In 1991, when I was putting together The Fortune Encyclopedia of Economics, an economist friend sent me a story from the Sesame Street Parent’s Guide. I liked it so much that I had my research assistant, Janet Beales, write a shortened version for the Encyclopedia. We titled it Property Rights for Sesame Street.
Here’s the story. Katherine Klemp often brought home games and toys to her family of eight children. I rarely matched a particular item with a particular child, she says. Upon reflection, I could see how the fuzziness of ownership easily led to arguments. If everything belonged to everyone, then each child felt he had a right to use anything.
So Mrs. Klemp introduced two rules. First, she decided never to bring anything into her house without assigning clear ownership to one and only one child. Second, ownership meant ownership; the owner was not required to share.
The result? Instead of teaching selfishness, property rights promoted sharing. The children, secure in their right of ownership, felt they could afford to share because they could set the sharing rules and, therefore, could always get their toys back. Says Mrs. Klemp, “[Sharing] raised their self-esteem to see themselves as generous persons.”
There’s an added benefit. Not only do the Klemp children value their own property rights but they also extend that respect to their siblings’ possessions. “Rarely do our children use each other’s things without asking first, and they respect a ‘No’ when they get one. Best of all, when someone who has every right to say ‘No’ to a request says ‘Yes,’ the borrower sees the gift for what it is and says ‘Thanks’ more often than not,” adds Mrs. Klemp.
The Encyclopedia came out in 1993. Last May, one of my students who had bought my book volunteered a story in class. The student, Dale Courtney, has four children, three older children and a newborn. The three children would often fight over who got to use a special bowl or cup. Dale’s solution to such fighting was to confiscate the treasured item and throw it away, and to announce that policy in advance.
It wasn’t much of a solution, he reported in class. I was throwing away the family wealth because the fighting and bickering continued.
The Wisdom of . . . Property Rights
That his Solomon solution wouldn’t work should have been predicted. Each child would figure out that if he or she alone refrained from fighting, the item would still be thrown away, as long as the other two fought. So each child continued to fight, hoping to win early before their father intervened and destroyed the item. Each child’s dominant strategy, as the game theorists put it, was to fight.
Then Dale Courtney read the article about Mrs. Klemp and her eight children. He was skeptical, but he was also desperate. So he tried Mrs. Klemp’s solution.
It worked. The amount of calm at meals is unbelievable, he said. Disputes over bowls and cups have simply disappeared.
If these stories about Katherine Klemp’s and Dale Courtney’s families helped only to solve disputes within families, they would be very useful. A large fraction of the disputes in families are between children over who has the right to use what. But the property rights solution works as well—in fact, better—for society at large. Think of all the fights that take place over schools. Some parents pester state governments and school boards to have the schools teach evolution; other parents, feeling just as strongly, push to have the schools teach creationism. Long, heated battles occur at school board meetings over whether scarce resources should be put into music, or science camps, or sports. In which kinds of schools do these pitched battles take place? In one kind only: tax-funded government schools.
Voluntarily funded schools, so-called private schools, cater to diverse parents, but there are no battles. The difference is property rights.
My wife and I send our daughter to a private school. We don’t like everything done by those who run the school. But when we feel strongly enough, we go to see the principal. We don’t always get satisfaction. But because property rights are well defined, we know that the decision is ultimately hers. Our main decision is whether to continue sending our daughter there. That suits us fine, since in the aggregate we parents have a fair amount of say over the school. The school must be good enough to earn our tuition payments.
In contrast, no one really owns government schools. Therefore, various groups try to get control of the schools and they succeed in limited and temporary ways. But these groups control it only until other groups get enough strength to take over temporarily. Each group is like one of the eight children in Mrs. Klemp’s family before she discovered property rights.
Schools are just one example of how things get messed up when there are no property rights and how property rights solve the problem. Consider another, something that most of us take for granted: traffic jams at rush hour. We fight for space in traffic jams on government-funded roads. One reason is that the government sets the same usage price at 5:00 p.m. as at 3:00 a.m., namely, zero.
We don’t typically have to line up to buy the cars that we use at rush hour. Why not? Because we buy those cars from private, for-profit companies that have an incentive to avoid shortages by raising prices (or lowering them, when people aren’t buying enough of their products). Would a private, for-profit owner of a freeway price it at zero in rush hour? Unlikely. Just as we don’t line up for cars, we would get rid of most severe traffic jams if for-profit or nonprofit firms could have well-defined property rights in roads.
As with families, so with societies. Property rights create harmony where their absence led to chaos.