Econ 640 Feb. 19, 2007 class on rights and property rights

1. Econ 640Feb. 19, 2007 class on rights and property rights Prof. Howard Baetjer

2. Themes we have considered • Spontaneous order • Often superior to what can be accomplished by design • Dispersion of knowledge • Value of decentralizing power • Wariness of unlimited government

3. Examples of spontaneous order • Language • Taxis: Esperanto anyone? • Invented in 1887 by L. L. Zamenhof • Science and technology • Markets and economies • Internet • Customs, culture, entertainment • Law • Ecosystems • Taxis: The Biosphere project

4. Why Are Markets Feared? " To the layman untrained in economics, the market economy presents a bewildering face. It consists of numerous individuals each intent on his own goals, giving no concern to the overall social implications of his pursuits. No central coordinating agency controls or even monitors the innumerable independent production and exchange decisions made by these countless individuals. It is no wonder that the market economy seems to be nothing but a jungle of clashing, discordant individual activities.“- Israel Kirzner

5. Why are property rights important? • Ownership is necessary in a material world • Avoids “the tragedy of the commons” • The market economy is a ‘vast network’ of voluntary exchanges of property titles • voluntary transactions insure win-win trades • Property rights facilitate the spontaneous order. • They put control where the knowledge is.

6. Rothbard’s theory of justice in property rights • What are the main elements? • Why is governmental definition of property rights problematic? • Why does communism in theory mean rule by a smaller group in practice?

7. The relationship between rights and government – classical liberalism • People have rights before the existence of government (natural rights). • The purpose of government is to protect their rights. • People are justified in dissolving governments that do not protect their rights.

8. Thomas Jefferson in the Declaration of Independence • “We hold these truths to be self-evident: that all men are created equal; that they are endowed by their Creator with certain unalienable rights; that among these are life, liberty and the pursuit of happiness; that to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed…”

9. The relationship between rights and government in positivism • Law established by governmental authority • All rights are man-made • Can be granted or taken away by man • ‘Rights’ can advance ‘common good’ at the expense of individuals

10. The U.S. Constitution: The enumerated powers doctrine • “All power is originally vested in, and consequently derived from, the people.”- James Madison • “The powers delegated by the proposed Constitution to the Federal Government, are few and defined.”- James Madison • The real source of the power of the U.S. Constitution is the transcendent notion that man has “inherent and inalienable” rights.

11. The U.S. Constitution: The enumerated powers doctrine—why James Madison initially opposed a Bill of Rights • “By enumerating particular exceptions to the grant of power [to the government], it would disparage those rights which were not placed in the enumeration…; – James Madison • “…because the powers are enumerated, … it follows, that all that are not granted by the constitution [to the national government] are retained [by the states or the people]…” – James Madison

12. The solution – the ninth amendment • “The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.”

13. “The Rule of Law” • Known rules • Equally applicable to all • “…rules of just conduct which apply to everybody alike but subject nobody to the commands of a superior” - Hayek (p. 184)

14. ‘Freedom’ in Firms • “(Freedom is) that condition in which the agents in a social system are unrestrained in their ability to act except by rules or principles that apply to the organization of a system as a whole—including those responsible for the rules.”- Michael McMaster • This is very like “the rule of law.”

15. Lissack and Roos on Simple Rules in Organizations • “Organizations are not the legal code expounded by the corporate office and memorialized in 20-page memos… Instead they are the day-to-day actions of the members of the network—employers customers, suppliers, partners...” • “In an organization, you don’t have to “incentivize” anybody. You have to create the conditions under which they can thrive.” • “Underspecified guiding principles like “work hard” are useless. Overspecification, like “if…then…” makes guiding principles equally useless.”

16. Nordstrom’s Simple Rule For Employees • WELCOME TO NORDSTROM We're glad to have you with our Company. Our number one goal is to provide outstanding customer service. Set both your personal and professional goals high.We have great confidence in your ability to achieve them. • Nordstrom Rules: • Rule# 1: Use your good judgment in all situations. • There will be no additional rules. • Please feel free to ask your department manager, store manager or division general manager any question at any time.

17. Southwest Airlines • Few rules. A core rule is “follow the golden rule.” • One pilot applicant was rude to a Southwest gate agent and his interview cancelled. • Distributes “They” with a red slash buttons to employees. • Everyone on a Southwest flight crew, even captains, pitch in to get planes turned around quickly. • Surrender self-importance.

18. What are the implications of Rothbard’s view for the justice of: • Inequalities of wealth or income? • Inheritance? • Prohibition of recreational chemicals? • Wages and hours laws? • Immigration? • Zoning, “smart growth,” and other land use policies?