The Social Role of Private Property Rights; G. Smiley

We also point out that by the Corps of Engi neers' own estimate, over 97 percent of permit applications are granted. Indeed, John Pozsgai has had an application pending for what the Corps refers to as an afterthe-fact permit. It certainly would be a gross miscarriage of justice if Mr. Pozs gai were to spend three years in jail and be liable for $202,000 in fines when he is likely to get an afterthe-fact permit that authorizes the fillalready placed on five acres of the 14-acre site, especially when the amount of fill is well below the 10-acre exemption for isolated wetlands. Regardless of the outcome of the Pozsgai and Mills cases, the Justice Department, White House, and Congress need to take a hard look to deter mine whether overzealous prosecutors and EPA officials are invoking President Bush's concern for the environment while ignoring his pledge to have his Administration foster a kinder, gentler Ameri ca. To most Americans, scarce prosecutorial resources would be better spent fighting major polluters and violent criminals than imprisoning citizens whose only crime was to place clean fill on their own property. D The Social Role of Private Property Rights by Gene Smiley P rivate property rights are the rights of a person to use his property in whatever way he chooses providing that he doesn't use force or fraud on any other person. One of the first economists to emphasize the importance of prop erty rights was the Austrian economist Carl Menger. Writing in 1871, Menger noted that for most goods the quantities available were insuffi cient to meet everyone's needs. Potentially every consumer's interest was opposed to that of every other consumer's in the struggle to obtain some of the scarce goods: . . . with this opposition of interest, it becomes necessary for society to protect the various indi viduals in the possession of goods subject to this relationship against all possible acts of force. In this way, then, we arrive at the economic origin of our present legal order, and especially of the so-called protection of ownership, the basis of Dr. Smiley is Associate Professor of Economics at Mar quette University.

property. . . . Property, therefore, like human economy, is not an arbitrary invention but rather the only practically possible solution of the problem that is, in the nature of things, imposed upon us by the disparity between requirements for,and available quantities of, all economic goods.1 Private property rights, then, are a social institu tion which tends to bring about peace and harmo ny in a society of free people. In fact, they are one of the main foundations of ~ free society.There can be no personal or political freedom without free dom in the use of one's property. Limiting one type of freedom limits all freedoms. But the social role of private property rights extends far beyond this. From the early 19th cen tury to well past the middle of this century, Amer icans had the highest and fastest growing incomes in the world. The major factor behind this rising standard of livingwas their secure property rights.

Frequently it is suggested that the reason for this 168 THE FREEMAN • MAY 1990 rapid growthwas not Americans'propertyrights, but the fact that the United Stateswas more tech nologicallyadvancedthan other nations.Howev er, technologicalknowledgetends to flow easily betweencountries. Consider,for example,Britain'sfailure to pre ventthespreadofthe technicalknowledgeneeded to mass produce cotton textiles.In 1789 Samuel Slater, a mechanic, immigrated to the United Stateswithsuchknowledge,andwiththe capitalof MosesBrownandWilliamAlmybegancottontex tileproductionusingBritishinnovations.In 1810a Boston merchant, Francis Lowell, observed British textile machineryon a trip through Eng land. He memorized the designs and upon his return to the United States had a mechanic,Paul Moody,constructmachineryfromtheplanshe had put to memory. Moody improved upon these designs,and the BostonManufacturingCompany, the first of the great Americantextileproducers, was establishedin 1813.By 1850the UnitedStates had becomea leadingcottontextileproducer.

Or considerthe late 19th-centurysteelindustry. Thetechnologydevelopedto producesteelwasno secret from producersin other countries.But the United States came so to dominatesteel produc tionthat it producedmoresteelthan the restofthe world combined. Andrew Carnegie, a Scottish immigrant,willinglytore down old steel plantsto build ones incorporating the latest technology becausehe was securein the knowledgethat they were his property.By the end of the 19th century the CarnegieSteelCompanywas the largestin the world. The Impetusto Invest Theexistenceofsecurepropertyrightsandlaws ofcontractprovidedtheimpetusfortheseandoth er Americansto work,create,andinves't.Jonathan Hugheshas written,"Peoplewerewillingto make extreme sacrificesto acquire property rights, to engage in undertakings with distant payoffs from clearinglandsto buildingsteel mills-in the hope of personal or family gain from property ownership."2As Hugheshas noted,the framersof the Constitutionconsideredprivate contracts so important that they were given precedenceover the legislativepowers of the states. (It should be noted that the SupremeCourt reversedthisin the 1930s when it abrogated all gold clausesin contractsin order to allowthe federalgovernmentto makeit illegalforcitizensto owngoldcoinsand/or bullion.) The Americansystemof secureprivateproper ty rightshas giventhe United Statesgreatersocial stabilitythan that ofmostothercountries.The one great strugglein the United States,the CivilWar, was fundamentally due to the perception by Southerners·that their "property rights" in black slaveswerethreatened.Ofcourse,Southernslave holdershad these "rights"onlybecausethey used the power of government to crush the blacks' rightsto self-ownership.

In manycountrieslaborunionsbecamevehicles to promotesocialchangeseitherthroughthe polit ical processor through revolution.Though there were always a few such groups in the United States,suchas the Associationistsofthe 1840s,the Marxian Socialists, Lassallean Socialists, and Anarchistsof the post-bellumera, and the Indus trial Workersof the World after 1905, these were alwaysminoror fringegroups. The dominantlabor unionsof the late 19thand 20th centuries, the National Labor Union, the Knightsof Labor, and the American Federation of Labor, generally rejected radicalism. They chose an economic agenda of improving the wages and workingconditionsof their members rather than becominga politicalparty withpoliti cal objectives. The basic reason for this was that the workers themselveswerepropertyownerswithan interest in maintainingsociety and the existingrights to property. They had reasonable expectations of accumulatingadditionalproperty.Politicalagen das whicharguedfor the alterationor destruction of privatepropertyrightsand contractswere cor rectlyseen as being againstthe interestsof most workers.

In a mobile,growingsociety,private property rights and laws of contract becomewhat Hughes callsthe "socialbond"bringingpeaceandstability. Much of the unparalleledgrowth,prosperity,and freedom which the citizensof the United States haveenjoyedfor morethan 200yearsis due to the existence of secure private property rights and lawsof contract. 0 1. Carl Menger,Principlesof Economics,translationof 1871 edi tion by JamesDingwalland Bert F. Hoselitz(NewYork:New York UniversityPress,1981),p. fJ7. 2. Jonathan Hughes,AmericanEconomicHistory, 2nd edition (Glenview,IL: Scott,Foresman,and Co.,1987),pp. 577-78.