By Gordon Hull
I’m going to be teaching Harold Demsetz’s “Toward a Theory of Property Rights” (1967) tomorrow, and noticed a couple of things that I hadn’t before. I suspect they’re related, and say something about the moment the article appeared. At least, that’s what I want to propose here. To set it up: Demsetz is known for the theory that property rights emerge when it is efficient to internalize externalities. His example is land rights among Native Americans; he says that property in land increases with the arrival of the fur trade. Absent land rights, there was always a risk in overly intensive hunting occurring: without private property, it is in nobody’s interest to invest in the growth and maintenance of hunting stock. Before the arrival of Europeans, this was fine because there was no particular incentive to hunt too intensively. When the European fur trade arrived however, the incentives to intensive hunting grew, and property rights emerged as a management strategy. If I have to live with the consequences of depletion of the hunting stock on my land, I’ll have the incentive to manage it correctly. That, at least, is the story. It’s quasi descriptive in the sense that Demsetz thinks this is an explanation for why we have property regimes, and somewhat normative in that it’s clear between the lines that he thinks private property is a good way to go. Here’s the observations: first, the piece is heavily reliant on Ronald Coase, and second, although the narrative sounds like a tragedy of the commons narrative, it actually flies in the face of what Hardin was trying to do in that article.
The connection with Coase is most important when Demsetz relies on “The Problem of Social Cost” to dismiss questions about initial entitlements and distribution, and to argue that efficiency will be obtained through private bargaining. Referring to the military draft, he proposes that:
“The output mix that results when the exchange of property rights is allowed is efficient and the mix is independent of who is assigned ownership (except that different wealth distributions may result in different demands). For example, the efficient mix of civilians and military will result from transferable ownership no matter whether taxpayers must hire military volunteers or whether draftees must pay taxpayers to be excused from service. For taxpayers will hire only those military (under the "buy-him-in" property right system) who would not pay to be exempted (under the "let- him-buy-his-way-out" system” (349).
That is, and the requisite footnote to Coase occurs prior to the example, it is a matter of economic indifference whether you let people buy their way out of a draft, or if the military has to pay people to serve. Coase applied the problem to pollution: if a railway is polluting its neighbors, it’s a matter of economic indifference whether you give the railway a right to pollute and have the neighbors pay them not to or whether you make the railway pay the neighbors for the privilege of polluting. Leave aside the obvious objections for the moment, and call this the Economics Approach. As a later paper by Thomas W. Merrill and Henry E. Smith notes, this is a view of property that takes property as fundamentally about facilitating negotiations between specific individuals. In that sense, it’s not at all like a traditional, in rem property right.
The Tragedy of the Commons link helps to contextualize this choice. A communal right, says Demsetz, is “a right which can be exercised by all members of the community” (354); he cites hunting and walking on a public sidewalk. He then argues that such a right “fails to concentrate the cost associated with any person’s exercise of his communal right on that person” (354). This is because negotiating costs are high – it’s hard to reach agreement, because each hold out can continue to do what he wants; the costs of policing any agreement are themselves very high; and there is no way to factor future generations, because they have no way for their interests to be represented. A private property regime is said to ameliorate all of these issues. The framing, in other words, sounds like the Tragedy of the Commons narrative. Curious, I looked up the date for Garrett Hardin’s original piece – and it was 1968. But then when I went back and reviewed the piece, I was struck by how Hardin and Demsetz were in fundamentally different conceptual worlds.
Hardin is emphatic that the tragedy of the commons is not a technical problem, but a moral one. And it is driven by overpopulation. After citing Malthus, Hardin presents a version of what gets cashed out, very differently, by Parfit in Reasons and Persons: there are a finite number of resources, which means that the optimal size of the human population is not infinite. If that’s so, then “the optimum population is … less than the maximum” (1244) and there’s a nearly insoluble problem about how to reconcile the difference. The familiar narrative about over-grazing is Hardin’s lead example, but it’s not his only one. He also cites the tendency of cattle ranchers on federal land to demand rights to overgraze, ocean pollution, and overuse of National Parks. In other words, Hardin is addressing some of the same examples as Demsetz and Coase but he wants to insist that they be understood as questions driven by population.
Hardin thus argues at length that context and framing of the question matters; “analysis of the pollution problem as a function of population density uncovers a not generally recognized principle of morality, namely: the morality of an act is a function of the state of the system at the time it is performed” (1245). He later suggests that pollution isn’t so much a problem if a small number of people are dumping their waste into the water, because natural processes will clean the water. Pollution only matters when population density goes up. This is precisely what is not a part of the economic framing. As Merrill and Smith note, Coase makes a simplifying assumption in treating the pollution question as one of bilateral negotiation. This assumption has the effect of obscuring contextual questions, and it is these contextual questions that Hardin insists are essential in correctly understanding the pollution problem.
Indeed, Hardin argues that “we can make little progress in working toward optimum population size until we explicitly exorcize the spirit of Adam Smith in the field of practical demography.” Smith’s invisible hand has “ever since interfered with positive action based on rational analysis, namely, the tendency to assume that decisions reached individually will, in fact, be the best decisions for an entire society.” If that assumption is wrong, “we need to reexamine our individual freedoms to see which ones are defensible” (1244). Some sort of “coercive device” is going to be necessary (taxes? Direct regulation? He is agnostic) but does propose that “I believe it was Hegel who said, ‘Freedom is the recognition of necessity.’” (1248). Population growth presents an inexorable problem, and he continues that “the most important aspect of necessity that we must now recognize, is the necessity of abandoning the commons in breeding” (1248).
This is not the Tragedy of the Commons as it is usually excerpted! In fact, Hardin explicitly rejects treating the Tragedy of the Commons as soluble by Demsetzian property regimes (he does not cite Demsetz or Coase). That is, he admits that property regimes can solve some aspects of the Tragedy, but:
“The tragedy of the commons as a food based it averted by private property, or something formally like it. But the air and waters surrounding us cannot readily be fenced, and so the tragedy of the commons as a cesspool must be prevented by different means, by coercive laws or taxing devices that make it cheaper for the polluter to treat his pollutants than to discharge them untreated” (1245).
In short, Hardin wants to contextualize the economic framing. Demsetz’s appropriation of Coase tends to further decontextualize Coase’s move to drop contextual factors from the equation. Coase presents pollution as a matter of negotiating externalities and Demsetz follows his lead; Hardin says that even if property can help with a lot of things, it isn’t going to handle things like pollution very well.
So in 1968, there are a couple of competing narratives emerging about how to deal with pollution. One of them emphasizes management as a transactional question, best settled by an entitlement regime that tends to reward efficiency and negotiation. The other emphasizes top-down coercion and the importance of context. In her first book, Life as Surplus, Melinda Cooper traces the emergence of the bioeconomy out of perceived limits to the industrial economy of the early 1970s. In 1972, the Club of Rome was running simulations, and the results were not pretty:
“Repeated runs of the simulation program pointed to one constant: the exponential growth of population and industry could not continue indefinitely without running up against the limits inherent in the other variables under study – namely, agricultural production, energy supplies, and pollution” (16).
The response on the part of industry was to argue that a bioeconomy based on growth. Conservative theorists “pointed to the promises of biotechnology as a way of internalizing, and thus overcoming, all limits to growth – from the waste products of industrialism to the very finitude of earth” (18). As a result:
“With its promise of future surplus on earth and beyond, the postindustrial literature set the scene for Reagan-era science policy – a policy that combined virulent anti-environmentalism and cutbacks in redistributive public health with massive federal investment in the new life science technologies and their commercialization” (18)
This grounds Cooper’s thesis, that “the emergence of the biotech industry is inseparable from the rise of neoliberalism as the dominant political philosophy of our time.” (19).
In other words, the solution to the tragedy of the commons as Hardin presented it was to declare that the problem did not exist because we could in fact continue moving the goalposts on carrying capacity, production, and so on. As a response to Malthusianism, that’s fairly typical. But notice what else it does here: it allows for the Tragedy of the Commons to become what it is currently, a primarily economic problem.
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