Socialism vs. Capitalism. State-owned means of production vs. private property rights. Free market exchanges vs. “from each according to his ability, to each according to his need.”
These are competing visions for society that have dominated political struggles for decades.
Because all economic goods – by definition – are scarce and thus limited compared to the number of needs they could potentially serve, multiple people will desire to lay claim to such resources at the same time. For instance, different farmers may have their eye on the same plot of land, one may be a tobacco farmer, another a wheat farmer, a third a corn farmer, etc.
The same concept applies to everything ranging from factory equipment to computers to cars, and includes both consumer goods and means of production.
The key question society must answer, then, is: What is the most fair and efficient means to address these competing claims over scarce resources?
Several methods are conceivable, primarily:
- First come, first served: whoever is first to claim or physically obtain the good gets to keep it
- Winner take all: there is a contest in which the winner is awarded control of their desired goods
- Lottery: there is a drawing to see who wins ownership of the goods in question
- Someone decides: an authority figure decides who gets what
- Need: an authority figure determines who is in most desperate “need” of the good
- Exchange of private property using freely adjusting prices
The first three of these options include luck or chance. If you happen to be closest to some valuable goods, you will be able to claim them before anybody else (think: being first in line). Likewise, winning a contest or lottery is mere chance.
Empowering a central authority to distribute goods by whim is highly arbitrary and unfair, while attempting to distribute by “need” also subjects distribution to the arbitrary definition of “need” by the authority figure. Concentrating so much power over scarce goods into the hands of a single person or committee invites corruption, as people are incentivized to bribe or threaten the decision-makers to obtain what they desire.
Moreover, we must take into consideration not only how to distribute the existing goods, but how these goods will be used and cared for going forward. Empowering individuals with property rights over goods and allowing them to freely exchange at prices they agree to is the fairest and most efficient means of confronting the issue of scarcity.
Private property implies that goods have an owner, and that owner is the one with just and legal authority to determine how that good is used. He can consume it, use it for productive purposes, stockpile it or trade it. One acquires rights over property thru voluntary exchange, whether those exchanges involve goods for goods, goods for money, or money for labor.
A system based on private property rights and free exchange provides a multitude of benefits for society and the economy. Foremost among them are:
- Peacefully settling conflicting claims on goods and resources. In a world of scarcity and multiple acting individuals, it is inevitable that disputes over the use of goods will arise. A system of private property is the best solution to settling these disputes peacefully. Two people can’t simultaneously use the same resource to accomplish their goals, or fulfill their needs. What happens when two or more people have conflicting desires to use a plot of land, or a computer, a car or a pound of sugar? Short of private property rules, competition over scarce resources could devolve into who can use the most force to exert their claim over goods to the exclusion of everyone else, arbitrary rules determined by a powerful authority, or games of chance.
- Formation of Price Private property is essential when it comes to interpersonal exchange and the formation of prices. Without clearly defined, stable and exchangeable private property, economic goods would be unable to acquire prices that reflect their relative scarcity. If people weren’t allowed to own goods and as such price them according to the quantity they own relative to the amount of demand there is for that good, then prices for goods would be arbitrarily set by a government agency and have little meaning. As a result, there would regularly be shortages and surpluses of goods in the economy.
- Efficient Use and the Preservation of the Value of Resources. Ownership of property ensures more careful use of it by the owner. There is an incentive to preserve the value and usefulness of property you own because you have a stake in its value and its ability to satisfy your needs. Conversely, there is an incentive to use up a commonly held resource before anyone else does. In short, when something is not owned by someone, it is not cared for as carefully and its usefulness is more likely to be used up quickly with no regard to the long term.
Government interference or failure to protect the institution of private property erodes the benefits of property rights. Confiscatory taxation, overreaching regulation, price setting, cronyism and all other sorts of government meddling harm the peaceful resolution of conflicting claims over scarce resources, and pit citizens against each other in a zero-sum game where the state takes from some and gives to others. Moreover, such government overreach and/or a failure to protect property rights hampers society’s efficient allocation of resources, lowering our standard of living – especially for the poor.