This is the tenth chapter in Equity and Equilibrium: The Political Economy of Distributism. The draft of each chapter is posted as it is written, in order to get some help form my readers about what works and what doesn't. All comments and critiques are welcome.
Crimes Against Nature
We have thus far identified the fictitious commodities as those things which do not have a commodity-like supply and demand chart. That is, supply and demand are not brought into balance by the price. Insofar as modern economic science is dependent on such a balance, it must leave out the three most important factors of economic order: labor, land, and money. Thus, insofar as modern theory is dependent upon fictitious commodities it must be a fictitious theory and can never be scientific in any sense of that term. The best it can do is science fiction. And if I am going to read science fiction, I prefer Heinlein to Friedman; the economics are the same but the writing is better.
But this failure of land, labor, and money to function as commodities is only part of the problem. Land and labor are just alternate names for man and nature. Fictionalizing these commodities leaves out their most important values, values which are critical not only in a moral sense, but in an economic sense as well. Fictionalizing these natural things distorts their natures by reducing them to a pure utility, with “utility” distorted to mean “the ability to earn a profit for its owner.” And indeed, property does have utility of this kind, but it has other utilities as well, and when we ignore them, we violate its true nature. When we violate the true nature of a thing, we strip it of any real utility. For example, if we turn the river into a sewer, we find that we can no longer use it as a river and soon won't be able to use it as a sewer. It is quite true that some people did get rich by using the river as a a sewer, but this is not real wealth, merely a re-appropriation of public resource to private benefit. Now, a river is, of course, a natural sewer, designed by God to carry off and process certain kinds of naturally occurring waste at certain volumes. Any proper use of the river must be in accord with the nature of the river. Wastes from, say, a factory must be reduced to the kinds and volumes that the river is capable of handling. To do otherwise is to commit a crime against nature. Modern economics simply institutionalizes these crimes.
Wealth and Property
All wealth creation occurs at the intersection of man and nature. Only by applying human labor to the gifts of nature can any wealth be created. Therefore, if we wish to reconstruct political economy on scientific grounds, we must start with a proper accounting of man and nature, and of the relationship between them. This relationship we call “property.” Property relations are the most basic of all economic and social relationships. Property relations determine all other economic outcomes. If property is gathered into a few hands, then few will have any real claim on wealth. If one kind of property is privileged over another, than all other property claimants will have to reduce their claims.
Of course, all men and women have some property. Indeed, it impossible to be a man without ownership of at least some food, clothing, and shelter. If a man has no property in these, he ceases to be a man and will soon cease to be at all. In political economy, what we are most concerned with is property in things that can be used to produce other things, that is to say, “the means of production.” From what we have said so far, these means are basically two, with a third that arises from both. The first kind is the property a man has in himself and his labor, including his education, skill, dedication, etc. The second kind is the property a man has in natural things, most prominently land, but also things like the airwaves and the food, fiber, and mineral wealth that comes from the land. From these two, there is a third kind of property, the man-made tools that are used to produce more things, commonly called “capital.” Who owns these things, and what rights each has, will be the sole determinant of economic outcomes.
Despite this primacy of property relations in economics, property gets very little space in modern economics. It is regarded as an unproblematic and simple notion about which the only debate is whether it will be privately owned or controlled by officers of the state. This “public/private” debate is actually no debate at all, especially since the fall of the economies that actually tried pure public ownership. Hence real inquiry into the nature and duties of property has been short-circuited and banished from economics to the world of philosophers and theologians. The issues do belong to those realms, but they are properly economic issues as well. And the properly economic inquiry proceeds along two lines: the origins of ownership and the relationship between ownership and use, along with the question of whose claims are superior, the owner or the user?
The Origins of Ownership
Often, the question of the origins of ownership is referred to prehistory, that poorly documented period about which people may make any number of claims without actually having to—or being able to—verify them. However, this is not necessary, since new forms of property are being created today, property with claims whose origins we can easily examine, and about which we can make judgments. For example, there are new property rights in the use of the airwaves or in ocean drilling rights. We even see the creation of a property right to pollute in the so-called “cap and trade” systems, a form of property which is nothing less than the right to poison your neighbor. A radio or TV station, for example, must have exclusive use of some particular radio frequency and hence must have a property in that frequency. Where does this claim come from? Quite simply, the government gives it to the broadcaster. Bits of the airwaves, and bits of the ocean, are given to private owners for their use and enjoyment, and public claims are extinguished or diluted. Sometimes there is a charge, say a lease agreement, and sometimes it is a pure gift of the government.
We live in an age when even “democratic” governments have near totalitarian powers. Nevertheless, there are lessons to be drawn from their property-creation actions which apply to property in any situation. The first lesson is that property is originally communal (owned by the community) and granted to individuals. Indeed, the very idea of a purely “private” property is a contradiction in terms, since the right to private property must be recognized by the community to have any value. The owner must be able to call upon the police powers of the community to exclude others from his property, or his property cannot be said to be “private” at all. This fact led Adam Smith to conclude that government “is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.”1 We here ignore the question of whether that is what government ought to be, and merely note that in the case of property, that is what it must be. If I cannot call the police to evict the invader from my living room, I cannot actually be said to own my own home; my private claim depends on public authority. Indeed, the more “absolute” is the claim to private property, the more absolute must be the state that defends it, or at least absolute with regard to property claims.
This leads to the question of how the community (which in our present state of affairs means the state) ought to allocate property. The most common method is by original use. When, for example, the pioneer goes beyond the margin a civilization and breaks the soil on virgin land, the state ought to recognize his claim to ownership. This claim is based on what we might call natural property, that is, the property a person has in himself and his own labor, a right which is self-evident and reducible to nothing else. Furthermore each person has a natural title to whatever his or her labor produces. A person who makes something is considered the owner of that thing, to the extent that the labor and the materials are his.
Ownership and Use
Note here that ownership is related to first use. Usage and ownership in this case are united, and the state ought to recognize the user as the owner. What we might call the natural title precedes the conventional or legal title. But what happens when the pioneer breaks the virgin soil and makes it productive, only to find out that someone, perhaps the King of Spain, has already granted a legal title to some hidalgo, a lord who now demands an economic rent from the pioneer? In this case, ownership and usage are separated, with legal ownership preceding natural ownership. It is this division between ownership and usage that causes all the interesting problems of private property. The classical position on the relationship of ownership and use is given by Thomas Aquinas. For Thomas, there is no particular reason why a “particular piece of land should belong to one man more than another.”2 Nevertheless, St. Thomas gives an excellent defense of private property:
[Private property] is necessary to human life for three reasons. First because every man is more careful to procure what is for himself alone than that which is common to many or to all: since each one would shirk the labor and leave to another that which concerns the community, as happens where there is a great number of servants. Secondly, because human affairs are conducted in more orderly fashion if each man is charged with taking care of some particular thing himself, whereas there would be confusion if everyone had to look after any one thing indeterminately. Thirdly, because a more peaceful state is ensured to man if each one is contented with his own. Hence it is to be observed that quarrels arise more frequently where there is no division of things possessed.3
The thing to note about this defense is that it is pragmatic: things just work better when there is private ownership. But then Thomas identifies a second aspect of property, its use. He writes,
The second thing that is competent to man with regard to external things is their use. In this respect man ought to possess external things, not as his own, but as common, so that, to wit, he is ready to communicate them to others in their need.4
Thus Thomas identifies two aspects of property: ownership and use. One dictates a private aspect of property and the other a public or common aspect. What is the relationship between these two aspects? According to Thomas,
Community of goods is ascribed to the natural law, not that the natural law dictates that all things should be possessed in common and that nothing should be possessed as one’s own: but because the division of possessions is not according to the natural law, but rather arose out of human agreement which belongs to the positive law… Hence the ownership of possessions is not contrary to the natural law, but an addition thereto devised by human reason.5
Indeed, the common claims on property are so strong that theft is allowed in cases of need: “In cases of need all things are common property, so that there would seem to be no sin in taking another’s property, for need has made it common.”6
For St. Thomas, then, there is a common aspect of property that is governed by the natural law and a private aspect that is governed by positive law, or prudence. Now we can better understand Thomas’s pragmatic defense of private property: it is a method, governed only by prudence, of insuring that the natural, common values of property will be available to all; it is a way to ensure that property will be properly developed so as to be useful to the whole community, since property always needs to be developed in some sense in order that its values be made available to men. Private property is therefore a means to an end. But what happens when such property no longer fulfills this end, and even works contrary to it? Is such property still legitimate?
The Misuse of Property
In the case where the owner and the user are the same person, few issues arise in private property. But what happens when the owner and the user are different persons? What happens when the hidalgo comes calling on the pioneer to demand a share in the grain he did not grow? The hidalgo's share is not related to any work the hidalgo does, other than the work of bullying the pioneer. This is, of course, a moral issue. It is, therefore, an economic issue. Economic equilibrium depends on each person getting the wealth he creates, while disequilibrium is caused by wealth without work, by those who do no work but claim the output from others who do work. What does the hidalgo in this case produce? Nothing. His entire economic function is to reduce the pioneer to penury, an action sure to discourage the pioneering spirit.
The hidalgo has a perfect right to charge for any services he provides to the property. If he clears a road to it, or digs a well, or builds a house, he may with justice charge the pioneer for these things. His own labor and capital have the same right to a return as does the labor and capital of the pioneer. But without providing anything, what is the moral basis of his claim? The legal basis is clear enough: His grant from the King of Spain. The police powers of the state are used to extract a rent from the pioneer to the hidalgo. But while this is legally defensible, it is economic nonsense. Or more technically, it is economic rent.
Economic rent is an amount paid to a factor of production that is more than necessary to keep that factor in production in its current use. It is the very essence of economic inefficiency. For example, the price of steel must be enough to pay for the raw materials in the steel and to compensate the labor and capital that went into making it. If, however, the price rises very much above this amount, then steel claims an economic rent. This rent acts like a tax on all users of the steel, a tax that really doesn't buy anything, but only transfers money from one group (the consumers) to another (the owners). In the case of elastic, reproducible commodities (like steel), this is only a short-term problem, since (in competitive markets) the higher prices attract more labor and capital, the supply is increased, the prices fall, and the economic rent disappears. But this does not happen in the case of property. The rent is chronic and distorts the returns to both capital and labor.
Private property can be misused in another way: it can be not used at all, but held for mere speculative purposes, or to prevent others from using it. As an example of the latter, there is, as I write this, a great debate going on about off-shore drilling leases. However, there is an air of unreality about this debate, since the oil companies already have huge off-shore oil leases that they could drill tomorrow; indeed, the amount of drilling rights they have but do not use are several times greater than the leases they are seeking. So why seek them? They are not sought for purposes of drilling, but for purposes of control. By controlling the leases, they can insure that nobody else drills. There is a perverse incentive to do this. Oil costs perhaps $10-20/barrel to bring to the surface, but sells (as of this writing) for $125. Further drilling would only raise the supply and lower the price. Why should they drill now, if they control the rights? The oil is not going anywhere, and they can drill it in some distant tomorrow when their current fields run out. In this way, they can control the price and collect a huge economic rent, and guarantee that they do so far into the future. Of course, the answer here is obvious: make the leases a “use-it-or-lose-it” proposition. Any oil company can have any lease wherever they like, but they must use it within a few years or it reverts to public ownership and can be re-leased to someone who will actually use it. This “use it or lose it” approach can be applied to any property. Property that cannot be used is held by the public until it can be sold to someone who can make it productive. There is in fact an easy (and tested) way to do this, which we will discuss in the chapter on taxation.
Property as Sacred
Note that none of this can be construed as an argument against private property. Such property is natural to man. It is as natural for a man to say, “This is my book,” or “This is my home,” as it is for him to breathe. But if a comparatively few people can say of the bulk of productive property, “This is mine,” it must mean that the bulk of mankind cannot make the same statement. They will be, therefore, at the mercy of those who own productive property, and will exist by their leave and on such terms as they will allow. Property acquires a sacred nature when it is associated with labor, and serves as the guarantee that the laborer will get his just reward and not pay an economic rent for the privilege of living. Property is the guarantee that the worker and the investor will get their just rewards. As such, it will be the means to eliminate economic rents and the establish the economy on a sane, equitable, and workable basis.
We do not posit this as some idle dream. Instead, we point to systems where the workers do own the means of production: employee-owned enterprises around the world, and firms like the Mondragón Cooperative, where 80,000 worker-owners control their own destinies by their own labor. In Mondragón, the workers have built not only successful enterprises, but a whole social safety net and educational system, and built them from their own earnings, without recourse to the taxing power of the state. We will cover Mondragón and similar enterprises in a later chapter; for now it is enough to know that we are speaking of actually existing systems, and not some Utopian pipe-dream.
Property must be seen as an aid to productive work, and not a substitute for it. When we separate ownership and use, we create a class that has claims to wealth without work, which means we must have another (and larger) class that works without wealth. This accumulation of property into the hands of those who do not use it is the sole cause of the vast inequalities that bedevil civil society and economic order, as Adam Smith recognized:
Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property... can sleep a single night in security.7
Some will, no doubt, see in this attempt to limit property an attack on property. But this is not so, for every proper right has its own proper limit. As G. K. Chesterton put it:
I am well aware that the word "property" has been defied in our time by the corruption of the great capitalists. One would think, to hear people talk, that the Rothchilds and the Rockefellers were on the side of property. But obviously they are the enemies of property; because they are enemies of their own limitations....It is the negation of property that the Duke of Sutherland should have all the farms in one estate; just as it would be the negation of marriage if he had all our wives in one harem.8
Or as Calvin was reported to have said, “Wealth is like manure; it works best when it is spread, but stinks when it is in one big pile.”
1Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Amherst, New York: Prometheus Books, 1991), Book V, Chap. I, pg. 55.
2Thomas Aquinas, Summa Theologica (Allen, Texas: Christian Classics, 1911), II-II, Q. 57, A. 3.
3Ibid., II-II, Q. 66, A. 3.
5Ibid., II-II, Q. 66, A. 3, ad 3.
6Ibid., II-II, Q. 66, A. 7
7Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Bk. V, Chapter I, P. 45
8G.K. Chesterton, What's Wrong with the World (San Francisco: Ignatius Press, 1910), 42