The post below is an excerpt from a long post by Gerald O’Driscoll Jr. and Lee Hoskins. The original post is “Property Rights: the Key to Economic Development.” The authors’ principal source is Tom Bethell, The Noblest Triumph (St. Martin’s Press, 1998).
In his book on the history of property rights, Tom Bethell examines the neglect of property rights in the economics literature. He concludes that the existence of private property was a presumption that underlay the work of the classical economists. Its absence was unthinkable, so its importance went undefended. As he put it, “in the Great Britain of Adam Smith’s day, criticism of private property hardly ever found its way into print.”
Adam Smith did not neglect property rights in his legal work. The first lecture in his first series of lectures on jurisprudence began:
The first and chief design of every system of government is to maintain justice: to prevent the members of society from encroaching on one another’s property, or seizing what is not their own. The design here is to give each one the secure and peaceable possession of his own property.
Smith’s statement of the purpose of government is 18th century in its formulation. It is as descriptive as normative. Protecting private property is just what government did first and foremost. As Bethell explains, [earlier] economists “assumed a political and legal framework comparable to that found in eighteenth-century Britain, but they neither insisted on the point, not did they spell it out in detail.” Apparently, the experience of the French Revolution motivated Smith to focus on the importance of property rights. That experience also profoundly affected such English political thinkers as Edmund Burke.
According to Bethell, “the phrase ‘private property’ barely entered the language before the nineteenth century.” The 18th century Scottish philosopher Adam Ferguson spoke of “property,” but without the qualification. Bethell counted a couple of uses of “private property” in The Wealth of Nations, and one in the first edition of Malthus’ Principles of Political Economy. “On the whole, though, it seemed unnecessary to specify more precisely an institution that was not thought to have any workable alternative.”
Of course, the great legal theorists were very much concerned with property and its protection. Blackstone defined property as “that despotic dominion that one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe.” But he could think of nothing “which so generally engages the affections of mankind, as the right to property.” Jeremy Bentham, who disagreed with Blackstone on almost all other issues, agreed with the jurist on property, saying that the law securing property is “the noblest triumph of humanity over itself.”
By the middle of the 19th century, however, private property was under intellectual attack. The assault came from many directions. Bethell identifies an unholy trinity of economists: Mill, Marx, and Marshall.
John Stuart Mill’s famous distinction between the laws of production and the laws of distribution was the source of much subsequent mischief. The laws of production were scientific and immutable, while those of distribution were the product of man and changeable through legislation. Mill included the discussion of property under distribution. Science, not ownership, shaped production.
In a market economy, however, there is no distribution separate from production and exchange. The redistributive impulse undermines the system of private property that undergirds production and exchange. The production process, meant to operate by immutable laws, is undermined when private property is insecure. There is no production mechanism running independently of the system of rewards and penalties accruing to owners of factors of production (land, labor, and capital) in a market.
Mill’s bloodless account of production contrasts sharply with that of von Mises, offered 100 years later:
Ownership of the means of production is not a privilege, but a social liability. Capitalists and landowners are compelled to employ their property for the best possible satisfaction of the consumers. If they are slow and inept in the performance of their duties, they are penalized by losses. If they do not learn the lesson and do not reform their conduct of affairs, they lose their wealth. No investment is safe forever.
In Mises’ account, production is an active, risky, and entrepreneurial venture. Production is a protean process, and the only permanent law of production is change. Mises’ final observation that “no investment is safe forever” refutes the classical economic doctrine of economic rent: there are no permanent income streams.
John Stuart Mill was among the first in a line of thinkers who believed they were witnessing the transformation of human nature. That transformation would enable a communist form of ownership to substitute for private property. As man’s nature was spontaneously transformed, everyone would learn “to feel the public interest as their own.” Mill was certainly a good enough economist to understand the shirking problem when property is owned in common. In a socialist farm or “manufactury,” however, people would be working “under the eye, not of one master, but of the whole community.”
We know how that system ends: in the gulag. In the mid-19th century, however, such ideas were progressive. And the younger Mill was an immensely influential thinker not only in his own century but into the next one. He authored “the most successful and most influential treatise of that age.” And, according to Pipes, Mill “moved liberal ideology closer to socialism.”
Alfred Marshall’s Principles of Economics strongly influenced the course of thinking among English-speaking economists. Marshall also believed in the idea of progress. While Mill looked forward to the possibility of improvement in human nature, Marshall believed that “changes in human nature” had for the last fifty years been “rapid.” Ominously, he believed that the need for private property “doubtless reaches no deeper than the qualities of human nature.”
Marshall subscribed to the idea of progressive social change. “Men’s collective instincts, their sense of duty and their public spirit” would be better developed. Legislation would “fortify” this trend. With the perfectibility of man, private property became unimportant.
Karl Marx, who temporally bridged Mill and Marshall, openly attacked private property. He called for its abolition. What all three agreed on was the need for human nature to change if private property were to be abolished. “Marx believed it was in fact changing. So did Marshall. So their view of property was at least coherent. Today, very few people believe that human nature is changing. And we can see that such statements as Marshall’s, claiming that it had already changed, were misguided.”
The practice of 20th century communism attempted to effect a change in human nature. “Everything the Communist Party has done since the Revolution, despite changes and apparent departures from original ideas and replacement of leaders, has been directed at the transformation of human beings,” explains Russian historian Mikhail Heller. We know the consequences of this effort.
By the 20th century, we had the paradox that, in economics, the defenders of markets had said comparatively little about property. When economists addressed private property, it was often to criticize it. Schumpeter spoke of classical liberalism’s “defeat,” and noted that “on the whole, the economic professions of all countries were politically supporters of the counter-tendencies to liberalism rather than of the still dominating liberal ones. In this sense, we can say the alliance between economics and liberalism—and, with exceptions, between economics and utilitarianism—was broken.”
No one focused more on private property than Marx, but in the context of its denunciation. The Marxian view of property triumphed in much of the world in the second half of the last century.
. . .
In the 20th century, one economist did stand against the tide on the issue of property rights: Ludwig von Mises. His views on property rights anticipated many of the positions adopted by economists many years later. “Carried through consistently, the right of property would entitle the proprietor to claim all the advantages which the good’s employment may generate on the one hand and would burden him with all the disadvantages resulting from its employment on the other hand.” Rewards and costs are not internalized when laws are deficient or there are “loopholes” in liability protection. In this situation, the problem of external costs arises.
Mises analyzes the process by which individuals come to establish property rights over natural resources. He examines the costs and benefits of establishing private property rights. When land is abundant and a frontier exists, as in 19th century America, it may not pay to establish private property rights. In that environment, settlers cut down trees without regard to replenishing them. Similarly, they hunt and fish until the stocks are depleted, then moved on to unsettled areas. “It was only when a country was more densely settled and unoccupied first class land was no longer available for appropriation, that people began to consider such predatory methods wasteful. At that time they consolidated the institution of property in land.”
In central and western Europe, by contrast, no such process was observed in modern times. There was no soil erosion, no deforestation. Why? “The institution of private property had been rigidly established for many centuries.” Forests were privately owned, and the owners “were impelled to conservation by their own selfish interests. In the most densely inhabited and industrialized areas up to a few years ago between a fifth and a third of the surface was still covered by first-class forests managed according to the methods of scientific forestry.”
Private property rights are only secured when the benefits of doing so outweigh the costs.