Theology and Economics: Property Rights (Part 2)

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 King's bench and, through a series of events, managed to establish an independent judiciary, grounding his case firmly in the Magna Carta. Everyone was subject to the law, from peasant to king, for the first time.

As the Church's hold on intellectual life in 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 of the more notable contributors. By 1790 there were three liberal democracies in the world: England, the 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 corporation's limited liability to individual investors. Investors were only 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 lose your possessions in a business venture but quite another to lose your freedom.

Another important innovation was the emergence of intellectual property rights like patents and copyrights. William Bernstein claims the first patent law was issued in Florence in 1474. (1) Evolving over time, intellectual property rights spurred innovation by ensuring inventors and other creative entrepreneurs that their 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 it and profit from it. Intellectual property rights guarantee inventors the control and distribution of the technology they create. They could retain the use of patents for themselves or lease their use. This set off a wave of some of the 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) Most commerce was primarily done by raising crops and livestock for consumption and trade. These required land. Certainly, there were other 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 everything. 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 continue to expand across the globe. (3)

Why Property Rights are Important

I opened yesterday's 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, some will be more gifted at, or more willing to do, productive labor. Those who are less efficient and productive have no incentive to improve. They benefit at the expense of the more productive. More productive people 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 the 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.

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Comments

[Nate]

Mike,

This is an interesting series. I am enjoying reading it. Thanks for putting forth such a detailed and consise arguement. However I have to object to how you explain Intelectual Property rights, and even honestly your use of the term Intelectual Property.

That term is a relativly new word and was crafted by people who are seaking to pervert how patents opperate in ways that criple the very trade and innovation that you cite as creating prosperity.

Patents were/are a trade off between inventors and the community. The inventor has to explain exactly how their invention works, so that other scientists can learn from and build off that idea, and the inventor gets a short term monopoly as compensation for sharing their work. Copyright works much the same way.

When the US constitution was written that term was set at 14 years. In the last 50 years that term has been extended repeatedly and retroactively. If patents and copyrights are a limited term monopoly to encourage innovation what encouragement is added by retroactivly extending them?

Instead these extensions have deeply restricted the ability of innovators to innovate. Larry Lessig gives a great talk on this.

RMS has written a very good article titled: Why the term 'intellectual property' is a seductive mirage

Andrew Jones is a creative commonist, as am I, any chance of you joining us?

[Michael Kruse]

Point well taken Nate. Thanks for the links. Clearly there is a considerable difference between patents, copyrights, software code, trademarks, and such. In the historical sense, I think it may make sense to group these together only in so far as they reflect the historical novelty of granting property rights for intangibles. But I certainly agree they serve distinct functions.

Patents and copyrights originally emerged to help protect creative people’s work from powerful interests that might appropriate them and profit from them. The restrictions were intended to insure that creative people and enterprises had a fighting chance of financially benefiting from their creative efforts, thus encouraging creative activity. In more recent years, I think a case can be made (as is made at your links) that the balance has turned to where these rights are often used to stifle creative work not enhance it. I don’t know that I am ready to claim the label commonist but I do think major reform is needed.

Jones post asks “Would Jesus charge a fee for his Beatitudes podcast?” Interesting question. Scholar Kenneth E. Bailey notes that Jesus was a rabbi and did not write anything down. It was likely thirty years before folks began to compile his stories. Why? Bailey says that rabbis typically did not write down their teachings because as soon as they did the teachings were out of his control and wide open to amendment and error. By teaching his disciples orally and rigorously having them memorize the stories the rabbi could retain better control of his teaching. Only when the disciples realized that Jesus was not returning as soon as imagined and the church was rapidly expanding, did they confront the need to write down what was said for wider distribution. He didn’t charge for his stories put he did try to control the channels of distribution.

Thanks again. You have given me some good stuff to ponder.

[Nate]

Mike,

I think patents have a real place in encoraging innovation. My experiance has been they are being granted in really stupid ways ... for example there are companies that file patents for ideas that might pan out - loads of them - and then sit on them ... waiting for some other company to actually craft a product that uses it and then wait for it to get popular before they sue for a cut of the profits.

So I think there is a lot of real reform questions to think about. I also think there is a more basic question to ask about non-tangable property ... does your basic theory of the nature of property apply when you innovate on top of someone else's work? Does property work for things that can be copied without friction? I am not convinced it scales ...

The other question that comes up when you talk about property in the digital age is the question of DRM and licensing. When you purchase a cd do you own it? The MPAA and others would tell you, you actually have purchased a license to use that CD is certain ways ... and only in the ways they proscribe. DRM enables these kinds of shifts.

If you are developing a theology of Economics do you think such actions are moral? Do you think you could wrestle with some questions like that later in your series ... I think I would find that enlightening.

Thanks again for everything,

Nate

[Michael Kruse]

Nate,

This is a fascinating topic. I worked in an boutique investment banking firm in the early 1990s (pre-web browsers) that was starting a business retrieving and repackaging info for high end business clients. Ten years ago I was completely submerged in these issues but I confess I have not stayed as on top of it in recent years.

The information, publishing, graphics and software industires are the wild wild west right now and I expect they will be for awhile. Digital storage and internet access has blown the old order away. This is probably beyond the scope of this particular series but I think some posts on the ethical aspects of what you are talking about might be something I could jump on later. Right now I am struggling to keep on top of all I am doing now as I get ready to head out of town for a week in mid-June.

I really appreciated the links you gave in your earlier comment!