--></font><font color=#FF0000>Habe es nicht gelesen. Sorry, falls Unsinn.</font>
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<h3><span id="lblStoryTitle"><font size="5">The Ethics and Economics of Private Property</font></span></h3>
<h4 class="MsoBodyText" align="left">by Hans-Hermann Hoppe</h4>
<p class="MsoBodyText" align="left"><span class="288441417-13102004">[Posted
October 15, 2004] (also
available in PDF)</span>
<p class="MsoBodyText">I. The Problem of Social Order
<p class="MsoBodyText"><img alt src="http://www.mises.org/images3/crusoe.gif" align="right" border="0" NOSEND="1" width="171" height="253">Alone
on his island, Robinson Crusoe can do whatever he pleases. For him, the
question concerning rules of orderly human conduct - social cooperation - simply
does not arise. Naturally, this question can only arise once a second person,
Friday, arrives on the island. Yet even then, the question remains largely
irrelevant so long as no scarcity exists. Suppose the island is the
Garden of Eden; all external goods are available in superabundance. They are
"free goods," just as the air that we breathe is normally a"free"
good. Whatever Crusoe does with these goods, his actions have repercussions neither
with respect to his own future supply of such goods nor regarding the
present or future supply of the same goods for Friday (and vice versa).
Hence, it is impossible that there could ever be a conflict between Crusoe and
Friday concerning the use of such goods. A conflict is only possible if goods
are scarce. Only then will there arise the need to formulate rules
that make orderly - conflict-free - social cooperation possible.
<p class="MsoBodyText">In the Garden of Eden only two scarce goods exist: the
physical body of a person and its standing room. Crusoe and Friday each have
only one body and can stand only at one place at a time. Hence, even in the
Garden of Eden conflicts between Crusoe and Friday can arise: Crusoe and Friday
cannot occupy the same standing room simultaneously without coming thereby into
physical conflict with each other. Accordingly, even in the Garden of Eden rules
of orderly social conduct must exist - rules regarding the proper location and
movement of human bodies. And outside the Garden of Eden, in the realm of
scarcity, there must be rules that regulate not only the use of personal bodies
but also of everything scarce so that all possible conflicts can
be ruled out. This is the problem of social order.
<p class="MsoBodyText">II. The Solution: Private Property and
Original Appropriation
<p class="MsoBodyText">In the history of social and political thought, various
proposals have been advanced as a solution to the problem of social order, and
this variety of mutually inconsistent proposals has contributed to the fact that
today’s search for a single"correct" solution is frequently deemed
illusory. Yet as I will try to demonstrate, a correct solution exists;
hence, there is no reason to succumb to moral relativism. The solution has been
known for hundreds of years, if not for much longer.<a id="_ftnref1" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn1" name="_ftnref1">[1]</a>
In modern times this old and simple solution was formulated most clearly and
convincingly by Murray N. Rothbard. <a id="_ftnref2" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn2" name="_ftnref2">[2]</a>
<p class="MsoBodyText">Let me begin by formulating the solution - first for the
special case represented by the Garden of Eden and subsequently for the general
case represented by the"real" world of all-around scarcity - and then
proceed to the explanation of why this solution, and no other, is correct.
<p class="MsoBodyText">In the Garden of Eden, the solution is provided by the
simple rule stipulating that everyone may place or move his own body wherever he
pleases, provided only that no one else is already standing there and
occupying the same space. And outside of the Garden of Eden, in the realm of
all-around scarcity the solution is provided by this rule: Everyone is the
proper owner of his own physical body as well as of all places and nature-given
goods that he occupies and puts to use by means of his body, provided that no
one else has already occupied or used the same places and goods
before him. This ownership of"originally appropriated" places and
goods by a person implies his right to use and transform these places and goods
in any way he sees fit, provided that he does not thereby forcibly change the
physical integrity of places and goods originally appropriated by another person.
In particular, once a place or good has been first appropriated, in John
Locke’s words, by"mixing one’s labor" with it, ownership in such
places and goods can be acquired only by means of a voluntary - contractual -
transfer of its property title from a previous to a later owner.
<p class="MsoBodyText">In light of wide-spread moral relativism, it is worth
pointing out that this idea of original appropriation and private property as a
solution to the problem of social order is in complete accordance with our moral
"intuition." Is it not simply absurd to claim that a person should not
be the proper owner of his body and the places and goods that he originally,
i.e., prior to anyone else, appropriates, uses and/or produces by means
of his body? For who else, if not he, should be their owner? And is it not also
obvious that the overwhelming majority of people - including children and
primitives - in fact act according to these rules, and do so as a matter of
course?
<p class="MsoBodyText">Moral intuition, as important as it is, is not proof.
However, there also exists proof of the veracity of our moral intuition.
<p class="MsoBodyText">The proof is two-fold. On the one hand, the consequences
that follow if one were to deny the validity of the institution of original
appropriation and private property are spelled out: If person A were not
the owner of his own body and the places and goods originally appropriated and/or
produced with this body as well as of the goods voluntarily (contractually)
acquired from another previous owner, then only two alternatives would exist.
Either another person, B, must be recognized as the owner of A’s body
as well as the places and goods appropriated, produced or acquired by A, or both
persons, A and B, must be considered equal co-owners of all bodies,
places and goods.
<p class="MsoBodyText">In the first case, A would be reduced to the rank of
B’s slave and object of exploitation. B would be the owner of A’s body and
all places and goods appropriated, produced and acquired by A, but A in turn
would not be the owner of B’s body and the places and goods appropriated,
produced and acquired by B. Hence, under this ruling two categorically distinct
classes of persons would be constituted - Untermenschen such as A and Uebermenschen
such as B - to whom different"laws" apply. Accordingly, such ruling
must be discarded as a human ethic equally applicable to everyone qua
human being (rational animal). From the very outset, any such ruling is
recognized as not universally acceptable and thus cannot claim to represent law.
For a rule to aspire to the rank of a law - a just rule - it is necessary
that such a rule apply equally and universally to everyone.
<p class="MsoBodyText"> Alternatively, in the second case of universal and
equal co-ownership, the requirement of equal law for everyone would be fulfilled.
However, this alternative would suffer from an even more severe deficiency,
because if it were applied, all of mankind would instantly perish. (Since every
human ethic must permit the survival of mankind, this alternative must also be
rejected.) Every action of a person requires the use of some scarce means
(at least of the person’s body and its standing room), but if all goods were
co-owned by everyone, then no one, at no time and no place, would be allowed to
do anything unless he had previously secured every other co-owner’s consent to
do so. Yet how could anyone grant such consent were he not the exclusive
owner of his own body (including his vocal chords) by which means his consent
must be expressed? Indeed, he would first need another’s consent in order to
be allowed to express his own, but these others could not give their consent
without having first his, and so it would go on.
<p class="MsoBodyText">This insight into the praxeological impossibility of
"universal communism," as Rothbard referred to this proposal, brings
me immediately to an alternative way of demonstrating the idea of original
appropriation and private property as the only correct solution to the problem
of social order.<a id="_ftnref3" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn3" name="_ftnref3">[3]</a>
Whether or not persons have any rights and, if so, which ones, can only be
decided in the course of argumentation (propositional exchange). Justification -
proof, conjecture, refutation - is argumentative justification. Anyone
who denied this proposition would become involved in a performative
contradiction because his denial would itself constitute an argument. Even an
ethical relativist would have to accept this first proposition, which is
referred to accordingly as the apriori of argumentation.
<p class="MsoBodyText">From the undeniable acceptance - the axiomatic status -
of this apriori of argumentation, two equally necessary conclusions follow.
First, it follows from the apriori of argumentation when there is no
rational solution to the problem of conflict arising from the existence of
scarcity. Suppose in my earlier scenario of Crusoe and Friday that Friday were
not the name of a man but of a gorilla. Obviously, just as Crusoe could face
conflict regarding his body and its standing room with Friday the man, so might
he with Friday the gorilla. The gorilla might want to occupy the same space that
Crusoe already occupied. In this case, at least if the gorilla were the sort of
entity that we know gorillas to be, there would be no rational solution to their
conflict. Either the gorilla would push aside, crush, or devour Crusoe - that
would be the gorilla’s solution to the problem - or Crusoe would tame, chase,
beat, or kill the gorilla - that would be Crusoe’s solution. In this situation,
one might indeed speak of moral relativism. However, it would be more
appropriate to refer to this situation as one in which the question of
justice and rationality simply would not arise; that is, it would be considered
an extra-moral situation. The existence of Friday the gorilla would pose a
technical, not a moral, problem for Crusoe. He would have no other choice than
to learn how to successfully manage and control the movements of the gorilla
just as he would have to learn to manage and control other inanimate objects of
his environment.
<p class="MsoBodyText">By implication, only if both parties in a conflict are
capable of engaging in argumentation with one another, can one speak of a moral
problem and is the question of whether or not there exists a solution to it a
meaningful question. Only if Friday, regardless of his physical appearance, is
capable of argumentation (even if he has shown himself to be capable only once),
can he be deemed rational and does the question whether or not a correct
solution to the problem of social order exists make sense. No one can be
expected to give any answer to someone who has never raised a question or,
more to the point, who has never stated his own relativistic viewpoint in the
form of an argument. In that case, this"other" cannot but be regarded
and treated as an animal or plant, i.e., as an extra-moral entity. Only if this
other entity can pause in his activity, whatever it might be, step back, and say
"yes" or"no" to something one has said, do we owe this
entity an answer and, accordingly, can we possibly claim that our answer is the
correct one for both parties involved in a conflict.
<p class="MsoBodyText">Moreover, it follows from the apriori of argumentation
that everything that must be presupposed in the course of an argumentation as
the logical and praxeological precondition of argumentation cannot in turn be
argumentatively disputed as regards its validity without becoming thereby
entangled in an internal (performative) contradiction.
<p class="MsoBodyText">Now, propositional exchanges are not made up of
free-floating propositions, but rather constitute a specific human activity.
Argumentation between Crusoe and Friday requires that both have, and mutually
recognize each other as having, exclusive control over their respective bodies (their
brain, vocal chords, etc.) as well as the standing room occupied by their bodies.
No one could propose anything and expect the other party to convince himself of
the validity of this proposition or deny it and propose something else unless
his and his opponent’s right to exclusive control over their respective bodies
and standing rooms were presupposed. In fact, it is precisely this mutual
recognition of the proponent’s as well as the opponent’s property in his own
body and standing room which constitutes the characteristicum specificum
of all propositional disputes: that while one may not agree regarding the
validity of a specific proposition, one can agree nonetheless on the fact that
one disagrees. Moreover, this right to property in one’s own body and its
standing room must be considered apriori (or indisputably) justified by
proponent and opponent alike. Anyone who claimed any proposition as valid vis-Ă -vis
an opponent would already presuppose his and his opponent’s exclusive control
over their respective body and standing room simply in order to say"I
claim such and such to be true, and I challenge you to prove me wrong."
<p class="MsoBodyText">Furthermore, it would be equally impossible to engage in
argumentation and rely on the propositional force of one’s arguments if one
were not allowed to own (exclusively control) other scarce means (besides
one’s body and its standing room). If one did not have such a right, then we
would all immediately perish and the problem of justifying rules - as well as
any other human problem - would simply not exist. Hence, by virtue of the fact
of being alive property rights to other things must be presupposed as valid, too.
No one who is alive can possibly argue otherwise.
<p class="MsoBodyText">If a person were not permitted to acquire property in
these goods and spaces by means of an act of original appropriation, i.e., by
establishing an objective (intersubjectively ascertainable) link between himself
and a particular good and/or space prior to anyone else, and if instead property
in such goods or spaces were granted to late-comers, then no one would ever be
permitted to begin using any good unless he had previously secured such a
late-comer’s consent. Yet how can a late-comer consent to the actions of an
early-comer? Moreover, every late-comer would in turn need the consent of other
and later later-comers, and so on. That is, neither we, our forefathers, nor our
progeny would have been or would be able to survive if one followed this rule.
However, in order for any person - past, present or future - to argue anything,
survival must be possible; and in order to do just this property rights cannot
be conceived of as being timeless and unspecific with respect to the number of
persons concerned. Rather, property rights must necessarily be conceived of as
originating by means of action at definite points in time and space by definite
individuals. Otherwise, it would be impossible for anyone to ever say anything
at a definite point in time and space and for someone else to be able to reply.
Simply saying, then, that the first-user-first-owner rule of the ethics of
private property can be ignored or is unjustified implies a performative
contradiction, as one’s being able to say so must presuppose one’s existence
as an independent decision-making unit at a given point in time and space.<a id="_ftnref4" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn4" name="_ftnref4">[4]</a>
<p class="MsoBodyText">III. Misconceptions and Clarifications
<p class="MsoBodyText">According to this understanding of private property,
property ownership means the exclusive control of a particular person over
specific physical objects and spaces. Conversely, property rights
invasion means the uninvited physical damage or diminution of things and
territories owned by other persons. In contrast, a widely held view holds that
the damage or diminution of the value (or price) of someone's property
also constitutes a punishable offense.
<p class="MsoBodyText">As far as the (in)compatibility of both positions is
concerned, it is easy to recognize that nearly every action of an individual can
alter the value (price) of someone else's property. For example, when
person A enters the labor or the marriage market, this may change the value of B
in these markets. And when A changes his relative valuations of beer and bread,
or if A himself decides to become a brewer or baker, this changes the value of
the property of other brewers and bakers. According to the view that value
damage constitutes a rights violation, A would be committing a punishable
offense vis-Ă -vis brewers or bakers. If A is guilty, then B and the
brewers and bakers must have the right to defend themselves against A's
actions, and their defensive actions can only consist of physical invasions of A
and his property. B must be permitted to physically prohibit A from
entering the labor or marriage market; the brewers and bakers must be permitted
to physically prevent A from spending his money as he sees fit. However, in this
case the physical damage or diminution of the property of others cannot be
viewed as a punishable offense. Since physical invasion and diminution are
defensive actions, they are legitimate. Conversely, if physical damage and
diminution constitute a rights violation, then B or the brewers and bakers do
not have the right to defend themselves against A's actions, for his actions -
his entering of the labor and marriage market, his altered evaluation of beer
and bread, or his opening of a brewery or bakery - do not affect B's bodily
integrity or the physical integrity of the property of brewers or bakers. If
they physically defend themselves nonetheless, then the right to defense would
lie with A. In that case, however, it can not be regarded as a punishable
offense if one alters the value of other people's property. A third possibility
does not exist.
<p class="MsoBodyText">Both ideas of property rights are not only incompatible,
however. The alternative view - that one could be the owner of the value or
price of scarce goods - is indefensible. While a person has control over whether
or not his actions will change the physical properties of another’s
property, he has no control over whether or not his actions affect the value
(or price) of another’s property. This is determined by other
individuals and their evaluations. Consequently, it would be impossible to know
in advance whether or not one's planned actions were legitimate. The entire
population would have to be interrogated to assure that one's actions would not
damage the value of someone else’s property, and one could not begin to act
until a universal consensus had been reached. Mankind would die out long before
this assumption could ever be fulfilled.
<p class="MsoBodyText">Moreover, the assertion that one has a property right in
the value of things involves a contradiction, for in order to claim this
proposition to be valid - universally agreeable - it would have to be assumed
that it is permissible to act before agreement is reached. Otherwise, it
would be impossible to ever propose anything. However, if one is permitted to
assert a proposition - and no one could deny this without running into
contradictions - then this is only possible because physical property
borders exist, i.e., borders which everyone can recognize and ascertain
independently and in complete ignorance of others' subjective valuations.<a id="_ftnref5" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn5" name="_ftnref5">[5]</a>
<p class="MsoBodyText">Another, equally common misunderstanding of the idea of
private property concerns the classification of actions as permissible or
impermissible based exclusively on their physical effects, i.e., without
taking into account that every property right has a history (temporal
genesis).
<p class="MsoBodyText">If A currently physically damages the property of B (for
example by air pollution or noise), the situation must be judged differently
depending on whose property right was established earlier. If A's
property was founded first, and if he had performed the questionable activities
before the neighboring property of B was founded, then A may continue with his
activities. A has established an easement. From the outset, B had acquired dirty
or loud property, and if B wants to have his property clean and quiet he must
pay A for this advantage. Conversely, if B's property was founded first, then A
must stop his activities; and if he does not want to do this, he must pay B for
this advantage. Any other ruling is impossible and indefensible because as long
as a person is alive and awake, he cannot not act. An early-comer cannot,
even if he wished otherwise, wait for a late-comer and his agreement before he
begins acting. He must be permitted to act immediately. And if no other property
besides one's own exists (because a late-comer has not yet arrived), then one's
range of action can be deemed limited only by laws of nature. A late-comer can
only challenge the legitimacy of an early-comer if he is the owner of the
goods affected by the early-comer's actions. However, this implies that one can
be the owner of un-appropriated things; i.e., that one can be the owner of
things one has not yet discovered or appropriated through physical action. This
means that no one is permitted become the first user of a previously
undiscovered and unappropriated physical entity.
<p class="MsoBodyText">IV. The Economics of Private Property
<p class="MsoBodyText">The idea of private property not only agrees with our
moral intuitions and is the sole just solution to the problem of social order;
the institution of private property is also the basis of economic prosperity and
of"social welfare." As long as people act in accordance with the
rules underlying the institution of private property, social welfare is
optimized.
<p class="MsoBodyText">Every act of original appropriation improves the welfare
of the appropriator (at least ex ante); otherwise, it would not be performed. At
the same time, no one is made worse off by this act. Any other individual could
have appropriated the same goods and territories if only he had recognized them
as scarce, and hence, valuable. However, since no other individual made such an
appropriation, no one else can have suffered a welfare loss on account of the
original appropriation. Hence, the so-called Pareto-criterion (that it is
scientifically legitimate to speak of an improvement of"social welfare"
only if a particular change increases the individual welfare of at least one
person and leaves no one else worse off) is fulfilled. An act of original
appropriation meets this requirement. It enhances the welfare of one person, the
appropriator, without diminishing anyone else’s physical wealth (property).
Everyone else has the same quantity of property as before and the appropriator
has gained new, previously non-existent property. In so far, an act of
original appropriation always increases social welfare.
<p class="MsoBodyText">Any further action with originally appropriated goods and
territories enhances social welfare, for no matter what a person does with his
property, it is done to increase his welfare. This is the case when he consumes
his property as well as when he produces new property out of"nature."
Every act of production is motivated by the producer's desire to transform a
less valuable entity into a more valuable one. As long as acts of consumption
and production do not lead to the physical damage or diminution of
property owned by others, they are regarded as enhancing social welfare.
<p class="MsoBodyText">Finally, every voluntary exchange (transfer) of
appropriated or produced property from one owner to another increases social
welfare. An exchange of property is only possible if both owners prefer what
they acquire over what they surrender and thus expect to benefit from the
exchange. Two persons gain in welfare from every exchange of property, and the
property under the control of everyone else is unchanged.
<p class="MsoBodyText">In distinct contrast, any deviation from the institution
of private property must lead to social welfare losses.
<p class="MsoBodyText">In the case of universal and equal co-ownership -
universal communism instead of private property - the price to be paid would be
mankind's instant death because universal co-ownership would mean that no one
would be allowed to do anything or move anywhere. Each actual deviation from a
private property order would represent a system of unequal domination and
hegemony. That is, it would be an order in which one person or group -
the rulers, exploiters or Uebermenschen - would be permitted to acquire property
other than by original appropriation, production or exchange, while
another person or group - the ruled, exploited or Untermenschen - would be
prohibited from doing likewise. While hegemony is possible, it would involve
social welfare losses and would lead to relative impoverishment.
<p class="MsoBodyText">If A is permitted to acquire a good or territory which B
has appropriated as indicated by visible signs, the welfare of A is
increased at the expense of a corresponding welfare loss on the part of B. The
Pareto criterion is not fulfilled, and social welfare is sub-optimal. The same
is true with other forms of hegemonic rule. If A prohibits B from
originally appropriating a hitherto unowned piece of nature; if A may acquire
goods produced by B without B's consent; if A may proscribe what B is permitted
to do with his appropriated or produced goods (apart from the requirement that
one is not permitted to physically damage or diminish others' property) - in
each case there is a"winner," A, and a"loser," B. In every
case, A increases his supply of property at the expense of B’s corresponding
loss of property. In no case is the Pareto criterion fulfilled, and a
sub-optimal level of social welfare always results.
<p class="MsoBodyText">Moreover, hegemony and exploitation lead to a reduced
level of future production. Every ruling which grants non-appropriators,
non-producers and non-traders control, either partial or full, over appropriated,
produced or traded goods, leads necessarily to a reduction of future acts of
original appropriation, production and mutually beneficial trade. For the
person performing them, each of these activities is associated with certain
costs, and the costs of performing them increases under a hegemonic system and
those of not performing them decreases. Present consumption and leisure become
more attractive as compared to production (future consumption), and the level of
production will fall below what it otherwise would have been. As for the
rulers, the fact that they can increase their wealth by expropriating property
appropriated, produced or contractually acquired by others will lead to a
wasteful usage of the property at its disposal. Because they are permitted to
supplement their future wealth by means of expropriation (taxes),
present-orientation and consumption (high time preference) is encouraged, and
insofar as they use their goods"productively" at all, the likelihood
of misallocations, miscalculation, and economic loss is systematically increased.
<p class="MsoBodyText">V. The Classic Pedigree
<p class="MsoBodyText">As noted at the outset, the ethics and economics of
private property presented above does not claim originality. Rather, it is a
modern expression of a"classic" tradition, going back to beginnings
in Aristotle, Roman law, Aquinas, the late Spanish Scholastics, Grotius
and Locke.<a id="_ftnref6" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn6" name="_ftnref6">[6]</a>
<p class="MsoBodyText">In contrast to the communist utopia of Plato's Republic,
Aristotle provides a comprehensive list of the comparative advantages of private
property in Politics. First, private property is more productive."What
is common to the greatest number gets the least amount of care. Men pay most
attention to what is their own; they care less for what is common; or at any
rate they care for it only to the extent to which each is individually concerned.
Even when there is no other cause for inattention, men are more prone to neglect
their duty when they think that another is attending to it."<a id="_ftnref7" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn7" name="_ftnref7">[7]</a>
<p class="MsoBodyText">Secondly, private property prevents conflict and promotes
peace. When people have their own separate domains of interest,"there will
not be the same grounds for quarrels, and the amount of interest will increase,
because each man will feel that he is applying himself to what is his."<a id="_ftnref8" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn8" name="_ftnref8">[8]</a>
"Indeed, it is a fact of observation that those who own common property,
and share in its management, are far more often at variance with one another
than those who have property in severalty."<a id="_ftnref9" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn9" name="_ftnref9">[9]</a>
Further, private property has existed always and everywhere, whereas nowhere
have communist utopias sprung up spontaneously. Finally, private property
promotes the virtues of benevolence and generosity. It allows one to be so with
friends in need.
<p class="MsoBodyText">Roman law, from the Twelve Tables to the Theodosian
Code and the Justinian Corpus, recognized the right of private
property as near absolute. Property stemmed from unchallenged possession, prior
usage established easements, a property owner could do with his property as he
saw fit, and freedom of contract was acknowledged. As well, Roman law
distinguished importantly between 'national' (Roman) law - ius civile -
and 'international' law - ius gentium.
<p class="MsoBodyText">The Christian contribution to this classic tradition -
embodied in St Thomas Aquinas and the late Spanish Scholastics as well as
Protestants Hugo Grotius and John Locke - is twofold. Both Greece and Rome were
slave-holding civilizations. Aristotle, characteristically, considered slavery a
natural institution. In contrast, Western - Christian - civilization, not
withstanding some exceptions, has been essentially a society of free men.
Correspondingly, for Aquinas as for Locke, every person had a proprietary right
over himself (self-ownership). Moreover, Aristotle, and classic civilization
generally, were disdainful of labor, trade, and money-making. In contrast, in
accordance with the Old Testament, the Church extolled the virtues of labor and
work. Correspondingly, for Aquinas as for Locke, it was by work, use, and
cultivation of previously unused land that property first came into existence.
<p class="MsoBodyText">This classic theory of private property, based on
self-ownership, original appropriation (homesteading), and contract (title
transfer), continued to find prominent proponents, such as J. B. Say. However,
from the height of its influence in the eighteenth century until quite recently,
with the advance of the Rothbardian movement, the classic theory had slipped
into oblivion.
<p class="MsoBodyText">For two centuries, economics and ethics (political
philosophy) had diverged from their common origin in natural law doctrine into
seemingly unrelated intellectual endeavors. Economics was a value-free
"positive" science. It asked"what means are appropriate to bring
about a given (assumed) end?" Ethics was a"normative" science (if
it was a science at all). It asked"what ends (and what use of means) is
one justified to choose?" As a result of this separation, the concept of
property increasingly disappeared from both disciplines. For economists,
property sounded too normative; for political philosophers property smacked of
mundane economics.
<p class="MsoBodyText">In contrast, Rothbard noted, such elementary economic
terms as direct and indirect exchange, markets and market prices as well as
aggression, crime, tort, and fraud cannot be defined or understood without a
theory of property. Nor is it possible to establish the familiar economic
theorems relating to these phenomena without the implied notion of property and
property rights. A definition and theory of property must precede the definition
and establishment of all other economic terms and theorems.
<p class="MsoBodyText">Rothbard's unique contribution, from the early 1960s
until his death in 1995, was the rediscovery of property and property rights as
the common foundation of both economics and political philosophy, and the
systematic reconstruction and conceptual integration of modern, marginalist
economics and natural-law political philosophy into a unified moral science:
libertarianism.
<p class="MsoBodyText">V. Chicago Diversions
<p class="MsoBodyText">At the time when Rothbard was restoring the concept of
private property to its central position in economics and reintegrating
economics with ethics, other economists and legal theorists associated with the
University of Chicago such as Ronald Coase, Harold Demsetz, and Richard Posner
were also beginning to redirect professional attention to the subject of
property and property rights.<a id="_ftnref10" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn10" name="_ftnref10">[10]</a>
<p class="MsoBodyText">However, whereas for Rothbard private property and ethics
logically precede economics, for the latter private property and ethics are
subordinate to economics and economic considerations. According to Posner,
whatever increases social wealth is just.<a id="_ftnref11" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn11" name="_ftnref11">[11]</a>
<p class="MsoBodyText">The difference between the two approaches can be
illustrated considering one of Coase's problem cases: A railroad runs beside a
farm. The engine emits sparks, damaging the farmer's crop. What is to be done?
<p class="MsoBodyText">From the classic viewpoint, what needs to be established
is who was there first, the farmer or the railroad? If the farmer was there
first, he could force the railroad to cease and desist or demand compensation.
If the railroad was there first, then it might continue emitting sparks and the
farmer would have to pay the railroad to be spark free.
<p class="MsoBodyText">From the Coasean point of view, the answer is twofold.
First and"positively", Coase claims that it does not matter how
property rights and liability are allocated as long as they are allocated
and provided (unrealistically) that transaction costs are zero.
<p class="MsoBodyText">Coase claims it is wrong to think of the farmer and the
railroad as either"right" or"wrong" (liable), as"aggressor"
or"victim.""The question is commonly thought of as one in which
A inflicts harm on B and what has to be decided is, How should we restrain A?
But this is wrong. We are dealing with a problem of a reciprocal nature. To
avoid the harm to B would be to inflict harm on A. The real question that has to
be decided is, Should A be allowed to harm B or should B be allowed to harm A?
The problem is to avoid the more serious harm."<a id="_ftnref12" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn12" name="_ftnref12">[12]</a>
<p class="MsoBodyText">Further, given the"equal" moral standing of A
and B, for the allocation of economic resources it allegedly does not matter to
whom property rights are initially assigned. Suppose the crop loss to the farmer,
A, is $1000, and the cost of a spark apprehension device (SAD) to the railroad,
B, is $750. If B is found liable for the crop damage, B will install an SAD or
cease operations. If B is found not liable, then A will pay a sum between $750
and $1000 for B to install an SAD. Both possibilities result in the installation
of an SAD. Now assume the numbers are reversed: the crop loss is $750, and
the cost of an SAD is $1000. If B is found liable, he will pay A $750, but he
will not install an SAD. And if B is found not liable, A is unable to pay B
enough to install a SAD. Again, both scenarios end with the same result: there
will be no SAD. Therefore, regardless of how property rights are
initially assigned, according to Coase, Demsetz and Posner the allocation of
production factors will be the same.
<p class="MsoBodyText">Second and"normatively" - and for the only realistic
case of positive transaction costs - Coase, Demsetz and Posner demand
that courts assign property rights to contesting parties in such a way that
"wealth" or the"value of production" is maximized. For the
case just considered this means that if the cost of the SAD is less than the
crop loss, then the court should side with the farmer and hold the railroad
liable. Otherwise, if the cost of the SAD is higher than the loss in crops, then
the court should side with the railroad and hold the farmer liable. Posner
offers another example. A factory emits smoke and thereby lowers residential
property values. If property values are lowered by $ 3 million and the plant
relocation cost is $2 million, the plant should be held liable and forced to
relocate. Yet if the numbers are reversed - property values fall by $2 million
and relocation costs are $3 million - the factory may stay and continue to emit
smoke.
<p class="MsoBodyText">Both the positive and the normative claim of Chicago law
and economics must be rejected.<a id="_ftnref13" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn13" name="_ftnref13">[13]</a>
As for the claim that it does not matter to whom property rights are initially
assigned, three responses are in order. First, as Coase cannot help but admit,
it certainly matters to the farmer and the railroad to whom which rights are
assigned. It matters not just how resources are allocated but also who owns
them.
<p class="MsoBodyText">Second and more importantly, for the value of social
production it matters fundamentally how property rights are assigned. The
resources allocated to productive ventures are not simply given. They themselves
are the outcome of previous acts of original appropriation and production, and
how much original appropriation and production there is depends on the incentive
for appropriators and producers. If appropriators and producers are the absolute
owners of what they have appropriated or produced, i.e., if no liability vis-Ă -vis
second- or third-comers arises out of acts of appropriation and production, then
the level of wealth will be maximized. On the other hand, if original
appropriators and producers can be found liable vis-Ă -vis late comers, as is
implied in Coase's"reciprocity of harm" doctrine, then the value of
production will be lower than otherwise. That is, the"it doesn't
matter" doctrine is counterproductive to the stated goal of wealth
maximization
<p class="MsoBodyText">Third, Coase's claim that the use of resources will be
unaffected by the initial allocation of property rights is not generally true.
Indeed, it is easy to produce counterexamples. Suppose the farmer does not lose
$1000 in crops because of the railroad's sparks, but he loses a flower garden
worth $1000 to him but worthless to anyone else. If the court assigns liability
to the railroad, the $750 SAD will be installed. If the court does not assign
liability to the railroad, the SAD will not be installed because the
farmer simply does not possess the funds to bribe the railroad to install an
SAD. The allocation of resources is different depending on the initial
assignment of property rights.
<p class="MsoBodyText">Similarly, contra the normative claim of Chicago law and
economics that courts should assign property rights so as to maximize social
wealth, three responses are in order. First, any interpersonal comparison of
utility is scientifically impossible, yet courts must engage in such comparisons
willy-nilly whenever they engage in cost-benefit analyses. Such cost-benefit
analyses are as arbitrary as the assumptions on which they rest. For
example, they assume that psychic costs can be ignored and that the marginal
utility of money is constant and the same for everyone.
<p class="MsoBodyText">Second, as the numerical examples given above show,
courts assign property rights differently depending on changing market data. If
the SAD is less expensive than the crop damage, the farmer is found in the
right, while if the SAD is more expensive than the damage, the railroad is found
in the right. That is, different circumstances will lead to a re-distribution of
property titles. No one can ever be sure of his property.<a id="_ftnref14" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftn14" name="_ftnref14">[14]</a>
Legal uncertainty is made permanent. This seems neither just nor economical;
moreover, who in his right mind would ever turn to a court that announced that
it may re-allocate existing property titles in the course of time depending on
changing market conditions?
<p class="MsoBodyText">Finally, an ethic must not only have permanency and
stability with changing circumstances; an ethic must allow one to make a
decision about"just or unjust" prior to one's
actions, and it must concern something under an actor's control. Such is
the case for the classic private property ethic with its first-use-first-own
principle. According to this ethic, to act justly means that a person employs
only justly acquired means - means originally appropriated, produced, or
contractually acquired from a previous owner - and that he employs them so that
no physical damage to others' property results. Every person can determine
ex ante whether or not this condition is met, and he has control over whether or
not his actions physically damage the property of others. In distinct
contrast, the wealth maximization ethic fails in both regards. No one can
determine ex ante whether or not his actions will lead to social wealth
maximization. If this can be determined at all, it can only be determined ex
post. Nor does anyone have control over whether or not his actions
maximize social wealth. Whether or not they do depends on others' actions
and evaluations. Again, who in his right mind would subject himself to the
judgment of a court that did not let him know in advance how to act justly and
how to avoid acting unjustly but that would judge ex post, after the
facts? <br clear="all">
<p class="MsoBodyText">
<hr align="left" width="33%" SIZE="1">
<p class="MsoBodyText">Hans-Hermann Hoppe
is senior fellow of the Mises Institute. This essay is chapter two in The
Elgar Companion to the Economics of Property Rights, edited by Enrico
Colombatto. Post comments on the blog.
<hr align="left" width="33%" SIZE="1">
<p class="MsoBodyText"><a id="_ftn1" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref1" name="_ftn1">[1]</a>
See section V below.
<p class="MsoBodyText"><a id="_ftn2" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref2" name="_ftn2">[2]</a>
See Murray N. Rothbard, Man, Economy, and State (Auburn, Al.: Mises
Institute, 1993 [1962]); idem, Power and Market (Kansas City: Sheed
Andrews & McMeel, 1977 [1970]); idem, The Ethics of Liberty (New
York: New York University Press, 1998 [1982]); idem, Egalitarianism as a
Revolt against Nature and other Essays (Auburn, Al.: Mises Institute, 2000
[1974]); idem, The Logic of Action, 2 vols. (Cheltenham, UK: Edward Elgar,
1997).
<p class="MsoBodyText"><a id="_ftn3" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref3" name="_ftn3">[3]</a>
See also Hans-Hermann Hoppe, A Theory of Socialism and Capitalism
(Boston: Kluwer Academic Publishers, 1989); idem, The Economics and Ethics of
Private Property (Boston: Kluwer Academic Publishers, 1993).
<p class="MsoBodyText"><a id="_ftn4" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref4" name="_ftn4">[4]</a>
Note the"natural law" character of the proposed solution to the
problem of social order - that private property and its acquisition through acts
of original appropriation are not mere conventions but necessary institutions
(in accordance with man's nature as a rational animal). A convention serves a purpose,
and an alternative to a convention exists. For instance, the Latin
alphabet serves the purpose of written communication. It has an alternative, the
Cyrillic alphabet. Hence, we call it a convention. What is the purpose of norms?
The avoidance of conflict regarding the use of scarce physical things.
Conflict-generating norms contradict the very purpose of norms. Yet with regard
to the purpose of conflict avoidance, no alternative to private property and
original appropriation exists. In the absence of prestabilized harmony among
actors, conflict can only be prevented if all goods are always in the private
ownership of specific individuals and it is always clear who owns what and who
does not. Also, conflicts can only be avoided from the very beginning of mankind
if private property is acquired by acts of original appropriation (instead of by
mere declarations or words of late-comers).
<p class="MsoBodyText"><a id="_ftn5" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref5" name="_ftn5">[5]</a>
While no one could act if everyone owned the value of his property,
it is practically possible that one person or group, A, owns the
value of his property and can determine what another person or group, B,
may or may not do with the things under their control. This, however, means that
B"owns" neither the value nor the physical integrity of
the things under his control; that is, B and his property are actually owned by
A. This rule can be implemented, but it does not qualify as a human ethic.
Instead, it is a two-class system of exploiting Uebermensch and exploited
Untermensch.
<p class="MsoBodyText"><a id="_ftn6" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref6" name="_ftn6">[6]</a>
For details see Murray N. Rothbard, Economic Thought Before Adam Smith. An
Austrian Perspective on the History of Economic Thought, Volume I (Aldershot,
UK: Edward Elgar, 1995); also Tom Bethell, The Noblest Triumph. Property and
Prosperity Through the Ages (New York: St. Martin's Press, 1998).
<p class="MsoBodyText"><a id="_ftn7" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref7" name="_ftn7">[7]</a>
Aristotle, Politics (Oxford: Clarendon Press, 1946), 1261b.
<p class="MsoBodyText"><a id="_ftn8" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref8" name="_ftn8">[8]</a>
Ibid, 1263a.
<p class="MsoBodyText"><a id="_ftn9" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref9" name="_ftn9">[9]</a>
Ibid, 1263b.
<p class="MsoBodyText"><a id="_ftn10" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref10" name="_ftn10">[10]</a>
See Ronald Coase, The Firm, The Market, and the Law (Chicago, University
of Chicago Press, 1988); Harold Demsetz, Ownership, Control, and the Firm
(Oxford: Basil Blackwell, 1988); Richard Posner, The Economics of Justice
(Cambridge: Harvard University Press, 1981).
<p class="MsoBodyText"><a id="_ftn11" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref11" name="_ftn11">[11]</a>
Posner, The Economics of Justice, p. 74:"an act of injustice (is
defined) as an act that reduces the wealth of society."
<p class="MsoBodyText"><a id="_ftn12" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref12" name="_ftn12">[12]</a>
Ronald Coase,"The Problem of Social Cost," in: idem, The Firm, the
Market, and the Law, p. 96. The moral perversity of this claim is best
illustrated by applying it to the case of A raping B. According to Coase, A is
not supposed to be restrained.. Rather,"we are dealing with a problem of a
reciprocal nature." In preventing A from raping B, harm is inflicted on A
because he can no longer rape freely. The real question is: Should A be allowed
to rape B, or should B be allowed to prohibit A from raping him/her?"The
problem is to avoid the more serious harm."
<p class="MsoBodyText"><a id="_ftn13" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref13" name="_ftn13">[13]</a>
See also Walter Block,"Coase and Demsetz on Private Property Rights,"
Journal of Libertarian Studies, Vol.1, no. 2, 1977; idem,"Ethics,
Efficiency, Coasian Property Rights, and Psychic Income: A Reply to Harold
Demsetz," Review of Austrian Economics, Vol. 8, no. 2, 1995; idem,
"Private Property Rights, Erroneous Interpretations, Morality and Economics,"
Quarterly Journal of Austrian Economics, Vol. 3, no. 1, 2000; Gary North, The
Coase Theorem: A Study in Epistemology (Tyler, Texas: Institute for
Christian Economics, 1992); idem,"Undermining Property Rights: Coase and
Becker," Journal of Libertarian Studies, Vol. 16, no. 4 (forthcoming).
<p class="MsoBodyText"><a id="_ftn14" title href="http://www.mises.org/fullstory.aspx?control=1646#_ftnref14" name="_ftn14">[14]</a>
Posner, The Economics of Justice, p. 70-71, admits this with captivating
frankness:"Absolute rights play an important role in the economic theory
of the law.... But when transaction costs are prohibitive, the recognition of
absolute rights is inefficient....property rights, although absolute, (are)
contingent on transaction costs and subservient or instrumental to the goal of
wealth maximization."
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