I know it is a tired topic, the destruction of property rights, but I think it is one we rarely address properly. Either we get too caught up in abstractions such as rights and principles, or else we go too far into the realm of pragmatic and utilitarian ideas. (I am guilty of both in many places.) Or, in the worst case, we allow the opposition to bog us down in minutiae, arguing over the justice of inheritance or the propriety of earning interest. What we really need is something more simple, more visceral. We need to strip property rights down to their most basic embodiment and build up from there, taking the argument from the product of your labor all the way through interest payments, trust funds and other more abstract types of property. Only by doing so do I think we can really arouse the sort of passions about property rights that the topic deserves.
So, without any additional preamble, let me begin to define what property is, and what gives us our rights to property.
Property is simple to explain, and finding it in man's "natural state" is so simple that even those who agree with nothing about social contract theory do not dispute its origins. We have property for the simple reason that we create things. Now, some will claim we do not create all property. When we find a stick or sharp rock, we are not "creating", but we are. A sharp rock sitting in the sand is nothing. Only when a human picks it up and notices it would be good for cutting is a "knife" created. Likewise, the water in the river is valueless for the thirsty man, it is only water in a cup, or in his mouth that is a good. And so, even if our property is nothing but an item taken from nature, in the act of recognizing the utility of that object, and in taking it from its original context, we have engaged in an act of creation. In short, we have property because we create it.
And this even solves problems that seem large and sticky to some. For example, from time immemorial, there have been certain "thinkers" (I apply scare quotes as so many seem to operate in a rather druggy haze, especially those who proposed this theory about four decades back) who have had difficulty understanding how "a man can own land". Sometimes this was simple pretext. The leaders of a tribe, city or nation wished to retain control over all real property and thus claimed property was communal to put it under their control. Or sometimes it was modified slightly and property was recognized, but vested solely in the king, or another governing body*. However, in a number of cases, both theoretical and applied, the right of property was simply not understood, at least in terms of real estate.
Now, this may be understandable for nomads and hunter gatherers, as they have no particular claim to a patch of land, make no improvements, have no way to mark a claim, and so on. In fact, given their lifestyle, it is not unthinkable that some nomadic groups might have trouble even understanding the concept independently, though surely by analogy to their personal effects they could come to comprehend it once it was encountered. Then again, even if they had no real property, it seems that migratory people would still have the possibility of traditional rights to regions. The river Og always fished, the pasture where Mung grazed, the bushes where Ookla always harvested berries. It seems that such traditions could give rise to something approaching private property even in a very primitive society. And, given the variability of food supplies, it seems likely that certain desirable patches would appeal to those powerful enough to claim a right, giving rise to something analogous to private property, even at this early stage.
And certainly, by the time people began to settle down, even if only a hut in which they slept after herding their flocks all day, and certainly by the time they began to plant crops, the idea of private property would arise. And would arise for obvious reasons. In fact, the same reason I mentioned above.
You see, land, on its own, is valueless. Any given stretch of land has no worth on its own. Only when it has been claimed, put to use, perhaps improved, does it have economic value to humans. And that is how we create real estate. We take a patch of valueless land, lay claim, mark it, and improve it. And in those improvements we make the land ours, we create the property out of valueless land.
And that is why I have such trouble with those who cannot understand property in real estate. They adopt the tone of a shaman form a bad 60's stoner film and ask "how can man own the land?" To which I reply, "Was that farm there before a man built it?" Or "Where did that building come from?" Or even "Who enclosed that pasture?" Land is worthless, at least in economics, without being owned. "Waste" was the pre-environmentalist term, and there was a reason for that term. Land without ownership was non-productive, it was fallow, it did nothing. Only once man claims and works land does that land acquire value, and that is how we can have property in land.
But, as most people are not so muddle headed that they think "the land must be free", I can probably drop that topic now, and return to my original point. That being that property is, in a way so very few political rights are, self-evident. And individual creates something where nothing was, and so that person now owns his creation. In other words, creating wealth gives you the right to that wealth.
And that may be the point that is most often overlooked in political debates about wealth and property. Be it about taxes or medical reform or GM bailouts or inflation or low interest loans or inheritance taxes or what have you. Whenever we talk of property, of wealth of any kind, we are talking about something created by someone. Likely many things created by many people. Still, we need to keep in mind when we debate making wealth change hands that every iota of wealth, every last trace represents an effort on the part of some individual, and that "transfer" means taking from someone and giving it to someone else.
Of course the response will likely be that they don't want to take from "honest workers" or "wealth creators", they want to take from "parasites", and "even the playing field". The problem being that, unless the government is involved, or actual criminal behavior, wealth only changes hands on the basis of voluntary exchange. And people only exchange when they expect to get something of equal or greater value to them. So, for those "parasites" to have obtained the wealth from the "creators", they had to give them something else, in other words, something THEY created. Or something they traded for before. But, at some point, the "parasite" had to obtain wealth to trade, and, as we have stated, wealth is always a created object.
To be brief, no matter from whom you steal, you are still taking it away from someone who created wealth. Except government offices, those favored by government, and actual criminals, no one gets wealth for nothing, and so these mythical "parasites" do not exist. (Outside of governmental circles.)
I can see two potential objections already, but, rather than address them directly, let me offer up some analogies. And since we started this with primitive man, let our examples follow that line of thinking.
Let us suppose we are members of a hunter-gatherer tribe. Last night, in a freak accident, you tossed your bow on the camp fire. You would normally make one today, but today several hunters are set to depart on a scheduled hunting trip. Since you don't want to miss out on the big hunt, you come to ask me if I have an old bow. I don't, but I offer you a deal. Since I am quite fond of fruits and nuts, and as many berries are in season, I am happy to forgo the hunt, and let you use my bow. However, as I am going to miss out on the hunt, I do ask that in exchange you bring me back a few hides as compensation. You happily agree, as the cost of a few hides is small compared to missing the whole hunt.
It is the sort of event which takes place constantly, in some form or another. I agree to forgo some advantage either to allow you to take advantage yourself, or to make use of the resources I otherwise would. And, in exchange, you offer me something in return. In everyday life we consider the person offering the bow a friend, a good guy. However, once it becomes money, rather than a bow, and the hides become interest, suddenly it becomes evil. Where we recognize that the man giving up his bow is helping his friend to produce, and thus deserves something in return, when a man lends money, rather than use it himself, allowing someone else to create, we suddenly think him a predator.
Which is why I must deny any claims that investors, even those "living on trust funds" are in any way "non-productive". By offering to forgo enjoyment of their wealth, or using it themselves, and lending it to those who can produce, they are assisting in creation. We would not think the inventor was "non-productive" just because he required machinists to build his invention. So why is an investor "non-productive" just because he needs a businessman to make use of his money? He is still creating, though somewhat less directly.
Which brings me to my second example, inspired by thought of those "trust fund kids".
For the moment, let us forget particulars, specific times and facts, and ask something even more simple. Do you have control over your property? That is, can you sell it, use it, or give it away as you wish? Provided you don't use it to harm another, do you control what happens to your property? If so, then can you give it to your children?
The reason I ask is that many people have this insane horror of inheritance, think it something obscene, when in truth it is nothing but the property rights of the parents. You see, if I control my property, I can give it to my children. And, logically, it should make no difference if I give it the day before I die or the day after. In either case, I am simply disposing of what I own. If my wealth is mine, then why can I give it today, but lose half tomorrow? And by what right does anyone claim my wealth because I happen to die?
Now, I know I said I would avoid rights and pragmatic arguments, but in this case there are several very valid ones that must be mentioned. First, if inheritance is impeded, it will cause those in their later years to try to protect their wealth so as to avoid inheritance. Often this involves tying wealth up in trusts.One consequence is that the wealth is sometimes not available for those seniors in an emergency. Second, it also means the money is often not as well invested or economically used as it would be were inheritance not an issue. Another consideration, if inheritance laws become strict enough to remove many dodges, it will encourage the elderly to earn less, to be less productive, and to hold on to less money, leaving smaller sums for emergencies, and making it, also, more likely the elderly will find themselves impoverished by an unexpected emergency. In general, in practical terms, death duties are a remarkably inefficient way to tax wealth.
But let us ignore that, and just look at the basics. I made something. I want to give it to someone. This is allowed. Or, I decide to promise it to someone, to be delivered in one year. That too is allowed. In fact, even if I die the next day, the transaction happens as normal. Only if I make the delivery contingent upon my death do people think it immoral and does the government treat it as somehow suspect. And, to be honest, I can't see why. What is the difference between $100 to my son on his 21st birthday and $100 to him at my funeral? Why is one good and one bad? Why is one taxed at exorbitant rates? I was going to offer arguments against this principle, but I think the best argument may be to turn it around and ask the proponents why there should be a difference. I doubt they can answer.
And that is the whole of my argument. Those who have property either made it, played some role in making it, or assisted those who made it through loans of money or goods. Or else they inherited or were given money by one who did. In any case, there was no theft, no unfairness. Property is wealth created by those who hold it.
And that is what we need to keep emphasizing. Don't let the socialists digress into talk of "Wall Street fat cats" and "investment bankers" and "speculators" and "trust fund kids" and "golden parachutes". We need to revive the common sense our ancestors (or many of them) once held and point out that American industry produces tremendous wealth. And, while it may not be obvious to an outsider how bankers or CEOs or speculators play their part, without them the industrial machinery would slow and stop. And so, before we start finding scapegoats and seizing their bank accounts, maybe we should ask by what right we take from someone the wealth he created through his own labor.
Maybe, if we have success, we could even turn it around, point out the one true parasitic group, the one group of people with the ability to take wealth unearned. And that is the government, and their favorites, the only class of people who have the ability to accumulated unearned wealth. Perhaps if we could eventually draw enough attention to that fact, all this populist nonsense and attacks on "fat cats" would stop, at least once enough people realize that the lowliest Washington bureaucrat is one million times the threat of all the CEOs in the Fortune 500.
* Perhaps the most bizarre form of property ownership is the Andean tradition of the deceased retaining their rights to real estate, with their descendants acting essentially as sharecroppers for the dead. It is not relevant here, as obviously property rights, if not inheritance, were fully recognized, but it is worth mentioning as an extreme case. In fact, as I have a few such outlying examples of law from history, I may write a post about these extreme cases and what they can teach us.
Thanks to division of labor, and the resulting complex manufacturing processes, ever since the industrial age it has been easy for demagogues to convince the mob that only those doing direct manual labor are productive, while management, support staff and the rest, especially the financial sector, are simply leeches draining wealth from the system and contributing nothing. Unfortunately, despite more and more Americans working in technical jobs, jobs where they have little direct manual labor, this absurd theory still carries more weight than it should. Though more and more of America has entered the "white collar" ranks, they still can be convinced , while they do "real work", all the managers above their level are worthless. It makes no sense, and should be obviously absurd to anyone who thinks it through, but unfortunately such appeals still work.
Originally posted in Random Notes on 2010/02/28.