Extract 3.3 James O. Grunebaum, Private Ownership (Routledge and KeganPaul, London and New York, 1987), pp. 158–67 D. PRIVATE OWNERSHIP AND THE ECONOMYForms of ownership have different effects upon society’s economic organization. Economic organization should be understood as encompassing a society’s productive, commercial, and financial activities, i.e. how society materially produces and sustains itself. A form of ownership determines or greatly influences how society’s wealth isproduced and distributed. This is obvious once ownership is understood as a right constituted relationship between persons with respect to things, and it is the things in life which constitute wealth. Since different specific forms of ownership prescribe different sets of rights over what is owned as well as having different domains of possible ownables, there are different economic effects upon how well or efficiently what is owned can be used to produce wealth and how justly or equitably wealth is distributed. Some forms of ownership may stimulate economic growth more than others, some may have tendencies towards greater equality of wealth, some may encourage individual effort, some may foster a more rational allocation of the factors of production, and some formsmay simplify or reduce the cost of economic decision-making and planning.The purpose of this section is to examine private ownership and to dispel some of the misconceptions about private ownership’s effects upon the economy . . .The private ownership form is claimed to be economically optimific, i.e. as having the best economic consequences. Private ownership is said to give owners rights which permit the economic system to efficiently allocate factors of production including labor, to keep supply and demand near equilibrium, to create sufficient motivation for entrepreneurial activity which is needed to keep economic growth rates near an optimum level, to minimize decision-making or administrative costs, and to provide an efficient distribution of income on the basis of market valued marginal productivity. Other forms of ownership such as communal ownership are supposed to have less economically optimific effects. Inefficiencies in production, market disequilibrium, lack of incentives for growth, incomes which are divorced from marginal productivity, and high administrative decision-making costs are said to plague non-private forms of ownership. From the economic perspective, private ownership is thought to affectsociety in the best way possible . . .One typical argument for the economic superiority of private ownership is made by Harold Demsetz in the American Economic Review [Extract 3.2 above]. He argues that private ownership of land and resources facilitates a more rational use of land and resources, specifically by preventing a too rapid depletion, and that private ownership reduces the costs of internalizing externalities. Demsetz contrasts private ownership with communal ownership. He defines communal ownership as ‘a right which can be exercised by all members of the community’; walking a city sidewalk is an example, and ‘private ownership implies the community recognizes the right of the owner to exclude others from exercising the owner’s private rights’. Demsetz also defines stateownership which he views as implying ‘that the state may exclude anyone from the use of a right as long as the state follows accepted political procedures for determining who may not use state-owned property’; but, for some unmentioned reason, state ownership does not enter into his argument. Demsetz argues that, if land and resources are communally owned, i.e. each member having the unlimited right to appropriate for himself, then resources will be depleted too quickly. Each person who tries to maximize the value of his own right will be able to pass some of the costs on to others. In this situation, the richness of the land and resources will be depleted too quickly to maximize economic return. Communal owners could undertake negotiated agreements to slow depletion, but, as Demsetz argues, the costs of negotiation will be high.
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