Private Property

GabeEconomics(ML), Mini Lessons

From Common Sense Economics: What Everyone Should Know about Wealth and Prosperity eBook:

Well-defined and enforced property rights are crucial for the realization of gains from trade. Property is a broad term that includes ownership of labor services, as well as physical assets such as buildings and land. Private ownership of property involves three things: (1) the right to exclusive use; (2) legal protection against invaders—those who would seek to use or abuse the property without the owner’s permission; and (3) the right to transfer (sell or give) to others.

Private owners can decide how they will use their property, but they are held accountable for their actions. People who use their property in a manner that invades or infringes on the property rights of another will be subject to the same legal forces that protect their own property. For example, private property rights prohibit me from throwing my hammer through the windshield of your automobile because if I did, I would be violating your property right to your car. Your property right to your automobile restricts me and everyone else from its use (or abuse) without your permission. Similarly, my ownership of my hammer and other possessions restricts you and everyone else from using them without my permission.

The important thing about private ownership is the incentives that flow from it. There are four major reasons why the incentives accompanying clearly defined and enforced private ownership rights propel economic growth and progress.

  • First, private ownership provides people with a strong incentive to maintain and care for items that they own. …
  • Second, private ownership encourages people to use and develop their property in ways others value highly. …
  • Third, private ownership makes owners legally responsible for damages imposed on others as the result of how their property is used. …
  • Fourth, private ownership promotes the conservation of resources for the future, as well as wise development. …

For centuries pessimists have argued that we are about to run out of trees, critical minerals, or various sources of energy. Again and again, they have been wrong because they failed to recognize the role of private property. It is instructive to reflect on these doomsday forecasts. In sixteenth-century England fear arose that the supply of wood—widely used as heating fuel—would soon be exhausted. Higher wood prices, however, encouraged conservation and led to the development of coal. The wood crisis soon dissipated.

Understanding the incentives that emanate from private ownership makes it easy to see why doomsday forecasts have been so wrong. When the scarcity of a privately owned resource increases, the price of the resource will rise. The increase in price provides consumers, producers, innovators, and engineers with incentives to (1) conserve on the direct use of the resource; (2) search more diligently for substitutes; and (3) develop new methods of discovering and recovering larger amounts of the resource. To date, these forces have pushed doomsday ever further into the future, and there is every reason to believe that they will continue to do so for resources that are privately owned. [6]



Questions:
  1. What are some things that you think we, as a society, will run out of? Now think of how the incentives to preserve them might create alternatives.
  2. Imagine you’re doing the “chocolate kiss” experiment from the video in your economics class. How would you have played?
  3. Since 2008, the amount of oil in U.S. reserves has grown considerably, and it is now almost as high as it has ever been. How can that be? Have we been creating more oil? If not, then why have our reserves been going up?

This reading is an excerpt from Certell’s Common Sense Economics eBook.  Certell offers curriculum materials and eBooks free of charge for students and teachers.  Click Here to download the Common Sense Economics Materials.


Citation:

26, Mar. 2018, Do Elephants Ever Forget? [Digital image].  Retrieved from https://goo.gl/images/DQ6Kxq

[6] There have been cases where humans have hunted an animal species to extinction. Passenger pigeons are an example. They were hunted for meat while whales were hunted mainly for oil. But pigeons were such a small part of the market for meat that even as they began to disappear, the price of meat did not increase enough to call forth either preservation efforts or a large-scale increase in the production of meats. There was no crisis. So their disappearance became complete. If whales had been intensively hunted only for their meat, and not mainly for oil, they also might have disappeared. But whale oil was so important in the market for light that when its price rose sharply, a substitute was found that reduced the demand for whale oil and its price, saving the whales.