Chapter 3

Property Rights

“Among the natural rights of the Colonists are these: First, a right to life; Secondly, to liberty; Thirdly, to property; together with the right to support and defend them in the best manner they can. These are evident branches of, rather than deductions from, the duty of self-preservation, commonly called the first law of nature.”

 – Samuel Adams The Rights of The Colonists (1772)[1]

For most children of the 20th Century, property is a word that invokes either suspicion or guilt.  Since the turn of that century, socialism has swept the world as the dominant intellectual movement, bringing with it contempt for the idea of personal property or property rights.  Indeed, although the United States has the reputation as the most capitalist nation on earth, she is fast moving away from the principles of laissez faire capitalism, while formerly communist countries like China and Russia are moving closer to those principles.  This is not surprising, given the 20th century history of China and Russia.  Each rejected capitalism for communism in the last century, and have already seen where the end of that road leads: poverty, starvation, mass murder, and totalitarianism.  Russia and China have already had to face the fact that communism doesn’t work and reject it for a more free market economy, or face collapse and annihilation.  To the extent that they have become freer, they have become more prosperous.  To the extent that they still cling to the old ideals of communism or socialism, their progress is retarded.

The United States has not yet faced economic calamity on the scale of that faced by Russia or China, and that is due to the far lesser degree to which the United States has embraced socialism.  Along with the western European countries that stood against communism throughout most of the last century, the United States has chosen the path of the “mixed economy,” attempting to mix elements of free market capitalism and socialism in an effort to more “equally” distribute the fruits of production and build a “social safety net” for those who at some point in their lives are unable to produce enough to meet their own needs.

If there is one common characteristic to the mixed economies of the west during the past century, it is economic decline.  Certainly, there are temporary recoveries here and there by one country in relation to the others, but the overall quality of life for people in the mixed economies has been diminishing almost from the moment that they have decided to try to mix socialism with capitalism.  Most people do not see the European Union for what it is: a temporary solution for a group of countries that became unable to sustain themselves economically on their own.  This was not a result of new competition from emerging countries as much as the natural result of the attempt to plunder the more productive members of society to support the less productive.  Combining their economies under one currency and centrally planned economy merely allows them to pool the productive capabilities of those citizens in all of their societies that are producing more than they consume, in order to create a larger surplus to plunder.  However, the same forces that caused those nations to fail economically on their own will eventually overcome the group of nations together, as will be the result for the United States.

The United States has been able to avoid the economic collapses of the European economies largely due to the fact that it has “mixed” its economy with less outright socialism than its European counterparts, at least in decades past.  However, the compromises it did make with socialism were the cracks in America’s economic foundation, and as it has moved farther and farther toward socialism in recent decades, those cracks have begun to widen.  Now America sits on the edge of the same economic precipice that overcame the economies of Europe.  Those realities will become apparent within the next presidential term, possibly under dire circumstances.

Why doesn’t a mixed economy work?  The answer is that even a mixed economy violates a fundamental moral and economic principle: property rights.  While some might argue that a mixed economy attempts to combine a moral solution (economic equality) with a pragmatic one (productivity), a clear understanding of property rights shatters this fallacy.  Violating property rights even for the purposes of achieving what some might regard as more “just” distribution of wealth is both ineffective and immoral.  If there is some transcendent justice in the world, it is that the immoral practice of violating property rights is never successful in creating a sustainable economy.

Most 21st century Americans have very little understanding of property rights.  To most people, the word “property” itself probably first conjures up the image of real estate, although most would also recognize their “possessions” as property as well.  However, the vital component of property is not your house, your car, or your new stereo system.  Neither is it the money in your bank account, although all of these things are undeniably your property.  While most Americans would not stand for this type of property being seized by a fellow citizen or their government, they stand passively by while the most precious property they own is taken from them without their consent: their labor.

All property has its origins in labor.  The only way for wealth to be created is for man to mix his effort, or labor, with natural resources or the property of others.  By mixing his labor with nature, man creates property, and that property is rightly his.  This is not only one of the unalienable rights, it is the central right, because man’s survival depends upon it.  While a human being can survive indefinitely without the freedom of speech, freedom of religion, or freedom of the press, however unjust those conditions might be, he cannot survive more than a few days without food and water.  Even a man stranded alone on an island must work to pick the fruit from the trees, or hunt the animals for the meat which he needs to survive.  He must work to produce the means of his survival, and the fruits of his labor are his alone to do with what he wishes.    Locke speaks directly to this most important of rights.

“He that is nourished by the acorns he picked up under an oak, or the apples he gathered from the trees in the wood, has certainly appropriated them to himself. No body can deny but the nourishment is his. I ask then, when did they begin to be his? when he digested? or when he eat? or when he boiled? or when he brought them home? or when he picked them up? and it is plain, if the first gathering made them not his, nothing else could. That labour put a distinction between them and common: that added something to them more than nature, the common mother of all, had done; and so they became his private right. And will any one say, he had no right to those acorns or apples, he thus appropriated, because he had not the consent of all mankind to make them his? Was it a robbery thus to assume to himself what belonged to all in common? If such a consent as that was necessary, man had starved, notwithstanding the plenty God had given him. We see in commons, which remain so by compact, that it is the taking any part of what is common, and removing it out of the state nature leaves it in, which begins the property; without which the common is of no use. And the taking of this or that part, does not depend on the express consent of all the commoners. Thus the grass my horse has bit; the turfs my servant has cut; and the ore I have digged in any place, where I have a right to them in common with others, become my property, without the assignation or consent of any body. The labour that was mine, removing them out of that common state they were in, hath fixed my property in them.”[2]

One could write volumes about this one paragraph alone, but the essential idea is that property has its roots in labor.  Once labor has been mixed with natural resources that are held in common, the resulting product becomes the property of the laborer.  It is important to recognize the concept of “commons” here, as Locke’s argument does not justify going onto private property and picking fruit from someone else’s trees.  Once that land has been purchased, and has become another person’s property.  The trees are no longer held in common, but are the property of the landowner, and thus cannot be taken by another without the owner’s consent.

Once property has been created, it can then be exchanged.  The essence of a free society is the ability of its citizens to exchange property freely.  In order to acquire property that one has not created oneself, it is necessary to obtain the consent of its current owner.  This is usually done is a trade, or a sale, where one party offers the other property in the form of goods or services that they deem of equal value to the property they desire.  If both parties agree that it is a fair exchange and both are willing to trade, a sale is made.  The important element of free trade is not so much fair compensation as mutual, voluntary consent.  Certainly, anyone is free to give away his property to another without being compensated at all.  If he has done so of his own free will, then the recipient has acquired the property legitimately, even though he offered no compensation in return.  Conversely, property cannot be acquired legitimately without the consent of its current owner, even if compensation is made.  If I were to forcibly take your car at gunpoint and against your will to retain ownership of it, I would not have acquired it legitimately, even if I left you with money that equaled ten times the car’s worth.  Without mutual, voluntary consent, there is no rightful exchange of property.

For the vast majority of people in the 21st century, they acquire their property not by mixing their labor directly with nature, but by mixing it with someone else’s property, often in an employer/employee relationship.  When an agreement is reached between an employee and an employer, the employee will go to the workspace that the employer has provided, and use company materials and resources that are the property of the employer to produce some good or service.  That good or service is the property of the employer to sell or consume as the employer sees fit.  However, like Locke’s acorn gatherer, the employee’s labor itself is solely his property, until he agrees to sell that labor to the employer for a mutually agreed price: his wages.  While the employer retains ownership of the goods or services that the employee has produced by mixing his labor with the employer’s property, the wages earned are the employee’s compensation for his labor and are solely his property.

As wealth is created or acquired, it is also consumed.  In the simple example of the apple picker trading his apples for another’s oranges, each would walk away and eat the newly acquired fruit, along with some portion of his own fruit.  What he does not need to eat immediately to sustain himself can be saved for another day.  While an apple grower can only save his surplus apples until they spoil, money allows him to sell all of his surplus apples to others, but still save their value in accumulated money.  We will deal with the important concept of money in a later chapter, but for our purposes now it is sufficient to recognize it as a store of value.  It is accepted in exchange for goods and services, and becomes the recipient’s property.

In this way, a person is able to store up the difference between what he has produced and what he has consumed indefinitely.  This is generally referred to as “savings.”  Savings have a variety of uses.  The most commonly recognized use is to sustain consumption during times when one is producing less than they consume, or producing nothing at all, such as during retirement.  In a vibrant, productive economy, it is possible for a person to cease producing wealth via their labor and live the remaining years of their life on their savings – the result of decades of producing more than they consume.

Savings also plays a wider role in society.  Savings becomes capital, the means of production.  In order to produce anything beyond the goods that can be acquired directly from nature, capital goods are necessary, such as machines, factories, farming equipment, or other means of production.  Money savings are capital, as they can be invested in acquiring or building capital goods.  Obviously, almost no new business can be started without savings, or capital, because there would be no way to put the productive structure in place, including paying the employees whose labor is necessary, in order to produce the first goods or services of that new business.  The person that supplies this needed capital is thus a “capitalist,” and the recognition that the fruits of that investment of capital are the capitalist’s rightful property is “capitalism.”

It is worth a more detailed look at this concept in order to understand why capitalism is the only system consistent with liberty.  Capitalism is based upon property rights, most important being the right to the fruits of one’s labor.  When a capitalist invests his money into a venture, he is really investing his savings, the accumulated property resulting from consuming less than he produced over a period of time.  A capitalist can only invest his own rightful property.  He cannot invest the property of others.  He invests his money or property to buy, rent, or build the facility, purchase the services of employees, and purchase the necessary raw materials to makes the company’s first products.  All of these transactions involve a voluntary exchange of his property (his capital) for the property of others – the landlord, the employees, and the vendors of materials.

As we have discussed earlier, the products of the company do not belong to the employees, as they have agreed to compensation for their services in whatever money and benefits make up their compensation package.  Furthermore, the company’s products are not merely the result of their labor, but of mixing their labor with the capital goods – the property - provided by the capitalist.  The employee is free to mix his labor with capital goods he acquires on his own, and thus claim the resulting products as his own property.  However, when employees seek employment from the capitalist, they are agreeing to sell their labor to the capitalist for a mutually agreed upon wage.  Thus, the capitalist has secured ownership of the products that the company produces through a series of voluntary exchanges of property.  Neither the capitalist, the vendor, nor the employee was forced to make an exchange without his consent.  This is why capitalism is so closely associated with “free markets.”  There is no coercion necessary at any point in the productive process, and property rights, including the basic right to the fruits of one’s labor, are universally respected.

It takes no monumental exercise of reasoning to see why capitalism has produced such enormous wealth so quickly wherever it has been practiced.  In a complex society of millions of people, with each person making the most advantageous exchanges of property that they can, and with an incentive to consume less than they produce in order to realize savings for either capital or future retirement, productivity soars.  Productivity in excess of what is consumed produces savings, or capital, which increases the means of production and results in even greater productivity.  This was the system that made the United States the wealthiest nation on earth in one short century.

As the fruits of one’s labor are necessary to sustain one’s existence, it is clear that property rights are the most basic, most important right.  If a person has a right to life, they must have property rights – a right to the fruits of their labor – or they cannot sustain that existence. 

To illustrate this point, let us consider the condition of man in the complete absence of property rights.  A moment’s reflection reveals that such a state is the very definition of slavery.  Perhaps because there are so many parties interested in deemphasizing property rights, our concept of slavery has become blurred in recent decades.  Mention slavery and the first images that arise in the minds of most people are chains, abuse, and poor living conditions.  Slavery is also often associated with captivity.  Certainly all of these horrors accompanied slavery, but they are not the essence of slavery.  The great majority of slave owners had no fascination with holding captives, nor were they sadistic monsters who enjoyed abusing people for their own amusement.  No, what the slave owner wanted was not a captive, but the free labor that he could extract from the slave without the slave’s consent.  This is the essence of why freedom and slavery are opposites – because freedom means sole ownership of the fruits of your labor, while slavery means the absence of ownership of the fruits of your labor.

The example of slavery also illustrates the fact that it is voluntary consent, not compensation, that is the fundamental basis of the free trade of property.  Obviously, we don’t consider volunteers at a charity event slaves, even though they are not compensated for their labor.  The distinction, of course, is that they have voluntarily offered their labor to the organizers without compensation in return.  This absence of voluntary consent is also the reason that we don’t call slaves “volunteers,” however much that euphemism might have eased the conscience of the slave owner.  Thus, the most accurate definition of slavery would be using coercion to obtain the fruits of a person’s labor without his consent.

Thus, in economic terms, we have two identifiable extremes.  Freedom is defined by the universal recognition of an unalienable right to the fruits of your labor.  In contrast, slavery is the complete absence of recognition to the fruits of your labor.  More than anything else, it is where a society falls between these two extremes that determines whether or not a society is free.

I would like to address a related topic for the purposes of refuting a common fallacy promoted by opponents of capitalism.  It is universally recognized that the United States was originally founded upon a governmental system that allowed for the most laissez faire capitalist system in the history of the world.  The economic freedom of the American system is truly what made it “the land of the free,” and the “land of opportunity.”

However, many of the founding fathers also held slaves, and certainly did not grant all of the rights to women that they granted to men.  This has been illogically argued by detractors of capitalism to insinuate that somehow the free market system that respects property rights is somehow related to slavery and discrimination.  This could not be further from the truth.  Rather than being a symptom or vital part of the system that the founders built, slavery and discrimination against women represented the founders’ exclusion of certain people from their system.  While this was certainly unjust, it is not an indictment of the system, but rather a weakness in the founders in choosing not to include everyone in it.

Logically, this bears out with a simple example.  If the founders had passed a law against murder, and then one of them had gone out and killed someone, we certainly would not condemn the law against murder, merely because one of its writers had broken it.  Similarly, the principles of liberty, free markets, and capitalism should not be condemned because some of our founding fathers chose not to follow them when dealing with some people.  We should condemn their personal weakness, but recognize the superiority of their system, and strive to see that everyone is given its benefits.

Having examined property rights and having learned that they are the basic building blocks of the “liberty” that our country was founded upon, it is probably obvious at this point why I began this chapter by saying that socialism, or even a “mixed economy,” violates the fundamental moral and economic principle of property rights.  Socialism does not recognize a person’s sole ownership over the fruits of his labor, nor his right to freely exchange those fruits with others.  In a socialist system, the fruits of labor are distributed by the state as the state deems fit, not by the free exchanges between their citizens.  Thus, their citizens do not enjoy the most basic right that makes them free. 

Even in a mixed economy, where citizens retain some property rights, some of the fruits of their labor are taken by the government and redistributed without their consent.  In the United States, this occurs through massive social programs like Medicare, Medicaid, Social Security, and Public Welfare.  While Social Security and Medicare are funded partially by the contributions of the beneficiaries, there is no effective controlling mechanism to distribute benefits proportionately according to contribution, although Social Security has a crude methodology attempting to do so.  More importantly, these programs violate the fundamental principle of consent.  The participants in the programs do not participate voluntarily, but under the coercive power of government.  Thus, ownership of the fruits of their labor is not respected in terms of the monies taken from them to fund the programs.

The violation of property rights does not stop with providing for the poor or elderly, but for corporate welfare as well.  In an attempt to “manage the economy,” public funds are also used by the government to bail out failed corporations that are deemed “too big” or “too important” to be allowed to go bankrupt.  This not only violates the rights of the people whose property is confiscated in order to underwrite these bailouts, but also causes distortions in the economy that we will look at more closely in a later chapter.  For our purposes here, it is another example of one person’s property rights being violated to benefit another, the very essence of socialism.

Rather than some type of compromise between freedom and slavery, which sounds bad enough, the mixed economy makes a more fundamental break with the principles of liberty.  In a mixed economy, the citizens no longer have an unalienable right to the fruits of their labor, or property rights, but rather have the privilege of keeping that property of theirs that the government doesn’t take by force.  We examined the difference between rights and privileges earlier.  Changing ownership of the fruits of your labor from a right to a privilege is a monumental change in the very principles that our society is founded upon.  It crosses the majority of the divide between freedom and tyranny.  The moral argument against socialism, or even a mixed economy, is that they both violate property rights, the most important, most fundamental right that people have.

It is also easy to see why even a mixed economy is not sustainable economically.  As it violates property rights on a regular basis, it is siphoning off the surplus productivity from those producing more than they consume and distributing those savings to those consuming more than they produce.  Thus, savings and capital are diminished at first, and eventually destroyed when the incentive to save is eroded.  In practical terms, the laborer of today no longer saves for his retirement, partly because he is unable to due to the sizeable portion of his property that is seized to pay the social security benefits of present beneficiaries, and partly because he knows (or at least believes) that future generations will pay those benefits for him.

One need look no further than the present state of the American economy to see this argument proven out.  After decades of growth of socialist programs like Social Security and Medicare, the United States has gone from being the world’s largest creditor to the world’s largest debtor.  Its people and its government are mired in debt, and its economy has a negative savings rate.  No longer is the American worker the highest paid or most productive in the world.  One by one, the United States has lost its dominance in almost every economic sector, no longer producing the majority of goods and services it consumes.  While our politicians may try to lead us to believe that economic cycles “just happen,” a sober look at the departure we’ve made away from the principles that made us the wealthiest nation on earth reveal the true reason for our economic decline.  The foundation of this departure has been our violation of property rights.