Sunday, April 13, 2014

Abolishing private property rights

Ever hear of Armen A. Alchian? One of the best econ thinkers on Price Theory and his 100 birthday was yesterday. Wish he were still around to impart more wisdom to us.

Dr. Alchian said: "The worst outcome by far occurs when property rights really are abolished." 

This is a well proven theory known as the “Tragedy of the Commons”. A political economist at Oxford University, William Forster Lloyd, explained this theory in 1832. Looking around England he found that common, not privately owned, pastures were devastated and of little economic value while privately held land was not. Lloyd's answer was that each user of the common was guided by self-interest. When the carrying capacity of the commons was fully reached the owner of a herd would ask "Should I add another animal to my herd?" and because the person owned the animal and not the pasture, adding an animal would be a gain for him while the loss would be “communized” among all the various herd owners using the pasture. In this privatized gain would exceed the herdsman's share of the commonized loss.

Now property rights not only have to do with the private ownership of pastures, property rights has to do with the private ownership of the product of your hands and mind.

Now if you consider the ACA (Affordable Care Act) you will see that the Tragedy of the Commons may be applied. The commons in this case is medical service. A limited number of care providers [doctors, nurses, etc.] and an expanding number of people demanding care that may or may not be necessary but is free. I may have a cold or an upset stomach and so go to the doctor, so the demand will exceed the carrying capacity of the health system.


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