Free markets, ownership

March 2, 2008

The main attraction of the notion of a free market, from a theoretical point of view at least, is that it seems like a natural concept in the sense that it is amenable to a crisp, intuitive description. As Wikipedia puts it,

A free market is a market in which prices of goods and services are arranged completely by the mutual consent of sellers and buyers. By definition, in a free market environment buyers and sellers do not coerce or mislead each other nor are they coerced by a third party,

market being defined as

In economics, a market is a social structure developed to facilitate the exchange of rights, services or product ownership.

Two non-trivial issues arise directly:

  1. How do the sellers in the market come to own what they own? That is, how is the initial condition, before trade, determined? Can a market be considered “free” under any initial condition? Would a market in which someone owns all there is to own, or at least owns a resource without which the other traders cannot survive, or cannot trade at all, still considered “a free market”?
  2. When can sellers and buyers be said to be “not coerced”? Presumably, extra-market forces might be considered coercive, but what about within-market threats? For example, if someone has to exchange something he has for water, or else he would die of thirst, is that a coerced trade?

Taking these two points into consideration, it is already apparent that the crispness and intuitiveness of the “free market” definition are, to some extent, an illusion. Still, if those were the only problematic points to deal with I believe a satisfactory solution – effective in eliminating the objections and relatively simple to define – could be found. For example, a side condition could be added, one stating that all traders in the market must have a guaranteed minimal standard of living. Such a condition would allow traders, if they so wish, to withdraw from the market, abstaining from all future trades. Of course, some advocates of “free markets” would probably find such a guarantee abhorrent – essentially destroying the utility of the market system, but such ideological stances may not be inseparable from the notion of a “free market” itself.

However, even if the difficulties associated with the definition of “non-coercsion” and with the initial condition are overcome, a much more fundamental difficulty prevents “free markets” from being simple to describe. The difficulty is with the notion of ownership. Ownership is crucial to the definition of the “freedom” of the market since a “free market” is defined as one in which trades happen at the discretion of the buyer and the seller only – i.e., “freedom” is the freedom from interference of non-owners.

Contrary to first impressions, ownership is not a simple, intuitive notion. Wikipedia says:

Ownership is the state or fact of exclusive rights and control over property, which may be an object, land/real estate, intellectual property (arguably) or some other kind of property,

but such a definition is sketchy and would require a very long, quite likely infinite, set of rules to make it applicable to specific cases. Here are some issues that would need to be addressed by the rules:

  1. What can be owned? Do I own my body? My time? My work? My ideas? Quiet? My peace of mind? Does somebody own the air, or part of the air? Air quality? The air in my lung? The space I occupy? Does somebody own the earth or a piece of it? Do I own the space above the earth I own? Do I own the view from my house? Can sunlight be owned? Can I own the right to stop someone from doing something?
  2. What does “exclusive rights and control mean”? In some cases it may seem straightforward. If I own an apple, I can eat it and no one else can. But what if I own a large pile of trash? What if I own a noise-making device? What if I own a car? Can I move it where ever I want? Why should the right of a land owner who wants to prevent me from driving onto his land be more powerful than my right to drive my car where ever I want? Can I emit my car’s combustion waste to the air?
  3. Presumably, new assets can be created and owned. Who owns a newly created asset? The standard reply would probably be that new asset is owned by the people whose existing assets were involved in creating the new asset. This assumes that it is clear what are those existing assets which were involved in the creation of new asset. In many cases, this determination is to some extent arbitrary. If I own a fruit tree, do I own the fruit which grow on the tree? What about the water, air, sunlight and various organisms that were involved in the creation of the fruits? Are they the property of someone, and thus endow that someone with rights over the fruit?

The conclusion is that ownership, and thus free markets, is far from a natural, self-explanatory notion – it is a complex social construction. It is determined and controlled by rules and regulations made by the governing authorities. It is thus no less an artificial institution than would be a system in which resources are allocated in a very different way (say, based on claims of needs rather than based on claims of ownership). The fact that ownership and free markets seem like natural structures is a product of the society in which we live in – the ideology and the institutions that are inherent in it.

Society could be very different – and certainly was very different in the only situation that could legitimately be called “natural”: pre-civilization nomadic foraging bands. If modern day nomadic foraging bands are any indication, then in these societies ownership was very restricted, and distribution of resources was done according to a set of rules designed to reduce variability between group members and in time. (See Christopher Boehm, Hierarchy in the Forest, 2001; Robert Kelly, The Foraging Spectrum, 1995.)


5 Responses to “Free markets, ownership”

  1. Daniel Gat Says:

    Hunter-gatherer societies had no incentive to create value. You do not tame a wild horse (a hard and dangerous effort) if you cannot exclude others from riding that horse. You do not drain a field nor plaugh it and plant it unless you have control over the fruit. And so on with regard to inventions and innovations that have endowed a higher proportion of humanity than ever before to enjoy the ingenuity that is conditional on ownership rights. Common ownership rights usually end uo as “the tragedy of the commons” — there are an infinity of examples, including those you hinted at with regard to the air we breath or that we pollute.

  2. yoramgat Says:

    Hi Dad,

    I find most of your statements regarding hunter-gatherers societies and regarding what you call “common ownership” unfounded.

    These disagreements, however, are beside the point since I was not arguing (in this post) for a particular method of resource management. My point, as I believe should be abundantly clear, was that ownership systems are just as much an arbitrary creation of society as any other resource management system. The outcome of an ownership system is determined by the myriad rules and regulations that define it, rather than by some laws of nature (or of human nature). It seems to me that given any desired resource allocation, it should be possible to set up an ownership and “free market” system that would guarantee that allocation as its outcome.

  3. liberal Says:

    IMHO one of the most important issues is “ownership” of land and other natural resources.

    That is, it’s not unreasonable to posit ownership in the fruit of one’s own labor. But natural resources are the fruit of no one’s labor.


  4. yoramgat Says:

    Hi liberal,

    I am not sure I would like to base my reasoning about fairness on the distinction between natural resources and “the fruit of one’s own labor”. (For one thing, any kind of labor uses some natural resources.) What I try to argue above is that no system of ownership is “naturally fair” or “naturally reasonable”.

    My notion of fairness would rely on trying to define fair or desirable outcomes, rather than a system of ownership. For example, if you are able to produce some critical product that is needed by others (say, some type of medicine), it makes sense that access to that product would be available to those others whether or not you agree, even if your ability to produce is wholly attributable to your skill and hard work.

    Of course, in some cases notions of ownership may be derived from desirable outcomes – but it is important to view these notions as secondary to the outcomes rather than as expressing some natural rights.

  5. […] 2, 2010 I argued before that the standard definition of a free market ["a market in which prices of goods and services are […]

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