Property Rights: Theft Codified

If property owners are thieves, who are their victims?

One way to answer this question is to say that they have robbed no one; only taken what was available in nature (land, minerals, etc) and what belonged to no one, anyway.

The other is that, by taking away something that belonged to everyone (common property) they have deprived the rest automatically.

At the heart of this dispute is the question; whether what is found in nature — land, minerals, ideas, intelligence, belongs to nature and therefore to everyone; or it belongs to no one and therefore whoever has found a way to take it — by physical, social or intellectual power — becomes its rightful owner.

In his book ‘The Mystery of Capital”, Peruvian economist Hernando de Soto claimed that only about 2 billion people in the world have full rights to the property they live on and the land they farm. The remaining 5.3 billion, bereft of such rights, are therefore unable to obtain bank loans, engage in entrepreneurial activities, and create wealth. Providing the world’s poor with titles for their land, homes and unregistered businesses would unlock $9.3 trillion in assets, de Soto estimates.

De Soto, who is an advisor to several governments across the world, got something fundamentally wrong. He assumes that 5.2 billion people own property; it is only a question of issuing them legal rights. The truth is most property, including intellectual property is held by 1% of the total population, twice as much as the bottom 6.9 billion people.

For the masses to acquire property rights of any nature, it must first be accessible to them. This cannot be achieved by taxation. Property ownership itself must be democratized through redistribution or some other form of transfer, periodically.

History of Property Rights

Property rights did not exist until the 16th century. Private property, on the other hand, can be traced back to Democritus (460–370 BC) who defended private property over common property by claiming that individuals make better use of resources when they possess them.

De Soto was only echoing Democritus twenty-four centuries later.

But why was efficiency and ownership desirable? Ostensibly, because it helps economic output. And more economic output was good for the society, was the reasoning. Yet, we know today that the benefit of such economic output has accrued, mysteriously, to a small minority only.

Efficiency v/s Sufficiency

Aristotle (384–322 BC) enriched Democritus’ arguments in favor of private property by reasoning that since individuals like to own resources and goods, one must necessarily conclude that the principle of ownership is indeed part of human nature. Denying or constraining private property would amount to negating the essence of each human being and of the natural order. He classified property into three types based on the nature of ownership.

  1. Common property refers to a state of nature in which all property is owned by the commons, which is the same as having no property rights at all.
  2. Centralized property is possessed by a sovereign, such as a king or a monarch, or a feudal landlord, and leased out to individuals

3. Private property is one in which individuals and corporations have complete rights to sell, transfer, let, or mortgage.

Theft is thus de facto legalized in the case of common property because there are no legal owners and no member of the community has the right to prevent others from taking it. This is how the Enclosures in 17/18th Century England were justified.

The sovereignty of the monarch was eventually replaced by the state, which was managed through a set of individuals chosen through a shared procedure (elections). This set of individuals often operates by majority voting (e.g., parliaments) or assigns to other parties the power to decide on its behalf (e.g., an agency)

In modern democracies, for example, the central government has complete authority to trespass on someone’s property. This is the case with India where property ownership is not a fundamental right but only a statutory right.

A free-market economy is built on the recognition and enforcement of private property rights. Individuals who own private property have unlimited, exclusive, and permanent rights to what they legally hold: they can do whatever they want with their property, no one can interfere with their decisions, and these rights do not have to be surrendered after a certain length of time.

Thus, under the free market regime, each individual engages in unrestricted voluntary exchange, subject to his or her adherence to the freedom-from-coercion principle (no violence or deceit are permitted) and respect for the private property of others. Put another way, the legitimacy of private property and freedom from coercion principle is the moral foundations of a free-market economy.

The illegitimacy and limits on private property, on the other hand, define the characteristics of centralized economies regardless of the political framework — dictatorship or social democracy. An understanding of the origin and legitimacy of private property is thus of crucial importance since it defines the very features of an economic system (institutions), the role of government, and the content of economic policymaking.

Legitimacy

The legitimacy of private property is examined from two perspectives.

a) Property rights on natural resources like land, skies and waterways

b) Property rights on manufactured commodities, services, and intangibles69

Whether the commodities, services, and ideas generated by an individual become the producer’s private property; or whether they belong to someone else (such as an employer), or the society in which the producer lives, or whether they are part of the common pool and thus belong to no one, that is the fundamental question.

On the desirability/efficiency of private property, Thomas Aquinas agreed with the mainstream classical worldview. He also claimed that underutilized resources are also the property of humanity. When a man combines them with his own labor, his claim to the resources overrides everyone else’s, and it becomes his private property.

Property materializes through an act of appropriation (the removal of a resource from its natural form), is in accordance with God’s will, and is subject to God’s will-imposed limits. In the end, Locke’s theory is still inadequate and unsatisfactory. The emphasis on the function of self-ownership, which allegedly justifies ownership based on what the individual takes from the natural condition, is one of his essential themes (the finders-are-keepers principle and the fact that God is not opposed to private property).

However, it is not clear that self-ownership justifies snatching from the common pool, and this is Locke’s flaw. Locke’s perspective on the legitimacy of private property is more of a description of how private property arises than an explanation of legitimacy. To put it another way, Locke’s argument boils down to stating that God created common property and that He doesn’t mind people acquiring it for a worthy cause (wealth creation). In this light, one may indeed argue that Locke’s line of reasoning rests on wealth creation, possibly mixed with an act of faith (God wants people to improve their welfare well beyond what is needed to survive and the private property serves that purpose).

Acquisition

Consistent with God’s design, men are free to exploit natural resources (including animals); and private property is the outcome of appropriation by an individual or a group of individuals, as long as no other human being is harmed. However, the Middle Ages not only claimed that private property is desirable and consistent with God’s design it is also just.

As argued in the encyclical Quia vir reprobus (1329), which the Pope released to condemn Franciscan pauperism, God owns whatever exists, and since man has been created in the image of God, the principle of private property is necessarily embedded in the very nature of each human being. Hence, limiting private property would amount to disputing God’s design.

Manufactured goods are regarded as private property as an extension of the notion of self-ownership. Denying an individual’s property right over the result (if it includes resources such as land, raw materials, and labor) would be an act of aggression and a breach of the freedom-from-coercion principle.

On the one hand, since each unit of output is a mix of inputs owned by the producer, each unit of output is necessarily the property of the producer. On the other hand, it is manifest that the manufacturer is the first finder of the result of his activity, and that nobody can raise justified objections to the manufacturer’s exercise of his liberty (acting as a producer and producing and appropriating the result). As mentioned earlier, the second set of explanations regarding the origins and foundations of private property focuses on private property as an institutional arrangement justified by efficiency: it ensures better economic outcomes and wards off social tensions.

Although this approach is dominant among economists and increasingly acceptable in the legal profession, it remains problematic. As a matter of fact, explaining why private property exists is not the same as analyzing why it is legitimate (and thus immune to man-made rulemaking). In particular, it raises the problem of specifying who decides efficiency: the property owner or the ruler? As a result, different perspectives produce different answers. Finally, the fundamentalist approaches try to justify private property by resorting to religion, or to natural rights, or to expedience.

Theories about the foundations of private property have usually focused on natural resources and the fruits of men’s activities. In recent times, however, considerable attention has been devoted to property rights on intangibles, with particular reference to two areas: information and patents.

In contrast with what happens in the realms of natural resources and material goods, intangibles are frequently characterized by the presence of free riding, i.e. by the possibility that some individuals may benefit from the activity of other individuals such as in the case of inventions or scientific discoveries.

This raises a question. Is free riding a problem, or perhaps a crime against private property? Or is it just a fact of life, which some people consider harmless and others undesirable? The policy agendas follow the lines of thinking suggested by the questions above, depending on whether one believes that free-riding should be restrained or, rather, freely allowed.

One approach alludes to fairness — whether some agents who have privileged access to information should be allowed to exploit this privilege in dealing with allegedly uninformed counterparties?

Legislation regarding patents adequately exemplifies other views on property rights. One is based on the claim to self-ownership. The argument stemming from the assumption of self-ownership rests on the fact that the mind is part of one’s own self and that, therefore, what is produced by one’s mind is necessarily an extension of the individual, who homesteads it.

Put differently, the second inventor/author/discoverer cannot claim property rights on something that others have already removed from the state of nature, a state of nature that includes knowledge, skills, and artistic concepts that humankind ignores.

Although this thesis has merit, it runs into a number of problems. Most innovations are based on earlier insights and discoveries. This approach would require that all inventors track — and ask permission of — all the legitimate owners of the knowledge that the current inventor is using.

Moreover, the difference between a new invention, a marginal improvement on an idea already existing and the bare use of an existing idea is frequently far from clear. Finally, the very act of exercising one’s intellectual abilities hardly justifies preventing other individuals from using their own intellectual abilities, which include thinking, observing, and possibly reproducing. Of course, this line of reasoning resonates with the presumption of liberty, a presumption often used as an argument against the existence of property rights on intangibles, and thus against the legitimacy of patents. In other words, one may argue that the theory based on the extension of one’s self regards the appropriation of the result one obtains by using his talent, his labour, his knowledge and imagination. Yet, a result is not a process.

Put differently, discovering a process and making use of it does not remove knowledge from the state of nature. It merely makes knowledge accessible to the inventor and to the rest of the community.

As it often happens in law-and-economics debates, there are different views. Here are two of them. One maintains that governments driven by utilitarian principles are justified in enforcing property rights on intangibles in order to compensate their authors for the damage suffered at the hands of free riders. In other words, the origin of intellectual property rights is the government, which assigns them in the common interest.

The consequentialist counterargument is that too much protection awarded to a set of inventors may prevent potential competitors from improving on the existing technology and developing new insights. The upshot is that the presence of free-riding justifies patents and other barriers to entry. However, these barriers should expire after some time, and allow new competitors to enter the scene at a relatively low cost.

Yet, there is also a second and more recent consequentialist perspective. As mentioned earlier, some eminent scholars argue that private property originates as a response to scarcity. In other words, private property is legitimate because it is an efficient way of exploiting scarce resources: it enhances exchange, and it allows individuals to distribute consumption over time, possibly taking into consideration the potential benefits enjoyed by future generations. Intangibles, however, do not present a problem of scarcity. The use of knowledge by one individual does not prevent other individuals from exploiting that very knowledge. From this viewpoint, therefore, patents have no legitimacy.

Stable land ownership increases revenue for local governments through property taxes, but land taxes are currently non-existent in the developing world. With an increased demand for land and public investment in roads and other infrastructure, revenue from property taxes would help decentralize and empower previously impoverished residents in developing regions.

De Soto believes that the wealthy, who don’t realize that it’s in their best interest to allow the productive power of the poor brought into the economy, are an obstacle to realizing the full impact that property rights can have on the world’s poor.

Securing property rights in the developing world is one step in the right direction toward reducing global poverty, but educating the public on why uplifting the world’s poor is beneficial for everyone is even more crucial.

Governments, acting for the public, have long exercised powers that may affect individual property owners’ use of their land, including the power to tax private property, take property under “eminent domain” (with compensation), and establish rules with the policing power to enforce them. These are more formal powers, but communities also have auxiliary powers to influence behavior, such as public spending, public ownership, and public opinion.

History shows that previously accepted concepts of property have changed with new conditions and the passage of time. Early communities treated land and other natural resources as communal resources held in joint ownership. Under feudalism, status in the community was directly related to the rights a person held in land. Even though the distribution of rights has changed considerably over the generations, understanding this history is important because it provides the basis for our present concept of property rights.

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