisions and individuals who must live with the consequences of those decisions. This situation is known as externalities and the tragedy of the commons.

In the case of externalities one individual imposes a cost on another that would necessitate compensation for the second individual if property rights were well defined. For example, a factory that pollutes the air imposes a cost on people who breathe the air. Because the factory does not bear the cost of pollution, it has an incentive to pollute more than it would otherwise. If property rights are defined so that those people own the air, the factory is forced to compensate them for the air it pollutes. The result is that the factory pollutes less. If property rights are defined so that the factory owns the air, people must pay the factory to pollute less so that the air will be breathable. Again, less pollution is created. Thus, when property rights are poorly defined, the economy produces more of the good than is socially optimal. When property rights are well defined, regardless of whom the rights are assigned to, the economy produces the socially optimal quantity of product.

The economic problem of the tragedy of the commons also results from poorly defined property rights. For example, if everyone in a village together owns a plot of pastureland (a commons), each person is free to graze his or her cattle on the land. However, because the ownership is spread over so many people, no single person has an incentive to maintain the land. The result is that the land will be overgrazed. However, if one person owned the land, that person would have the ability to profit from owning the land and therefore would have an incentive to maintain it.

A contemporary example of the tragedy of the commons is the treatment of endangered species. In countries that have outlawed the killing of elephants the elephant population dwindles because poachers have an incentive to evade the law and no one has an incentive to protect the elephants. Conversely, in the few countries in which killing elephants is legal, the elephant population is flourishing because people have an incentive to help the elephants thrive so that they can be harvested at a profit. As an extension of this example, cows are not endangered in the United States despite the fact that Americans consume millions of tons of beef annually. Because it is legal to own cows, farmers have an incentive to maintain herds and cull them at a profit. The decimation of the American buffalo, in contrast, occurred because cattlemen came to the plains before the rule of law was established. Without law to enforce property rights, the buffalo were a common resource and so were hunted to near extinction.

SEE ALSO Bill of Rights, U.S.; Capitalism; Coase Theorem; Communism; Externality; Freedom; Government; Individualism; Liberalism; Market Economy; Natural Rights; Property; Socialism; State, The; Tragedy of the Commons

BIBLIOGRAPHY

Bastiat, Federic. 1850. Economic Harmonies. Ed. George B. de Huszar, trans. W. Hayden Boyers. Irvington-on-Hudson, NY: Foundation for Economic Education, 1996.

Hoppe, Hans-Hermann. 1989. A Theory of Socialism and Capitalism. Boston: Kluwer Academic Publishers.

Marx, Karl. 1867. Capital. Trans. and ed. S. Levitsky. Washington, DC: Regnery, 2000.

Von Mises, Ludwig. 1979. Economic Policy: Thoughts for Today and Tomorrow. South Bend, IN: Regnery/Gateway.

Antony Davies