Reading Demsetz’s “Toward a Theory of Property Rights” for class. Demsetz’s thesis is uncontroversial and, I find, a helpful analytical principle for understanding long-run changes in property rights. Property rights, he writes, develop to internalize externalities when the gains of internalization become larger than the cost of internalization. Or, in other words, private actors end up shouldering more of the costs of an activity when the costs to society of the private actor’s activity outweigh its benefits.
His thesis gains evidentiary support from the correlation between property rights in land and the commercial fur trade among American Indians. Absent property rights in land, hunters have no reason to moderate their hunting to a level that sustains animal populations over time. This is particularly so when the price outsiders are willing to exchange for furs is rising. To stave off the threat of resource depletion, hunters begin marking off land as “theirs”, and property rights in land are born*.
This story is one of the most popular defenses of property rights in land. In contemporary microeconomics, it gained credence under the name “Tragedy of the Commons”. The story Demsetz tells is difficult to refute on its assumptions. But, like much else in Econ 101, its assumptions are tenuous. Most glaring is its starting point: a society where laborers have a property right in the fruit of their labor. This personal property right is what incentives additional hunting activity in an era of rising prices. Where hunters have a property right in the animals they kill, property rights in land internalize the external cost of over-production.
Where there is no threat of over-production – for instance, where hunters do not have a property right in the animals they kill – property rights in land serve only to restrict the freedoms of non-landowners. Per Demsetz then, the property right would not develop. The decision to hunt falls upon some other entity that requires hunting as a productive activity rather than the private actor that views hunting as a means of personal enrichment. Perhaps a group of people dependent on hunting gather to make decisions about appropriate hunting levels and distributions. Perhaps they delegate that decision to a third-party in return for a legal claim on a portion of the animals hunted. The ways this could go down are many. I generally dislike meetings, so I would probably vote to delegate the responsibility.
It could be countered that hunting would grind to a halt where hunters do not have a property right in the animals they kill. To this, the experience of laborers in the United States is instructive. Despite having no enforceable right to the goods they produce, American workers regularly exchange the value of their labor for a 30-40% markdown that they can then exchange for means of survival in consumption markets. American capitalists then, having both a legal right to property and legal right to the fruits of labor expended upon that property, are tasked with internalizing the threat of over-production. Their record on this is decidedly negative.
There’s no grand conclusion here, not yet at least. Just a few observations.
*It’s unclear to me why the community that cannot police its members to not over-hunt can police its members to respect others property rights in land.