- Hayek’s Still Relevant Response to Today’s Paternalist Planners - May 12, 2021
- Biden’s Agenda of “Democratic” Paternalism and Planning - May 3, 2021
- Building Up the State Means Pulling People Down - April 26, 2021
Several of the leading European countries are now in the process of implementing a second wave of social and economic lockdowns in the face of new and a rising number of cases of the coronavirus. After bringing their societies to near total halts in the spring of 2020 with lockdowns and shutdowns in the name of “flattening the curve” to not overwhelm medical facilities and, hopefully, stop any further spread of the virus, this new increase in cases has brought about a repeat of the same governmental response: prohibit many human contacts by closing or restricting business activities and ordering people to stay at home.
Governments in Germany and France announced new commands closing a good deal of their countries on October 28th, with the German authorities ordering the closing of all restaurants, bars, and public entertainment until the end of November. Of course, not everything is to be closed. The German government announced that schools would remain open, as would daycare centers, hair salons and most retail businesses.
The same was announced by the French government the same day, with most of the same restrictions, on the restaurant and entertainment sectors of the French economy. The French president, Emmanuel Macron, however, said that factories and businesses would not be shut down this time around. “The economy must not stop nor collapse,” he said. But people would be required to basically stay indoors in their homes and away from each other.
Belgium and Greece, a couple of days later, made similar announcements about their respective countries. The Belgian government again commanded the closing of “nonessential” stores, heavily limited all social interactions, and ordered compulsory working at home wherever it is possible. Belgian prime minister Alexander De Croo declared, “We are going toward a reinforced confinement with only one goal: avoiding the health care services collapse.”
Then on October 31st, the United Kingdom followed suit with Prime Minister Boris Johnson imposing new travel restrictions and similar closings of restaurants and pubs for at least through the month of November, perhaps even well into December. But unlike the Germans and the French, the British government has ordered the closing of all “nonessential” retail enterprises, including gyms and hair salons. And Johnson prohibited people from any social interactions within their homes. On the other hand, schools, universities, factories, construction sites and farms will be unaffected, and will operate more or less as before.
Austria followed suit the same day as the British announcement. In all of this, Ireland actually had set the tone, with an announced lockdown ten days earlier than all these others, on October 18th, with the same prohibitions on restaurants, bars, entertainment, and insistence on people, otherwise, remaining at home, with family and social gatherings virtually banned until the beginning of December.
Government Lockdowns Make Everything a Political “Commons”
So far, a second similar locking down of a good part of American society has not been publicly proposed or immediately called for. But one never knows in politics what tomorrow may bring. Joe Biden, through his entire presidential campaign, insisted that if he were to be elected president, he would call for a national policy of compulsory face masking. He would devise and implement a plan to defeat the coronavirus, and, clearly, make sure that every American followed it, for the good of the country as a whole.
Whether in Europe or here in America, I would suggest that all such calls for command and control systems of “solutions” to the coronavirus crisis represent what might be classified as a political tragedy of the commons. Whenever property rights are noticeably abridged or abrogated, the spaces in which human beings live and associate and interact are necessarily collectivized. That is, that area of life is removed from the deliberative control and decision-making of private individuals and transferred into a common space taken over by a political authority which determines how and in what forms and for which purposes that property may and shall be used, including the actions of the people on or connected to it.
When Everyone Owns Something, No One Owns It
The idea of a tragedy of the commons developed out of the insight that when something is de jure or de facto “owned” by everyone, it is, in fact, owned by no one. Such common ownership in principle implies that as the collective property of all, no one may be excluded or prevented from using it as they find convenient and advantageous. As the common property of all, everyone has as much claim and right to access it as all the other collective owners.
The problem is that when no one may be restricted or limited in their use of that commonly owned and shared property, it will tend to be over-used, under-maintained, and rarely or at all improved from its original state. The reasoning behind this argument was articulated by Garrett Hardin (1915-2003) in a famous article on “The Tragedy of the Commons” (Science, December 13,1968):
“The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons . . . As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, ‘What is the utility to me of adding one more animal to my herd?’ This utility has one negative and one positive component.
“1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.
“2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of -1.
“Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another . . .
“But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit —in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.”
Why a “People’s” Cow” Starves
A good number of years ago, I was invited to speak at a conference being held in the Fiji Islands in the South Pacific. The venue was a hotel on the main island of Viti Levu, not too far from the capital city of Suva. One evening a group of us got tired of the hotel fare and decided to eat at a restaurant at a nearby town. We piled into a taxi and on the way, on an unpaved jungle road, the taxi came to a halt because an extremely emaciated, very slow-moving cow was blocking the way.
I asked the driver who might own that clearly starving cow. He replied, “Belong to all Fiji people.” I asked, but who among the Fiji people was responsible for the care of this cow? He answered, “All Fiji people, no one person.” And that was the point. The cow belonged to no one, and as the property of all, none had a motive to feed and care for this poor cow. If anyone cared for and fed it, they could not prevent any one of the other collective islander owners from milking it or even killing it for its meat after being fattened up. So why should anyone incur any costs, when no reasonably secure and recognized benefits would accrue to such a concerned person from looking after the cow?
Property rights, when properly defined, secured, and protected from abridgment or violation by others, create incentives for the recognized private owners to think twice before misusing or neglecting something that can directly or indirectly (through trade) bring legally recognized exclusive benefits to themselves after incurring any costs relating to its use, maintenance, or improvement.
Property Rights Incentivize People to Think of the Future
About a year and a half before Hardin’s article on the “Tragedy of the Commons,” UCLA economist, Harold Demsetz (1930-2019), published a now equally famous article on “Toward a Theory of Property Rights” (American Economic Review, May 1967).
He explained that private property rights succeed in overcoming these socially disadvantageous consequences from collective ownership precisely by making someone a responsible owner over the property, with the incentives to “husband” and improve that which is legally recognized and respected as his. Failure to do so, as the owner of the property, imposes costs of lost opportunities on him by not weighing and acting in ways that take into consideration not only its present uses but potential future benefits that can be his if the property is properly cared for. Explained Demsetz:
“A primary function of property rights is that of guiding incentives to achieve a greater internalization of externalities. By communal ownership, I shall mean a right which can be exercised by all members of the community . . . Communal ownership means that the community denies to the state or to individual citizens the right to interfere with any person’s exercise of communally-owned rights.
“Private ownership implies that the community recognizes the right of the owner to exclude others from exercising the owner’s private rights. Suppose that land is communally owned. Every person has the right to hunt, till, or mine the land. This form of ownership fails to concentrate the cost associated with any person’s exercise of his communal right on that property. If a person seeks to maximize the value of his communal rights, he will tend to overhunt and overwork the land because some of the costs of his doing so are borne by others. The stock of the game [the animals on the land] and the richness of the soil will be diminished too quickly.
“If a single person owns the land, he will attempt to maximize its present value by taking into account alternative future time streams of benefits and costs and selecting that one which he believes will maximize the present value of his privately-owned land rights . . . In effect, an owner of a private right to use land acts as a broker whose wealth depends on how well he takes into account the competing claims of the present and the future.
“The resulting private ownership of land will internalize many of the external costs associated with communal ownership, for now an owner, by virtue of his power to exclude others, can generally count on realizing the rewards associated with husbanding the game and increasing the fertility of his land. This concentration of benefits and costs on owners creates incentives to utilize resources more efficiently.”
A private property order makes all property owners responsible members of the collaborative and cooperative system of mutual association and trade in which they all participate in the division of labor. Specialization inescapably means our dependency on many others for most of what we need and desire so as to maintain and improve our lives. We are, therefore, motivated to think intelligently about our use of the property that is legally under our ownership and control (which includes the property right in our own labor), since it is the means by which we may, now and in the future, successfully produce and supply some good or service that serves as the means through which we acquire in voluntary exchange what we want from others.
Benefits of Private Property and Prices in Emergency Situations
What does this have to do with lockdowns and shutdowns imposed and commanded by governments? If left alone, within a system of recognized and enforced private property rights in a competitive and free market, each and every participant has the incentive and motive to adapt and adjust in how he acts and in the use of the property possessed and controlled by him according to the changing circumstance of supply and demand as informationally conveyed and provided to him through the system of market-based prices.
Each, in his own self-interest, must weigh and evaluate the best use of his labor and the monetary and physical capital that may be at his disposal. What is “internalized,” as Demsetz argued, are both the benefits and (opportunity) costs of all facets of his conduct. Focusing on this – the incentive aspects of private property, the informational role of prices, and the opportunity setting of voluntary exchange – explains why (among other reasons) the market-oriented economist has often questioned and doubted any and all uses of government command and control methods to devise ways of dealing with the social aspects of the coronavirus crisis.
The unexpected emergence of the virus, its rapid spread through a growing number of segments of the population (though unevenly in its demographic impact), and the sudden change in the pattern of demands for both medical supplies and everyday goods, required a relatively quick response on the part of producers to shift productions to better and effectively reflect the change in the demands for various goods and services.
Unhampered by government, changing prices reflecting the new changing demands for goods immediately send out the needed signals to everyone in the market to judge and evaluate what it means in their corner of the division of labor in terms of what to produce more or less of, and to bring about the required reallocations of men, machinery and material to where they are now more urgently called for as communicated through the new structure of relative prices, which, in turn, changes the demands and prices for those factors of production in different sectors of the economy. (See my article, “Price Controls Attack Freedom of Speech”.)
This brings to bear the needed responses by each and every one in the society; in particular, that only they can individually best judge as to how the change affects them, and in what ways their knowledge and talents should be used in greater or smaller different ways. This includes improvisations and discoveries of short-term and longer-term means and methods to fill gaps “now” before the “normal” supply-chains of production and distribution can “catch up” with the new circumstances.
Hayek on the Importance of Free Prices in Emergencies
Even in dramatic “emergency” situations, this is why many market-oriented economists have pleaded to rely upon the price system and competition. For instance, just as the Second World War was beginning in Europe, Austrian economist Friedrich A. Hayek (1899-1992), then teaching at the London School of Economics in Great Britain, published an article on, “Pricing versus Rationing” (The Banker, September 1939, reprinted in, The Collected Works of F.,A. Hayek, Vol. 10: Socialism and War ). Hayek argued:
“When a great demand arises for a new product or for additional quantities of old products, the new production will require particular materials and particular kinds of labor which will now become unusually scarce . . . The required quantities of the urgently needed factor[s] of production ought to be released from those uses in which they can be dispensed with at the least sacrifice of other necessary things.
“But this is just what will happen if the scarce factor rises in price, since producers will dispense with it precisely for those purposes where it costs least possible to do without it . . . A little consideration will show that a rise in price is incomparably more efficient a method of bringing forth additional supplies than alternative methods of achieving the same result.
“Where it is a question, not of a momentary emergency, but of obtaining the largest supplies over a period and at the least sacrifice of other production, the price mechanism is infinitely superior to any other method. A rise of prices not only forces people to use the commodity sparingly in every possible use, including myriads of use which the cleverest planner could scarcely think of. It also encourages the use of substitutes wherever such can be found, gives people an incentive to draw on their stocks and utilize scrap, and draws supplies from every nook and corner, engaging the ingenuity of all who have anything to do with the commodity to find means of economizing it with a thoroughness which no central direction could possibly imitate.” (pp. 151-153)
Government Lockdowns Turned Markets into “Commons”
The shutdowns and lockdowns coercively commanded by many of the leading governments of the world in the first half of 2020, including in the United States, prevented the fullest and most effective and efficient adaptation and adjustment to the new reality of the coronavirus. The reason being that governments basically abrogated and abridged private property rights throughout their societies. People’s lives, liberty and properties were, for all intents and purposes, “nationalized.” They became the “property” of the nation as a whole under the “stewardship” of the political authorities.
Each country became a huge “commons,” with reduced or de facto eliminated private owner decision-making over what nominally remained “private property” on paper. It is because of the “tragedy of the commons” as explained by Garrett Hardin that when governments declare some spaces to be the common property or “heritance” of all, they impose rules of access and use. The government becomes the de facto owner of the land or resource in the name of “the people.”
We are all familiar with such instances. In general, roads belong to “everyone,” but since we all know the chaos and harm that may be forthcoming if anyone could use the “common” roads and highways any way they wanted, the government imposes regulations concerning acquiring drivers’ licenses and safety inspection of vehicles, as well as rules of the road setting speed limits, procedures to be followed about stopping and turning at intersections, and moving to one side when emergency vehicles are passing by.
Economists have also pointed out various inefficiencies; that is, various road “tragedies of the commons,” under government planning and policing. Open access creates greater congestion due to no market-based and competitively determined entry to the roads through a price structure guiding on- and off-peak use, as would be more likely to be implemented under private ownership of thoroughfares to maximize revenues and avoid customer-driver inconvenience and irritation. Also, where roads would be built and how they might be maintained would be more consumer-directed if they were private property rather than government-managed “commons,” since as Demsetz reasoned, the private owner would be incentivized to “broker” the maintenance, repair and improvement of his roads between now and in the future to maximize its net present value for his own gain.
The government-commanded lockdowns and shutdowns transferred control to political decision-makers over which businesses could operate, what and how they could produce with which resources, along with what final products could be sold to consumers at often dictated maximum prices. Having made the economy a “commons” under its production and pricing commands, government oversaw a tragedy of the commons. Shortages of vital goods and equipment suddenly were needed in greater quantities in hospitals and other medical facilities. Panic lines of masked and “distanced” shoppers in government-approved places of those businesses permitted to operate for the sale of designated “essential” goods at controlled and, therefore, wrong prices.
Creative innovation, adaptation, and improvisation were restricted or prohibited during those “emergency” times, by government regulatory bureaus and agencies that asserted that they knew best how, where, and when to meet everyone’s politically prioritized needs. Invariably this led to short and inadequate supplies, with resulting production and consumption mismatching chaos.
As Hayek also said in that 1939 article, “Thus, it may be said with fair certainty, so far as its effect on industry is concerned, rationing and price fixing will inevitably cause inefficiency and waste of resources. It deprives industry of all basis for rational calculation . . . Even worse, such a system would deprive even those in control of the whole economic machine of essential guides for their plans and reduce major decisions of policy and even strategy to little more than guess work.” (p. 156)
Political Management and Economic Chaos
In the midst of the pandemic in the spring of 2020, with the federal government and especially the state governments declaring draconian dictates on production, work, consumption, and ordinary, everyday movement, can it not be said that most of everything that came under their orbit of control created the type of inefficiency, waste, and guesswork about which Hayek warned? Given the recent resurgence in cases of the coronavirus, does it not strongly suggest that the only lasting effect from the spring lockdowns was merely a temporary delay in the working of the virus through the society and a catastrophic ruining of lives and livelihoods of hundreds of millions around the world?
What greater example of a political tragedy of the commons can be asked for than the economic events that accompanied the coronavirus this year? Now, many countries in Europe are implementing modified versions of what they did earlier in the year. As we saw, governmental leaders in these countries say that they are not shutting down everything. The implied premise remains that the country and the people are all a “commons” under political management to be regulated, restricted, commanded and coerced, just now in different ways than in the spring of 2020. (See my articles, “Killing Markets is the Worst Possible Plan,” “Leaving People Alone is the Best Way to Beat the Coronavirus,” “Lockdowns Shattered the Structure of Production,” and “Government Policies Have Worsened the Coronavirus Crisis”.)
By continuing to short-circuit the private property system, by politically directing industry and consumption, and restricting the movement and usable imaginings of the people in their corners of society, the “new waves” of lockdowns and shutdowns will, invariably, leave in their wake renewed hardships, more destroyed lives, and manipulated enterprises that face additional bankruptcies and massive wastages of accumulated wealth. And the coronavirus, very likely, will still be with us.
All of this because of a political tragedy of the commons created by governments who insist on their right and duty to nationalize decision-making over all the private actions and activities of the citizenry subject to their control. Maybe we need a new slogan: Locked-down lives matter, and governments should stop doing it.
[Originally posted on American Institute for Economic Research (AIER)]