Property rights are the most fundamental point of contact between state and market. Markets are for exchange, but what is exchanged? Goods and services, but more fundamentally, property rights to goods and services. Economists qua economists do not, however, have adequate conceptual tools to understand property rights. In what sense do property rights really exist? Ethicists, legal philosophers, or anthropologists would have ways to answer that question that would be typical of their ways of thinking. Economists really don't.
The assigned readings for this class are from John Locke, Ronald Coase, Niall Ferguson, Martin Wolf, and Gary Becker. All of them deal with property rights, but in quite different ways.
Locke's Second Treatise on Government and Coase's "The Problem of Social Cost" are the most historically influential texts. Locke was an important Enlightenment philosopher, perhaps the most important, whose most rigorous work was the development of an "empiricist" epistemology according to which the mind is a tabula rasa or blank slate and all our knowledge is derived from perception. The Second Treatise is a less rigorous and radical work, which in many ways was in the tradition of the medieval schoolmen, and which has explicit theological and Biblical foundations. It was much less original than Hobbes' Leviathan, to which it may be regarded as a response from the perspective of historical influences, even though the Second Treatise was directed against the work of Robert Filmer, who, unlike Hobbes, was an extreme divine-right monarchist. Much of Locke's argument is very difficult to agree with today even for those of us who find his moral vision generally humane and appealing. For example, Locke's labor theory of value, as expressed for example in paragraph 40...
is not only indefensible, but, unfortunately, is crucial to the persuasiveness of Locke's theory, since if land in itself is scarce/valuable to a significant extent, it doesn't seem fair that those who come first get to "appropriate from the commons" and those who come later don't. Locke's theory depends on the existence of what lawyers then called terra nullius, "no man's land," which belonged to no one and of which anyone who used it ("mixed his labor with it") could become owner. Thus he writes:
Even in Locke's day this was not quite true: the North American land was already inhabited by the American Indian peoples, some of whom thought themselves injured by the encroachment of Europeans. Today there is perhaps nowhere in the world where land is available for free appropriation, as a legal matter, although there are wide areas of land in Siberia, Alaska, and Africa that are very sparsely populated. But in any case, land in a desirable location, such as Essex rather than the wildernesses of 17th-century America, or central London as opposed to the countryside of Coventry, has high value even in a wholly unimproved state, because it will be built on, and the value of what is built on it will be greater than the cost of building it. Locke seems to want to ignore the very existence of problems of scarce resources, because they would create problems for his theory, but this will not do.
At times, Locke seems to look wistfully back to "the beginning, before the desire of having more than man needed had altered the intrinsic value of things." (Locke, 37) In particular, money-- an "agree[ment], that a little piece of yellow metal, which would keep without wasting or decay, should be worth a great piece of flesh, or a whole heap of corn"-- seems to have played a corrupting role. Here there is an intimation of the idea of the "noble savage" that was further developed by Rousseau. There are traces of a naivete here similar to that of the socialist pamphlets quoted in Ferguson (p. 17-18) and Locke's rather idyllic picture of the state of nature stands in stark contrast with Ferguson's description of the lives of the Nukak tribesmen. It is not clear to what extent Locke's concept of property rights can be separated from Locke's theological starting-place, his romanticization of the state of nature, and his inadequate theory of value.
Yet it is important to appreciate the extent of Locke's influence. Locke published the Second Treatise in 1690, just after the Glorious Revolution, which drove out the Stuart monarchy and brought in William of Orange to be king of England, and which, in the process, established the parliamentary constitution of modern England, although it was not until much later that electoral reforms, extension of the franchise, and judicial precedents that extended civil rights made England into a true democracy. Locke was a leading inspirer and ideologist of this English constitution. Almost a century later, the American Founders also leaned heavily on Locke and Lockean principles in their own revolution and state-building. So the ideas and principles in Locke's Second Treatise are fundamental to the constitutions of the world's two most successful polities. Property rights are central to Locke's doctrines, and to these Anglo-American constitutions: perhaps no polities in the previous history of mankind ever respected property rights as consistently as Britain and America in the 18th and 19th centuries.
Although Locke sometimes relies on utilitarian and pragmatic arguments, his is at bottom a natural law conception of property rights as ethically and metaphysically real. It is wrong, unjust-- not merely, say, inefficient-- to deprive a man of his property rights. This is still characteristic of judges' way of thinking. It is opaque to economists, who focus on efficiency. The analysis of markets assumes well-defined, alienable property rights-- people have no right to trade things if they don't own the things they're trading-- but, if markets are shown to have desirable welfare properties, this can be a reason to establish property rights, so that markets can function. By the time we get to Ronald Coase's "The Problem of Social Cost," things have come, we may say, full circle. The natural law view of property rights that Locke expresses has come to seem odd in a world that no longer accepts the metaphysics that underlies it. But the operations of markets which Lockean property rights had come to undergird were now widely appreciated, and Coase seeks to extend property rights into areas where they had not previously been regarded as applicable, so that the efficiency-optimizing properties of markets could work there, too.
Coase gives little or no indication in "The Problem of Social Cost" that he is aware even of the possibility that property rights might have some metaphysical, deontological status independent of human institutions, that is, that there might be "natural law." Coase argues on page 1:
The question [for policy in dealing with negative externalities] 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 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.
This argument, which Coase makes briefly enough to be effectively taking it for granted, would not be persuasive to a believer in real, natural-law property rights like Locke. To Locke, it is meaningful to say that A harms B by violating B's property rights, but B does not harm A by enjoying or exercising them. Property rights define the sphere of A's legitimate interests, and the fact that A may have desires outside this sphere does not mean that he can properly regard himself as being harmed by the thwarting of these desires. However, even a believer in natural law can hardly deny that there are cases where the applicability of natural law is unclear. In natural law, does a person have a right to breathe clean air, or does a factory have a right to pollute the air? Do those living by a river have a right to fish and swim in it, or do those upstream have a right to dump trash in it? Locke's theory does not make it clear how to resolve such questions.
Coase proceeds to show that, if transactions costs are zero, it does not matter, at least for purposes of maximizing social productivity, to whom property rights are assigned. He uses as an example the conflict between a farmer and a neighboring rancher whose roaming cattle destroy the farmer's crops. This conflict is the theme of the lyrics in a song from the musical Oklahoma:
Oh, the farmer and the cowman should be friends,
Oh, the farmer and the cowman should be friends.
One man likes to push a plough,
The other likes to chase a cow,
But that's no reason why they cain't be friends.
Territory folks should stick together,
Territory folks should all be pals.
Cowboys dance with farmer's daughters,
Farmers dance with the ranchers' gals.Farmer:
I'd like to say a word fer the farmer,
Eller:
Well, say it!
Farmer:
He come out west and made a lot of changes
Man:
That's right!
Will:
He come out west and built a lot of fences,
Curly:
And built 'em right across our cattle ranges.
Cowboy:
Why don't you dirt strangers go back to Missouri where you belong?
Will:
We got just as much right here!
Oklahoma! opened in 1943, so it can't have been inspired by "The Problem of Social Cost," which was published in 1960. I don't know whether Coase had seen the musical. Anyway, Coase shows that if the farmer and the cowman can trade, the efficient solution-- be it fencing, a large herd, small herd, discontinuance of cultivating crops, etc.-- will be arrived at, regardless of whether a court judges that the rancher is liable for damage to the farmer's crops or not. He concludes:
It is necessary to know whether the damaging business is liable or not for damage caused since without the establishment of this initial delimitation of rights there can be no marked transactions to transfer and recombine them. But the ultimate result (which maximizes the value of production) is indepedent of the legal position if the pricing system is assumed to work without cost. (p. 7)
This conclusion has an ironic relationship to the Locke's natural law conception of property rights. From a practical point of view, since Coase is indifferent to the allocation of property rights, he should be quite content for them to be defined in a Lockean fashion (slightly modified, e.g., the prohibition on permitting spoilage should be discarded). And a Coasean ought to be rather insistent that the decisions of judges be scrupulously respected, because if there is doubt as to whether property rights are credibly enforcible and alienable, the functioning of the market will be impeded. Yet a Coasean has no basis for believing that any particular definition of property rights is more just than any other. When Coase makes his own suggestions for why some property rights regimes might be better than others, they have nothing to do with justice but are all about efficiency.
It is likely that at least some other conceptions of distributive justice, e.g., a socialist-egalitarian conception, will be less conducive to market exchange than the Lockean. Locke seems to regard redistribution as unjust, which is a useful guarantee that a Lockean judge would not condone it. A non-Lockean (e.g., socialist) government might be more willing to redistribute from rich to poor, thus harming efficiency because people's incentives to create wealth is thereby weakened or destroyed. Indeed, a Lockean judge might do the work Coase assigns to a judiciary better than a Coasean judge would, since a Coasean judge, though understanding the value of commitment, might be tempted to redstribute property just this once to achieve efficiency... and then do it again and again.
Property rights in advanced capitalist countries today, especially those in the English-speaking world, have deep roots in natural law conceptions of property rights of which Locke is the most influential spokesman. But a once strong belief in the reality and morally binding character of property rights, in a metaphysical sense, has faded among intellectuals and judges and perhaps at the popular level. Property rights have come to be seen as merely human institutional arrangements ("positive law"), and the rationale for upholding them is not that they are morally binding per se, but that they are efficient. Locke's arguments are not very persuasive, whereas the utilitarian arguments of Coase and others for property rights are stronger and much more likely to command general assent today. Yet Coasean property rights pose a commitment problem that Locke may be better able to solve than Coase. The marriage of Locke and Coase is a fruitful one, but full of tensions.
Should we concentrate on one of the readings and make an arugment of the effectiveness or flaws within it. My impression from the Property Rights Summary you posted was that you wanted us to cite two articles and draw from the differences of the authors and which argument or point being made would be more efficient. I am not able to draw many parallels from Locke and Coase, I think Locke was repetitive and while he was persuasive of his point there was no application of inherent property rights from an economic standpoint or a practical application. Please advise or give a few topics that you see to write on so we can get a vision of the argument you are looking for.
Posted by: Amanda Goldin | 07/08/2009 at 05:51 AM
Well, the idea is for you to come up with your own topics. But here are some thesis I could think of:
1. When all the commons has been appropriated, newcomers have no livelihood. At that point, which we have long since passed, Locke's argument for property becomes invalid.
2. Locke shows how property arises from appropriation part of the commons by mixing one's labor with it. The landholdings claimed by the US government were not acquired in this fashion, and are therefore unjust, and citizens should be able to appropriate them at will.
3. Locke's argument for property starts from the premise that "God... hath given the world to men in common..." This theological premise would hardly command general assent today, therefore Lockean ideas about property are no longer tenable.
4. Locke's argument for property starts from the premise that "God... hath given the world to men in common..." This is why the decline of religion has led to the rise of socialism and communism.
5. In arguing that "it is labour... that puts the value on everything," Locke subscribes to a labor theory of value. This was later embraced by Adam Smith, David Ricardo, and Karl Marx, but was swept away by the "neoclassical" or "marginal" revolution in the late 19th century. Locke's erroneous theory of value weakens his case for property rights.
To Coase:
1. A Coasean judge would have to create all kinds of property rights that lack an intuitive basis. This has two problematic consequences: (a) it will be difficult to communicate these rights to the public, and (b) it will be difficult for a judge to ensure that his successors uphold his decision.
2. Coase emphasizes that the decisions of an efficiency-maximizing judge are either arbitrary, or depend on the costs of transaction and enforcement of different property rights arrangements. But decisions also affect the interests of private economic actors, who will expend resources, wastefully from society's point of view, to influence the judge's decision.
To Ferguson:
1. In a system with fiat money, there is no need for banks to "create" money through fractional reserve banking, since the government can create money. This practice creates unnecessary systemic risks and should be prohibited.
2. Lenient bankruptcy laws encourage Americans to take on too much debt.
I'm not saying I agree with all the above theses, they're just examples. Some of them are probably too ambitious for a 3-page paper. Don't worry too much about relevance or my expectations. Just overcome writer's block any way you can!
Posted by: Nathan Smith | 07/08/2009 at 08:55 AM
I am thinking about writing about the specific case, Kelo V. City of New London arguing in favor of the ruling that eminent domain is justified though Kelo Susette's property is siezed. I feel eminent domain supports criticisms to Locke's Labor Value theory because of the high value that the new developments offer which her property hinders to the community. I am unclear about how to approach coase because transactions costs are prevalent, ie lawyer fees and reimbursement fees paid to Kelo for taking over her property. Will this lead to a viable paper and if so, how do we answer when transactions costs are present?
Posted by: Bryant Le | 07/14/2009 at 05:45 PM