Saturday, July 11, 2009

Private Property and the Seeming Problems of Resource Scarcity

My letter below to National Geographic Magazine illustrates how important is economic insight to the proper understanding of seeming intractable problems.

Saturday, July 11, 2009

National Geographic Magazine
711 Fifth Avenue
New York, NY 10022

Dear Sirs:
A neighbor kindly gave me some back copies of your magazine. I found several of the articles to be of interest to me as an economist. Yes, as an economist. Your magazine seems to be very concerned with the depletion of natural resources. I refer to recent articles about over fishing of tuna (June 2009), the scramble by governments to claim sovereignty over the arctic in order to secure oil fields (May 2009), and the water shortage problems of Australia (April 2009), just to name a few.

All of these problems can be understood and solved through an understanding and application of proper economic theory, namely those of the Austrian School. All of these problems you so clearly and entertainingly outline are the result of and exacerbated by the lack of property rights.

A key concept is the theory of the “tragedy of the commons”, which explains that all valuable resources held in common will be plundered to extinction. Since all have an equal claim, all must grab as much as possible. But private property is not plundered; instead its owners capitalize it in order to secure the most value over the longest period of time.

For example, it may be a challenge technically, but the over fishing of the world’s oceans, of which the depletion of tuna is just one symptom, will be solved only when private property rights are secured over the fishes or their habitats. But how does one secure these rights? The Austrian School of Economics explains how private property becomes so. No, it is not through a grant by a king or government, but rather by homesteading. John Locke explained the concept over three centuries ago—that when man mixes his labor with formerly unexploited physical resources of the earth, he thereby secures them as his private property.

The world’s governments could avoid all potential conflicts if they recognized the right of anyone or any company to secure private property in arctic resources by the simple act of exploiting them. It matters not whether the oil is obtained by a Russian, an American, or an international company. All of us benefit from the new resource so secured for the world market. It may require billions of dollars to exploit the oil and bring it to market, and there is no guarantee of success for those engaged in wildcat drilling. But if they are, they alone should be the beneficiaries of their vision, dedication, and treasure put at risk.

As for the seemingly intractable problem of parched Australia, the government has taken almost total control of this valuable resource with predictable results. Your article repeatedly explained how farmers and businessmen were robbed of their livelihoods by governmental decisions to greatly reduce their water allocation. Government takeover of a resource does not remove it from the risk of plunder through the aforementioned “tragedy of the commons”. Quite the contrary. Instead of the private market ensuring that water goes to its most urgent need, government allocates it politically, making near life and death decisions based upon…what?

Without a free market in water, Australians will be plagued by seeming water shortages forever. Let us make clear that water is a scarce resource everywhere. It may be more abundant in some areas of the earth, but it still must be “brought to market” via piping and purification. Without a free market in water, Australians will continue to suffer the socialist dilemma explained by Ludwig von Mises in his century old masterpiece Socialism. Without economic calculation, the entrepreneur does not know which resource to secure or which avenue of enterprise to pursue. Although the government of Australia may “sell” the water, it has no way to know whether its price is too high or too low. So, of course, it keeps the price low and allocates its to the interest group that cries out the loudest at the moment. It cannot do otherwise.

Your interesting article explained very clearly that farmers do not know what crop to plant under the conditions of government control of water. In fact, they do not know whether they should plant a crop at all. The risks of farming will become more readily understood when water becomes a commodity controlled by the free market alone. Think of water as just one more variable that entrepreneurs must secure in order to plan for an uncertain future. The Australian economy must adapt as best it can to its scarce water availability, and it will approach equilibrium of supply and demand only under a free market.

Patrick Barron
20 McMullan Farm Lane
West Chester, PA 19382
Phone: 610-793-3605

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