Economics

The Advantages of Ownership

|

The Noblest Triumph: Property and Prosperity Through the Ages, by Tom Bethell, New York: St. Martin's Press, 378 pages, $29.95

If told that Country X had a large population, abundant natural resources, a highly educated labor force, access to the latest science and technology, vast tracts of undeveloped land, cheap wages, decent urban infrastructure, and preferential treatment by world trading partners, most people would see no clear obstacles to rapid economic growth. Yet Russia has had all these advantages for the last decade, and so did the Soviet Union for several decades before. They were not sufficient to produce a high standard of living.

In The Noblest Triumph, Tom Bethell shows that such puzzles can be understood by examining the institutions that determine how property is held and transferred. Bethell, The American Spectator's Washington correspondent and a visiting fellow at the Hoover Institution, traces the intellectual fall and rise of private property, taking pains to expand our understanding of this complicated and sometimes arcane topic by incorporating digressions into political and social history. Drawing on examples from ancient Rome, early modern Europe, and colonial America, he shows that conflict and stagnation are the predictable results when property is insecure or poorly defined.

It is sobering to consider that Karl Marx had a deeper and more sincere appreciation of private property's virtues than most of the scholars who dominated academia during the early and middle parts of this century. Economists at the leading graduate schools could (and still can) go through life without hearing more than a throwaway remark about the significance of property for economic development. Until very recently, the study of economics was institution-free, and one could say little about the choice between capitalism and socialism on the basis of the abstract mathematical theories that characterized the field. Meanwhile, over in the law schools, little consideration was given to the ways law affects the economy or, conversely, the ways that economic principles constrain the law.

Yet beginning in the 1950s, innovative thinkers such as Armen Alchian, Ronald Coase, Douglass North, James Buchanan, Oliver Williamson, and Mancur Olson in economics, Elinor Ostrom in political science, and Aaron Director and Richard Posner in law began to reshape the study of political economy by paying serious attention to the institutions of private property. By considering how the structure of politics and the law shaped the incentives of economic actors, they reawakened interest in the foundations of successful economic systems that lay at the heart of Adam Smith's pioneering explorations of the subject over 200 years ago.

These intellectual pioneers persisted in their efforts despite the apparent lack of interest from their colleagues, which in some cases amounted to scorn or outright hostility. The mainstream of the economics profession was preoccupied with macro models designed to eliminate the business cycle; sterile if elegant mathematical exercises in ever more refined equilibria; and utopian schemes to build a welfare state at home or jump-start growth abroad by transferring capital and technology to the disadvantaged denizens of the Third World. Development policy provided the most damning case against the mainstream because advice was confined to providing financial capital or technical know-how, with little support for market reforms and no consideration given to the virtues of private property and secure legal arrangements.

The failure of much development policy abroad, the disillusionment with heavy-handed regulation at home, the collapse of the Soviet Union, and the dramatic shift in Communist China toward a quasi-market economy fostered greater appreciation for the work of those who studied the subtle and intricate connections between the politico-legal institutions of bourgeois capitalism and the success of market economies. Law and economics became a major field of study in most law schools and several leading economics departments. Some of the pioneering scholars in political economy and economic development went on to receive the Nobel Memorial Prize in Economics. As Bethell notes, two of Ronald Coase's most famous papers have become among the most widely cited articles in economics. Moreover, the work of Nobel laureates Coase, North, and Buchanan, along with that of other major contributors to what is known as the New Institutional Economics, has spread to the neighboring fields of political science, law, history, sociology, and anthropology, showing some promise of becoming the foundation of a unified social science.

Despite their apparent success, these scholars are still considered to be slightly outside the mainstream. Though the best are cited and feted, their research is treated as slightly frivolous by many of the leading economics departments, and their followers and students are likely to be back in the line when it's time to make academic appointments or hand out grants. Nonetheless, few areas in the social sciences have seen such sustained and vigorous growth. It seems likely that the New Institutional Economics, combining as it does an appreciation for the best of standard economic theory with a more nuanced and practical attention to the law, political institutions, and history, will become more influential in both intellectual and policy circles.

Summarizing and explaining the origins of this vast body of ideas for a lay audience is a daunting task, and it is to Bethell's credit that he has carried it out conscientiously. It is an especially difficult story to dramatize because the struggles have not been primarily political or particularly ideological. There are no revolutionary conventions to look back on, or stormy battles culminating in the destruction of empires. And yet, the issues at the heart of this transformation arguably have been of greater consequence for the collapse of empires and the perpetuation of Western leadership than any election or military battle.

Bethell seems to have read or at least skimmed the most heavily cited work, while having consulted the leading figures in the field, many of whom are still around to tell us how their thoughts on the subject have evolved during the last half-century. It does not diminish his impressive accomplishment to note that he does not always succeed in clearly explaining the most important ideas. The writing is labored in spots, and there were times when I found the discussion hard to follow. Bethell's ambition is praiseworthy, but skipping through law, economics, history, and politics without turning whole chapters into mini-textbooks inevitably means that many technical points are never made clear, and omissions and errors creep in. The definitive book about the property rights revolution in academia remains to be written.

But this is an important story, perhaps the most significant intellectual event of the last 50 years. Other academics will no doubt accuse me of special pleading, but so long as the economy remains at the center of most people's concerns, the ideas and events so vigorously cataloged in this volume will remain central to the struggle for continued prosperity in the next century and in centuries to come. Long after the various New Economies have been forgotten, the old institution of private property and our interpretations of its workings will continue to exert a profound influence on every human's life.

John V.C. Nye (nye@wueconb.wustl.edu), an associate professor of economics and history at Washington University in St. Louis, is a founding member of the International Society for the New Institutional Economics.