Private Rights to Property: Economic Systems

Private Rights to Property
by John W. Allen

Our society is what we make it. We can shape our institutions. Physical and human characteristics limit the alternatives available to us. But none prevents us, if we will, from building a society that relies primarily on voluntary cooperation to organize both economic and other activity, a society that preserves and expands human freedom, that keeps government in its place, keeping it our servant and not letting it become our master.
Milton and Rose Freedman (See end note #1.)

We live in a world of scarcity. It is not possible to satisfy all wants. We have an unlimited appetite for goods and services, but nature has provided insufficient resources to provide what we want.

It is axiomatic that people everywhere strive to improve their lot in life. We want more than we have and more than we can produce ourselves. Therefore, it is apparent that each of us can benefit from what others have. But because resources cannot be used simultaneously to satisfy competing demands, human conflict is inevitable. Somehow these conflicts will be resolved. The methods used range from voluntary exchange to violence and include voting, arbitration and despotism. Whatever methods are used, no society, not even the most centralized command economy, specifies in advance detailed answers about how resources will be used. Instead, each society relies on rules, customs and institutions. The composite of these rules, customs and institutions is an economic system.

Economic systems differ in their mixture of these rules, customs and institutions. While the world has many different economic systems, they often are identified as belonging to one of two idealized or pure types: command and market economies. Their primary distinguishing features are the extent to which private property rights exist and the extent to which decisions about resource use are centralized in political control.

In the pure command system, often called socialism, nearly all resources are owned by the government. To the extent that individuals are permitted to own resources, they are limited to a few personal possessions, and these may be subject to strict controls. Even the individual’s most vital productive resources, brain and muscle, are strictly controlled. The command system is so named because economic decisions about what to produce, how to produce and to whom to distribute the fruits of production are made predominantly by the command of people in charge of the central government. Typically, a central planning authority is empowered to establish and monitor an economic plan. This authority then specifies such things as the variety and location of crops to be planted; the styles and quantity ofautomobiles to be produced; the number of scientists to be trained; and the sizesof shoes to be produced, where they will be shipped and their price.

A person’s occupation, place of residence, income, travel and even diet are regulated closely by governmental authority in strict command economies. The individual is accorded little respect and is subordinate to “the plan,” “society,” or “public welfare.” In sump pure command economies are characterized by government ownership of society’s productive resources and centralized decision making in economic affairs.

The basic features of the pure market economy, often called capitalism or free enterprise, stand in striking contrast to the pure command economy. This system is based on the premise that there is no need for centralized decision making. No grand economic plan is required to determine what is produced. By allowing resources and property to be privately owned, the solution to the problem of scarcity will be forthcoming as people seek to improve their personal well-being through voluntary exchange. If people are able to exchange property freely with each other, an extensive network of markets naturally develops to facilitate exchange. Through these markets people communicate with each other. Consumers reveal what they want to purchase and tell resource owners what to supply. Thus, the market process promotes the production of those goods and services most highly valued.

Fundamental to a market economy is a system of private property rights. Without well defined and enforced property rights, the market system is unable to function properly, and the performance of the economy is retarded. While the government is assigned only limited functions in the market system, one especially important task is to enforce the system of private rights to property. This fact seems to be ignored by the judiciary, legislatures and public.

Of course, neither the command nor market economies exists in pure form. All modern-day economies have both private and public properties. In some economies the government ownership of properties and command features dominate–as in the Soviet Union, Poland, East Germany, China and Cuba. In other economies private property is the dominant form of ownership although government ownership, control of property or both also play an important role. The United States, Hong Kong, Japan and West Germany are examples of such economies. Between these two groups is another group of economies wherein resources are owned both publicly and privately, but government closely regulates the use and disposition of private property. Examples of these economies include Canada, Great Britain, Sweden and France.

Possible combinations of private and government property that may exist in a nation are unlimited. The world’s economic systems reside upon a continuum between the two extremes of pure command (government property) and pure market (private property) economies.

Which system; which composite of rules, customs and institutions; which blend of private and government property is best? That depends on what we want from our system. Even though different people want different things from the economy, there is widespread agreement about two basic objectives: efficiency and growth. If resources are scarce, we want the system to promote their efficient (non-wasteful) use, for this means the size of the economic pie is as large as possible. Moreover, we want the system to promote an ever-growing economic pie so that living standards improve.

An economic system is more than simply a device for production. It is a way of life and has far-reaching effects on the daily affairs of people. We also want the system to contribute to and be consistent with the desire for freedom, individuality and other non-economic dimensions of happiness.

What system does all of this? What are the features of the systems that simultaneously promote individual prosperity and protect individual freedom? Experience confirms it is those systems that largely depend on private property and free markets. Next we will focus on how and why the private property, free-market system is essential to these ends.

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