I would like to propose a redefinition of the problem of environmental degradation. It goes like this: Environmental damage occurs when someone is losing money. Or, alternately, losing money leads to environmental problems.
It's as simple as that. Operating an inefficient, money-losing enterprise causes persistent environmental damage. Making money, on the other hand, protects the environment and conserves resources for the future. A profit-making economy is the best system there is for protecting the natural environment.
Of course, this is directly contrary to the conventional wisdom. Environmental degradation, we have been told over the years, is caused by greedy business enterprises, driven by the "profit motive" in pursuit of the "almighty dollar." Pollution, the destruction of landscapes, and the squandering of sources are all the result of an unfettered business sector that recognizes no other value but dollars and cents. After all, wouldn't business, if left unfettered, be putting a hydroelectric dam in the Grand Canyon to make money?
The answer is no. It wasn't business that wanted to put a dam in the Grand Canyon in the 1960s. It was the government—the Bureau of Reclamation, to be exact. And the government wasn't going to make any money at it, either. It was going to lose money—which is the only way the project was feasible in the first place.
Losing money damages the environment, spoils nature, and exhausts resources. Making money preserves the environment, protects nature, and conserves resources. In this simple lesson lies the way toward renewing the battle for environmental improvement in the hard-pressed 1980s—and returning a sense of individual responsibility to the American people.
How can making money conserve and improve the environment? Why is it that environmental damage is a violation of sensible economics? Understanding the point requires breaking out of the contemporary prison wherein all economic activity is seen as a two-sided conflict between "business" and "the consumer," or "the big interests" and "the people."
If this simplistic formulation is accepted, there are only two possible explanations of environmental destruction. The first says that the people are innocent (a popular enough notion), and big business is at fault. This latter, malicious sector, so the story goes, pollutes and destroys nature as a result of its "relentless pursuit of profits." Thus, the only solution is to "countervail" the power of business with a big government that spins a web of regulation and blocks business owners from doing just about anything. After 15 years of environmental effort, this is approximately where we are: the battle between environmentalists and their adversaries has become nothing more than a tug-of-war over whether to tighten or relax regulatory snares.
The only other possible view—a bit more jaundiced, perhaps—is that people themselves are the problem. There are too many people, it is argued, and only draconian programs for population control or perpetual stagnation (more romantically advocated as "no-growth" or "zero-sum" societies) can save us. People are perceived as being unnatural, out of tune with the harmony of nature. Only by cultivating some kind of mystical oneness with nature or retreating toward a pastoral, preindustrial state can we avoid overrunning our fragile environment.
Neither of these explanations of environmental problems gets to the real heart of the matter. Both miss a third player in the economic game, one who has a specific, personal interest in preserving the environment and protecting its value into the future. This is the landlord, the person who owns the natural resources in question. The environmental crisis has essentially been a problem of the decline of landlords. We no longer have landlords—owners—in place to protect and preserve the resources we are busy degrading. No one has a personal interest in protecting the environment.
Why don't we have contemporary landlords? There are two reasons. First, many of the resources we have begun to abuse are so diffuse that it is difficult to bring them under private ownership. It is difficult to define ownership for the air we breathe, running streams, groundwater aquifers, or whales that roam the far corners of the world the way we do for, say, an acre of land or a steer on the hoof. In all these instances, establishing rules for ownership and enforcing them may require some creativity. European kings once claimed ownership of all the deer in the forest, for example, and labeled anyone who killed one without permission a poacher. Ownership of a resource is necessary in order to prevent it from being treated as a "common pool" and exploited by all.
Far more frequently, however, the situation has worked in the opposite direction. In a wide variety of instances, government itself has insisted on acting as the owner of resources that could just as well be held in private hands. In these instances—the national forests, grazing lands in the West, water supplies, for example—government has insisted on playing the role of the landlord, under the illusory idea that it is best suited both to protect and to develop these resources for the greatest good of all.
Yet government does not make a very good landlord. Its agents, with no personal stake in the matter, do not try to maximize the government's rents, or income, from the resources; they do not employ the resources so that they will have their highest value for both today and tomorrow. Instead, under its common mandate to make everyone happy, government generally subsidizes the use of resources and shovels them onto today's market at far below their potential future value. As a result, these natural resources are abused, overused, and generally treated at far less than their true worth. This is why we have an "environmental crisis."
How did it all begin? Interestingly enough, an overwhelming number of today's environmental problems can be traced back to the first effort to deal with them, during the great conservation era of the early 1900s. It was then that the fateful decision was made to keep the vast majority of the West's resources—two-thirds of the land, for example, west of the Rockies—in the hands of the federal government.
The original logic of the conservation movement, under Theodore Roosevelt's leadership, was perhaps justified. In 1900, there simply weren't enough landlords around to take responsibility for the vast resources available. The country didn't yet have enough people to own them all. It seemed likely that selling them on the market would have meant turning them over to the railroad companies and other corporate baronies, which were already the object of extreme public resentment.
But the mandate with which progressive conservationism took over control of these resources was at best obscure and confusing—political, in other words—and has long outlived its usefulness. The government, strangely enough, was both to conserve resources and to develop them "for the greatest good of the greatest number in the long run," as the prominent conservationist Gifford Pinchot put it. These were lofty terms, but devoid of much practical meaning. To one person, conservation might mean a magnificent new dam backing up miles of running water for irrigation of the desert, while to another person it means preserving the landscape the way it was before human beings ever laid eyed on it.
Most important, the government made no attempt to collect proper rents on these resources. Rents—the income from resources—are the measure of how well they are being employed. Most people, environmentalists included, often believe that the only way people make money on land, for example, is to exploit it as quickly as possible. But this common conception completely misinterprets the economic motivation of the landlord. For the permanent owner of a resource, the best way to maintain high rents on a property is to conserve its value as far into the future as possible.
Landlords are not business operators. Businesses make their money out of current production. But a landlord expects to own a resource far into the future (or to sell it based on its value far into the future). Therefore, he wants to make its value last as long as possible. With renewable resources, this means using them at a pace that gives them plenty of time to regenerate. For a nonrenewable resource, it may mean holding it off the market as long as possible, while similar resources are diminishing, in order to optimize its scarcity value.
Governments, however, do the opposite. Under constant political pressure to please voters and build satisfied constituencies, they throw resources onto the market much more quickly than do private owners, sometimes even subsidizing development out of "their own" pockets—that is, with taxpayers' money. They plunder their own, or "the people's," resources in a way that no private landlord ever would.
Thus, in the end, the old conservation agencies have ended up the biggest environmental offenders of all.
• The Bureau of Land Management's ranchlands in the West are constantly overgrazed, while private landlords have no trouble keeping their own lands in good shape.
• The Bureau of Reclamation, with the ever-ready assistance of the Army Corps of Engineers, regularly drowns huge areas of prime farmland in order to create barely equivalent amounts of marginal farmland through ridiculously subsidized irrigation projects.
• The development of remote, useless federal lands has been promoted to such a degree that environmentalists have been forced to invent the tortured concept of "wilderness" in order to keep these areas from being invaded. The US Forest Service, for example, continues to subsidize expensive logging in remote "roadless" areas, while letting more accessible forest lands go untouched. John Baden, director of the Center for Political Economy and Natural Resources at Montana State University, estimates that the Forest Service, with the richest timber holdings in the world, still manages to lose $500 million a year on its operations. They must be doing something wrong; indeed, they are undervaluing "their" resources.
All this is poignant verification of Garrett Hardin's principle of the "tragedy of the commons"—that when a resource is held in common by a group of people, say by the American people, no individual user bears the full cost of using the resource, which is consequently overexploited.
Is it any wonder, then, that when contemporary environmentalists entered the political fray in the 1960s and '70s, they aimed their first fire at the old conservation agencies themselves—the US Forest Service, the Army Corps of Engineers, the Bureau of Land Management, and the Reclamation Bureau?
Environmentalists are, in a sense, landlords without an estate. They have the "land ethic," as their early prophet Aldo Leopold defined it. They understand the value of natural resources, even if they don't own them outright. They see that we cannot forever pillage our natural inheritance in order to promote immediate consumption. They recognize that undervaluing natural resources leads us into vicious cycles of technological extravagance, where it soon seems that we cannot tolerate even the slightest increase in scarcity without worrying that we are "running out of everything."
What environmentalists have not understood so clearly, however, is that in almost every instance it is government ownership of resources—which is naturally accompanied by government subsidization of consumption through low or nonexistent prices, tax incentives, and other popular measures—that leads to this dilemma. Governments don't mind losing money on resources, since they can always carry the bill back to the taxpayers. In fact, it is often assumed that government is doing something virtuous by losing money in managing resources.
But private landlords know better. Without the opportunity to cover their losses through taxation, they realize that losing money simply means badly managing resources and squandering their value. In the hard-pressed 1980s, protecting the environment is going to mean getting resources out of government hands and into the private sector. Only then can the spontaneous corrections of the marketplace spur owners to maintain the value of resources far into the future.
The problem of government ownership of resources did not begin in our era, nor did the dilemmas of environmental depredation. With these things in mind, let us take a closer look at the idea of landlords as a third force in economic history and see how the present situation has evolved.
Through the long annals of civilization, government ownership and participation in enterprise has been much more the rule than the exception. This is often overlooked by environmentalist interpretations of history. Environmentalists, for example, often cite the denuded hills of Greece, the ruined "breadbasket" of North Africa, or the sheep-stripped countryside of rural Spain as proof that (to try a common paraphrase) "humanity has never learned to be very kind to our natural surroundings."
Yet, in how many of these instances has it been government-subsidized industry, rather than private effort, at work? The point is critical, since private enterprises are subject to the checks of profits and losses, while government enterprises are not.
The Spanish crown, for example, ruined many of Spain's rural areas by establishing a national woolens industry with the money brought back from the New World by the conquistadors. The government appropriated huge amounts of private farmland and set up enclosures for sheep pasturage. The market was soon flooded by wool, of course, but the royal government paid no mind, intensifying its efforts. Eventually, it squandered all the gold of El Dorado and beat to death much of its medieval farmlands at the same time.
This depredation of Spain's countryside, then, is hardly an example of "man's destructive instincts." It is much more an example of the ability of centralized governments to ignore the checks and balances of the market system. Had a variety of individual independent landlords been making decisions to convert Spanish countryside to sheep pasture, the consequences for the wool market would have halted the process, and the countryside would have been far less devastated than by the decision of a single, centralized government.
The free-enterprise system, as we know it, didn't really evolve until after the time of Adam Smith—who didn't win his place in history by describing some free-market Garden of Eden around him but by envisioning what could exist if governments would leave off their mercantile interference in the economy and allow the checks and balances of the market system to operate freely.
Smith argued that there are three players in the economic game—laborers, capitalists, and landlords. Labor contributes its sweat and skills and earns its money through wages. Capitalists own and manage the tools of production and collect their return through profits. Landlords own the natural resources—land, for the most part, in Smith's day—and make their returns through rents.
Smith is chiefly remembered as an apologist for business, even though Wealth of Nations is actually one long political treatise against businesses for getting government to restrict trade on their behalf. Yet in retrospect, it is easy to see why Smith is still considered the "philosopher of big business." He was at least willing to accept the legitimacy of both profits and rents in the economic system. By constantly seeking higher profits, he argued, capitalists ensure that their materials will be put to their highest-valued uses. At the same time, by constantly seeking to optimize their rents, landlords direct natural resources to their highest-valued uses—which includes the possibility of reserving them altogether from present consumption in order to save them for future use.
Later economists doubted the stability of the system. David Ricardo, the outstanding economist of the early 19th century, for example, argued that this model was irrevocably biased in favor of landlords. A successful banker himself, Ricardo said that because the amount of land is fixed, landlords would keep raising their rents, eventually accumulating most of the wealth in the economy.
Like Malthus, his contemporary, Ricardo did not see that the value of land is not economically immutable—that through additional infusions of both capital and labor, less land can produce more goods. Thus, US production has developed to the point where, presently, the contribution of labor is estimated at about 80 percent of the total value, capital at about 12 percent, and natural resources at only about 8 percent. In 1961, economist Robert Heilbroner could write that "the landlord's domination over the economy is a textbook curiosity" and that "the problem of rent has become almost an academic side issue in the modern world." This was before the environmental crisis began to emerge.
While Ricardo suggested that rents are illegitimate, Karl Marx went even further. He argued that both rents and profits—but particularly profits—represent "exploitation" and are actually "stolen" from their rightful owners, the workers. Moreover, he argued, these "excess profits" are so unbalancing that capitalists would end up with all the money. This, in turn, would lead workers to revolt, overthrow the system, and set up a utopian society.
Neither of these criticisms of Smith's basic model has proved very good at predicting history. Neither landlords nor capitalists have become all-powerful, while the lot of the average worker in capitalist countries has steadily improved. Smith's model holds up very well indeed for contemporary society.
Smith's model does suggest, however, where to start looking for consequences if one or more of the three groups succeeds in gaining, not enough wealth, but enough political domination to try to manipulate the system in its favor. If capitalists, for example, manage to artificially hold down wages through legal means—as they often did during the 19th century—then we can expect the lot of laborers to deteriorate, leading perhaps to the sort of consequences that Marx predicted of a pure free-market system. If, on the other hand, capitalists are politically prevented from collecting their profits, then we can expect an abatement of their enterprising efforts and perhaps the sort of "stagflation" that afflicts so many economies today.
And finally, if landlords are politically prevented from collecting their rents, then we can expect the resource base to deteriorate. Thus, the question of rents and landlords is not a "textbook curiosity." On the contrary, when landlords are gradually excluded from their role in the economy, an "environmental crisis" ensues.
What has clearly happened in contemporary economies is a distinct diminution in the ability of landlords to act as stewards of natural resources. This evolution is fairly easy to trace. Landlords have never been very popular in history—perhaps even less popular than business people. Gradually, political pressures have constricted their latitude in exercising control over their own resources. Or, alternately, these same pressures have pushed resources completely out of private hands and into the arms of government. There they become "the people's" resources, "free" for exploitation.
This pattern of pressure against landlords inevitably leads to overexploitation of resources and environmental damage. The "common ruin of all," as Garrett Hardin described it, is the unavoidable consequence. Without landlords, there can be no environmental protection.
Let me illustrate all this with a homely, and perhaps a bit oblique, example—rent control in New York City. Apartment buildings are not a "natural" resource, but as a standing resource they operate very much like one in the market. As with land itself, they are continuously renewable if used properly. The builders of apartments are capitalists, but their long-term owners can be properly called landlords.
These resource-owners have two basic impulses—to collect optimal rents today, given the market supply of and demand for apartments, and to go on collecting them into the future. The owner will one day die, of course, but he can always sell the building first or pass it on to his heirs. At no point does it ever pay a landlord to allow the value of his property to deteriorate. All the damage would be absorbed by the landlord himself, with no compensating benefit. Landlords have a built-in "conservation ethic" that comes with the job.
The politics of New York City, however, does not allow landlords to collect market rents on their apartments. This is accomplished under a variety of political flim-flams, dating back to a "temporary" measure imposed during World War II that has never been removed. Despite all the demagoguery about "greedy landlords" that continually rationalizes rent control, most people recognize that, at bottom, rent control is nothing but an immensely popular political device that allows the city's huge tenant population to exploit a small minority of landlords. (The proof of this is that nothing upsets "tenants' rights" groups so much as the suggestion that they themselves take on the responsibilities of being landlords. Condominium and cooperative conversions are fought with even greater fury than the occasional fuel pass-along or rent increase. Without a captive landlord population, tenants would have no one left to exploit.)
Is it only landlords that are exploited, however? The answer is no. Unable to collect market rents, the landlords begin to lose money. They can no longer afford to make repairs on their buildings. The apartments begin to deteriorate, which drives down rents (both economically and legally), which in turn makes it even harder to pay for repairs. Landlords then are even more greatly condemned, and rents are pushed down even further. Eventually, many owners simply abandon buildings, even though they may represent a lifetime investment. Without proper rents, no one can play the role of landlord forever.
The deterioration and destruction of New York City's rental housing market is there for all to see. Despite population growth and a continuously high demand for housing, the city now has fewer available rental units than it did in 1942, when rent controls were originally imposed. Whole blocks of apartment buildings now stand in ruins, while privately owned houses only a few blocks away remain in perfect condition.
Obviously, it is not only landlords who suffer when they are not allowed to collect market rents. Sooner or later, the exploiting population will have eaten its way through all the landlords' wealth. People then begin to devour the resource itself that landlords, in their own private interest, originally had set out to protect.
New York City's tenants are a population in the process of destroying its environment. Though it is not a natural environment, the economic principles are the same. When popular pressures prevent landlords from collecting proper rents and playing their legitimate role as conservors and protectors of resources, it is only a matter of time before the resources themselves will be degraded and eventually destroyed.
The contemporary economist who has perceived this dilemma most clearly is, not surprisingly, also generally regarded as the leading theorist of the environmental movement. He is Herman Daly, professor of resource economics at Louisiana State University.
In his 1977 book, Steady-State Economics, Daly identified the economic root of the contemporary environmental crisis as the success of both contemporary labor (which I take to be interchangeable with "consumers") and business in politically exploiting a much-reduced "landlord class."
Landlords were the most powerful social class in feudal times, but in modern capitalism they are the least powerful class, and whatever power they might exert toward raising resource prices is undercut by the government, which is the largest resource owner and which follows a policy of cheap resources in order to benefit and ease the conflict between the two dominant classes, labor and capital.…
Capital and labor are the two social classes that produce and divide up the firm's product. They are in basic conflict but must live together. They minimize conflict by growth and by throwing the growth-induced burden of diminishing returns onto resource productivity. How do they get away with it? In earlier times it might not have worked; a strong landlord class would have had an interest in keeping resource prices from falling too low. But today we have no such class to exert countervailing upward pressure on resource prices.…
Should we, by a kind of reverse land reform, reinstate a landlord class? Landlord rent is unearned income, and we find income based on ownership of that which no one produced to be ethically distasteful. No one loves a landlord…and not many lament the historical demise of the landowning aristocracy. But not all the long-run consequences of this demise are favorable. Rent may be an illegitimate source of income, but it is a totally legitimate and necessary price, without which efficient allocation of scarce resources would be impossible.
Although Daly was writing for the environmental movement, few environmentalists have taken his points to heart. In particular, many still seem fixed on the idea that making money is the root of all environmental problems. This is because they confuse business people with landlords. Businesses do indeed make money by using resources for current production. But landlords make money by limiting the use of scarce resources, by conserving and protecting them for future availability. This is why the profit motive—or, more correctly, the "rent motive"—is the most important tool we have for protecting the environment.
The model of missing landlords makes understandable a whole range of environmental difficulties. Take the following examples:
Question: Why did the Bureau of Reclamation want to build a dam in the Grand Canyon? Answer: Because it is in the business of subsidizing the use of the resources it controls. The underpricing of its land and water leads to an ever-increasing demand for both, which can only be met by building more and bigger projects. If the government charged people market prices—collected proper rents and profits, in other words—then conservation would become economical and the accelerating demand for these resources would quickly vanish.
Question: Why did we develop such an oil-dependent economy before the 1970s? Answer: Because, right from the beginning, the government subsidized oil development, at the behest of both industry and consumers. As early as 1920, oil-depletion allowances reversed the ordinary economics of a finite resource and artificially accelerated its development. Only when US oil resources had been prematurely drawn down by the early 1970s were US suppliers forced to go abroad. Even then, nothing happened until the landlords of world oil supplies—the OPEC nations—began to collect market rents. When these economic realities finally sank in (delayed somewhat by our decade-long romance with oil price controls), technology and consumption habits quickly shifted to a more efficient basis. As a result, the "oil crisis" of the last decade has quickly disappeared.
Question: Why is it necessary to create designated wildernesses to preserve even the most marginal federal lands from development? Answer: Because the development of these lands is being subsidized. Without the government accepting losses on the use of these lands, they would remain just what they are today—wildernesses.
Question: Why is the Army Corps of Engineers such an environmental disaster? Answer: Because it never has to make money.
Question: Why are groundwater supplies in many parts of the nation being rapidly exhausted? Answer: Because forms of ownership of these natural "common pools" have not been defined. Instead, people can draw on them for free. A sensible landlord would charge people for drilling wells into these underground reservoirs. And once market rents were collected on these resources, pricing mechanisms would stimulate the proper conservation practices, and the "groundwater crisis" would disappear.
Question: Why don't we see the development of clean, efficient "alternative" energy technologies? Answer: Because governments everywhere subsidize centralized electricity. Researchers John Baden and Richard Stroup, of Montana State University, have discovered that a private utility, the Jacobs Wind Electric Company, was successfully selling wind-mill-generated electricity to midwestern farmers in the 1920s—a promising start on the technology. The business was wiped out, however, by the Rural Electrification Administration, which brought in subsidized coal power in the 1930s. Early solar water-heating efforts in southern California suffered a similar fate. Even today, the major obstacle to solar systems is the constant subsidized overconsumption of electricity encouraged by state utility commissions, plus federal price controls on natural gas.
And so on and so forth. In each of these instances, it is government intervention in the economy, not the working of the marketplace itself, that leads to the short-changing of environmental values.
Some environmental problems are far more tricky, of course. For instance, it is difficult to define property rights for the air around us. It cannot be parceled out in one-acre lots (although it can be defined in terms of "airsheds"). To prevent pollution, however, there must be some kind of ownership, and people must be charged for using the air as a dumping ground. (We have, instead, clumsy regulations that tell industries where and when to install antipollution equipment, and even what kind of equipment to install. The result is a ham-handed bureaucracy and endless lawsuits, rather than an efficient clean-up.) Problems like toxic chemicals and pesticides, with their long-delayed after-effects, pose unique problems of liability and long-term responsibility that may require new inventions in risk insurance.
But there is not an environmental problem anywhere that cannot be reduced to the fundamental paradigm of resource ownership and the failure to allow landlords to take care of their property. This is because (1) ownership structures, where they are difficult to define, have not been set up; (2) governments, under popular pressures, have prevented private landlords from exercising their rights of ownership; or (3) the government itself has taken control of a resource and makes it available to the public on a subsidized or common-pool basis, without charging adequate rents to optimize its value. In all three cases, the result is the same—degradation of the resource and erosion of the quality of the environment.
Does this mean, as Herman Daly suggests, that we have to "reinstate a landlord class" to solve environmental problems? Not, I believe, in the way Daly implies. (Daly himself shies away from the dilemma and, strangely and paradoxically, calls for even more government control over resources as a solution. He apparently does not recognize that in an industrial society capital and labor are a permanent majority and will always, if given the chance, use government to exploit landlords and natural resources.)
Instead, I would like to suggest a very American solution to the problem. "Reinstating a landlord class" does not have to mean a return to the landholding aristocracies of the Middle Ages. Rather, it should mean that we would all get a chance to become landlords. That would give everyone a piece of the "conservation ethic"—just as the diffusion of industrial wealth throughout the population has given everyone a stake in the economy.
Let us take, for example, the 170 million acres owned and managed "for the greatest good of the greatest number" by the Bureau of Land Management, a sprawling federal bureaucracy with 5,000 employees operating on an annual budget of well over $1 billion. Selling off whatever lands private owners would be willing to purchase (probably only about 10 percent)—and abolishing the federal mandate to develop the rest at any cost—would alleviate the problems of collective ownership and put resources in the hands of people who would conserve them because it would be in their private interest to do so. It would, incidentally, also pay off at least $200 billion of the national debt, which only illustrates how "land poor" the federal government and its bureaucracies have become. In the early 19th century, the federal government paid off its Revolutionary War debts in the same way. Such a land sale would represent a continuation of the principle of decentralized ownership on which the country was founded.
Federal bureaucrats, of course, will oppose it. So will many environmentalists—who have, unfortunately, grown quite accustomed to exercising their power in the halls of Washington's bureaucracies. They and others will continue to confuse businesses with landlords and will argue that the desire of every private property owner will only be to develop and exploit his resources as fast as possible.
But a true understanding of the historic role of landlords should make us realize that it is the property owner's "land ethic" that ultimately keeps us from destroying our natural heritage. True stewardship and conservation are only nurtured by the experience of individual ownership—in a system where landlords are left free to preserve the value of their property and are protected from the universal political tendency to exploit someone else's resource without paying the costs. Until the impulse to protect the environment is harnessed to the private desires of landlords to care for their own property, environmental problems will never be solved. We are all going to have to learn to become landlords.
William Tucker has written for REASON, Harper's, and many other magazines, and is the author of Progress and Privilege.