Renaissance to Enlightenment
The progress of property rights was slow from the time of the Magna Carta to the seventeenth century. Over the centuries, the Magna Carta came to be taken for granted as the basis for English government. The next significant leap came in the late sixteenth and early seventeenth centuries with Sir Edward Coke. Coke had been made justice of the Kings bench and through a series of events managed to establish an independent judiciary, grounding his case firmly in the Magna Carta. For the first time, everyone was subject to the law from peasant to king.
As the Church’s hold on the intellectual life Europe weakened, new thinkers arose providing a more thoroughly developed rationale for property rights and liberal democracy. John Locke (1632-1704), Adam Smith (1723-1790) and Thomas Jefferson (1743-1826) are among some the more notable contributors. By 1790 there were three liberal democracies in the world: England, United States of America, and Switzerland.
Another important innovation, evolving first in Italy and later in Holland and England, was the idea of the corporation. Corporations allowed for the amassing and investment of large sums of capital. (More about this later.) The more important feature was the limited liability the corporation afforded to individual investors. Investors were only held liable for the amount they invested in a given enterprise. Creditors were prohibited from coming after personal assets when corporate enterprises failed. Similarly, debtor’s prison was eventually abolished, removing a major obstacle to entrepreneurs taking business risks. It is one thing to loose your possessions in a business venture but quite another to loose your personal freedom.
One more important innovation was the emergence of intellectual property rights like patents and copyrights. William Bernstein claims that the first patent law was issued in Florence in 1474. (1) Evolving overtime, intellectual property rights spurred innovation by insuring inventors and other creative entrepreneurs that there often arduous efforts would be financially rewarded. Without such rights, an inventor could spend years developing and perfecting a technology, only to have someone steal the technology and profit from it. Intellectual property rights guaranteed inventors the control and distribution of the technology the created. They could retain the use of patents for themselves or lease their use. This set off a wave of some of most creative endeavors in the history of humanity and was one of the key ingredients of the Industrial Revolution.
Industrial Revolution and Beyond
William Bernstein points out that up until 1800 property was virtually synonymous with land. (2) The primary way most commerce was done was raising crops and livestock for consumption and trade. These required land. Certainly there were other types of occupations but they made up a small part of the total economy. The amassing capital and its productive employment since the Eighteenth Century has changed all that. Land is now only a very small part of the economy. Over the past two centuries we have witnessed ever greater elaborations of property rights as the nature of property has radically changed.
Bernstein noted that there were three liberal democracies in 1790. By 1900 there were thirteen. Sixty years later there were thirty-six. He estimated sixty-one in 1990. Despite occasional setbacks, the valuing and protection of property rights continues to expand across the globe. (3)
Why Property Rights are Important
I opened yesterdays post with this quote from Bernstein:
Without property rights and civil rights, little motivates the inventor or businessman to create and produce beyond his immediate need. (4)
No economic system where property has been held in common has led to widespread sustained prosperity. Within any human community there are going to be some he are more gifted at, or more willing to do, productive labors. Those who are less efficient and productive have no incentive to improve. They benefit at the expense of the more productive. Those who are more productive receive no additional benefit for their better than average production and eventually see no reason to be as productive. Productivity sinks to the level of the least productive members.
Private property rights make it much more probable that someone will receive just compensation for their work compared to others who do similar work. Risk takers are motivated to take greater risks because they can be assured they will reap the rewards of their efforts. Thieves or government entities will not deprive them of new wealth they create. To many of us today, this seems so “ho-hum.” Yet it is only within the last couple of centuries that entire societies could take such thinking for granted, if indeed they can now. Property rights have been at the core of the unprecedented prosperity of recent centuries.
(1) William J. Bernstein, The Birth of Plenty: How the Prosperity of the Modern World was Created, New York: McGraw-Hill, 2004. 83.
(2) Ibid, 90.
(3) Ibid, 71.
(4) Ibid, 52.