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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