During our recent conference in Portsmouth, NH, some of our discussions revolved around questions related to the issue of income redistribution. As the conversations progressed I had an insight that, if valid, frames these kinds of issues within a new context, one I think far more insightful than the usual ones.
From a traditional classical liberal perspective the terminology of “redistribution” implies that there was an initial non-redistributed pattern of wealth that political means re then possibly employed to change. Most on the left use a similar perspective. I think this way of looking at these questions is mistaken and goes some distance in sidetracking the resulting discussions into fruitless avenues.
Let us look at an issue even more basic than market exchanges and the patterns they create, the issue of property rights. For in the absence of property rights there can be no markets, although primitive exchanges might take place. The definition of property rights precedes the existence of markets.
In terms of markets there is no “property,” there are property rights, bundles of possible relationships into which I may enter either with others or with what is owned. How they are defined determines the range of possible entrepreneurial possibilities that might emerge. Their definition also powerfully influences what effects of their employment will be considered externalities and which are internalized.
“Property” does not objectively turn into a particular group of rights. Defining what will count as a right and what if anything will not is a political and moral issue. Only subsequent to these concerns is it an economic one. The economically relevant boundaries concerning exchangeable rights can take many possible forms. In addition, the case for any particular determination can change over time.
Consider property rights and air quality in Missoula, MT. As the city grew rapidly in population activities that once were harmless became more worrisome. Widespread heating by wood burning stoves and fireplaces eventually resulted in dangerous build ups of pollutants during certain common atmospheric conditions. People could begin dying who had not earlier been at risk, be forced to move, or wood burning could be regulated or banned. How to respond at this level was a moral issues, not an economic one. (To reduce it to economics is itself first a ‘moral’ decision about values.)
Rightly I think, Missoula chose to regulate wood burning. At this level a wide range of options still existed other than the one the city took. No matter how the city decided, even if it decided to do nothing, hitherto absent entrepreneurial possibilities were created while others were foreclosed. Income was redistributed by any of these decisions.
Any person or business affected by a proposed redefinition would reasonably be expected to want to influence the outcome in its favor. It would be strange were it otherwise. Those willing and able to employ the most resources in influencing the final decision will, all else being equal, disproportionately influence its outcome.
Again, all else being equal, every time property rights are redefined or initially established, those who employ the most resources to influence the outcome will benefit disproportionately from the decisions made. This means that those with the most resources and willingness to employ them will be able to disproportionately game the system even if the formal rules treat everyone equally.
This insight is invisible to all who begin by assuming property rights and then initiating their study and it is invisible to all who treat the conditions preceding a proposed redistribution of resources as the “natural” or pure market state of affairs. There is not and has never been such a state of affairs.
My observation means “the market” can never simply be assumed to express the values of equals exchanging with one another on equal terms.
The issues raised by discussions of redistribution are therefore legitimate ones and the truly basic question here, for me at least, is what institutions, including what definitions of property rights, are most conducive to the indefinite flourishing of societies and individuals.