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iPods and property rights

You’ve just turned 8 years old, and you receive an iPod Shuffle from your mom and dad. You and your older brother board the bus to school, and when the bus pulls away, your older brother takes the iPod and won’t let you have it back. Why do you deserve to get it back? Because it was yours. Mom and Dad bought that with you in mind as the recipient.

So you get home and immediately tell your parents that Josh took your iPod on the bus that morning and won’t give it back. And it doesn’t take long until that word comes up … you know … that word: “share.” Why on earth must I share?

Truth be told, we get older and we still ask that question. As a matter of fact, the topic of sharing has become a major divide between the right and left regarding matters of policy. Should the rich share with the poor? Should company owners share more with their employees?

Let’s discuss the idea of property rights and the centrality of property rights in a world of freedom. The existence of property rights does not negate sharing as a good thing. If nothing else, it’s just plain polite – for instance, to share your dishes when guests come over for dinner. Try asking them to bring their own plates next time, just because you believe in property rights. That would be funny.

So here’s the deal: Property rights are an important ingredient for freedom because (1) Ownership is woven into the fabric of human nature; (2) property rights encourage trade and economic development; and (3) property rights are the most peaceful institution for a civil society and provide clarity to the rule of law.

1. Ownership is woven into the fabric of the natural man.

There is a reason your default reason for your brother to return the iPod was that it’s yours. Here’s the logic of the argument: (a) He knows that you were the iPod’s intended recipient; (b) you know that you are the iPod’s intended recipient; (c) intended recipient equals owner of the iPod; thus (d) you and he both know you are the owner of the iPod.

But here’s the quirky part: You intuitively know that for him to take something that isn’t his is wrong. You both know it. (He probably did it just to do what big brothers do: make the younger brother upset.) It’s intuitive; you can’t help but know that to take what doesn’t belong to you is wrong. 

Frédéric Bastiat, a French philosopher, regarded private property this way:

“Life, liberty, and property do not exist because men have made laws. On the contrary, it was the fact that life, liberty, and property existed beforehand that caused men to make laws in the first place.”
—Frédéric Bastiat

What does this mean? It means that man has always had a sense of ownership. It’s innate in a human being to own, manage, and grow his or her property. This is a fundamental aspect of freedom.

2. Property rights encourage trade and economic development

Perhaps the most obvious advantage to property rights is their resulting economic growth.

Let’s imagine two scenarios: One where property rights do not exist, and one where they do, and see what we can infer about their economic advantages.

A. Imagine a lake that “everybody owns.” The lake is full of trout, and thus attracts local fishermen. Fisherman A arrives first, catching a great share of the fish. Fisherman B, arriving a close second, also collects a great deal of fish. This continues until Fisherman E and F come along and notice they caught fewer fish than Fishermen A-D. As a matter of fact, the water looks disgusting, being polluted with gas and oil.

What happened? We call this the “tragedy of the commons.” When “everyone” owns something, reality is nobody owns it. This is because of the incentive being offered to the fisherman in this condition. The only incentive offered to the fisherman is to be the first one and to catch the most fish. There are few incentives to preserve the lake’s water quality or fish population, because the time it would take to manage those things would prevent you from catching a good share of the fish.

B. Now imagine a Fisherman A buys a lake instead. The lake is known for a great deal of trout and again, attracts other fishermen. Fisherman A has two options now: (1) prohibit any other fisherman from fishing on her lake and enjoy the rewards of the entire fish population, or (2) collect rent and allow other fisherman on the lake for a price.

In either case, Fisherman A has the incentive to maintain water quality and fish population to gain maximum benefits from the fish or maximum profits from the rent.

One more example and I will close this section. Adam Smith promoted an idea he called the “Diamond-Water Paradox,” which illustrated how supply and demand determine the value of a thing. It goes like this: If you have a well in your back yard, and a man dying of thirst comes to your door and signals a desire for water in exchange for a pocket full of diamonds, you would be quick to make the deal. How amazing that a man would pay so much for a simple glass of water. (Are you thirsty now? I am.) But if property rights were not established, the trade couldn’t take place. If all things were common, my village may have dried up the well before the man who wanted it most came to my door.

Economics is the science of allocating scarce resources against unlimited wants, and to do this properly, property rights must be present.

Still with me? One more…

3. Property rights are the most peaceful institution and provide clarity to the rule of law.

As we look at property rights, we see a historical shift in the advancement of peace through trade. No trade can happen if it is not perceived to be mutually advantageous. Taking human nature into account, yes sometimes bad deals take place and false promises of benefit are made before the transaction. But the deal cannot take place unless both parties involved have a perceived sense of satisfaction.

This has replaced the tragedy of the commons as stated above, and the savage nature which so often resembles animals competing over a kill. Trade is peaceful, productive – and impossible without property rights.

Property rights also increase peace by establishing clarity in the rule of law.  For example, when two businesses are at odds on a deal, the rule of law can clarify the ownership of each company in the deal at stake, and thus award or punish each company accordingly.

Property rights are an inherent and fundamental unit for a free society because they are established in the natural man (i.e., exist outside of law), increase economic value and trade, and preserve peace through trade and the rule of law.

So next time your brother takes your iPod, or a distribution-of-wealth dispute comes banging at your door, remember what you’ve learned here.

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