October 24, 2021

Excerpt from Ours: The Case for Universal Property by Peter Barnes

Capitalism as we know it has two egregious flaws: it relentlessly widens inequality and destroys nature.  Its ‘invisible hand,’ which is supposed to transform individual self-seeking into widely shared well-being, too often doesn’t, and governments can’t keep up with the conse­quences.  For billions of people around the world, the chal­lenge of our era is to repair or replace capitalism before its cumu­­la­tive harms become irreparable. 

Among those who would repair capitalism, policy ideas abound.  Typic­al­ly, they involve more government regulations, taxes and spending.  Few, if any, would fundamentally alter the dynamics of markets them­selves.  Among those who would replace capitalism, many would nationalize a good deal of private property and expand government’s role in regu­lating the rest.  

This book explores the terrain midway between repairing and re­pla­cing capi­tal­ism.  It envisions a transformed market economy in which private pro­perty and busi­nesses are complemented by universal pro­perty and fiduciary trusts whose beneficiaries are future generations and all living persons equally.

Economists wrangle over monetary, fiscal and regulatory policies but pay little attention to property rights. Their models all assume that property rights remain just as they are forever.  But this needn’t and shouldn’t be the case.  My premise is that capitalism’s most grie­vous flaws are, at root, problems of property rights and must be ad­dres­­sed at that level. 

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Property rights in modern economies are grants by govern­ments of permis­sion to use, lease, sell or bequeath specific assets — and just as im­port­antly, to ex­clude others from doing those things.  The assets involved can be tangible, like land and machinery, or intangible, like shares of stock or songs.

Taken as a whole, property rights are akin to gravity: they curve econ­omic space-time.  Their tugs and repulsions are every­where, and noth­­­ing can avoid them.  And just as water flows inex­ora­bly toward the ocean, so money, goods and power flow inexorably toward pro­per­ty rights.  Gov­ern­­ments can no more staunch these flows than King Canute could halt the tides.   

That said, the most oft-forgotten fact about property rights is that they do not exist in nature; they are constructs of human minds and soci­e­ties.  The assets to which they apply may exist in nature, but the rights of humans to do things with them, or prevent others from doing them, do not.  Their design and allocation are entirely up to us.

In this book, I take our existing fabric of property rights as both a given and merely the latest iteration in an evolutionary process that has been and will continue to be altered by living humans.  Future iterations of the fabric will therefore be a product not only of the past, but also of our imagi­na­tion and political will in the future.  And, while eliminating exist­ing pro­perty rights is difficult, adding new ones is less so. 

Before we talk about universal property, we need to look at co-inherited wealth, for that is what universal property is based on.  

A full inventory of co-inherited wealth would fill pages.  Consider, for starters, air, water, topsoil, sunlight, fire, photo­syn­thesis, seeds, elec­­tri­city, minerals, fuels, cultivable plants, domesticable animals, law, sports, religion, calendars, recipes, mathema­tics, jazz, libraries and the internet.  Without these and many more, our lives would be incalculably poorer.  

Universal property does not involve all of all those wonderful things.  Rather, it focuses on a subset: the large, complex natural and social systems that support market economies, yet are excluded from repre­sentation in them.   This subset includes natural ecosystems like the Earth’s atmosphere and watersheds, and collective human constructs such as our legal, monetary and communications systems.  All these systems are enormously valuable, in some cases priceless.  Not only do our daily lives depend on them; they add prodigious value to mar­kets, en­ab­ling corporations and private for­tunes to grow to gargan­tu­an sizes.  Yet the systems were not built by anyone living today; they are all gifts we inherit together.  So it is fair to ask, who are their bene­­ficial owners? 

There are, essentially, three possibilities: no one, government, or all of us together equally.  This book is about what happens if we choose the third option, and create property rights to apply it. 

Let’s start with an obvious question: how much is this subset of co-inherited wealth worth?  While it is impos­sible to put a precise number on this, estimates have been made.  In 2000, the late Nobel economist Herbert Simon stated, “If we are very gen­er­­ous with our­selves, we might claim that we ‘earned’ as much as one fifth of [our present wealth].  The rest [eighty percent] is patrimony asso­ci­a­ted with being a member of an enormously productive social sys­tem, which has accumulated a vast store of physical capital and an even larger store of intellectual capital.”

Simon arrived at his estimate by comparing incomes in highly devel­oped economies with those in earlier stages of development.  The huge differ­­en­ces are due not to the rates of economic activity today — indeed, young economies often grow faster than mature ones — but to the much larger differences in institutions and know-how accumu­lated over decades.  A few years later, World Bank economists William Easterly and Ross Levine con­firmed Simon’s math.  They conducted a detailed study of rich and poor countries and asked what made them different.  They found that it wasn’t natural resources or the latest technologies.  Rather, it was their social assets: the rule of law, pro­per­ty rights, a well-organized banking system, economic transpar­ency, and a lack of corruption.  All these collective assets played a far great­er role than anything else.

The preceding analysis doesn’t include ecosystems gifted to us by nature, but Robert Costanza and a worldwide team of scientists and econ­o­­mists took a crack that in 1997.  They found that natural eco­systems gen­erate a global flow of benefits — including fresh water supply, soil formation, nutrient cycling, waste treatment, pollination, raw mater­ials and climate regulation — worth between $25 trillion and $87 trillion a year. That compares with a gross world product of about $80 trillion.  

These calculations are precise enough to sug­gest that we are greatly confused about where our wealth today comes from.  We think it comes from the fevered efforts of today’s businesses and workers, but in fact they merely add icing to a cake that was baked long ago.

WHERE TODAY’S WEALTH COMES FROM

The calculations also suggest that we should devote far more atten­tion to co-inherited wealth than we currently do.  Nowadays, econo­mics textbooks don’t even mention such wealth, much less its mag­ni­­tude.  Nor do Wall Street analysts or financial report­ers.  This is a grievous oversight that greatly impedes our understanding of our economy.  It is like trying to comprehend the universe without taking dark matter into account, or ana­lyzing a business while ignor­ing over eighty percent of its assets. 

Paying more attention to co-inherited wealth, however, is just a first step.  If we want to change mar­ket outcomes, we need to functionally connect this wealth to real-time econ­om­ic activity.  And to do that, we need property rights, managers and bene­ficial owners. 

What is it?

Universal property, as I use the term in this book, is a set of non-transferable rights backed by a subset of wealth we inherit toge­ther.  Such property isn’t mine, yours or the state’s, but ours — literally held in trust for all of us, living and yet-to-be born.  It belongs to us not because we earned it but because we co-inherited it, as if from common ances­tors.  This co-inheritance is, or should be, a uni­­versal econ­omic right, just as voting is a universal political right.  

To say that all of us are co-inheritors of universal property does not, however, mean that we should manage it ourselves.  That job should be assigned to two types of insti­tu­tions: trusts with a fiduciary respon­­­si­bility to future genera­tions, and pension-like funds that pay equal divi­dends to all living persons within their juris­di­ctions.  An example of the latter is the Alaska Per­manent Fund, which has paid equal divi­dends to every Alaskan since 1980.  Exam­ples of the former include large land trusts, such as the National Trust, a conserver of land and historic buildings in the UK, and thou­sands of local trusts whose missions include land conser­va­tion, affordable housing, edu­ca­­tion and community development.

An archetypal, albeit theoretical, example of universal property is the ‘sky trust’ I pro­posed in my 2001 book, Who Owns The Sky?  It is arche­typal because it includes features of pension-like funds and fiduciary trusts simultaneously.  In it, a fiduciary trust is charged with protect­ing the integrity of the atmo­sphere (or one nation’s share of it) for future generations.  It auctions a de­clining quantity of permits to dump carbon into our sky, and divides the proceeds equally.  A ver­sion of this model was intro­duced in Congress in 2009 by Represen­ta­tive (now Senator) Chris van Hollen of Maryland and re-introduced several times since.

A bit of history may be useful here.  For millennia, humans lived in tribes in which almost all property was communal.  Indivi­du­al land ownership emerged at the beginning of the Holocene when our ances­­tors became settled agriculturalists.  Rulers granted owner­ship of land to heads of families, usually males.  Often, military con­quer­ors distributed land to their lieutenants.  Titles could then be passed to heirs  —  typically, oldest sons got everything, a practice known as primogeniture.  In Europe, Roman law codified these practices.

The Roman Institutes of Justinian distinguished three kinds of property:

 • res privatae, private property owned by individuals, including land and personal items;

• res publicae, public property owned by the state, such as public buildings, aqueducts and roads; and

• res communes, common property, including air, water and shore­lines. 

The Institutes also identified a category called res nullius, or‘nobody’s things,’ that included uninhabited land and wild animals.  Such things weren’t immune to propertization; they just hadn’t been pro­pertized yet.  Uninhabited land could be privatized by occupying it, wild ani­mals by capturing them.  A bird in hand was property; a bird in the bush was not.

In England during the Middle Ages, most of the valuable land was pri­vately owned by barons, the Church and the Crown, but sizable com­mon areas were also set aside for villagers.  These commons were essential for the villagers’­ sustenance: they provided food, water, fire­wood, building materials and medicines. 

There were many battles over what should be private and common.  Until 1215, English kings granted exclusive fishing rights to their lieges; then, the Magna Carta established fisheries and forests as res communes.   How­ever, starting in the seventeenth century and contin­uing into the nine­teenth, in a pro­cess known as enclosure, local gentry fenced off village commons and converted them to private holdings.  Impover­ished peasants then drifted to cities and became industrial workers.  Land­lords invested their agri­cul­tural profits in manufacturing, and modern times, economically speaking, began.

Universal property lies some­where between indivi­du­al and state proper­ty.  In Roman terms, it converts a large swath of res nullius into a version of res communes: instead of being owned by nobody, many gifts of nature and society would be owned beneficially by all.     

While we are thinking historically, it is worth remembering that the limited liability corporation, which is so dominant today, is a rela­tive­­ly recent phenomenon.  Prior to the nineteenth century, there were barely a handful of corporations in the UK and US; the dominant form of busi­ness organization was the partnership (in which all partners are liable for the partnership’s debts).  Limited liability cor­por­­­a­tions arose only when it became necessary to amass capital from strangers.  

Similarly, until the eighteenth century, there was no such thing as intel­lectual property.  Ideas and inven­tions floated freely in the air.  The world’s first copyright law, the Statute of Anne, was passed in England in 1710.  Today, the world is flooded with copy­rights, patents, trademarks and trade secrets, all essen­­tial to the profits of giant corporations. 

Like intellectual property, universal property can turn intangible assets into rights respected by markets and capable of generating income.  And like corporations that manage assets on behalf of share­­holders, trusts can manage assets on behalf of future genera­tions and all of us equally.  The rea­son there is more intel­lectual than uni­ver­sal property today is that capi­tal o­wners have fought for their most bene­ficial forms of pro­perty rights, while we, the people, have not.  But that could change if we set our minds to it.

The idea of universal property isn’t new.  It was the invention of  Thomas Paine, the English-born essayist who inspired Ameri­ca’s revo­lution and much else.  Indeed, virtually all the ideas in this book can be traced back to a single essay he wrote in the winter of 1795/96.

Paine led an extraordinary life.  Unlike other American Founders, he wasn’t born to privilege.  The son of a Quaker corset-maker, he emi­grated to Philadelphia in 1774 and found himself in the thick of pre-revolu­tionary ferment.  Inspired, he wrote a pamphlet called Common Sense, which quickly sold half a million copies (in a nation of three million) and transformed the prevail­ing discontent with King George III into ardour for independence and a united democratic republic. 

And that was just the beginning.  Another series of essays, The Ameri­can Crisis, kept the patriotic flame alive as the war for independence slogged.  After America’s victory, Paine returned to England to raise money for an iron bridge he wanted to build over the Schuylkill River in Philadelphia.  While there, he wrote Rights of Man in response to Edmund Burke’s re­pu­di­ation of the French Revolution.  Charged with sedition, he escaped to France, where he was greeted as a hero and elected to the National Assembly.  Then came the Jacobin Terror, during which he was sen­ten­ced to death for having opposed the exe­cu­tion of Louis XVI.  He spent ten months in Luxem­bourg Prison before being saved by the American ambassador, James Monroe, who persuaded his captors that Paine was a citizen of the United States, France’s ally, not Britain, its foe. 

It was during his years in France that Paine wrote his last great essay, Agrarian Justice.  In Rights of Man, Paine had criticized the English Poor Laws and argued for what today would be called a welfare state, in­clud­­ing universal education, pensions for the elderly and employment for the urban poor, all paid for by taxes.  In Agrarian Justice he went farther, arguing that poverty should be systemically eliminated with universal income from jointly inherited property.

There are two kinds of property, he wrote: “firstly, property that comes to us from the Creator of the universe — such as the Earth, air and water; and secondly, artificial or acquired property — the inven­tion of men.”  Because humans have different talents and luck, the latter kind of property must necessarily be distributed unequally, but the first kind belongs to everyone equally.  It is the “legitimate birth­right” of every man and woman. 

To Paine, this was more than an abstract idea; it was something that could be implemented within a laissez faire economy.  But how?  How could the Earth, air and water possibly be distributed equally to every­one?  Paine’s practical answer was that, though the assets them­selves can’t be distributed equally, income derived from them can be. 

How again?  Here Paine came up with an ingenious solution.  He pro­posed a ‘national fund’ to pay every man and woman about $18,000 (in today’s dollars) at age twenty-one, and $12,000 a year after age fifty-five.  In effect, nature’s gifts would be transformed into grants and annuities that would give every young person a start in life and every older person a dignified retirement.  Revenue would come from ‘ground rent’ paid by private land owners upon their deaths.  Paine used con­tem­­porary French and English data to show that a ten per­cent inheritance tax — his mechanism for collecting ground rent — could fully pay for the universal grants and annuities.  

An important nuance here is that the rent would be col­lect­ed not only on a deceased per­son’s land, but on his en­tire estate.  It would thereby recoup many of soci­ety’sgifts as well as nature’s.  And in Paine’s view, there was nothing wrong with this.  “Sepa­rate an indi­vidual from soci­ety, and give him an island or a continent to possess, and he cannot…be rich.  All accu­mu­lation therefore of personal pro­perty, beyond a man’s own hands produce, is derived to him by living in society; and he owes, on every principle of justice, of gratitude, and of civiliza­tion, a part of that accu­mulation back again to society from whence the whole came.” What Paine invented here, in my retrospective opinion, was a prescient stroke of genius.  Long before Wall Street sliced collateralized debt obli­gations into risk-based tranches, Paine designed a simple way to mone­tize co-inherited wealth for the equal benefit of everyone.  It is a model as relevant — and revolu­tion­ary — today as it was then. 

Excerpt from Ours: The Case for Universal Property by Peter Barnes

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