Knowledge And Decisions

Whether in a socialist or a capitalist context, a property right is a differential privilege¹⁷ of some to exclude others from decisions or activities involving some physical or intangible object of value. This differential privilege is not personal; the current owner can have last week’s owner jailed for trespassing. In a socialist or communist society, a deposed official dare not presume to continue directing enterprises formerly under his control. The basis for a property right is therefore not an individual attribute or merit but social expediency. The social question then is — what is to be gained or lost by defining a property right, and on what basis should the right be assigned, and shall it be transferable? The defining and assigning of property rights goes on in all kinds of societies — in socialist societies the assignments are based on political election or appointment, until further notice — while transferability at the discretion of individual transactors is the defining characteristic of capitalist processes.¹⁸

To define a property right is to carve out and tie into a package various possible activities associated with a given object of value. It is essentially a judgement that certain decisions go together, in the sense that different decisions about each of the activities separately are unlikely to be as socially beneficial as decisions about the set of activities collectively. If separate property rights to a living hog’s head are defined independently of property rights to his heart, stomach, or hind legs, so that these rights can be held by different decision-making units, it is unlikely that the hog will live an optimal length of time from the viewpoint of the production of pork chops, ham, and chitterlings. If the owner of the hog’s heart removed his property, the value of all the other property would be reduced. If these separate property rights are transferable, it obviously would be to someone’s self-interest to acquire these separate, risk-ridden rights at values greater than they have to the separate owners, and combine them into one, far less risky right to the whole hog. In other words, the right to the whole hog is more valuable than the sum of the rights to all his parts. The definition of a property right is therefore an important step, especially in systems which forbid subsequent transfer of these rights.

In feudalistic systems, where land is inherited as an indivisible property required to remain with a given family (entails), the whole society loses if those lands are in parcels so small or so situated that they are far less productive than if they could be combined into larger units or traded off to get contiguous parcels, or if land served by a given stream were under the same decision-making unit. Conversely, a property may be too large to be effectively managed by one decision-making unit, so that it would produce more output for the society at large if it were under several decision-making units. These problems are not unique to feudalism. Wherever the initial definition of property rights is imperfect — which is to say, wherever it is done by human beings — and subsequent transfers are prohibited or restricted, similar problems arise. A socialist government may, for example, “entail” a whole industry to one planning commission, leading to avoidable “mistakes” in the industry which are not the result of stupidity or perversity but merely due to the high cost of monitoring the property as defined. Were the property transferable, it would be more valuable in smaller units — more valuable not only to the buyers but to society at large.

Leaving property rights wholly undefined is even more disastrous than imperfectly defining them. Wild animals are often hunted to extinction precisely because they do not belong to anyone. They can by fiat or metaphor be said to belong to “the people,” but unless it is feasible to apply force to exclude poachers, there is no property right in reality. It is precisely those things which belong to “the people” which have historically been despoiled — wild creatures, the air, and waterways being notable examples. This goes to the heart of why property rights are socially important in the first place. Property rights mean self-interested monitors. No owned creatures are in danger of extinction. No owned forests are in danger of being leveled. No one kills the goose that lays the golden eggs when it is his goose. Even chickens who lay ordinary eggs are in no danger of being killed before their replacements have been provided. No logging company is going to let its own forest become a mass of stumps, though it may do that on “public” land.¹⁹