Unknown Costs of Pollution; H. Callaway

LLUTION At issue here is the concept oi "rights" and its proper extension. Air being a "free" good, does not a businessman have the right to use it as he sees fit? By the same token, does not the ethical conflict of this issue derive from an im plicit assumption that everyone else has a right to clean air? The concept of human rights has changed over the years but can be recognized in writings going back at least to John Locke. On the other hand, air and water pollution on such a grand scale as we are experiencing today are rela tively new problems. In view of this, the new facts of air and water pollu tion require an extension of the concept of rights. Perhaps one reason why these problems have not already been solved is the loss of prestige which common law has suffered at the hands of this century's invigor679 680 THE FREEMAN November ated legislatures. Some forgotten judge presiding over a case of damage due to air pollution might have solved this question long ago.

A precedent, once set, might have avoided this problem as it looms today. In any case, the question remains, and the answer" is not really so difficult as it may seem. Assessing the Damage Consider a small stream flowing through two properties. It seems clear that neither owner could claim the rights of property over the water of that stream in the same sense that they own the land. If one of them were' to take a glassful, the water in the glass would be his, in the same sense as any other property, as soon as he lifted it out of the stre'am. Without prior agreements, however, the up stream property owner would not have the right to block the flow of the stream or to redirect it so that it would no longer pass through the land of the down stream man. Neither would one have the right to pollute the water of the stream so that it would be no longer usable by the other. Unused· water that flows down the stream belongs to no one so long as it is not used. Now, sup pose that the man upstream opened some sort of mill or plant which had the side effect of polluting the stream. This business produces a product which the owner sells.

Since this is a new product, the owner of the plant does not know that he is polluting the water as a result of his process. And since the amount of pollution is small, the man downstream may take no notice of the change in the quality of the water which is passing through his land and make no complaint. Everything "continues smoothly between the two men. Now, suppose the new product attracts customers and the owner greatly increases his production. With this, the level of pollution in the stream greatly increases and the water becomes unfit for the purposes of the second property owner. Up to this time, the effect of the upstream plant upon the quality of the water in the stream is an unknown cost being borne by the man downstream in terms of lower quality water. It is when the level of pollution can be noticed that this heretofore unknown cost becomes evident. Obviously, there could have been no legal protection against a form of damage of which no one had knowledge. In the hypothetical case just cited, the downstream man could not ask that his neigh bor be prosecuted, since, no law could have been written to cover this specific type of damage. How ever, the situation could have been handled very neatly through a civil 1969 UNKNOWN COSTS OF POLLUTION 681 action in which a judge would have been required to make a new application of the concept of prop erty rights.

The damage done to the quality of water in the stream came as an effect of the process of production and the owner of the business should be held liable for the cost. This unknown cost, once it is rec ognized, should be paid by the owner of the plant. At first, it might take the form of damages paid to the man downstream. But one could foresee that the owner of the plant would likely install some equipment which would clean the water before it was returned to the stream. The cost of this new process, and of the damages which would otherwise be paid to his neighbor, would· then appear as a part of the cost of production which would likely be reflected in an increase of the unit price of the product. The same basic analysis applies as well to air pollution and to any such cost of production which had been previously unknown. In a sense, we are all the downstream man in respect to those gre'at in dustries or in respect to the auto mobile users who are polluting the air.

The situation becomes more complicated when we consider the case of a large steel plant upriver from several towns and cities. There might be thousands of peo ple who had access to the river and who· would thus be dese·rving of compensation for their losses. The same applies to those who live downstream from a municipal ity which continually dumps tons of raw sewage into the water. In regard to the air, it becomes evi dent, on application of this prin ciple, that we all live "down stream" from each other and that any pollution of the air which damages another, demands retri bution. It should be noted that many in dustries might not be· able to pay costs of production which they have thus far been able to shift onto their neighbors. However, this is no argument against the principle involved here. These costs are paid by someone in any case. The recognition of an other wise unknown cost in the produc tion of some item and in the sales price merely allows the consumer to accurately value that product in relation to other things available.

The Role of the Courts If the courts were to begin to award damages to those affected by these various problems, I think this could not be construed as gov ernment regulation of industry. The distinction between this pro posal and many of the others which have been considered goes 682 THE FREEMAN November back to the unwarranted distinc tion between civil and criminal law. Criminal law is conceived in the judicial systems of the world as applying to an act which of fends society in general, while civil courts are supposed to deal with cases in which an individual is damaged. It seems obvious that this is an unfounded distinction. If "society" is offended or dam aged by the actions of an individ ual it must be through the effect of this action upon ~ome other individual (s). The fact that laws against air pollution have been written as criminal laws has al lowed many persons to continue in their old methods. Where it might cost a great deal to eliminate some source of pollution, many corpora tions have been faced with the almost pleasant alternative of be ing dragged into court to pay per haps a hundred-dollar fine twice a year.

Perhaps the best method of eliminating pollution is through the use of court inj unctions. If giant industries or municipal util ities found that their entire pro duction could be halted by the act of a single affected individual, the cost of eliminating the pollution they cause might seem small in deed. Not the Innocent, But the Guilty, Should Pay The longer this day of reckon ing is put off, the larger will be the cost of eliminating such un known costs as are now being paid by the innocent. It is impossible to calculate the damage which has already been done. In addition, the free ride which the pollution producers have enjoyed at the ex pense of everyone else has brought untold distortions into society. All of the products of these industries have been underpriced and over produced at the expense of those industries which do not produce pollution. Suppose the automobile industry had been obliged to com pete with other forms of transpor tation under condition that each form pay in full to eliminate any pollution it caused! In effect, the failure of the courts to award damages to those affected by pollu tion is an intervention by default and should be considered as such.

As long as the possibility of change exists (as it must in a free economy or free culture) un known costs of all types will con tinue to crop forth. This will re quire a persistent extension of the meaning of freedom in ways which cannot be fully foreseen and ought not be foreclosed. I) The Mythology of Spaceship EARTH GARY NORTH THE FLIGHT of Apollo XI was probably the most stupendous technological achievement of the decade. (Unquestionably, it was the most stupendous bureaucratic achievement of the decade: sched uled for 1969, it actually took place in 1969!) Editorials in every paper in America, I suppose, have lauded the flight as the monument to the capacities of mankind to conquer nature and order our af fairs, the assumption being that the ability to fly a rocket implies the ability to organize a society, in theory if not in practice. The flight has brought to the forefront that old cliche, "Man's scientific wisdom has outrun his moral wis dom"; we can go to the moon, yet somehow we have failed to solve Gary North is a member of the Economists' National Committee on Monetary Policy.