Freeman

ARTICLE

In Defense of Property Rights and Capitalism

Capitalism is the political manifestation of the human condition.

JUNE 01, 1993 by TIBOR R. MACHAN

The concept of freedom, in its socially relevant sense, means the condition of individuals free from aggression by others.1 This is the political freedom of the unique American political tradition. It rests on the recognition of every individual’s equal moral nature as a self-determined and self-responsible agent, regardless of admittedly enormous circumstantial differences.

By political freedom I mean that no one is an involuntary master or servant of anyone, including the government. In short, when the consent of the governed is the reigning principle, political freedom exists; when it is compromised, political freedom is in peril. Economic freedom implies freedom of trade, in the classical liberal tradition of political economy.

To understand the nature of free trade, one must note first of all that it is logically dependent on the principle of the right to private property. One cannot trade if one does not own anything. Oddly, Karl Marx clearly identified the function of property rights: "the right of man to property is the right to enjoy his possessions and dispose of the same arbitrarily, without regard for other men, independently from society, the right of selfishness."2

Marx focused on the worst-case scenario, but one should not do that when considering the characteristics of a system of principles. Of course, the right to private property makes free trade possible and thus leaves one free to dispose of one’s possessions irrationally. But it also leaves one free to act and trade in accordance with the best judgments one can form—something Marx did not mention. Marx gave us just a fraction of the story. Private property enables one to dispose of one’s belongings either responsibly or irresponsibly, so that trade can yield both worthy and unworthy results. Yet, precisely because it is private property, acting in a fashion that brings unworthy results will be less likely, since the harm will first of all befall the owner, not others. Property discourages irrationality and encourages rationality.

It bears noting that most prominent and articulate contemporary defenders of capitalism are economists. This creates a misimpression. Economists study the way the free market satisfies human desires, but they ignore the nature of those desires. They do not concern themselves with whether the market may be morally justified, whether it is an institution basically in line with human moral values. Economists focus on explaining, describing, and predicting the ways of a free market. They insist that economics is value free.

When the most prominent advocates of the free market are economists, it appears that nothing other than efficiency matters about the marketplace. But, in fact, there are certain normative or ethical features of the free society that an economic analysis of free markets leaves unmentioned. This would not be a problem if economists were not the virtually exclusive defenders of the free market.3 But the market rests on institutions and ideas that are ethical in nature.

Freedom of trade presupposes property rights. If no such rights exist, then there is no need for or opportunity to trade. People could just take from others what they want and would not need to wait for agreement on terms. Or, alternatively, if everyone owned everything, no one could ever trade. Everyone’s permission would be required for every transaction.

For individuals and voluntary associations, such as corporations and partnerships, to set terms of trade presupposes the authority to make decisions about property. That is indeed a moral precondition of a free market, not a purely "descriptive" one.4

The moral nature of property rights should be clear enough: If I own something, that means that others ought to refrain from thwarting my choice of what to do with it. I am the one who is authorized to set terms, not others. (This is why theft is a vice!) This is a moral issue because it involves considerations of what persons ought to do.

And, not surprisingly, critics of a free society seem to know all this. They capitalize on the fact that economists are reluctant to discuss ethical issues by suggesting that something is amiss in their theory. What critics don’t realize is that precisely because of this value component at the base of market economic theory, the system is demonstrably sound and much of what economists say about it is right.

If economists who defend the marketplace admitted that at its base we find certain assumptions as to how individuals ought to act and what governments should uphold, they could still proceed to carry on with their analysis of how such a system works and why it produces more efficiently than all others. This would leave open the question as to whether those basic assumptions are sound. Even if they turned out not to be, the economist could insist that the business of economics is to study market processes and others should take on the task of figuring out whether alternatives to a market economy might be preferable for other than economic reasons.5

I have noted that the principle of property rights underlies the market. What are property rights? They are necessary preconditions of genuine free trade and thus of a free market.

Certainly there are numerous societies in which conditions resembling a structure of property rights are evident—we might call them a structure of property privileges. In these societies persons are permitted, within certain limits, to hold and trade goods and services, although the government—the local Coastal Commission, the Federal Communications Commission, the king, or some other powerful group or person—can legally revoke the privilege. In such societies there is no genuine free market. They have what resembles free markets in the same way a sophisticated zoo can resemble the actual wilds, or some parents give children limited personal responsibility. And, of course, the more such privileges become entrenched and depended upon, the more the market will exhibit the tendencies we expect in a free marketplace. In any case, the right to private property needs now to be considered in some detail, since it is the bedrock of economic freedom. We are interested here in the way human freedom relates to economic freedom.

The Right to Private Property

Human freedom, as understood within the American libertarian political tradition, is inseparable from economic freedom and the principle of the right to private property.

Why is this so?

Political freedom, as we have seen, means not aggressively intruding upon one another. We have also noted that this is a crucial requirement of human dignity, the opportunity to aspire to moral excellence. What has not been brought out in this discussion is that any opportunity must have a sphere or realm. Making moral choices requires that one have room for making them—to use Robert Nozick’s phrase, it requires "moral space."6

Very plainly put, the principle of the right to private property serves the purpose of always translating the freedom of self-responsibility into realistic, concrete policies. To the extent that a human polity must be focused on securing the opportunity for individuals to pursue "the general welfare"—and insofar as the human good must be achieved by all individuals on their own within a concrete realm of jurisdiction or "moral space" — a good human community must secure for all persons such realms of private jurisdiction. The law of property would be that branch of legal theory which would develop the method for securing for all their proper domain of authority within a highly complex society, one in which what belongs to someone can range from a horse to a sophisticated chemical formula to a musical arrangement.

To the extent that the law of property is not guided by the principle of the right to private property, it departs from this objective. But, of course, the main question that faces us in this connection is how to determine the parameters of the domain of personal authority and thus assign protection to just that set of items or property?

This is a very complex issue indeed. Locke’s labor theory of property is not adequate as an answer because it is not clear what can count as "mixing one’s labor" with nature. Ideally, if we were to start from scratch, the entrepreneurial theory of property would be best. Described by James Sadowsky, this line of analysis supports the conclusion that "The owner of property performs an entrepreneurial function. He must predict the future valuation that he and others will make and act or not act accordingly. He is `rewarded’ not primarily for his work, but for his good judgment."7

This is consistent with an earlier point we raised, namely, the basis of personal moral responsibility. That basis is in one’s fundamental choice to think or not to think, to exercise one’s rational capacity, one’s faculty of reason. Since morality presupposes choice, and since all persons are free primarily in their use of their minds, the source of moral merit is, as Sadowsky put it, good judgment. A rational creature would be expected to excel precisely in proportion to his willingness to live by good judgment, and when this good judgment is made with reference to matters of prosperity, it is no less meritorious than when it is made with reference to hygiene, truth-seeking, family matters, career, or politics.

Economic freedom is a necessary but not sufficient condition of human excellence. It is a prerequisite of human dignity. It is indispensable for moral agents who must make their way in life in the context of a world the various parts of which may be controlled by different individuals. So as to make certain that each individual has a reasonably clear idea of what parts of reality are within his or her jurisdiction—so that he has, as it were, his moral props in clear focus—a system of private property rights is necessary. Such a system preserves the moral independence — though not, as caricatured by Marx and many others, the social autonomy—of everyone.

Capitalism and Morality

Statists of all stripes have been very eager to undermine the moral legitimacy of capitalism. Economic defenders of the system have tended to avoid the argument, maintaining that on the whole the capitalist system produces greater wealth than do others, a result which everyone seems clearly to prefer.

But this defense is inadequate. We can easily think of circumstances when considerations of prosperity must be traded off so as to achieve other values. We know that no expense must be spared when aiming for some goals. Some economists duck this fact by engaging in economic imperialism, holding that since all values are reducible to wealth, all trade-offs are economic.

But this is not so. Friendship is not mainly an economic value—if one were to trade it for, say, a raise in pay, one would be acting unethically, not simply losing some valued items. A betrayal will not qualify for an exchange of economic values.8

Because the economists have tied their hands about morality, capitalism has been under fire from all sides. It is really something of a tragedy that the most humane, most productive, and most benign system of human economic arrangements would be the target of some of the most morally reprehensible critics—terrorists, Marxist-Leninists, fascists, et al. But, to quote Shakespeare, "Wisdom and goodness to the vile seem vile: Filths savour but themselves."9

Consider some typical and oft repeated charges against capitalism:

1. Capitalism is anarchic.

2. Capitalism produces waste and trivia.

3. Capitalism caters to the base within us.

4. Capitalism neglects the poor.

5. The workers under capitalism are exploited.

6. The wealthy under capitalism gain special protection against adversity.

7. Capitalism destroys the fine arts.

8. Capitalism threatens the environment.

One could go on, especially if one included charges which are leveled with a particular axe to grind, e.g., about inequality of wealth, the disparity of wages paid to different segments of society, and so forth. But these charges presuppose the normativity of human economic equality, something that rests on intuition rather than argument.

Let us take some time here to respond to some of the moral criticisms of the free market capitalist system. We will see, I think, that in preserving human freedom, especially in the context of commerce, capitalism not only escapes being responsible for moral shortcomings but actually facilitates moral excellence throughout a culture.

Capitalism and Human Excellence

The alleged anarchism of capitalism rests on the view that when free trade or exchange reigns—i.e., producers can freely attempt to interest consumers in their wares, while consumers can freely choose to spend their earnings on items they wish to have—this must result in reckless disregard for what is of real importance in human life.

The charge is plausible, because in a free marketplace there is ample opportunity for producing and consuming trivial and even morally odious goods—e.g., pet rocks and pornography—as well as plenty of evil production and consumption. The charge, made by Marxists and conservatives alike, is strengthened by the fact that the alternative offered is always some vision of perfect order—e.g., humanity fully matured in some distant future (Marx) and society well governed by wise leadership (Plato and George Will).

But the reality is that markets are not anarchic but merely reflect the human situation. We are not guaranteed the company of wise and virtuous fellows. We can only choose what we will do about their presence in the neighborhood. We can trust in the illusion of some future paradise on earth or in the guaranteed, long range superiority of certain persons, both of which are fantastic. Or we can try to make sure that the effects of other people’s foolishness and vice will be limited to their own domain. A system of private property rights can do this better than anything else.11

As for the second objection, capitalism does at times produce waste and trivia. But it produces immensely useful items as well, more so than any other system. From the mass production of stereo equipment and prints of the best of mankind’s artistic achievements, to hospital instruments and special nutrition for those with health problems, capitalism especially serves the unique, because its method of production guided by the price system informs producers of needs better than any other method.

Moreover, what may seem trivial to some people can be of immense value to others. The reason this is overlooked is that even today many people fail to accord proper standing to individual differences. Thus while most of us may find the various items in tourist traps useless, there can be individuals to whom these can be of value.

As to the pornography or prostitution which could exist in a pure capitalist system, it is not something that need be rationalized away as wonderful (since there is a demand for these, and the consumer is king).12 It is possible to combat them on the personal, social, and cultural levels (through the comic arts, editorials, pulpit, and so forth). Capitalism does not just protect the freedom of the base but also that of the noble. It is a prejudice to hold that the market caters to our baser self. Capitalism, by encouraging the rational and responsible use of property, actually ameliorates vices like greed, envy, and dishonesty. It is planned economies in which those vices are rife.

As for the poor and the workers, the treatment of workers under early industrial capitalism was not as harsh as the Marxists have alleged. It is true that England at the end of the eighteenth and the beginning of the nineteenth century was rather different from the ideal situation. But the extent of the misery after the introduction of more or less free economies has been grossly exaggerated.

There would have been even greater misery had this system not been introduced. This leads us to believe that there was something radically wrong before the change that has never been given the proper attention. While most of the frightful restrictions on economic action were removed, many of the enormous feudal land-holdings were left untouched in the name of respect for private property.

As we know, these holdings were mostly the result either of conquest or state land-grants. It is highly dubious that these holdings could ever have attained their size on the free market. Justice would have dictated the division of these lands among the agricultural workers. Unfortunately this was not done. The result was that a few individuals had votes in the market far beyond their due and were thereby enabled to determine the course of events.13

With this power at their disposal, it is not surprising that "capitalists" enjoyed special advantages. But to mistake this for a typically capitalist situation is a serious confusion.

There is another error underlying the charge that capitalism leads to worker exploitation. This is that workers are helpless creatures. The market, however, makes it possible for workers to improve their lot.

Marx was influenced by Thomas Malthus’ view that the working class will multiply far more rapidly than the income it can generate will support, thus workers will be more and more exploitable, given how plentiful they are. Malthus has been refuted both in theory and by history—the enormous number of working people in the world have frequently enough found themselves very productively employed, usually when markets were more than less free, when governments did not distort the principles of free trade by domestic and international violation of individual rights. In addition, Marx had little confidence in human creativity and entrepreneurship. Thus he did not make sufficient room for a sustained rise in the demand for goods and services, based on what human beings could both invent and learn to enjoy or use. The work force in a capitalist society is, therefore, far from easily exploited. Indeed, it is insulting to workers to think otherwise, and Marx (and later Lenin) had a low opinion of ordinary human beings.

Finally—and this is most difficult for some to fathom—many who are allegedly exploited among the workers have placed themselves in a position of weakness. They failed to develop their skills and talents, so they must take what they can get of limited jobs for the unskilled. They should in fact be grateful that someone will provide them with opportunity, not protest that they are being mistreated. To proclaim that workers are always exploited, as a class, is to show that one is wearing ideological blinders and is really not very familiar with actual persons in the labor force.

The next charge against capitalism is that it favors the wealthy. In a free society where no special legal privileges are permitted for anyone and where government is restricted by constitutions from regulating economic affairs, the wealthy have only those advantages which come from wealth. These involve the greater ability to purchase various goods and services offered on the free market, an advantage that in a constitutionally limited government does not include political power. Furthermore, wealth gives some only one type of advantage. Personality, character, talent, good will, perseverance, and hard work can often result in far greater success than wealth.

Marx has tried to discredit the claim that it was governments in the past — feudalist, mercantilist—which gave lopsided advantages to some select people. When the large joint stock companies had been established, governments clearly favored them, so that nations might gain wealth, although this proved to be a rather frail strategy. In any case, without going into the historical record of why some firms managed to exercise undue power in the market place—namely, because of their special legal privileges—we can point to some matters everyone can testify to. Mostly we can note that in the United States, which has had the greatest degree of capitalism in human history, the positions of the wealthy and the poor are not held by one single class or select few. Rather these positions are in constant flux—or at least this has been so in the past, prior to the onset of the massive welfare state—far more than under any other system. This seems to suggest that the wealthy under capitalism have less political or legal power than in other systems.

The charge that capitalism destroys the fine arts because it makes mass culture dominant is also unfounded. Because of the "noise" of popular culture, the fine arts may not be so visible as are rock and roll, television, and popular literature. But in total quantity, never have so many listened to, viewed, and otherwise experienced so much of great artistic achievements as in capitalist or near-capitalist societies. The mass production of the arts, indeed the finest of them, proves this beyond any reasonable doubt.

As to capitalism’s impact on the environment, there is no other system that makes a better effort to avoid the tragedy of the commons, the source of all environmental problems. This is because under capitalism property is privately owned. Any use of property to the detriment of neighbors would be legally actionable as a form of dumping, trespass, assault, invasion, and so forth. When privatization is impossible or technically infeasible, there would be personal injury provisions against pollution. Any activity that isn’t peaceful in this sense would have to be prohibited, no less than rape or assault is now.

Indeed, the most effective environmentalist public policy flows from a system of private property rights in which both persons and property are supposed to be protected from invasion.14

Final Reflections on the Value of Free Markets

It is true that human beings are not perfect. To try to force them to be perfect is futile. Herbert Spencer was dead right when he observed that "The ultimate result of shielding men from the effects of folly is to fill the world with fools."15 A sign of our imperfection is that we keep returning to the failed effort to perfect one another.

To ask that government, for example, attempt to cure us of our imperfection is to show that one isn’t willing to live by one’s own evaluations: If the world needs improving, the proper approach is to use whatever skill one has to remedy matters. Censors should try their hands at writing better literature. Critics of waste should produce things of value. Those who fear the base within us should turn to moral education as a way to help out. Those who sympathize with the "exploited" workers might help by becoming one and seeking remedies.

Capitalism is the political manifestation of the human condition: We are free to do good or evil, and in society we need to keep this in mind. The free market, through the principle of the right to private property, helps us keep this in mind—indeed, institutionalizes it through the law of property.

Democracy itself, which is so much prized even by outspoken critics of the free market, would be impossible without meeting the preconditions of the marketplace. This is because democracy requires some secure realm of personal jurisdiction or authority for those who are asked to make their views evident by way of the vote. They need to know that if they are a minority, they will not be at the mercy of vengeful victors who deprive them of their lives, liberty, and property. In short, a democratic polity cannot function without capitalism, the system in which private property rights are protected. []

Notes

  1. I discuss the different kinds of freedom that are of concern to us in my paper, "Two Senses of Human Freedom," The Freeman, Vol. 39, January 1989, pp. 33-37.
  2. Karl Marx, Selected Writings (Oxford University Press, 1977), p. 53.
  3. I have in mind such eminent economists as Milton Friedman, James Buchanan, Gary Becker, and the late George Stigler, F. A. Hayek, and Ludwig von Mises, all of whom stress those aspects of the free market that pertain to its efficiency and eschew concern with whether the system is indeed in accord with, for example, prudence and justice.
  4. Some argue that rights should be thought of as meta-normative principles in that they do not directly bear on how one ought to conduct oneself but on the conditions required by everyone in a community for making the choice about how to live. See, for more on this, Douglas B. Rasmussen and Douglas J. Den Uyl, Liberty and Nature, An Aristotelian Defense of Liberal Order (La Salle, Ill.: Open Court Publishing Co., Inc., 1991).
  5. Something along these lines applies to any applied science; e.g., engineering or building construction. They assume that what is to be done is morally justifiable, though it isn’t their province to dwell on that issue.
  6. Robert Nozick, Anarchy, State and Utopia (New York: Basic Books, 1974), p. 57.
  7. James Sadowsky, "Private Property and Collective Ownership," T. Machan, ed., The Libertarian Alternative(Chicago: Nelson-Hall, 1974), p. 123.
  8. Democritus of Abdera wrote: "The same thing is good and true for all men, but the pleasant differs from one and another." Quoted in Barry Gordon, Economic Analysis before Adam Smith (New York: Barnes and Noble, 1976), p. 15.
  9. King Lear, Act IV, Sc. II.
  10. This doctrine has gained considerable support at the hands of John Rawls, A Theory of Justice (Cambridge: Harvard University Press, 1971), in which the role of moral intuitions as the central feature of the foundation of political justice is vigorously endorsed.
  11. Some of this is implicit in the Austrian economists’ famous discovery of the calculation problem under socialism. See Trygve J. B. Hoff, Economic Calculation in the Socialist Society (Indianapolis, Ind.: Liberty Press, 1981). The discovery of serious difficulties with a common ownership policy should be credited to Aristotle (Politics, Book II, Ch. 3, 1261b34-1261b38). Another version of the point is made in Garrett Hardin, "The Tragedy of the Commons," Science, vol. 162 (1968), pp. 1243-48. Perhaps there is yet another expression of this same difficulty, in connection with the various impossibility theorems showing that rational public choice is not possible in a fully democratic society, one in which citizens may demand the satisfaction of their desires from the government. See Kenneth J. Arrow, Social Choice and Individual Values, 2nd edition (New York: Wiley, 1963). See my "Rational Choice and Public Affairs," Theory and Decision, vol. 12 (September 1980), pp. 229-258, as an attempt to spell out the criteria by which we should determine whether something falls within the public domain and is, thus, subject to public policy decision making. I develop this line of thinking further in Tibor R. Machan, Private Rights, Public Illusions (New York: Transaction Books, forthcoming).
  12. Walter Block’s book Defending the Undefendable (New York: Fleet Press Co., 1976), which is argued from a free market perspective, makes it appear, quite mistakenly, that nothing else but coercion constitutes evil conduct. Clearly, however, one can betray friends, debase an ideal, lack courage, act imprudently, and do all kinds of moral wrongs without coercing anyone. Even some of the practices that may appear to be justified rebellion, such as littering, could turn out to be mere slothfulness or at least lack of civility in others. The defense of human liberty does not require abandoning moral standards—quite the contrary: It is in part so as to enable us to invoke moral standards freely, without regimentation from others, that freedom is vital to everyone.
  13. Sadowsky, p. 124.
  14. For a more detailed treatment of this issue, see Tibor R. Machan, Private Rights, Public Illusions, Chapter 8.
  15. Herbert Spencer, "State Tampering with Money Banks," Essays (1891).

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