RE: Property Rights

Billy Brown (
Tue, 1 Jun 1999 13:46:45 -0500 [] wrote:
> Another questionable example is air pollution rights. This is something
> that Los Angeles has experimented with. Polluters can trade the rights
> to emit a certain amount of pollution per year. This is efficient in
> terms of allocating resources, given that the desired level of pollution
> is set. But not every person in Los Angeles was consulted about the
> total amount of pollution rights in existence. Some people may feel
> that this pseudo private property arrangement is actually a coercive
> tort against their health. Because clean air is a public good, they
> cannot effectivelly take part in the pollution market. So here we have
> the trappings of a private property solution, but one which by some
> standards imposes coercion on third parties.

The thing that makes this sort of arrangement dubious from a property rights perspective is the fact that the "right" is granted by govetnment fiat, and ammended on a year-to-year basis by bureaucratic whim. There are also all kinds of restrictions on who can trade rights where and under what conditions. IMO emmission rights can best be described as an attempt by the government to simulate the effects of a property right without actually recognizing one.

> The distinction I draw between private property and other systems
> is whether the resources in question are owned by individuals, and
> whether some kind of payment is associated with exchanging resources.
> The payment may be in the form of a barter system, where two people
> agree on an exchange of property they value; it may be in the form of
> a monetary system, where there is some general-purpose commodity which
> they will accept in exchange for giving up their property; it may be in
> the form of an accounting system, where records keep track of how much
> each person has owing to them.

Well, I can see now that we are mostly arguing aobut definitions. I think your definition is significantly more narrow than those that are generally used by economists - maybe we could get an opinion from Robin Hanson on this?

In any case, I define a private property system as one in which the resources in question are owned by individuals or voluntary associations of individuals, and where all exchanges of resources are voluntary in nature. It doesn't matter whether money changes hands or not - the key feature is simply that the owner of a property has the final say about what is done with it.

> It's hard to answer these questions with any degree of specificity. Any
> community will evolve their own answers. Do you agree that voluntary
> communities exist which do have answers to these questions? Do you agree
> that such communities include corporations, extended families, communes,
> kibbutzim, and other examples?

Yes, I agree that purely voluntary communities exist. Such communities have some very serious constraints on their properties, however:

A community that completely controls the economic existance of its members is extremely difficult to maintain without relying on either money or coercion. What happens is that the most productive members of the group will get tired of sacrificing themselves for the benifit of others, and leave. Meanwhile, the community will tend to attract more non-productive members from the surrounding society, and very few productive ones. This creates a downward spiral that ends either with the dissolution of the community, the adoption of property rights, or the use of force in an attempt to compel members to produce.

A community that controls only non-material aspects of the members' lives is much easier to maintain. Churches, for example, can survive for centuries on nothing but psychological pressure. However, that 'non-material' caveat means that such communities are unable to act as a substitute for the market - if they attempt to do so, they run in to the problems I mentioned above.

A community that merely provides a forum for the free exchange of ideas can in principle survive indefinitely on the volunteer efforts of their members. However, in practice this generally only happens in a collectivist society. In a market-based society such forums will generally be absorbed and/or replaced by institutions that do make use of private property. For example, this forum is supported by ExI (a property-based organization) as a combination of advertising and member service, as are a large percentage of the discussion groups on the Net. Such forums also tend to become explicitly property-based as soon as someone figures out how to offer a meaningful value-added service.

Now, let me also state that I don't think it makes any sense at all to refer to a corporation as a cooperative (i.e. non-property based) organization. Everything that happens in a corporation is dominated by questions of money. Everyone who works there does so for money, and their salary is the only hold the organization has on them. All of the activities of the organization are measured in terms of, and directed at earning, money. How, then, can we claim that its existance is not based on the institution of private property?

This is a god example of why I define a property system the way I do. By your definition, it is hard to see how any complex organization could ever qualify as being based on property rights.

> On the contrary, we are surrounded with such communities! There is a
> whole economics literature on the theory of the firm, which examines
> whether and when a market/property system is more efficient than a
> voluntary cooperative system for allocating internal resources.
> The existence of corporations is something of a challenge to traditional
> economics. If a property/market system is so good, why is it not used
> within companies, large and small? (Some do use it; garage mechanics
> often own their own tools, and some businesses use independent
> rather than employees.) There is a great deal of literature looking
> into the tradeoffs which exist.

It would be more correct to say that it examines when an explicit market is more efficient than a command/control system. The term 'voluntary cooperative system' seems to imply that people just get together and talk about what to do until they all agree, which is not the case in any corporation I've ever heard of. The tradeoff is between individual decision making (which works well for small numbers of decisions where information is easily gathered and quantified) vs an internal market (which works well for large numbers of decisions where information is difficult to gather and quantify).

But either way, the whole system is based on property. Everyone who works for the ocmpany does so becasue he is being paid. Every resource the company uses was purchased. Every order that management gives is obeyed because of a contractual arrangement. The success or failure of every venture is measured in terms of money. If you did away with property rights, it would not be possible for such an institution to exist.

> So, what do we disagree about? Is it purely a matter of definitions?

Mostly, but not entirely.

> Do you call "private property" any voluntary arrangement, even the most
> leftist, anti-capitalist, Marxist commune you can imagine? In my view
> that stretches the phrase beyond reasonable boundaries.

I don't think that it is possible for such a commune to exist for long without resorting to coercion. By its very nature, it expects its best members to sacrifice themselves for the common good, and that idea simply can't produce a stable system unless you start pointing guns at people.

This is where we have a disagreement that is more substantial than a difference in definitions. I will certainly agree that voluntary communities of many types can exist, but I do not believe that a voluntary *economic* community is possible without private property. The dynamics of such a system will inevitably cause it to either self-destruct or mutate into a different type of system.

> > What some of us consider "evil" is when some outside agency gains the
> > to dictate to individuals how they must handle their affairs.
> I don't think it is so simple. If the individuals in question
> agreed to the arrangement (as when I agree to allow my boss to dictate
> how I must handle my work affairs), then it is not evil. If I join a
> commune and agree to allow the community to dictate how I must handle
> my obligations to them, it is not evil. The essential aspect in my view
> is the voluntary nature of the arrangement.

This does not contradict my statement. Ownership of your own output implies the right to enter into contracts regarding its use. You can sell your time, your posessions, your work, and anything else you own in any manner you wish. You obey your boss because you have entered into a vol untary arrangmeent in which you are paid to do so.

> I may have misunderstood your point, when you originally wrote:
> > However, this does not mean that there is never a need for markets. In
> > fact, the opposite is true. In small organizations an authoritarian or
> > collective system can work well, but as the scale increases they become
> > increasingly ineffective. Central planning on the scale of a large
> > corporation is very inefficient, which is why there is such a strong
> > movement towards decentralized decision-making today. On the scale of
> > modern economy it is even worse - an economy without markets has its
> > full just keeping people fed, as the Russians recently demonstrated.
> So you meant that Russia under communism recently demonstrated that
> an economy without markets has its hands full just keeping people fed.
> I'm not sure this is the case, although I don't know exactly what time
> frame you had in mind (the 1980s?). I have mostly heard of Russia having
> problems with food within the last couple of years.

Under communism Russia was able to feed itself, maintain basic 19th-century industries, build lots and lots of 3rd-rate military hardware, and fund a small number of specific projects chosen by its leaders (nuclear weapons, the space program, laser weapons, etc). It was not able to achieve any kind of broad-based economic growth or technological progress. The Russian economy was very anemic (<1% growth, frequently flat for long periods) for the entire post-WW II period, and was largely confined to the production of basic staples and military equipment. Their technological progress was limited to a modest number of narrowly-focused research projects - they concentrated all of their meager resources on a few fields they considered important, and relied on appropriating Western discoveries to fill in the gaps everywhere else.

All of this is, of course, the reason why they abandoned communism in the first place. The Russian people don't care all that much about freedom, but they like eating. In the last few years Russia was in such bad shape that they started having dangerous shortages of essential supplies (food, heating oil) often enough to make people afraid that the system might collapse.

If you start looking into the subject yourself, you'll find that it is rather hard o find reliable statistics on any of this. The Russians have publicly admitted that all of the economic data they published during that period was fabricated, and the truth was hidden under so many layers of gimmicks and lies that no one can sort out exactly what really happened. However, the above picture agrees with pretty much all of the statements made by Russian officials during the years immediately following the collapse of communism.

Billy Brown, MCSE+I