All Commentary
Saturday, November 1, 1986

The Moral Foundations of Property Rights

Mr. Summers is a senior editor of The Freeman. An earlier version of this article appeared in the Fall 1982 issue of Lincoln Review.

Property rights are human rights. They do not belong to property; they belong to people who hold them with respect to property. Property rights include a person’s fights of possession—the rights to use property peacefully, alter it, consume it, and exclude others. They further include the fight to transfer possession by any peaceful means an owner sees fit—to sell, trade, mortgage, let, give, and bequeath. Taken together, these constitute the rights of full private ownership.

Why should anyone have such rights? Why should some people enjoy the possession and use of property at the seeming expense of others? These are questions on which the great debate between capitalism and socialism ultimately turns. Let us examine the answers offered by the defenders of private property.

Some defenders of property appeal to First Amendment rights. They ask, for example, how can the press be free if the government owns all the newsprint, presses, and distribution systems? How can religion be free if the government prints all the books and owns all the buildings? Similar arguments apply to freedom of speech and the right to assemble.

Such arguments, as far as they go, are compelling. But private ownership involves a lot more than the free exercise of First Amendment rights.

Other defenders of property go beyond First Amendment arguments to the assertion that property rights are essential to freedom itself. They contend that freedom—the absence of coercive intervention in peaceful activities—is impossible without private ownership.

But full private ownership is not a prerequisite for many peaceful activities. For some activities, such as swimming at a public beach, the right to use property is often sufficient. The rights to alter, consume, exclude others, sell, trade, mortgage, let, give, or bequeath the beach are usually not required for such peaceful use.

Of course, one can ask whether people should be free to do such things with respect to a beach. But this is merely to rephrase our original question: Why should anyone have such property rights?

A few defenders of property base their defense on the right to life. They point out that a person cannot eat without at least implicitly establishing property rights over the food he consumes. Similarly, a person would have trouble keeping warm without some property rights with respect to clothing and shelter.

Here again is an argument that, as far as it goes, is compelling. But certainly a person can eat without the rights to sell, trade, mortgage, let, give away, or bequeath his food. In addition, this argument, on the surface at least, applies only to consumer goods. What about the main concern of socialists—the raw materials and capital goods which constitute the means of production? Why should anyone own them?

Economic Approach: Incentives

Economics provides a comprehensive answer. When the means of production are privately owned in a market economy, businessmen seek to earn profits by cutting costs through the prudent use of scarce resources. The businessman who conserves the most resources, while giving consumers the most for their money, earns the greatest profits. Private ownership fosters efficient production.

Consider, for example, the operation of a privately owned bus company. If the operator has full private ownership—if he is free to choose his routes, adjust his fares in response to market conditions, and bargain with anyone who wishes to work for him—he has every incentive to provide cheap, efficient service. Free market competition, and the possible entry of potential competitors, supplies all the incentives needed to improve service and cut costs through conservation.

The bus owner also has every incentive to maintain his capital stock. If he ever wants to sell his company—or bequeath it to his children—he will maintain his buses in good working order.

The same incentives apply to the professional managers of a company owned by stockholders. If the managers fail to maintain the buses, the price of the company’s stock will fall and the management will be replaced by stockholder vote or a corporate takeover—unless, of course, the management is bailed out by government subsidies or the takeover is prevented by threats of antitrust action.

Compare this with the operation of city-ran buses. The routes and fares of city-run buses are determined by political pressure. The revenues (and subsidies) are devoured by union monopolies which threaten violence against nonunion workers. With no profit motive, and no need to keep the buses rolling past the next election, deficits soar while the buses fall into disrepair.

Incentives are the key to understanding why “publicly owned” transportation is in constant need of repair, despite huge subsidies. Similarly, incentives explain why collective farms are vastly outproduced by privately owned plots; why unowned air, land, and water are often polluted; why unowned timber, wildlife, fisheries, and grazing lands are rapidly depleted (often to extinction); and why private timber companies plant millions of saplings to try to maintain the productivity (and thus the value) of their land.

But the economic case for private property goes beyond an analysis of incentives. Economics proves that private ownership is a prerequisite for rational economic planning.

Economic Approach: Calculation

In any advanced society, knowledge is divided among millions of individuals, with no one knowing more than a tiny part. Because of this division of knowledge, scarce resources are often misallocated—inadvertently used in ways that fail to contribute the most to consumer welfare. A manufacturer may be unaware that a re source could contribute more if used elsewhere. Those who know of other uses may be unaware of the availability of a resource, or even of its existence.

To correct these misallocations of scarce resources, we need a system that (1) provides a means of discovering misallocations, (2) stimulates people to use the means of discovery, (3) encourages people to transfer control of resources to entrepreneurs who have discovered misallocations, and (4) rewards the correction of misallocations.

All this is accomplished by the free market profit and loss system. Any infringement on property rights reduces this system’s efficiency. In particular, “public” ownership of the means of production prevents businessmen from competitively bidding for scarce resources. Without competitive bids, the “prices” of scarce resources become arbitrary, so that no one can calculate the true costs of any project.

These economic arguments relate to our previous comments about the right to life. We previously saw that human survival requires at least some property rights in consumer goods. We now see that human survival—at least as we know it—requires economic calculation based on private ownership of the means of production. Economics shows how property rights can, indeed, be based on the right to life.

Economics also sheds further light on the relationship between private property and freedom. Freedom—the absence of coercive intervention in peaceful activities—refers to the range of options (alternatives) a person may peacefully pursue. At any particular time in a market economy, this range is pretty much the same for all people. Of course some people, especially the wealthy, have a greater ability to attain options (goods, services, jobs). But, in general, these options are available for all to pursue.

Thus, as a person accumulates wealth, he doesn’t, as a general rule, gain more freedom. But in a market economy, as other people pursue wealth by offering the consumer more goods and services, the consumer’s range of options expands. In terms of options, the consumer finds that he has more freedom of choice in a modern shopping center than his grandparents had in a general store.

The Claiming of Natural Resources

Economics provides compelling arguments for the free market, private property system—based on the efficiency of the system itself. But we must still consider the justice of original claims to previously unowned natural resources. If these original claims cannot be justified, the free market forever will be plagued with charges of immorality.

Original claims to property are sometimes defended with a finder-keeper approach. According to this argument, the discoverer of say, an oil field, is its rightful owner.

But if this approach applies to oil fields, it should also apply to the discovery of a continent, planet, or galaxy. Merely being the first to observe something—or putting up the capital that leads to a discovery—seems to be insufficient grounds for full private ownership.

Other claims to property are based on first occupancy. By this argument, the first person to occupy a piece of land is its rightful owner. But merely being the first to set foot on say, Mars, doesn’t seem to create a moral claim to the entire planet.

Lockean Approach

But if the “first occupancy” takes the form of settling and working the land, a strong case can be made for private ownership. In the famous words of John Locke (Second Treatise of Government, paragraph 27):

Though the earth, and all inferior creatures be common to all men, yet every man has a property in his own person. This nobody has any right to but himself. The labor of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature has provided, and left it in, he has mixed his labor with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature placed it in, it has by this labor something annexed to it, that excludes the common right of other men. For this labor being the unquestionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others.

The Lockean idea of acquiring property by mixing labor with unowned resources has been enormously influential, and has spawned many compelling defenses of property rights.

However, the Lockean approach is not without difficulties. For one, it includes the troublesome concept of self-ownership. Full self-ownership would imply that an individual has a complete set of property rights with respect to himself. Some such property rights are difficult to deny, such as the right to peacefully use our own faculties. But how can we consume ourselves or transfer possession?

Fortunately, the Lockean approach is more firmly based on the concept of people owning their own labor. But what does it mean to “mix one’s labor” with natural resources? This metaphor has led to considerable confusion.

For instance, it is sometimes asserted that if an individual “mixes” what he owns (his labor) with what no one owns (an unowned natural resource), it doesn’t necessarily follow that he owns the resource. An equally plausible conclusion, it is contended, is that he has simply “discarded” his labor—like a sailor pouring his coffee into the unowned sea.

But “he owns the resource” and “he has discarded his labor” are not the only possible conclusions. We can also conclude that because a person has mixed his labor L with an unowned resource R, he has created the “mix” LR. Thus, if he is entitled to what he has created, we can conclude that he owns LR. But the concept “LR” is, at best, vague.

The Lockean Proviso

Another difficulty with the Lockean approach is the proviso that private ownership is justified only to the point “where there is enough, and as good left in common for others.” This proviso, carried to its extremes, reduces to an absurdity.

For example, if oil companies must leave “enough and as good oil in the ground for others,” where should they stop? If the last barrel of oil must be left in the ground for our children, then our children must leave the last barrel for their children, and so on. No one may ever take the last barrel. But if the last barrel is permanently off limits, then anyone taking the next to last barrel would not be leaving “enough and as good in common for others.” No one may ever take the next to last barrel. Similarly with all other barrels of oil. Pushed to its limits, the Lockean proviso prohibits anyone from ever taking any nonrenewable scarce natural resource.

Many interpreters of the Lockean proviso don’t go this far. However, they often demand that a first appropriator (such as an oil company) be forced to compensate all the “victims” who could have, but didn’t appropriate a given resource.

But who are the victims? Anyone with an oil rig? Anyone who could have invested in oil exploration? And how much are they being “hurt”? By any amount they say?

More important, is anyone actually being hurt by the first appropriator? I, for one, am glad when someone else discovers oil. I know that, in a free market, it will eventually mean more gas for my car. In the long ran, we all benefit from such competitive market processes.

Even in the short run, a potential competitor who doesn’t get to the oil first is not being physically coerced by the driller who does. By what right does he demand compensation from an explorer peacefully going about his own affairs?

Some adherents to the Lockean proviso assert that private ownership is fine in principle, but as a practical matter, the “enough and as good” proviso is needed to prevent all resources from falling into private hands. Anyone coming along later, they contend, would effectively be locked out.

But as a practical matter, it is immigration laws, apartheid edicts, tariffs, and other government restrictions that lock people out. It is precisely because private owners are eager to sell and let their property that regulations are imposed by those who wish to prevent such transactions.

Creation—Transformation Approach

These difficulties .with the Lockean approach are Overcome by (1) dropping the Lockean proviso. and (2) replacing the “mixing” metaphor with the principle that an .individual owns whatever he (or his agent) creates from an unowned resource. In this approach, the justification for first ownership is not based on the owner’s la bor, or on the pain and.sacrifice associated with his labor. The justification for first ownership is based on the creation brought forth by the first owner.

But who creates property? In the case of physical resources, at least, no one. But to “mix labor” with an unowned resource is to transform it—to create a transformation. Any person who transforms an unowned resource owns what he creates—he owns the transformation.

Thus, the first person to transform an unowned field into a farm, owns the farm. But plowing (transforming) land doesn’t, in this approach, give the farmer ownership of oil lying beneath the land. Only if he pumps the oil to the surface, or creates another transformation in the oil, can he claim to own the transformation—and thus claim full private ownership over the oil he has transformed.

If an individual owns whatever he creates from an unowned resource, he clearly owns whatever he (or his employee) creates from his property. For example, if a farmer pays an employee to transform his oranges into juice, the farmer owns the juice.

And he may sell the juice for whatever price the market will bear. If this price yields a profit, the profit belongs to him because (1) he owns the juice and (2) his decision to transform the oranges created the opportunity to discover the profit.

This last argument may appear to be nothing more than the finder-keeper approach. Our farmer-entrepreneur, after all, discovers the profit (or loss) which results from his decisions—much as an explorer discovers lands as a result of his decisions. They both create their own opportunities to make discoveries.

But there is a fundamental difference. The lands exist whether or not the explorer decides to look for them. The farmer’s profit doesn’t exist without his decision to transform the oranges. His employee is needed to make the juice, but the farmer’s entrepreneurial decisions make the difference between profit and loss.

As a practical matter, the creation-trans-formation approach assigns property rights in much the same manner as the Lockean approach (without the “enough and as good” proviso). But there is at least one basic difference. Some people interpret the Lockean approach to mean that once labor has been “mixed” with an unowned resource, that resource forever belongs to the “mixer” and his heirs. For someone else to take the resource, he would have to “take” the mixer’s “stored up labor.” Thus, an abandoned, overgrown farm would forever belong to the farmer’s heirs.

The creation-transformation approach, however, assigns property rights only as long as a transformation exists. Our farmer acquires previously unowned land by transforming (clearing and plowing) a field. If he abandons the field and lets it revert to a state of nature, his transformation gradually disappears. When his transformation has completely vanished, his property rights with respect to the field would also vanish.

The Justice of Current Property Holdings

What do the arguments for private ownership say about the justice of current property holdings? Do they endorse the status quo? Or do they call for a massive transfer (“redistribution”) of property rights?

The economic argument supports private ownership as an institution. Economics tells us that private property, free trade, and peaceful cooperation promote economic efficiency and enhance human welfare. Thus, the economic approach endorses any property holding that came into being through peaceful means. Property holdings acquired through violence, however, receive no endorsement because such coercion—legal or illegal—disrupts the market process.

But economics says little about the justice of original claims to property—the holdings of those who first claim property from previously unowned resources. For this we must turn to the Lockean and creation- transformation approaches.

These two approaches provide ethical guidelines for acquiring property from a state of nature—guidelines for, in effect, creating property rights. As a corollary, they endorse voluntary transfers of justly acquired property.

But these arguments do not endorse property acquired by immoral means. Violence, conquest, and coercion may create legal “rights” to property, but they do not create moral rights.

To what extent are such immoral means the basis of current property holdings? A detailed answer is beyond the scope of this paper. There are, however, two facts we should bear in mind.

1.       The original inhabitants of a territory did not necessarily have a moral claim to all its resources. First occupancy is an insufficient claim to first ownership. Claims to original ownership must be based on creatively transforming (“mixing labor with”) natural resources.

2.       Most current property holdings are not in the form of raw land. Most of what we own has been produced since the advent of capitalism. Even if a native has a valid moral claim to the land on which a skyscraper stands, he cannot claim to have created (and thus own) the skyscraper.

Thus, in general, property holdings arising out of capitalistic (free market) activities are morally justified. And violations of these property rights are to be condemned.

Legal Plunder

In particular, our arguments condemn the morality of all government transfer programs—subsidies, welfare, and the like. Such programs are nothing more than the indiscriminate legal plundering of property that has been justly acquired through peaceful, mutually beneficial, market transactions.

Our arguments further condemn all interference with the peaceful exercise of justly held property rights. By what right does anyone dictate how much rent a landlord may ask for his apartment? Or how much an oil dealer may ask for his oil? Or what a farmer may grow on his land?

And our arguments condemn the seizure (“locking up”) of millions of acres of land by various government agencies. By what right does anyone prevent people from peacefully transforming unowned resources? By what right do government officials—who haven’t creatively transformed an acre of wilderness—claim property rights over this land?

Such ethical considerations, of course, receive little attention from men of practical affairs. Real world decisions, it is widely believed, should be made on practical grounds—with ethical arguments best left to the moral philosopher.

On practical grounds, however, those concerned with the future of the free society place themselves at a serious disadvantage by ignoring ethical arguments. The opponents of freedom can always conjure up expedient grounds for further government intervention, confident in the public’s ignorance of the economic and historic arguments against such intervention. Unless such expediency is met with compelling moral arguments against the violation of property rights, the would-be controllers will usually have their way.