The Moral Foundations of Property Rights; B. Summers

Some defenders of property appeal to First Amendment rights . .They ask, for .. example, how can the press be. free if the government owns all the newsprint, presses, and distribu tion systems? How can religion be free if the government prints all the books and owns· all the buildings? Similar arguments apply to free dom of speech and the right to assemble. Such arguments, as far as they go, are com pelling. But.. private ownership involves a .lot more than the free exercise of First Amendment rights. Other defenders of property go beyond· First Amendment arguments to· the assertion· that property rights are essential to freedom itself. They contend that freedom-the absence of coMr. Summers is a senior editor ofThe Freeman. An earlier version of this article appeared in the Fall 1982 issue of Lincoln Review. ercive intervention in peaceful activitiesis im possible without private ownership.

But full private ownership is not a prerequi site for many peaceful activities. For some ac tivities, such as swimming at a public ·beach, the right to use property is often sufficient. The rights to alter, consume, exclude others, sell, trade, mortgage, let, give, or bequeath the beach are usually not required for such peaceful use. Ofcourse , one can ask whether people should be free to do such things with respect to a beach. But this is merely to rephrase our origi nal que'stion: Why should anyone have such property rights? A few defenders of property base their de fense on the right to life. They point out that a person·cannot eat without at least implicit!y es tablishing property rights over the food he con sumes. Similarly, a person would have trouble keeping warm without some property rights with respect to clothing and shelter. Here again is an argument that, as far as it goes, is compelling. But certainly a person can eat without the. rights to sell, trade, mortgage, let, give away, or bequeath his· food. In addi tion, this argument, on the surface at least, ap plies only to consumer goods. What about the main concern of socialists-the raw materials and capital goods which constitute the means of production? Why should· anyone own them?

Economic Approach: Incentives Economics provides a comprehensive an swer. When the means of production are pri vately owned in a market economy, business men seek to earn profits by cutting costs 426 THE FREEMAN. NOVEMBER 1986 through the prudent use of scarce resources. The· businessman who conserves the most re sources, while giving consumers the most for their money, earns the greatest profits. Private ownership fosters efficient production. Consider, for example, the operation of a pri vately owned bus company. If the operator has full private ownership-if he is free to choose his routes, adjust his fares in response to market conditions, and bargain with anyone who wishes to work for him-he has every incentive to provide cheap, efficient service. Free market competition, and the possible entry of potential competitors, supplies all the incentives needed to improve service and cut costs through con servation.

The bus owner also has every incentive to maintain his capital stock. If he ever wants to sell his company-or bequeath it to his children~he .will maintain his buses in good working order. The same incentives apply to the professional managers of a company owned by stockholders. If.the managers fail to maintain the buses, the price of the company's stock will fall and the manage.ment.will be replaced by stockholder vote or a cotpOratetakeover-unless, of course, the management is bailed out by government subsidies or the takeover is prevented by threats of antitrust action. Compare this with· the operation of city-run buses. The routes and fares of city-run buses are determined by political pressure. The revenues (and subsidies) are devoured by union monopo lies· which· threaten violence against nonunion workers. With no profit motive, and no need to keep the buses rolling past the next election, deficits soar while the buses fall into disrepair.

Incentives are the key to· understanding why "publicly owned" transportation is in constant need of repair, despite huge subsidies. Simi larly, incentives explain why collective farms are vastly outproduced by privately owned plots; why unowned air, land, and water are of ten polluted; why unowned timber, wildlife, fisheries, and grazing lands are rapidly depleted (often to extinction); and why private timber companies plant millions of saplings to try to maintain·theproductivity (and thus the value) of their land. But the economic case for private property goes beyond an analysis of incentives. Econom ics proves that private ownership is a prerequi site for rational economic planning. Economic Approach: Calculation In any advanced society, knowledge is di vided among millions of individuals, with no one knowing more than a tiny part. Because of this division of knowledge, scarce resources are often misallocated-inadvertently used in ways that fail to contribute the most to consumer wel fare. A manufacturer may be unaware that a re source could contribute more if used elsewhere.

Those who know of other uses may be unaware of the availability of a resource, or even of its existence. To correct these misallocations of scarce re sources, we need a system that (1) provides a means of discovering misallocations, (2) stimu lates people to use the means of discovery, (3) encourages people to transfer control of re sources to entrepreneurs who have discovered misallocations, and (4) rewards the correction of misallocations. All this is accomplished by the free market profit and loss system. Any infringement on property rights reduces this system's efficiency. In particular, "public" ownership of the means of production prevents businessmen from com petitively bidding for scarce resources. Without competitive bids, the "prices" of scarce re sources become arbitrary, so that no one can calculate the true costs of any project. These economic arguments relate to our pre vious comments about the right to life. We pre viously saw that human survival requires at least some property rights in consumer goods.

We now see that human survival-at least as we know it-requires economic calculation based on private ownership of the means of produc tion. Economics shows how property rights can, indeed, be based on the right to life. Economics also sheds further light on the re lationship between private property and free dom. Freedom-the absence of coercive inter vention in peaceful activities-refers to the range of options (alternatives) a person may peacefully pursue. At any particular time in a market economy, this range is pretty much the same for all people. Of course some people, es pecially the wealthy, have a greater ability to attain options (goods, services, jobs). But, in general, these options are available for all to pursue. Thus, as a person accumulates wealth, he doesn't, as a general rule, gain more freedom. But in a market economy, as other people pur sue wealth by offering the consumer more goods and selVices,the consumer's range of op tions expands. In terms of options, the con sumer finds that he has more freedom of choice in a modern shopping center than his grandpar ents had in a general store.

The Claiming of Natural Resources Economics provides compelling arguments for the free market, private property system based on the efficiency of the system itself. But we must still consider the justice of original claims to previously unowned natural re sources. If these original claims cannot be justi fied, the free market forever will be plagued with charges of immorality. Original claims to property are sometimes de fended with a finder-keeper approach., Accord ing to this argument, the discoverer of say, an oil field, is its rightful owner. But if this approach applies to oil fields, it should also apply to the discovery of a conti nent, planet, or galaxy. Merely being the first to observe something-or putting up the capital that leads to a discovery-seems to be insuffi cient grounds for full private ownership. Other claims to property are based on first occupancy. By this argument, the first person to occupy a piece of land is its rightful owner. But merely being the first to set foot on say, Mars, doesn't seem to create,a moral claim to the en tire planet.

LockeanApproach But if the "first occupancy" takes the form of settling and working the land, a strong case can be made for private ownership. In the fa mous words of John Locke (Second Treatise of Government, paragraph 27): Though the earth, and all inferior creatures PROPERTY RIGHTS 427 be common to all men" yet every lllan has a property in his own person. This nobody has any right to but himself. ,The labor of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature has provided, and left it in, he' has mixed his labor with, and joined to it something that is his own", and thereby makes it his property. It being by him removed from the common state nature placed it in, it has by this labor something annexed to it, that excludes the common right of other men. For this labor being the,unques tionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others.

The Lockean idea of acquiring, property, by mixing labor with unowned resources has been enormously influential, and has spawned many compelling defenses of property rights. However, the Lockean approach is not with~ out difficulties. For one, it includes the trouble some concept of self-ownership. Full self ownership would imply that an individual has a complete set of property rights with respect to himself. Some such property rights are difficult to deny, such as the right to peacefully use our own faculties. But how can we· consume, our selves or transfer possession? Fortunately, the Lockean "approach is more firmly based on the concept of people owning theirown labor. But what does it mean to "mix one's labor" with natural resources? Thismeta phor has led to considerable confusion. For instance, it is sometimes asserted·that if an individual "mixes" what he owns (his labor) with what no one owns (an unowned natural re source), it doesn't necessarily follow that he owns the resource. An equally plausible conclu sion, it is contended, is that he has simply "dis carded" his labor-like a sailor pouring his cof"

fee into the unowned sea. But' 'he owns the resource'" and "he' has dis carded his labor" are not the only possible con.. clusions.We can also conclude that because a person has mixed his labor L with an unowned resource R, he has created the "mix" LR. Thus, if he is entitled to what he has created, we can conclude that he owns LR. But the concept "LR" is, at best, vague.

428 THE FREEMAN • NOVEMBER 1986 The Lockean Proviso Another difficulty with the Lockean approach is the proviso that private ownership is justified only to the point "where there is enough, and as good.left in common for others." This proviso, carried to its extremes, reduces to an absurdity. For example, if oil companies must leave "enough and as good oil in the ground for oth~ ers," where should they stop? If the last barrel of oil must be left in the ground for our chil dren, then our children must leave the last bar rel for their children, and so on. No one may ever take the last barrel. But if the last barrel is permanently off limits, then anyone taking the next to last barrel would not be leaving "enough and as good in common for others. " No one may ever take the next to last barrel. Similarly with all other barrels of oil. Pushed to its limits, the Lockean proviso prohibits anyone from ever taking any nonrenewable scarce natu ral resource.

Many interpreters of the Lockean proviso don't go this far. However, they often demand that a first appropriator (such as an oil com pany) be forced to compensate all the "vic tims" who could have, but didn't appropriate a given resource. But who are the victims? Anyone with an oil rig? Anyone who could have invested in oil ex ploration? And how much are they being "hurt"? By any amount they say? More important, is anyone actually being hurt by the first appropriator? I, for one, am glad when someone else discovers oil. I know that, in a free market, it will eventually mean more gas for my car. In the long run, we all benefit from such competitive market pro cesses. Even in the short run, a potential competitor who doesn't get to the oil first is not being phys ically coerced by the driller who does. By what right does he demand compensation from an ex plorer peacefully going about his own affairs?

Some adherents to the Lockean proviso assert that private ownership is fine in principle, but as a practical matter, the "enough and as good" proviso is needed to prevent all resources from falling into private hands. Anyone coming along later, they contend, would effectively be locked out. But as a practical matter, it is immigration laws, apartheid edicts, tariffs, and other gov ernment restrictions that lock people out. It is precisely because private owners are eager to sell and let their property that regulations are imposed by those who wish to prevent such transactions. Creation~TransfQrmation Approach These difficulties with the Lockean approach are overcome by (1) dropping the Lockeanpro viso and (2) replacing the "mixing" metaphor with the principle that an·individual·owns what ever he (or his agent) creates from anunowned resource. In this approach, the justification for first ownership is not based on the owner's la bor, .or on the pain and sacrifice associated with his labor. The justification for first ownership is based on the creation brought forth by the first owner.