What is the relationship between the right to private property and a free and liberal society? Private property is the institutional precondition for individual liberty, yet the concept itself and its inherent link to liberalism is often misunderstood. Let me begin by defining what is meant by private property before discussing its relationship to liberalism.
Property rights do not define a right to an object, per se. Such a statement is incomplete, and raises more questions than answers. Rather, they define expectations regarding the ability to exercise choices over an object. For example, the exchange of money for an automobile implies that an individual has taken possession over an automobile, but possession of the automobile can imply renting it for a period of days, leasing it for a period of years, or owning it outright, perhaps for decades. Whether one is renting, leasing, or granted full title over a good or service, there exists a particular specification of what choices can be exercised over a good or service in relationship to another individual, and how liability is defined. Herein lies the central point I wish to make here, one that I’m paraphrasing from Ludwig von Mises’s Human Action (1949 , p. 311): the right to private property implies a social liability, not a private privilege.
Private property rights are fundamentally a set of social relationships defining ability to use, exclude, and exchange resources in interaction with other individuals (see Furubotn and Pejovich 1972). Their existence does not imply an absence of social conflict over the assignment of resources. Rather, the omnipresence of scarcity implies social conflict over the allocation of resources. But, private property rights provide the institutional framework that allows individuals to learn how to compete for goods and resources in a peaceful and productive manner. This peaceful and productive form of competition manifests itself in the form of specialization and exchange, the defining attribute of private property. As Armen Alchian makes this point:
If ownership rights are transferable, then specialization of ownership will yield gains. People will concentrate their ownership in those areas in which they believe they have a comparative advantage, if they want to increase their wealth. Just as specialization in typing, music, or various types of labor is more productive so is specialization in ownership. Some people specialize in electronics industry knowledge, some in airlines, some in dairies, some in retailing, etc. Private property owners can specialize in knowledge about electronics, devoting much of their effort and study to learning which electronic devices show promise, which are now most efficient in various uses, which should be produced in larger numbers, where investment should take place, what kinds of research and development to finance, etc. (1965, p. 825).
How does this imply that private property rights are not synonymous with privilege? After all, one might object and state that private property is a zero-sum game, assigning an exclusive authority to exercise choices over a good, at the expense of others. This last point conflates the physical assignment of the good with the assignment of consequences of one’s choices exercised over that good, the latter of which is the fundamental purpose of private property, namely, to tie consequences to one’s action. Let’s take the example of a barber, named Gaetano, who exchanges his services with a prospective customer, named Hyman. Gaetano may have private property rights over various tools, such a scissors and a razor, with which he serves Hyman by giving him a haircut and a shave. This implies that Gaetano possesses exclusive authority to exercise choices over his tools, but this is not imply he has the privilege to threaten Hyman violently with such tools. Private property would imply, to say the least, that Gaetano loses Hyman as a customer, and most likely, suffers legal liability and criminal prosecution.
Another objection may be raised that private property grants an individual the privilege to exclude one’s goods and services at the expense of another based on one’s creed, gender, race, or sexual orientation. Returning to the previous example, Gaetano may deny his services to Hyman on the grounds of religious discrimination, since Gaetano is Roman Catholic and Hyman is Jewish. However, private property does not imply that Gaetano will not suffer the consequences of his action. At the very least, he will pay the cost of lost business from Hyman as well as other individuals of his faith once Gaetano’s religious discrimination is personally communicated. Furthermore, such imprudence on Gaetano’s part will be impersonally communicated in the form of a profit opportunity to a competing barber, Salvatore, further harming Gaetano’s business. Thus, private property provides the institutional context to communicate and learn moral behavior, and in turn communicate and correct for immoral behavior (see Storr and Choi 2019).
Moreover, private property implies that individuals will tend to interact on the basis of their merit and skill, acquired through their own effort, specializing not only in a particular trade, but more importantly specializing in acquiring knowledge of a business environment, neither of which are innate. Therefore, the privilege to assign wealth and resources based on racial, religious, or ethnic discrimination is antithetical to the concept of private property and eroded by the competitive process through which the market allocates resources. “The analysis also suggests,” as Alchian and Kessel state (1962, p. 175), “an inconsistency in the views of those who argue that profit incentives bring out the worst in people and at the same time believe that discrimination in terms of race, creed, or color is socially undesirable.” Thus, the civilizing effect of the profit incentive is preconditioned by the right to private property, which assigns a social liability to producers to provide goods and services that any individual may value, based on their willingness to pay. It neither assigns the privilege to discriminate against one group of customers over another based on non-monetary margins, nor for that matter the privilege to bar competing producers based on race, creed, or gender (and who would otherwise profit from serving alienated customers).
How is this all related to liberalism? “The essence of the liberal position,” as F.A. Hayek states, “is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others” (1956 , p. xxxvi). The “true contrast to a reign of status is the reign of general and equal laws, of the rules which are the same for all, or, we might say, of the rule of leges in the original meaning of the Latin word for laws – leges that is, as opposed to the privi-leges” (emphasis original, Hayek 1960, p. 154). Thus, whereas competition based on productive specialization and exchange, preconditioned by private property, tends to liberate the individual from arbitrary assignments of resources and income based on creed, gender, race, or other legal status, competition based on privilege tends to confine an individual’s potential for self-actualization to such arbitrary assignments.
Alchian, Armen A. 1965. “Some Economics of Property Rights.” Il Politico 30 (4): 816–829.
Alchian, Armen A., and Reuben A. Kessel. 1962. “Competition, Monopoly, and the Pursuit of Money.” In Aspects of Labor Economics (pp. 157–183). Princeton: Princeton University Press.
Furubotn, Eirik G., and Svetozar Pejovich. 1972. “Property Rights and Economic Theory: A Survey of Recent Literature.” Journal of Economic Literature 10(4): 1137–1162.
Hayek, F.A. 1956 . “Preface to the 1956 Paperback Edition.” In The Road to Serfdom, Fiftieth Anniversary Edition (pp. xxvii–xliv). Chicago, IL: University of Chicago Press.
Hayek, F.A. 1960. The Constitution of Liberty. Chicago: University of Chicago Press.
Mises, Ludwig von. 1949 . Human Action: A Treatise on Economics, 4th Edition. Indianapolis: Liberty Fund.
Storr, Virgil Henry, and Ginny Seung Choi. 2019. Do Markets Corrupt Our Morals? New York: Palgrave Macmillan.
Rosolino Candela is a Senior Fellow in the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, and a Program Director of Academic and Student Programs at the Mercatus Center at George Mason University