Private Property, Communism and Adam Smith

Private Property, Communism and Adam Smith

Private property evolved when people domesticated animals and tilled the soil. This allowed them to move from tents or thatched huts into permanent homes; and led from day to day subsistence to an economy where a surplus of perishable goods could be exchanged for labor, commodities or finished goods. Initially, this was accomplished through bartering and later through the exchange of a commodity that held a commonly accepted value, now referred to as money.

The changes in society that led to private property and an exchange economy allowed cities to grow because farmers could simply go to a central market and sell their surplus produce or meat to artisans, tradesmen or laborers, who earned money from selling their products or labor. It was no longer necessary for everyone to live directly off the land. Cities simply grew outward from the central markets, which became flooded with people.

Unfortunately, cities, permanent homes, and specialized labor had some serious drawbacks: famines from droughts caused mass starvation because people could not easily move to new hunting grounds or more fertile lands; and even if they did, most of them lacked the necessary skills to find and process food. In addition to the civil aspects of urban living, there were also such public necessities as clean water, sewage and waste disposal, though critically important, were grossly inadequate. Rodents carrying millions of plague-infested fleas spread the dreaded Bubonic Plague. Striking the Roman Empire in the Sixth Century, the Black Death killed at least 50 million people; then, striking again in the Fourteenth Century, a third of Europe’s population was decimated.

Also, grossly inadequate was the fair administration of justice. Through fear and brutality, rulers could establish arbitrary laws and accumulate great wealth through confiscation and taxation. As populations grew, rulers could use this wealth to pay and equip large numbers of men to armed service, leading to conquest, slavery, empire building, and often mass destruction.

None of this civilizing would have occurred, however, if not for the concept of surplus. Before, if a family or tribe produced more food than it could eat, then the food simply spoiled and went to waste. Because of the central market, surplus produce could be sold to willing buyers. Therefore, rather than having a surplus of spoiled food, one could exchange fresh perishable foods for money, which could be used to purchase better tools or weapons, hire workers, and acquire more land. This process necessitated what we now call Specialization of Labor. One could become an expert in some specialized field of endeavor and sell his or her labor or products made by hand. These concepts lead us to an important principle: natural resources have no economic value without human labor and human ingenuity. This is just as true whether the process is as simple as picking fruit or as complicated as manufacturing a computer.

The aforementioned assumes that there was a demand in the market for all this extra meat, produce, labor or products and that consumers were willing to pay a price high enough to cover costs and provide a nice profit, which could be saved, re-invested or used to provide a more comfortable standard of living. As the populations expanded, so did the size and scope of potential markets, which in turn increased the number and size of producers. This process continued until equilibrium between supply and demand was achieved, which of course became a moving target as populations fluctuated, tastes changed and new markets opened up.

Was any of this necessary? What if everyone already had shelter and clothing, and food was in abundance? In pre-European Tahiti, no one cared. Plenty of food was available for anyone who wished to pick it off the tree or catch it from the ocean; clothing was optional and shelter consisted of a thatched hut. Life was good! There was no Per capita Income or Gross Domestic Product, so why can’t the whole world be like that?

Part of the answer is scarcity. In most parts of the world winters are uninhabitable without warm clothes and shelter for both humans and domesticated animals. In addition, growing seasons are relatively short, which requires either large quantities of stored or imported foods. The other part of the answer was discussed earlier: civilization itself — large, diverse populations of strangers living in permanent dwellings and surrounded by cities. There was no longer a transient, close knit tribe that fed, clothed and protected its members.

In comparing the various modern economic systems, we can assume that the concepts of money, production, distribution and consumption are really all related to one question: How do societies distribute goods and services to large populations when these resources are scarce and require high levels of coordinated effort, tools, and an investment in either public or private capital?

Pre-European Tahiti

Try to imagine the European discovery of Tahiti. Lieutenant Samuel Wallis peering through his telescope on a bright, clear day in June of 1767. What he saw must have seemed like a dream. First, mountains jutted dramatically from an endless expanse of ocean, then hills and valleys came into view, covered with lush green foliage. As the ship approached closer to the island, palm fronds could be seen swaying in a gentle breeze as waves lapped lazily against the crystalline shore.

After a brief confrontation with the natives, peaceful relations were established between these two very different cultures. One of the first recorded observations was that even though Tahitians had no concept of private property, the people were happy, healthy and generous. There were no extremes in temperature; fresh food and water were in abundance, and life was safe and secure. Their social order and laws, or Taboos, were built around a homogeneous culture that had existed for some ten thousand years. The worst punishment was to be exiled — expelled from the tribe — and sent off to live a life of solitude in the cold mountains of the island’s interior.

So, while there is no evidence of an innate human yearning for private property, there is a desire to improve one’s condition and position in society and to have a degree of control; including the exercise of free will over our environment, our bodies, our parenting, our relationships, and our lives in order to make life easier and more comfortable.

Private Property

Private property can be viewed as an extension of, and a return on, a person’s investment in labor. In the free-enterprise system, a worker is willing to commit to your company a certain number of hours per day of her time, energy and talent (labor) to further your company’s goals. In exchange, you will pay her an agreed upon amount of money that can be used to further her goals. The more perceived value a person has to her employer, the higher her wages. Of course, however, this is relative to the supply of comparable labor in a given market. If the money that results from this wage is invested wisely, wealth (private property) will increase. This can be compared to a product, in that the more perceived value a product has to a consumer, the higher the price (again relative to supply); and the higher the price relative to the costs of production, the higher the profits. If the profits are invested wisely, the company becomes wealthier (more private property). And if you replace the word society with the words company and employee, then you can begin to see that all of the combined work and productive processes only benefit the worker and employer because society has placed a higher value on the services and products than their costs to society.

The fact that the builder, the butcher or the plumber is working for personal financial gain or that the corporate executive is working to further his company’s profitability does not diminish the value that each has provided their employers, employees or customers. Otherwise they would be either unemployed or out of business. In essence, this is Adam Smith’s Invisible Hand Theory.

Now if you extrapolate these ideas as an economic system, then new and improved products and services are continuously being introduced. Those that fall to the wayside are those that are valued less by consumers (society). This process is sometimes called Creative Destruction. While the system may seem cruel, at least to those whose jobs have been displaced or who have failed in their business ventures, it actually raises the quality of life and standard of living for everyone. The wealth that results from this system is the wealth that supports charities and pays taxes that fund government programs.

Therefore, in a free society many people believe that private property should be included as a basic human right; meaning that governments should never be allowed to take or destroy an individual’s property without following due process of law. It also means that governments provide protection to its citizens from theft or vandalism. These concepts necessitate a fair and equitable justice system.

Communism

This brings up an important distinction between free enterprise and communism. In a commune, all basic necessities of life are provided by the commune and a person’s labor is, in effect, a return on the investment made by the commune. Every able-bodied member contributes to the success of the commune. If it’s assets grow, the benefits of those assets are shared equally among the members. Therefore, there is no private property, only communally-shared property.

Can Communism Be A Good Thing?

A certain degree of communism has been shown to work as an acceptable form of government in homogeneous collectives that evolve from a common culture or religion; where members share similar values, come together voluntarily to live as a communal group, and are willing to work together toward common goals. However, in larger, more diverse societies there exists the necessity of forcing upon individuals the imposition of one giant, centralized collective that strips away innovation, enterprise, free associations, and differing values and beliefs.

There are certainly examples of private property in some primitive societies, just as there are examples of communism. All societal structures were and are based on the culture, history and values of the collective in question, not whether there was a natural yearning for private property on the one hand or communal living arrangements on the other.

Natural Law

For either communism or the free enterprise system to work there must be an assumption that human nature is basically moral. In other words, if everyone is out to cheat, steal or cause harm, then political systems falls apart. Natural Law proponents contend that all systems of law should comport with the basic laws of human nature. This theory makes the assumption that humans are essentially lawful, rational beings, who have basic rights that cannot be taken away by government. For example, in the Declaration of Independence, Thomas Jefferson (1743–1826) asserts: We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. Jefferson borrowed these ideas from the philosopher, John Locke (1632–1704), who believed that people were born equal and independent, and that everyone had and has a natural right to defend his life, health, liberty, and possessions.

Adam Smith

I think it’s a good time to explore some ideas that have been around for a few hundred years but are largely ignored by world leaders today. Adam Smith (1723–1790) was an ethicist, as well as a political and economic philosopher, most famous for his book: An Inquiry into The Nature and Causes of the Wealth of Nations (1776). In his book, Smith explains that:

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.

In other words, political stability based on the principles of natural law will bring about economic stability, leading to a state of affluence. A necessary element of this growth comes from trade, including international trade, not only for its extrinsic value, but also intrinsic values such as learning better ways of doing things; also, economic relations lead naturally to peaceful relations, mutual understanding and enrichment through cultural exchange. Smith also emphasized that both efficiencies and productivity will be enhanced by the Division of Labor and a continuous drive to improve methods and processes.

Smith defined wealth simply as well-being, expressed in arts, crafts and civility; in other words, the opposite of war, oppression, social stratification, or anything that keeps people down. He recognized that predation, violence, or the subjugation of other people inhibits economic growth. Why, Smith would ask, be industrious if someone can simply come along and destroy your property or take it from you? He believed that the tendency toward predation is part of human nature and must be guarded against. Smith further believed that governments are an essential part of society and function best when they provide for defense, large infrastructure projects, and the administration of justice, including the enforcement of private property rights; then governments should leave their people alone.

(From the Book Greed, Power and Politics, the Dismal History of Economics and the Forgotten Path To Prosperity, by Daniel Cameron)

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