Monday, July 25, 2011

property rights and /capitalist/ growth: some current research

Regular readers of this blog will know that I've devoted quite a bit of time to the idea of property rights and how theories of property rights align with historical experience, especially in the U.S. In her address to the Economic History Association annual meetings in 2010, Naomi Lamoreaux outlined a compelling thesis for the particular path of development that the theory and practice of property rights has followed in the U.S. since the early 19th century.

To motivate her claim, consider the following observations which form the essential conflict motivating her study. Perhaps the clearest, concise and most overtly-political interpretation of the libertarian notion of property rights can be found in the Washington Consensus, from the 1990s, which argued that we must instill institutions of private property and enforceable contract in developing countries, since these institutions form one important cornerstone of successful economic growth. Critics of this claim may point to the fact that many Western nations (if not all) did not develop in the same way. In fact in a lot of cases, property rights of the disadvantaged, or the minority, were infringed in the name of "economic development". The classic example concerns eminent domain cases, but there are a variety of other situations in which private property rights were not totally respected, but which nevertheless resulted in widespread growth for the areas/economies in question.

Rather than argue that these observations serve as "anomalies", as she likes to call them, in the economist's theory of property rights, Lamoreaux argues instead that such a negative history of property rights protection can still be consistent with an overall view that property rights are to be respected, according to the libertarian conception of the idea. She argues that what has allowed such continual infringement in property over time in the U.S. is a popular democratic tradition which commits itself to widespread property ownership. At the core of the American experience is the presence of a strong middle class, which allows such a seeming "contradiction" between what we Americans say to other countries, vs. what we actually do, to maintain itself over the centuries. Two strings of examples, illustrating the two themes, support her argument.

First, we have historically been weary of large concentrations of property ownership, so we have allowed legalized (i.e. through the legislature) redistribution in such cases. Second, we have a general mistrust and dislike for non-property owners (the poor ... also, they usually do not vote and at some times, could not vote), and so we will generally not get upset when there is a property taking which involves buying up a slum or some other poor area for economic development. Lamoreaux uses many different examples to illustrate both of these points, and overall, I must say that the article is convincing: America has a significant majority of property owners which has been very powerful in determining political outcomes. The political voice of the middle class has supported abrogation of property rights only when the middle class's own property remains untouched.

Many historians -- liberal and Marxist alike -- have identified this trend in American political economy as being one of the key reasons why America has supposedly strayed so far from true-blue, European-style socialism. The argument, presented commonly as the American Exceptionalism thesis, comes in the form of a celebration for the liberal and a lament for the Marxist, but the core underlying conception is the same: democratic ownership of property symbolized by a strong middle class prevents radical change from occurring because society becomes too "spoiled", "individualistic", or "market-loving". In terms of Lamoreaux's thesis, this means that property rights can be infringed upon in a non-democratic way only when it leads to the material benefit of property owners. (Basically, they don't get outraged/mustered unless their property is being taken.)

Lamoreaux refuses to accept (pg. 301) that she is updating the American Exceptionalism argument (which has a lot of holes in it already, thanks to a swelling labor history that documents worker radicalism -- as well as the state's violent reactions to it). Nevertheless, one has to wonder what else her thesis could possibly imply about liberal values in America. Her thesis seems to flirt with the old yarn (though I guess not so old, since some oldies are still talking about it, in various updated forms) that Americans have always been bourgeois-freedom-loving, individualistic modernists.

What would constitute a Marxist critique of Lamoreaux's thesis? (Or, really, any critique that wants to question the relevance of this argument.) First of all, some Marxists might perfectly agree with her claim. They would lament that such is the main characteristic of a value system which has proliferated in American society, an unfortunate staple of the "objective material conditions" in American society, and simply move on. Such lamentations were generally expressed by an older tradition of American Marxist historians, harking back to the the 1920s and 30s, and they don't hold as much weight now (why? well for one, it doesn't seem like a very strong argument). Others, however, might draw from the (updated radical) social theory of the 1970s and discuss the role of ideology in Lamoreaux's story. I think this is one promising way of moving forward.

Alternatively, Marxists might even question the true importance of property rights as a cornerstone of strong economic growth in a developing capitalist society, because the majority of gains in American wealth occurred in the North beginning in the 1830s and 1840s and came from industry, such as textiles. Surely there is a "property rights" element to this historiography as well, since the mills were obstructing waterflow and were protected against downstream users' claims through legislative acts and raw judicial negligence, but obviously that is not the main source of capitalist growth in these areas.

At any rate, Lamoreaux's discussion is important for putting a dent in the accepted notion of Western property rights theory. it's an interesting look at how a country can seemingly be so hypocritical. In the end, however, I sincerely doubt the relevance of her claim to overall capitalist growth, and I question what role ideology might have had in the process as well. By the way, a draft of the paper can be found here. Lamoreaux is an excellent scholar and I recommend any of her works! They are always very smart, deep, and creative institutional analyses.

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