The limits of property and freedom Sinclair Davidson.

The limits of property and freedom

Sinclair Davidson

RMIT University © 2010 Economics, Finance and Marketing 2

The exchange of property rights

• Adam Smith: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.”

– We can quibble over ‘easy’ in taxes and ‘tolerable’ in administration of justice.

– ‘all the rest’ is the division of labour, specialisation, and trade.



• Market economy is an exchange economy.

• Competition isn’t as important as co-operation.

– We co-operate in order to compete.

• Geoff Hodgeson’s definition of markets: "[A] set of social institutions in which a large number of commodity exchanges of a specific type regularly take place, and to some extent are facilitated and structured by those institutions. Exchange ... involves contractual agreement and the exchange of property rights, and the market consists in part of mechanisms to structure, organise, and legitimise these activities. Markets, in short, are organised and institutionalized exchange."

• Specialisation and trade involves the exchange of property rights.



• Harold Demsetz: “Property rights are an instrument of society and derive their significance from the fact that they help a man form those expectations that he can reasonably hold in his dealings with others. These expectations find expression in the laws, customs, and mores of a society.”

• How do property rights emerge?

– Efficiency hypothesis

– Rights emerge to enhance exchange and realise value.

– Legal centralism

– Rights must be granted by government.


The economics of coercion

• Coercion occurs when ‘when one man’s actions are made to serve another man’s will, not for his own but for the other’s purpose’ (Hayek 1960).

• Ludwig von Mises: “Liberalism is not anarchism, nor has it anything whatsoever to do with anarchism. The liberal understands quite clearly that without resort to compulsion, the existence of society would be endangered and that behind the rules of conduct whose observance is necessary to assure peaceful human cooperation must stand the threat of force if the whole edifice of society is not to be continually at the mercy of any one of its members. One must be in a position to compel the person who will not respect the lives, health, personal freedom, or private property of others to acquiesce in the rules of life in society. This is the function that the liberal doctrine assigns to the state: the protection of property, liberty, and peace.”

• Alternatively, society must manage the trade-off between the cost of disorder and the costs of dictatorship.


The economics of coercion: Rahn curve


The limits of property

• Mises: “The main problem is how to prevent the police power from becoming tyrannical. This is the meaning of all the struggles for liberty.”

• Mises: “Politically there is nothing more advantageous for a government than an attack on property rights, for it is always an easy matter to incite the masses against the owners of land and capital.”

• Policy entrepreneurs can imagine a different, ‘superior’ allocation of property rights.

• Nirvana approach to public policy

– The grass is always greener fallacy

– The free lunch fallacy

– The people could be different fallacy



Status Quo is Deficient Yes No

Yes

Debate detail Values Debate &

Conflict

Polic

y Pr

opos

al

No

Policy Failure Ideal: Do nothing



• Australian examples of expropriated property rights

– Native Vegetation Act

– Trade Practices Act Part IIIa

– Nanny State regulations

– Plain packaging for tobacco products proposal


Why has this happened?

• Concern for ‘equity’, egalitarianism, ‘social’ justice.

• Smith: “I have never known much good done by those who affected to trade for the public good.”

• Mises: “The inequality of incomes and wealth is an inherent feature of the market economy. Its elimination would entirely destroy the market economy.”

• Friedrich von Hayek: “[T]he phrase ‘social justice’ is not, as most people probably feel, an innocent expression of good will towards the less fortunate, but that it has become a dishonest insinuation that one ought to agree to a demand of some special interest which can give no real reason for it. If political discussion is to become honest it is necessary that people should recognize that the term is intellectually disreputable, the mark of demagogy or cheap journalism which responsible thinkers ought to be ashamed to use because, once its vacuity is recognized, its use is dishonest.”



• Mises: “There are only two explanations open. Either these self-styled welfare economists are themselves not aware of the logical inadmissibility of their procedure, in which case they lack the indispensable power of reasoning; or they have chosen this mode of arguing purposely in order to find shelter for their fallacies behind a word which is intended beforehand to disarm all opponents. In each case their own acts condemn them.”

– Liars and/or Fools.



• Michael Oakeshott traces anti-enlightenment views back to the 16th century

– Oakeshott: “We need not speculate upon what combination of debility, ignorance, timidity, poverty or mischance operated in particular cases to provoke this character; it is enough to observe his appearance and his efforts to accommodate himself to his hostile environment. He sought a protector that would recognize his predicament, and he found what he sought, in some measure, in ‘the government’.”

– Oakeshott: “And such people appropriately understand the office of government to be the imposition upon its subjects of the condition of human circumstances of their dream. To govern is to turn a private dream into a public and compulsory manner of living. Thus, politics becomes an encounter of dreams and the activity in which government is held to this understanding of its office and provided with the appropriate instruments.”



• Majoritarianism

– Hayek: “Liberalism is a doctrine about what the law ought to be, democracy a doctrine about the manner of determining what will be the law.”

• Collapse in support for Rule of Law

– Oakeshott: “the most civilized and least burdensome conception of a state yet to be devised”.

– A.V. Dicey

– the absence of arbitrary power

– citizens are subject to ordinary laws and ordinary courts

– the constitution is informed by common law and not civil law



• Pragmatic policy making

– Hayek: “A government that claims to be committed to no principles and to judge every problem on its merits usually finds itself having to observe principles not of its own choosing and being led into action that it had never contemplated. … It is since governments have come to regard themselves as omnipotent that we now hear so much about the necessity or inevitability of their doing this or that which they know to be unwise.”

– James Buchanan: “I am convinced that the social interrelationships that emerge from continued pragmatic and incremental situational response, informed by no philosophical precepts, is neither sustainable nor worthy of man's best efforts. History need not be a random walk in sociopolitical space, and I have no faith in the efficacy of social evolutionary process. The institutions that survive and prosper need not be those that maximize man's potential. Evolution may produce social dilemma as readily as social paradise.”


What can be done?

• Buchanan: “We shall, slowly but surely, be swallowed up by an insatiable Leviathan. The freedoms that we now possess will be continually eroded by an enveloping array of bureaucratic regulation.”

• But resistance is not futile

– Successful tax revolt against the RSPT

– Public disquiet over debt and deficit


What can be done?

• Shore up the base

– Conferences such as this

• Promote Oakeshottian theory of government (Michael not Rob)

– Oakeshott: “the office of government is not to impose other beliefs and activities upon its subjects, not to tutor or to educate them, not to make them better or happier in another way, not to direct them, to galvanize them into action, to lead them or to coordinate their activities so that no occasion of conflict shall occur; the office of government is merely to rule. This is a specific and limited activity, easily corrupted when it is combined with any other, and, in the circumstances, indispensable. The image of the ruler is the umpire whose business is to administer the rules of the game, or the chairman who governs the debate according to known rules but does not himself participate in it.”


What can be done?

• Rebuke

– Mises: “The plight of Western civilization consists precisely in the fact that serious people can resort to such syllogistic artifices without encountering sharp rebuke.”

• Provide apologists and propagandists for property and freedom

– Mises: “The market economy needs no apologists and propagandists. It can apply to itself the words of Sir Christopher Wren’s epitaph in St. Paul’s: Si monumentum requiris, circumspice.”

– On this point, von Mises is wrong.

– He might have changed his views after reading Ayn Rand’s Atlas Shrugged.

The limits of property and freedom Sinclair Davidson.

Documents

protection of property

private property

limits of property

exchange economy

institutionalized exchange

rmit university

instrument of society

existence of society