THE ROLE OF PRIVATE PROPERTY IN A CAPITALIST MARKET ECONOMY

Adam Smith wrote that two of the most important contributors to the ‘wealth of nations’ was the division of labor and the propensity to truck, barter and exchange one thing for another. The division of labor facilitates significant increases in productivity because of specialization in production. These productivity increases cannot raise well being, though, unless individuals are free to truck, barter and exchange voluntarily with each other. However, these two important pillars of economic prosperity cannot stand without a critically important foundation: private property. This is the defining feature of capitalism, namely the private ownership of capital, which in turn is defined as the land and equipment used in the production process. In contrast, socialism occurs when the state owns the means of production, that is, the government ownership of capital.

When two individuals trade one item for another, it is presumed that each person is the rightful owner of that which he is trading. Almost instinctively we know it is not allowed for me to sell things that are not “mine.” I can’t exchange, or sell, your shoes, or your bicycle, without causing you injury and offense. The reason for your outrage in these circumstances is your acceptance of private property claims. Without even thinking about it, people know that you should only sell something that is “yours.” And, when you buy something, you expect that the seller is the rightful owner, for if not, you may have the true owner chasing after you at some point.

But how does ownership of private property arise? How do we make judgments about who owns what? The answer is both complicated and varied. Sometimes ownership is documented formally and registered with a government agency, as with the title of a car. Identifying ownership is easier in these cases. Many times, though, ownership claims are socially constructed. In other words, they arise out of social conventions that we learn from our culture and environment. The purpose of this section is to demonstrate how pervasive is our acceptance of private property and the reason why private property is a necessary precursor economic prosperity.

Steven Suranovic, April 26, 2020

Additional Readings about Property

• The Role of Private Property in a Capitalist Market Economy
• Identifying and Claiming Property
• Socially-Constructed Property Claims
• The Necessity of Property
• Theft as Involuntary Transfers
• The Role of Government in Protecting Property
• Reality Check: Do we have a "Right" to Property?
• Why Not Socialism?

 

INTERESTING ASIDES

 

Property Rights

Private property is a legal designation for the ownership of property by non-governmental legal entities. Private property is distinguishable from public property, which is owned by a state entity; and from collective (or cooperative) property, which is owned by a group of non-governmental entities. Private property can be either personal property (consumption goods) or capital goods. Private property is a legal concept defined and enforced by a country's political system.