The virtue of capitalism

As somebody smarter than me once said — the virtue of capitalism is not that it provides more silk stockings for queens, but that it makes silk stockings affordable to the lower classes. Today’s news gives a good example of this success.

An Indian car manufacturer Tata has just released a new four-door sedan for under A$3000. As the company points out, this means that many Indian families will be able to upgrade from motorbikes, which has significant benefits for all-weather travel, large families and for safety.

Of course, some in the trendy left will see this as a horrible step into the evils of capitalistic materialism which undermines the deep cultural ties that Indians have with their motorbikes. And of course there is the extra co2. But poverty is more important than anthropology-tourism or global-warming… and personally I celebrate this wonderful opportunity for millions of poor people to take another step towards a comfortable life.

I think this is a defining issue that separates people who actually care about the poor from those who like to say they care about the poor. Viva capitalism.

61 thoughts on “The virtue of capitalism

  1. I used to deal with the IT portion of Tata quite a lot in my job. We used to hate them for all the right reasons. They would bust your balls to get every cent of value out of you for their customers. Good company. Great flagship for capitalism.

  2. Good news all round, but I can’t say the journalism is up to scratch. I really can’t stand the two unattributed criticisms at the end of the article.

  3. “some in the trendy left will”
    Do you mean untrendy right? Harry Clarke is not exactly overjoyed with them.

  4. Those who oppose the free market are more concerned with giving the appearance of making poverty history even if their policies make it permanent.

  5. This is awesome – people in 1st world countries could buy a new car with cash in hand. This will drive down all other prices. Removing tariffs here, in other 1st world countries anmd India will help that too.

  6. I read an article on this a while back.
    They were not sure if it would be a big sucess because used car prices are already on par with this new car and that motorbikes are more practical.

    But personally I think this car will become popular and be a big success. I think it’s an impressive achievment.
    It’s just not safe piling three kids and your wife onto one small motorbike.

  7. Hi there,

    Ever been to a developing country? Ever seen the traffic? I’d say that the limitations of infrastructure will keep sales down. Or perhaps the Indians should divert money from food programmes to road building. Brilliant, vive la market!



  8. The One Lakh car is about the same size as the motorised rickshaw.

    They don’t need road building or “food programmes”.

    Tell us why countries with abundant food don’t have “food programmes” – or maybe “food programmes” create poverty.

  9. “Tell us why countries with abundant food don’t have “food programmes””

    Er … isn’t large scale farming under govt supervision and subsidy a food programme? And which counries have that? I’ll start you off, Australia, the US, Canada.
    And BTW, I seem to see quite a lot of what I would consider poverty and under-development when I take my resort hotel vacation in Asia.
    Libertarianism, a byword for “I don’t care”



  10. Patrick — I understand how people new to political philosophy could get confused about the message of libertarianism. But let me assure you that libertarians certainly do care about the welfare of all people.

    Indeed, this blog post is talking specifically about an example of capitalism helping to reduce poverty. Surely this is something that we all should celebrate.

    You may be new to libertarian ideas, so allow me to explain — we believe that it is best when people interact voluntarily and peacefully… and we believe that such voluntary interactions will generally lead to the best outcomes. While people may endorse government coercion with good intentions, unfortunately the nature of government control is that it often leads to bureaucracy, inefficiency, corruption, poverty and lack of choice.

    You are right that developed countries have farm subsidies. Australia is relatively good on this score as we have the 2nd lowest level of protection in the OECD (behind New Zealand). The worst offenders are Japan, Korea, Switzerland and Norway… followed by the EU.

    Australia, America & poor countries have argued strongly at the WTO to multilaterally reduce these subsidies but the high subsidisers (mentioned above) have strongly objected. One Korean farmer even burned themselves to death in protest. This disagreement is the primary reason why the Doha round of trade talks have not progressed.

    I agree that there is still a lot of poverty in Asia. It is not very common in Hong Kong, Singapore, Taiwan or Korea — who have followed relatively free-market and free-trade policies (especially HK). As China, India & Vietnam have moved towards a more market-based system they have also seen significant growth, and this is a wonderful thing for all people who care about poverty.

    Of course, places like Myanmar, Nth Korea and Laos still suffer from poverty and low growth. We can only hope that they will move towards a more market-system in the near future so that the next generation has hope.

  11. So Aus, US and Canada have plenty of farms and food because of subsidies and regulation?!

    Poverty in Asia has reduced dramatically in the last 40 years, as economic liberalisation and free trade have increased. This is simple, obvious reality.

    That fact that this Australian discussion group is discussing this Indian event shows that these people “care”, otherwise the event would be met with apathy or not reported on at all.

  12. It’s interesting that Patrick stresses how much he ‘cares’ whilst paying no regard to the failure of his ‘caring’ policies.

    I swear that i am not Patrick and am not using an alias to illustrate my now highly perceptive and insightful comment above (comment 8) 🙂

  13. Patrick
    Parading your fake moral superiority would be bad enough if it wasn’t combined with an economic ignorance that makes things worse for the poor. If Indians or Australians lack food, it isn’t because of a shortage of government subsidies you snivelling twit.

  14. John,

    …let me assure you that libertarians certainly do care about the welfare of all people.

    While a nice wish, I don’t think it’s any more true of libertarians than any other group.

    As China, India & Vietnam have moved towards a more market-based system they have also seen significant growth, and this is a wonderful thing for all people who care about poverty.

    The Philippines is a similar country, but for all it’s economic growth it has managed to increase the number of the poor evening while decreasing the percentage of people who are poor. The same is true for Bangladesh.

    I just wrote about the Philippines and wonder how benefitial it’s fast growth really is. We tend to just look at increasing GDP rather than the actual improvement of people’s lives.

  15. 1. What measure of poverty did you use – absolute or relative?

    2. If there is an increase in per capita GDP, there is a welfare improvement.

    3. With respect to externalities, how else do you increase people’s life chances to improve their lives other than increasing incomes? Remember there is a personal work/leisure tradeoff?

  16. Trinifar

    The Philippines illustrates the point perfectly. Note John referred not to countries with ‘strong economic growth’ but those with ‘market-based reforms’.

    The Philippines, like Russia, has shown strong economic growth recently but has not embraced the market economy at all. Its institutions remain inefficient and corrupt. I used to trade the debt of Philippine companies – there are no means for creditors to seek redress if owed money, the legal system is open to the highest bidder and industry is protected by the law-makers who are also the country’s largest shareholders.

    For the Philippino population to become richer, the country must embrace competition, remove trade barriers and reduce corruption in its institutions – just like South Korea, Vietnam and China.

  17. From a quick internet fact check: “Population below poverty line: 24.7% (2003), 16.4% (2007)”. I think this is the $1/day measure.

    Poverty stats are some of the most consistently mis-represented statistics in political debate. In Australia, nearly all poverty stats measure income inequality, not poverty.

    As a brief example… NATSEM recently showed that poverty has increased in Australia. However, using their definition of poverty (income less than 40% of average), if all incomes in Australia doubled, then there would be more poverty! And if all incomes in Australia halved there would be less poverty! Obviously, such stats are a joke.

    If people actually card about the welfare of poor people then they would not be playing these cheap semantic games.

    Trinifar — I think most people (libertarian or not) care about the welfare of others. I came to libertarianism because I thought it was the system that maximised total welfare (not my welfare), and I think most other libertarians came to their philosophy the same way. The claim that libertarians don’t care about other people (made my Patrick) is petty and untrue.

  18. John:

    Poverty stats are some of the most consistently mis-represented statistics in political debate.

    Not just poverty stats and not just in politics. 😉 However, because it is such a hot and contentious topic among NGO’s, governments, and political groups, poverty line determination is pretty well understood and in my exerpience reliable.

    In Australia, nearly all poverty stats measure income inequality, not poverty.

    In the Philippines (and the US) the poverty line is determined by the combined cost of providing subsistence level food and shelter and a few other basics. So the dollar amount changes from year to year. In the Philippines in addition to a poverty threshold they also use a lower subsistence threshold below which people do not have enough income for susbsistence level food. The current values are around $2 and $1 (USD) per day respectively. (One source is this page.)

    In countries like the Philippines and Bangladesh, the percentage of the population living in poverty can decrease, and still the absolute number of those living in poverty can increase due to population growth. This appears to be happening even with gross GDP and even per capita GDP increasing.

  19. @ Mark #20

    1. What measure of poverty did you use – absolute or relative?

    Absolute. As noted in #24.

    2. If there is an increase in per capita GDP, there is a welfare improvement.

    That doesn’t follow. This is one of my main criticisms of using per capita GDP as a measure of human welfare. Two reasons.

    One: it doesn’t follow mathematically. Say, GDP is 100 and the population is 10 people who each happen to have equal shares (10 each). Then GDP doubles (200) and one clever person ends up with 191 and the other nine have 1 each. Per capita GDP doubled while 90% of the population lost 90% of what they had.

    Two: GDP is nothing more than the total of goods and services. It says nothing about how much those goods and services contribute to human welfare. Some lower threshold is somewhat meaningful, of course, to establish subsistence (at least). Above that however there’s only a rough correlation between GDP and welfare. For example, all pollution mitigation measures contribute to GDP as do medical interventions, prisons, cost of running courts, expanding the military, etc. The GDP is a purely additive measure (a sum of absolute values in the mathematical sense) and ignores (by definition) all externalities. The GPI is one attempt to sum benefitial things and subtract those that are essentially costs.

    3. With respect to externalities, how else do you increase people’s life chances to improve their lives other than increasing incomes? Remember there is a personal work/leisure tradeoff?

    Increasing incomes is not a bad thing. 😉 It’s just not the only thing. For most of us the type of work we do and the quality of the environment in which we live are meaningful, so are having a variety leisure and educational opportunities. More here.

  20. I have to agree with Tinifar on the technical point: an increase in GDP/capita does not necessarily mean an incease in total welfare.

    However, I do note that GDP/capita is nearly always correlated with education levels, health outcomes, life expectancy, average quality of housing, democracy, investments in the environment, women’s rights, travel opportunities, access to leisure time, increased lifestyle choice etc.

    These benefits have occurred in the Philippines too and that’s a good thing.

    The GPI is just as flawed as GDP as a measure. All activities result in multiple externalities that are extremely hard to quantify… so trying to include a couple that are important to the author will probably not improve the accuracy of the measure. Also, it is very appropriate for GDP to include spending on medical interventions, prisons, courts etc… unless the author is implying that economic growth increases medical problems and crime.

    I’m not saying the GDP is perfect… just that every measure is imperfect. The more important shortcomings of GDP is that it excludes the value of non-market labour and leisure.

  21. Wrong Trinifar. The economy is not a zero sum game. The situation you are describing refers to a situation where a group is involuntarily excluded from participation or they are being taxed or regulated into poverty. If that’s the case it is not only rotten it isn’t a free market either.

    On the other hand, the change could represent different preferences for material accumulation and leisure.

    Can you actually explain the circumstances which we go from (10 x$10) of GDP to ([1 X $191] + [9 x $1]) of GDP?

    In 20 @ 3. I implied something about the income and substitution effect, externalities and life chances.

    If people are not excluded from the economy and taxes and regulation do not discriminate, then GDP increases will help to improve welfare as life chances are enhanced.

    The best way to allow this to happen is to allow the greatest degree of economic liberalism possible.

  22. Trinifar didn’t imply that the economy was a zero-sum game. He seems to understand economics fairly well. His problem is that he sees externalities where he wants to, but this is a problem he shares with most of the economics profession so it’s understandable.

    I agree that increased GDP generally leads to a better life. But not always. Imagine a situation where the government forces people to work more than they want to. This would (1) decrease welfare; and (2) increase GDP. I know this wouldn’t happen in a free market… but it’s important to admit that GDP is not a perfect measure of welfare.

  23. Obviously Trinifar described a positive sum game. Distributionally, the result was a zero sum game for 9/10 of the population and they would be better of playing a whole subset of negative sum games…hence his inference that growth isn’t necessarily good.

    The point of contention is how we get from a 10×10 economy to a 191×1 + 9×1 economy. The practicalities of running a business, Say’s Law and a basic circular flow diagram imply this isn’t possible without a lot of coercion or improperly defined property rights. In nations where this income distribution pattern is predicted, these are the most likely candidates as the problems.

  24. Whilst it is not really a comment about capitalism I think that the following article about commercialising plug-in hybrid electric cars is interesting:-

    I think plug-in hybrid cars if successfully commercialised will in time change energy markets quite significantly. Successful commercialisation will no doubt enable a virtuous technological development cycle that will sees a continuous steady decline in our reliance on oil.

  25. Terje, you right if we move to non-fossil-fuel electric power generation or if you see no problem with natural gas and coal-fired power plants (meaning you see no problem with CO2 and other greenhouse gas emissions). Look at the size of the problem in the USA. At least having electric cars makes alternative energy sources for transportation possible; it just doesn’t make any headway toward lowering GHG emissions in and of itself which is what some people think (not you in particular, I know you are switched on to the system issues involved).

  26. Mark,

    The economy is not a zero sum game.

    While I understand that the economy as we traditionally envision it isn’t thought to be a zero-sum game, I think it is most realistically modeled that way.

    It’s not zero-sum game if you think there is an infinite amount of raw material resource available (especially of the fossil fuel type). I think this is the position of most economists — but that assumes that Earth, the planet, is somehow infinite or we are going to other worlds in a StarTrek-like scenario (which, as much as I like StarTrek as entertainment, seems a bit crazy to me). Also, it’s not zero-sum game if you think human creativity can endlessly produce new and useful products and services from finite resources. I’m amenable to that line of thinking. It makes sense to me that our creativity can keep coming up with new and interesting ideas that contribute positively to life, but this happens at the margins. The thing that has propelled us forward so quickly is the energy density and accessibility of fossil fuels. The countries that got to them early have the upper hand in a very discrete way.

    Can you think of any developing country that doesn’t have access to lots of fossil fuels (even through trade) that has a chance of competing with contries that do? China and India are players because their large pool of cheap labor is in effect traded for oil and natural gas. What of Niger, Botswana, Uraquay, Bosnia, etc? It’s in this sense I think the world economy is a zero-sum game.

    In general, fossil fuel use is what has bootstrapped the major economies of the world into their current position. That option is no longer available to any other nation.

  27. Trinifar,

    Commercialisation of plug-in hybrids achieves many things.

    1. Reduced reliance on foreign oil.
    2. Better urban air quality.
    3. Reduced noise pollution.
    4. Improved infastructure utilisation in the electricity sector (ie reduced unit cost of electricity).
    5. Virtuous technology development cycle.
    6. Cheaper cost of travel.
    7. Reduced CO2 emissions per km.

    Even with no change in the energy mix for electricity generation and assuming existing travel patterns plug-in hybrids with a electricity only range of 20 miles (32km) are expected to reduce CO2 emissions by 15%.

    Under the average U.S. power generation mix, the CO2 reduction of the plug-in relative to a hybrid would be about 15%.

    Plug-in hybrids are already a technological success. The commercial challenges include:-

    1. Ensuring that battery life is not compromised relative to existing hybrids.
    2. Reducing the cost of batteries.
    3. Making the hybrid car a plug-in during manufacture rather than post manufacture to avoid most of the current cost of battery replacement and software modification.

    I am reasonably optimistic that we will see plug-in become a standard feature of hybrids within a few years. And reasonably optimistic that we will see hybrid plug-in become a standard feature of all cars within one to two decades. Of course the cost of oil and the cost of batteries will be the key determinents.

    I used to take the view that converting to hybrid vehicles was adding complexity to car design and hence reducing reliability. However existing cars already have an electric motor and a battery for starting the engine so hybrids are merely a different form of complexity rather than an additional form of complexity. Obviously an all electric car would be the ultimate in simplicity of design.


  28. Regarding #34.

    Even if we had to switch to renewable energies (eg solar, geothermal) there is still plenty of reason to expect that the future will involve humans being richer. And nuclear is always an option. Other raw materials (eg steel, rock, timber etc) are all generally renewable or recyclable.

  29. John,

    I’m not saying the GDP is perfect… just that every measure is imperfect. The more important shortcomings of GDP is that it excludes the value of non-market labour and leisure.

    How about pollution? Currently an oil spill clean-up contributes to the GDP. That is a bit dicey, don’t you think? Similarly with building prisons which we do here in the US at a good rate. Ditto any response to a public health crisis. These are all things that are clearly social negatives but which GDP measures as a positive.

    Just recently I was listening to a person in Minnesota (a US state) bragging about her state’s work ethic. They worked longer hours than most, a higher percentage of the population worked two jobs — all presented as a positive attributes of the people of Minnesota. And they might be positive aspects of the people of Minnesota but certainly not the economy of Minnesota. It’s a rare person that works two jobs for the love of the work. Since you agree that one of the shortcomings of the GDP is its exclusion of leisure, I suspect you agree that these are not positive attributes.

    Whatever we don’t place a value on fails to affect the economy — a fundamental assumption. Clean air, clean water, accessibility to water — these all fall outside of our normal measures of the economy just as leisure does.

    So to say that “every measure is imperfect” is not the same as saying that every measure is equal. GDP fails in many ways. GPI is an attempt to correct those failings. Yes, it is also imperfect, but imperfection is not a binary measure.

  30. A bush fire burning hundreds of homes is a classic example of where GDP offers a false measure of progress (ie it measures the creation of replacement homes but not the destruction of the original homes). What is missing is a balance sheet for the national accounts showing the stock of assets. Having said that GDP is not a bad approximation of progress.

  31. Wow, Terje, I hardly expected to be interacting in real time! I’ll try to keep up. 😉

    I agree there are a lot of benefits to plug-in hybrids and I am in favor of them. There are a couple of points of note:

    (1) as the report at your link says, “in regions with coal-heavy electricity generation, the plug-in would not reduce CO2 emissions at all.” But you do get other benefits like reduced noise in any case. “coal-heavy electricity generation” is most of United States.

    (2) again from the linked report: “Under the average U.S. power generation mix, the CO2 reduction of the plug-in relative to a hybrid would be about 15%. In most locations, achieving a major CO2 advantage from plug-ins will require greatly reducing power sector carbon emissions.”

    As plug-in hybrid cars come online they’ll be sucking power from the grid. If you look at the energy flow of the US the current mix of fuels will have to change. How? Currently energy inputs into transportation are 3x the electrical production of the US. We already import natural gas and oil and the cost of those is going up dramatically. Hydro is already completely exploited; we aren’t going to get more from that source. Nuclear is an option but its contribution will not change for decades. (We need to be building nuclear plants now just to compensate for the end-of-life of existing plants; and they have a very high capital cost; and the waste issue is not resovled.) Where does the addtional energy come from to accomidate hybrid cars?

    From your linked report:

    From a public health perspective, the benefits of plug-ins are again highly dependent upon electricity generation mix. … Battery cost is a major hurdle to the commercialization of plug-ins with extensive electric-only range. The cost of a plug-in battery exceeds $10,000 today 2006 but could drop to a few thousand dollars in the long term.

    In China, electric bikes have been banned from some metro areas because the enviromental cost of recycling their batteries is too high.

    Oddly, at the end of the day, I’m a techno-optimist, but a very cautious one. Rarely does the full system cost of a new technology see the light of day.

  32. If you care about CO2 costs then wack a carbon tax on electricity and review the fuel tax on petroleum. You could mandate recycling on batteries but given the valuable materials within them I think this generally happens anyway.

  33. Yeah, for hybrid cars to make a difference to CO2 output, We’ll all have to move to nuclear power. Or be forced to rely on expensive, temperamental wind and solar.

    In addition, hybrid engines have a significantly reduced life span compared to combustion.

    But I’m all for developing new technologies, privately.

  34. Trinifar, the economy is not a zero sum game.

    A positive sum game economy is not reliant upon all resources being renewable. Furthermore, some are renewable. Some are recyclable. Some are virtually renewnable, whilst others are practically inexhaustible.

  35. Terje, I read an article similar to this last year comparing the Prius to the Hummer:

    The article assumes a 100,000 mile life for the Prius. But it turns out that this was not calculated solely on engine life, see:

    Click to access Why%201001000%20Miles%20for%20Prius.pdf

    So apparently you can get 200,000 km out of a Prius. (much better than I thought)
    Still not quite as much as combustion engines, but I’m sure these hybrids are constantly improving to match longeivity norms.

  36. Trinifar — the clean up of an oil spill should be counted as a benefit because without that clean up you would have oil everywhere.

    GDP is a flow measure. As Terje rightly points out, it does not tell you about the destruction or depreciation of assets. It might be nice to also have a balance sheet of national assets measured as a stock… but that’s not what GDP is for. GDP tells us how much we can do in a year.

    Also — you incorrectly say that economists assume resources are infinite. That is true only if you are counting “knowledge” as a resource. It is the growth in knowledge that leads to economic growth and allows us to produce more outputs using fewer inputs. Yay! 🙂

    Growth is separate to the point of trade being a “positive sum game”. The reason trade is positive sum is because different people value things differently. If you really want my bicycle and I really want your playstation then we can swap and we will both be better off.

  37. As for your American friend gloating about a good work ethic. I consider that neither a positive or a negative. For people who value the extra $20 over the extra hour leisure it is a good thing. For people who value the hour over the money, it would be a bad thing. Unfortunately (as we agree) GDP fails here because it doesn’t record the leisure.

    I agree that not all measures are equally flawed. But (1) I’m not convinced that GPI is actually better and it certainly suffers some ideological baggage; and (2) to be useful a measure needs to be widely used (like GDP & PPP) so we can make comparisons.

    GDP can be adjusted for “hours worked” so that it gives us a measure of productivity… which is potentially more important.

  38. Trinifar, the economy is not a zero sum game.

    The “economy” (depending on how you define such a term) may not be zero sum, but “ecology” definitely is. Until we start taking resources from space, at least.

    Zero sum isn’t necessarily a bad thing. If we can find a way to process waste and to process greenhouse gases then we’ll be fine. The problem is, any waste product we fail to process into something useful contributes to a negative sum ecology in the short term.

    Of course, on the flip side, in the short term all the rocks stuck in the earth doing “nothing” could be said to be contributing to a positive sum outcome in the short term.

    I think it helps to view earth as a zero sum system. It stops me from worrying about “using up” resources, because I know that all the resources still exist- just in less obviously useful forms. It also helps me realise that we can’t keep on converting certain resources into other forms unless we work out how to recycle them because eventually we’ll be stuck with a bunch of useless stuff and nothing we know how to use.

  39. I want to elaborate two good points made by John:

    1. Trade is beneficial as by definition, voluntary trade won’t be entered into unless mutual gain can be made.

    2. Knowledge is what can trasnform the lifespan of capital to longer times or the availability of a resource or alternatives into renewables or recycables, or even virtually inexhaustible.

  40. Let’s clear up this language thing… the claim by economists is that “trade is a positive sum game”. Note that we’re talking about a verb (“trade”) not a noun (“economy” or “ecology”).

  41. I’d have to agree with that, then. It is, by definition true.

    Unless you count the thing being traded 😉

    I’m sure the cow Jack traded for the magic beans probably would’ve preferred to have stayed with Jack than to go live with that swindler….

  42. Oh and the other problem is when someone claims something that has been “community owned” as their own and then trades it at the expense of the community.

    If I claimed all the whales in the Australian oceans and then sold them to the Japanese for “scientific research” then I’m sure the rest of Australia would be grumpy at not being able to go whale watching any more.

  43. “community ownership” are just two random words typed into a computer unless you give them a proper definition. All assets are controlled by somebody (or some organisation) and the controller is the “owner”.

    In reality, when people say “community” they generally mean some government or council. So no — you can’t take the government’s whales and sell them to Japan. But the Australian government could. Of course, they won’t… but that’s a different story.

  44. Shem,

    The problem in the example you cite is not in trading whales (which is by definition good for you and the Japanese) but in the process by which you acquire owership of the whales. The same is true of the trade in stolen goods or the goods produced with slave labour, in both cases the players in the game of trade (ie buyer and seller) are better off. To create a just system based on trade you need clarity in ownership.


    p.s. Recently I watched the movie called “Blood Diamond” which is about the civil war in Sierra Leone in the late 1990s and the trade in diamonds extracted using slave labour. Watching the movie with a friend if you want a topical discussion of these issues. Ironically the person I watched the movie with said it was an indictment of capitalism whilst I saw it as an endorcement of the importants of sound property rights and the rule of law. It was seen as an indictment of capitalism because it involved human rights abuses and trade.

    p.p.s. A good movie in my view even if some of the implied economic arguments seems slighly wonky.

  45. Shem, please get your facts right! If I remember history correctly, the beans worked, transporting Jack to a land of giant possibilities. He couldn’t hack it with the big guy, who suffered from blood-deficiency issues and was not a vegetarian, and Jack eventually had to engage in extreme acts of self-defence (kill the giant).
    However, the bean-peddlar was NOT a scam-merchant, just someone who knew his own limitations.

  46. ‘All assets are controlled by somebody (or some organisation) and the controller is the “owner”.’

    If an asset (like the atmosphere, the ocean, or just the tuna in the open ocean) has no controller, does it cease to be an asset?

  47. Trinifar,

    Both the oceans and the atmosphere are controlled. The EPA and it’s equivalent in other nations will have something to say if you run a very smokey car and treat the atmosphere as a free for all rubbish tip. Likewise various treaties control fishing in the open seas. Even access to the surface of the moon is controlled by various governments and agencies. The whaling dispute currently happening in the southern oceans would no doubt be resolved more readily if there was more clarity about who owns this patch of water (Australia stakes a claim) and to a large extent the dispute is about various competing parties asserting ownership. Water in Australian rivers is another current example.

    Converting an uncontrolled resource from unowned to owned is where most of the pain occurs. Governments, where they can, should usually act to establish clarity in property rights and then privatise the resource in a just way. Historically, at least in the west, this is what they generally do with land (or endeavour to do).

    In so far as people take issue with capitalism I think it should focus on this process of establishing property rights, not the process of trade once such rights are established. And of course Libertarians have a stake in this debate because they think that ownership of the self should be non-negotiable.


  48. Good question Trinifar. Like most short definitions, the one I gave above does exclude some points.

    First — how can ownership come about? The general answer is either through (1) homesteading (ie being the first to make productive use of an asset); (2) voluntary trade; or (3) violence/coercion. I don’t think you would be surprised if I said that libertarians support the first two and oppose the 3rd option.

    A special case exists when an asset is so common that there is effectively no scarcity. When there is no scarcity there is no need to control an asset and the concept of ownership isn’t necessary. However, this state of affairs is generally only possible in hunter-gather type situations.

    Then there are some things that are very difficult to properly define the property right. You mention water & air. This isn’t quite true. Property owners own the air above their land and the water that falls on their land. Water has been homesteaded before. The governments of the world claim a lot of water & air. And in some cases the government’s actively prevent the allocation of effective property rights.

    But your general point (about the difficult in allocating property rights in some cases) is certainly valid. This raises problems for any society, irrespective of their political structure.

    The moon is an interesting example. There is a UN treaty that forbids people and countries from owning the moon. Currently this hasn’t caused a problem because there has been no “moon-scarcity”.

    But what happens if two people/countries are trying to use the same piece of the moon in the future? Who resolves the conflict? It may be that the UN does — in which case the UN owns that property. Or the UN might say that person X was there first so they can decide how the property is used — in which case person X owns that property.

    Personally, I think the UN treaty should be replaced by a treat that says that the countries of the UN will respect the private property rights of whoever is first to homestead any portion of the moon. Explorers & developers will be there in 10 years and private moon holidays available in 20. 🙂

  49. There are private parties selling land on the moon. I met a guy at a party recently who claimed to own land on the moon. I suggested that he may have difficulty enforcing his claim and he said that the party selling the title had defacto permission from the UN. After that I focused on the beer, food and pool game so I can’t cast much more light on the issue.

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