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Advancing Austrian Economics, Liberty, and Peace

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Chapter 2—Direct Exchange

(continued)


11. Types of Exchangeable Goods

      For the sake of clarity, the examples of exchangeable goods in this chapter have mainly been taken from tangible commodities, such as horses, fish, eggs, etc. Such commodities are not the only type of goods subject to exchange, however. A may exchange his personal services for the commodity of B. Thus, for example, A may give his labor services to farmer B in exchange for farm produce. Furthermore, A may give personal services that function directly as consumers’ goods in exchange for another good. An individual may thus exchange his medical advice or his musical performance for food or clothing. These services are as legiti­mately consumers’ goods as those goods that are embodied in tangible, physical commodities. Similarly, individual labor services are as much producers’ goods as are tangible capital goods. As a matter of fact, tangible goods are valued not so much for their physical content as for their services to the user, whether he is a consumer or a producer. The actor values the bread for its services in providing nourishment, the house for its services in providing shelter, the machine for its service in producing a lower-order good. In the last analysis, tangible commodities are also valued for their services, and are thus on the same plane as intangible personal “services.”

      Economics, therefore, is not a science that deals particularly with “material goods” or “material welfare.” It deals in general with the action of men to satisfy their desires, and, specifically, with the process of exchange of goods as a means for each indi­vidual to “produce” satisfactions for his desires. These goods may be tangible commodities or they may be intangible personal services. The principles of supply and demand, of price determi­nation, are exactly the same for any good, whether it is in one category or the other. The foregoing analysis is applicable to all goods.

      Thus, the following types of possible exchanges have been covered by our analysis:

(a) A commodity for a commodity; such as horses for fish.

(b) A commodity for a personal service; such as medical advice for butter, or farm labor for food.

(c) A personal service for a personal service; such as mutual log-rolling by two settlers, or medical advice for gardening labor, or teaching for a musical performance.[32]

In cases where there are several competing homogeneous units, supply and demand schedules can be added; in cases where one or both parties are isolated or are the only ones exchanging, the zone of price determination will be established as indicated above. Thus, if one arithmetic teacher is bargaining with one violinist for an exchange of services, their respective utility rankings will set the zone of price determination. If several arithmetic teachers and several violinists who provide homogeneous services form a market for their two goods, the market price will be formed with the addition and intersection of supply and demand sched­ules. If the services of the different individuals are not considered as of equal quality by the demanders, they will be evaluated separately, and each service will be priced separately.[33] The supply curve will then be a supply of units of a commodity possessed by only one individual. This individual supply curve is, of course, sloped upward in a rightward direction. Where only one individual is the supplier of a good on the market, his sup­ply curve is identical with the market supply curve.

      One evident reason for the confusion of exchange with a mere trade of material objects is the fact that much intangible property cannot, by its very nature, be exchanged. A violinist may own his musicianly ability and exchange units of it, in the form of service, for the services of a physician. But other personal attri­butes, which cannot be exchanged, may be desired as goods. Thus, Brown might have a desired end: to gain the genuine approval of Smith. This is a particular consumers’ good which he cannot purchase with any other good, for what he wants is the genuine approval rather than a show of approval that might be purchased. In this case, the consumers’ good is a property of Smith’s that cannot be exchanged; it might be acquired in some way, but not by exchange. In relation to exchange, this intangible good is an inalienable property of Smith’s, i.e., it cannot be given up. Another example is that a man cannot permanently transfer his will, even though he may transfer much of his services and his property. As mentioned above, a man may not agree to permanent bondage by contracting to work for another man for the rest of his life. He might change his mind at a later date, and then he cannot, in a free market, be compelled to continue working there­after. Because a man’s self-ownership over his will is inalienable, he cannot, on the unhampered market, be compelled to continue an arrangement whereby he submits his will to the orders of another, even though he might have agreed to this arrangement previously.[34][35] On the other hand, when property that can be alienated is transferred, it, of course, becomes the property—under the sole and exclusive jurisdiction—of the person who has received it in exchange, and no later regret by the original owner can establish any claim to the property.

      Thus, exchange may occur with alienable goods; they may be consumers’ goods, of varying degrees of durability; or they may be producers’ goods. They may be tangible commodities or in­tangible personal services. There are other types of exchangeable items, which are based on these alienable goods. For example, suppose that Jones deposits a good—say 1,000 bushels of wheat—in a warehouse for safekeeping. He retains ownership of the good, but transfers its physical possession to the warehouse owner, Green, for safekeeping. Green gives Jones a warehouse receipt for the wheat, certifying that the wheat is there for safekeeping and giving the owner of the receipt a claim to receive the wheat whenever he presents the receipt to the warehouse. In exchange for this service as a guardian of the wheat, Jones pays him a certain agreed amount of some other good, say emeralds. Thus, the claim originates from an exchange of a commodity for a service—emeralds for storage—and the price of this exchange is determined according to the principles of the foregoing analysis. Now, however, the warehouse receipt has come into existence as a claim to the wheat. On an unhampered market, the claim would be regarded as absolutely secure and certain to be honored, and therefore Jones would be able to exchange the claim as a substi­tute for actual physical exchange of the wheat. He might find another party, Robinson, who wishes to purchase the wheat in exchange for horses. They agree on a price, and then Robinson accepts the claim on the warehouse as a perfectly good substitute for actual transfer of the wheat. He knows that when he wants to use the wheat, he will be able to redeem the claim at the ware­house; the claim therefore functions here as a goods-substitute. In this case, the claim is to a present good, since the good can be redeemed at any time that the owner desires.

      Here, the nature and function of the claim is simple. The claim is a secure evidence of ownership of the good. Even simpler is a case where ownership of property, say a farm, is transferred from A to B by transferring written title, or evidence of owner­ship, which may be considered a claim. The situation becomes more complicated, however, when ownership is divided into pieces, and these pieces are transferred from person to person. Thus, suppose that Harrison is the owner of an iron mine. He decides to divide up the ownership, and sell the various divided pieces, or shares, of the good to other individuals. Assume that he creates 100 tickets, with the total constituting the full ownership of the mine, and then sells all but 10 tickets to numerous other individuals. The owner of two shares then be­comes a 2/100owner of the mine. Since there is very little practical scope for such activity in a regime of direct exchange, analysis of this situation will be reserved for later chapters. It is clear, however, that the 2/100 owner is entitled to his proportionate share of direction and control of, and revenue from, the jointly owned property. In other words, the share is evidence of part­-ownership, or a claim to part-ownership, of a good. This prop­erty right in a proportionate share of the use of a good can also be sold or bought in exchange.

      A third type of claim arises from a credit exchange (or credit transaction). Up to this point we have been discussing exchanges of one present good for another—i.e., the good can be used at present—or at any desired time—by each receiver in the exchange. In a credit transaction, a present good is exchanged for a future good, or rather, a claim on a future good. Suppose, for example, that Jackson desires to acquire 100 pounds of cotton at once. He makes the following exchange with Peters: Peters to give Jackson 100 pounds of cotton now (a present good); and, in return, Jackson gives Peters a claim on 110 pounds of cotton one year from now. This is a claim on a future good—110 pounds of cotton one year from now. The price of the present good in terms of the future good is 1.1 pounds of future cotton (one year from now) per pound of present cotton. Prices in such exchanges are determined by value scales and the meeting of supply and demand schedules, just as in the case of exchanges of present goods. Further analysis of the pricing of credit transactions must be left for later chap­ters; here it may be pointed out that, as explained in the previous chapter, every man will evaluate a homogeneous good more highly the earlier in time is his prospect of attaining it. A present good (a good consisting of units capable of rendering equivalent satisfaction) will always be valued more highly than the same good in the future, in accordance with the individual’s rate of time preference. It is evident that the various rates of time pref­erence—ultimately determined by relative positions on individual value scales—will act to set the price of credit exchanges. More­over, the receiver of the present good—the debtor—will always have to repay a greater amount of the good in the future to the creditor—the man who receives the claim, since the same number of units is worth more as a present good than as a future good. The creditor is rendering the debtor the service of using a good in the present, while the debtor pays for this service by repaying a greater amount of the good in the future.

      At the date when the claim finally falls due, the creditor re­deems the claim and acquires the good itself, thus ending the existence of the claim. In the meanwhile, however, the claim is in existence, and it can be bought and sold in exchange for other goods. Thus, Peters, the creditor, might decide to sell the claim—or promissory note—to Williams in exchange for a wagon. The price of this exchange will again be determined by supply and demand schedules. Demand for the note will be based on its security as a claim to the cotton. Thus, Williams’ demand for the note (or Peters’ demand to hold) in terms of wagons will be based on (a) the direct utility and exchange-value of the wagon, and (b) the marginal utility of the added units of cotton, dis­counted by him on two possible grounds: (l) the length of time the claim has left until the date of “maturity,” and (2) the esti­mate of the security of the note. Thus, the less time there remains to elapse for a claim to any given good, the higher will it tend to be valued in the market. Also, if the eventual payment is con­sidered less than absolutely secure, because of possible failure to redeem, the claim will be valued less highly in accordance with people’s estimates of the likelihood of its failure. After a note has been transferred, it becomes the property of the new owner, who becomes the creditor and will be entitled to redeem the claim when due.

      When a claim is thus transferred in exchange for some other good (or claim), this in itself is not a credit transaction. A credit exchange sets up an unfinished payment on the part of the debtor; in this case, Peters pays Williams the claim in return for the other good, and the transaction is finished. Jackson, on the other hand, remains the debtor as a result of the original transaction, which remains unfinished until he makes his agreed-upon pay­ment to the creditor on the date of maturity.[36]

      The several types of claims, therefore, are: on present goods, by such means as warehouse receipts or shares of joint owner­ship in a good; and on future goods, arising from credit trans­actions. These are evidences of ownership, or, as in the latter case, objects that will become evidence of ownership at a later date.

      Thus, in addition to the three types of exchanges mentioned above, there are three other types whose terms and principles  are included in the preceding analysis of this chapter:

(d) A commodity for a claim; examples of this are: (1) the de­posit of a commodity for a warehouse receipt—the claim to a present good; (2) a credit transaction, with a commodity exchanged for a claim to a future commodity; (3) the pur­chase of shares of stock in a commodity by exchanging an­other type of commodity for them; (4) the purchase of promissory notes on a debtor by exchanging a commodity. All four of these cases have been described above.

(e) A claim for a service; an example is personal service being exchanged for a promissory note or warehouse receipt or stock.

(f)  A claim for a claim; examples would be: exchange of a promissory note for another one; of stock shares for a note; of one type of stock share for another; of a warehouse re­ceipt for any of the other types of claims.

      With all goods analyzable into categories of tangible commodi­ties, services, or claims to goods (goods-substitutes), all six pos­sible types of exchanges are covered by the utility and supply-­demand analysis of this chapter. In each case, different concrete considerations enter into the formation of the value scales–such as time preference in the case of credit exchanges;  and this per­mits more to be said about the various specific types of exchanges. The level of analysis presented in this chapter, however, encom­passes all possible exchanges of goods. In later chapters, when indirect exchange has been introduced, the present analysis will apply also, but further analysis will be made of production and exchange problems involved in credit exchanges (time prefer­ence); in exchanges for capital goods and consumer goods; and in exchanges for labor services (wages).


12. Property: The Appropriation of Raw Land

      As we have stated above, the origin of all property is ulti­mately traceable to the appropriation of an unused nature-given factor by a man and his “mixing” his labor with this natural fac­tor to produce a capital good or a consumers’ good. For when we trace back through gifts and through exchanges, we must reach a man and an unowned natural resource. In a free society, any piece of nature that has never been used is unowned and is subject to a man’s ownership through his first use or mixing of his labor with this resource.

      How will an individual’s title to the nature-given factor be determined? If Columbus lands on a new continent, is it legiti­mate for him to proclaim all the new continent his own, or even that sector “as far as his eye can see”? Clearly, this would not be the case in the free society that we are postulating. Columbus or Crusoe would have to use the land, to “cultivate” it in some way, before he could be asserted to own it. This “cultivation” does not have to involve tilling the soil, although that is one possible form of cultivation. If the natural resource is land, he may clear it for a house or a pasture, or care for some plots of timber, etc. If there is more land than can be used by a limited labor sup­ply, then the unused land must simply remain unowned until a first user arrives on the scene. Any attempt to claim a new re­source that someone does not use would have to be considered invasive of the property right of whoever the first user will turn out to be.

      There is no requirement, however, that land continue to be used in order for it to continue to be a man’s property. Suppose that Jones uses some new land, then finds it is unprofitable, and lets it fall into disuse. Or suppose that he clears new land and therefore obtains title to it, but then finds that it is no longer useful in production and allows it to remain idle. In a free so­ciety, would he lose title? No, for once his labor is mixed with the natural resource, it remains his owned land. His labor has been irretrievably mixed with the land, and the land is there­fore his or his assigns’ in perpetuity. We shall see in later chap­ters that the question whether or not labor has been mixed with land is irrelevant to its market price or capital value; in catal­lactics, the past is of no interest. In establishing the ownership of property, however, the question is important, for once the mixture takes place, the man and his heirs have appropriated the nature-given factor, and for anyone else to seize it would be an invasive act.

       As Wolowski and Levasseur state:

Nature has been appropriated by him (man) for his use; she has be­come his own; she is his property. This property is legitimate; it con­stitutes a right as sacred for man as is the free exercise of his faculties. It is his because it has come entirely from himself, and is in no way anything but an emanation from his being. Before him, there was scarcely anything but matter; since him, and by him, there is inter­changeable wealth. The producer has left a fragment of his own per­son in the thing which has thus become valuable, and may hence be regarded as a prolongation of the faculties of man acting upon exter­nal nature. As a free being he belongs to himself; now, the cause, that is to say, the productive force, is himself; the effect, that is to say, the wealth produced, is still himself. Who shall dare contest his title of ownership so clearly marked by the seal of his personality?[37]

      Some critics, especially the Henry Georgists, assert that, while a man or his assigns may be entitled to the produce of his own labor or anything exchanged for it, he is not entitled to an orig­inal, nature-given factor, a “gift of nature.” For one man to ap­propriate this gift is alleged to be an invasion of a common her­itage that all men deserve to use equally. This is a self-contra­dictory position, however. A man cannot produce anything with­out the co-operation of original nature-given factors, if only as standing room. In order to produce and possess any capital good or consumers’ good, therefore, he must appropriate and use an original nature-given factor. He cannot form products purely out of his labor alone; he must mix his labor with original nature-­given factors. Therefore, if property in land or other nature-­given factors is to be denied man, he cannot obtain property in the fruits of his labor.

      Furthermore, in the question of land, it is difficult to see what better title there is than the first bringing of this land from a simple unvaluable thing into the sphere of production. For that is what the first user does. He takes a factor that was previously unowned and unused, and therefore worthless to anyone, and con­verts it into a tool for production of capital and consumers’ goods. While such questions as communism of property will be discussed in later parts of this book, it is difficult indeed to see why the mere fact of being born should automatically confer upon one some aliquot part of the world’s land.  For the first user has mixed his labor with the land, while neither the newborn child nor his ancestors have done anything with the land at all.

      The problem will be clearer if we consider the case of ani­mals. Animals are “economic land,” because they are equivalent to physical land in being original, nature-given factors of pro­duction. Yet will anyone deny title to a cow to the man that finds and domesticates her, putting her to use? For this is precisely what occurs in the case of land. Previously valueless “wild” land, like wild animals, is taken and transformed by a man into goods useful for man. The “mixing” of labor gives equivalent title in one case as in the other.

      We must remember, also, what “production” entails. When man “produces,” he does not create matter. He uses given ma­terials and transforms and rearranges them into goods that he desires. In short, he moves matter further toward consumption. His finding of land or animals and putting them to use is also such a transformation.

      Even if the value accruing to a piece of land at present is substantial, therefore, it is only “economic land” because of the innumerable past efforts of men at work on the land. When we are considering legitimacy of title, the fact that land always embodies past labor becomes extremely important.[38]

      If animals are also “land” in the sense of given original nature factors, so are water and air. We have seen that “air” is in­appropriable, a condition of human welfare rather than a scarce good that can be owned. However, this is true only of air for breathing under usual conditions. For example, if some people want their air to be changed, or “conditioned,” then they will have to pay for this service, and the “conditioned air” becomes a scarce good that is owned by its producers.

      Furthermore, if we understand by “air” the medium for the transmission of such things as radio waves and television images, there is only a limited quantity of wave lengths available for radio and for television purposes. This scarce factor is appropriable and ownable by man. In a free society, ownership of these channels would accrue to individuals just like that of land or animals: the first users obtain the property. The first user, Jones, of the wave length of 1,000 kilocycles, would be the absolute owner of this length for his wave area, and it will be his right to continue us­ing it, to abandon it, to sell it, etc. Anyone else who set up a transmitter on the owner’s wave length would be as guilty of in­vasion of another’s property right as a trespasser on someone else’s land or a thief of someone else’s livestock.[39][40]

      The same is true of water. Water, at least in rivers and oceans, has been considered by most people as also inappropriable and unownable, although it is conceded to be ownable in the cases of (small) lakes and wells. Now it is true that the high seas, in re­lation to shipping lanes, are probably inappropriable, because of their abundance in relation to shipping routes.[41] This is not true, however, of fishing rights in oceans. Fish are definitely not avail­able in unlimited quantities relatively to human wants. There­fore, they are appropriable—their stock and source just as the captured fish themselves. Indeed, nations are always quarreling about “fishing rights.” In a free society, fishing rights to the ap­propriate areas of oceans would be owned by the first users of those areas and then usable or salable to other individuals. Own­ership of areas of water that contain fish is directly analogous to private ownership of areas of land or forests that contain animals to be hunted. Some people raise the difficulty that water flows and has no fixed position, as land does. This is a completely in­valid objection, however. Land “moves” too, as when soil is up­rooted in dust storms. Most important, water can definitely be marked off in terms of latitudes and longitudes. These bounda­ries, then, would circumscribe the area owned by individuals, in the full knowledge that fish and water can move from one per­son’s property to another. The value of the property would be gauged according to this knowledge.[42]

      Another argument is that appropriation of ownership by a first user would result in an uneconomic allocation of the nature­-given factors. Thus, suppose that one man can fence, cultivate, or otherwise use, only five acres of a certain land, while the most economic allocation would be units of 15 acres. However, the rule of first ownership by the first user, followed in a free society, would not mean that ownership must end with this allocation. On the contrary. In this case, either the owners would pool their assets in one corporate form, or the most efficient individual owners would buy out the others, and the final size of each unit of land in production would be 15 acres.

      It must be added that the theory of land ownership in a free society set forth here, i.e., first ownership by the first user, has nothing in common with another superficially similar theory of land ownership—advanced by J.K. Ingalls and his disciples in the late nineteenth century. Ingalls advocated continuing own­ership only for actual occupiers and personal users of the land. This is in contrast to original ownership by the first user.

      The Ingalls system would, in the first place, bring about a highly uneconomic allocation of land factors. Land sites where small “homestead” holdings are uneconomic would be forced into use in spite of this, and land would be prevented from entering other lines of use greatly demanded by consumers. Some land would be artificially and coercively withdrawn from use, since land that could not be used by owners in person would have to lie idle. Furthermore, this theory is self-contradictory, since it would not really permit ownership at all. One of the prime con­ditions of ownership is the right to buy, sell, and dispose of prop­erty as the owner or owners see fit. Since small holders would not have the right to sell to nonoccupying large holders, the small holders would not really be owners of the land at all. The result is that on the ownership question, the Ingalls thesis reverts, in the final analysis, to the Georgist view that Society (in the alleged person of the State) should own the land.[43]


13. Enforcement Against Invasion of Property

      This work is largely the analysis of a market society un­hampered by the use of violence or theft against any man’s per­son or property. The question of the means by which this con­dition is best established is not at present under consideration. For the present purpose, it makes no difference whether this con­dition is established by every man’s deciding to refrain from in­vasive action against others or whether some agency is established to enforce the abandonment of such action by every individual. (Invasive action may be defined as any action—violence, theft, or fraud—taking away another’s personal freedom or property with­out his consent.) Whether the enforcement is undertaken by each person or by some sort of agency, we assume here that such a condition—the existence of an unhampered market—is maintained in some way.

      One of the problems in maintaining the conditions of a free market is the role of the enforcing agency—whether individual or organizational—in exchange contracts. What type of contracts are to be enforced to maintain the conditions of an unhampered market? We have already seen that contracts assigning away the will of an individual cannot be enforced in such a market, be­cause the will of each person is by its nature inalienable. On the other hand, if the individual made such a contract and received another’s property in exchange, he must forfeit part or all of the property when he decides to terminate the agreement. We shall see that fraud may be considered as theft, because one individual receives the other’s property but does not fulfill his part of the exchange bargain, thereby taking the other’s property without his consent. This case provides the clue to the role of contract and its enforcement in the free society. Contract must be considered as an agreed-upon exchange between two persons of two goods, present or future. Persons would be free to make any and all property contracts that they wished; and, for a free society to exist, all contracts, where the good is naturally alienable, must be enforced. Failure to fulfill contracts must be considered as theft of the other’s property. Thus, when a debtor purchases a good in exchange for a promise of future payment, the good can­not be considered his property until the agreed contract has been fulfilled and payment made. Until then, it remains the creditor’s property, and nonpayment would be equivalent to theft of the creditor’s property.

      An important consideration here is that contract not be en­forced because a promise has been made that is not kept. It is not the business of the enforcing agency or agencies in the free market to enforce promises merely because they are promises; its business is to enforce against theft of property, and contracts are enforced because of the implicit theft involved.

      Evidence of a promise to pay property is an enforceable claim, because the possessor of this claim is, in effect, the owner of the property involved, and failure to redeem the claim is equivalent to theft of the property. On the other hand, take the case of a promise to contribute personal services without an advance ex­change of property. Thus, suppose that a movie actor agrees to act in three pictures for a certain studio for a year. Before re­ceiving any goods in exchange (salary), he breaks the contract and decides not to perform the work. Since his personal will is in­alienable, he cannot, on the free market, be forced to perform the work there. Further, since he has received none of the movie company property in exchange, he has committed no theft, and thus the contract cannot be enforced on the free market. Any suit for “damages” could not be entertained on an unhampered market. The fact that the movie company may have made con­siderable plans and investments on the expectation that the actor would keep the agreement may be unfortunate for the company, but it could not expect the actor to pay for its lack of foresight and poor entrepreneurship. It pays the penalty for placing too much confidence in the man. The movie actor has not received and kept any of the company’s property and therefore cannot be held accountable in the form of payment of goods as “damages.”[44] Any such enforced payment would be an invasion of his prop­erty rights on the free market rather than an attack upon inva­sion. It may be considered more moral to keep promises than to break them, but the condition of a free market is that each in­dividual’s rights of person and property be maintained, and not that some further standard of morals be coercively imposed on all. Any coercive enforcement of such a moral code, going be­yond the abolition of invasive acts, would in itself constitute an invasion of individual rights of person and property and be an interference in the free market.[45]

      It certainly would be consonant with the free market, how­ever, for the movie company to ask the actor to pay a certain sum in consideration of his breaking the contract, and, if he re­fuses, to refuse to hire him again, and to notify other prospec­tive contracting parties (such as movie companies) of the person’s action. It seems likely that his prospect of making exchanges in the future will suffer because of his action. Thus, the “blacklist” is permissible on the free market. Another legitimate action on the free market is the boycott, by which A urges B not to make an exchange with C, for whatever reason. Since A’s and B’s ac­tions are purely voluntary and noninvasive, there is no reason for a boycott not to be permitted on the unhampered market. On the contrary, any coercive action against a boycott is an invasion against the rights of free persons.

      If default on contracted debts is to be considered as equivalent to theft, then on the unhampered market its treatment by the enforcing agency will be similar to that of theft. It is clear—for example, in the case of burglary—that the recovery of the stolen property to its owner would be the fundamental consideration for the enforcing agency. Punishment of the wrongdoer would be a consideration subsidiary to the former. Thus, suppose A has stolen 100 ounces of gold from B. By the time A has been apprehended by the enforcing agency, he has dissipated the 100 ounces and has no assets by which the 100 ounces can be obtained. The main goal of the enforcement agency should be to force A to return the 100 ounces. Thus, instead of simply idle imprisonment, the agency could force the thief to labor and to attach his earnings to make up the amount of the theft, plus a compensation for the delay in time. Whether this forced labor is done in or out of prison is immaterial here. The main point is that the invader of another’s rights on the free market gives up his rights to the same extent. The first consideration in the punishment of the aggres­sor against property in the free market is the forced return of the equivalent property.[46] On the other hand, suppose that B voluntarily decides to forgive A and grant the latter a gift of the property; he refuses to “press charges” against the thief. In that case, the enforcement agency would take no action against the robber, since he is now in the position of the receiver of a gift of property.

      This analysis provides the clue to the treatment of defaulting debtors on the free market. If a creditor decides to forget about the debt and not press charges, he in effect grants a gift of his property to the debtor, and there is no further room for enforce­ment of contract. What if the creditor insists on keeping his prop­erty? It is clear that if the debtor can pay the required amount but refuses to do so, he is guilty of pure fraud, and the enforc­ing agency would treat his act as such. Its prime move would be to make sure that the debtor’s assets are transferred to their right­ful owner, the creditor. But suppose that the debtor has not got the property and would be willing to pay if he had it? Does this entitle him to special privilege or coerced elimination of the debt, as in the case of bankruptcy laws? Clearly not. The prime con­sideration in the treatment of the debtor would be his continu­ing and primary responsibility to redeem the property of the creditor. The only way by which this treatment could be elimi­nated would be for the debtor and the creditor to agree, as part of the original contract, that if the debtor makes certain invest­ments and fails to have the property at the date due, the creditor will forgive the debt; in short, he grants the debtor the rights of a partial co-owner of the property.

      There could be no room, in a free society such as we have out­lined, for “negotiable instruments.” Where the government desig­nates a good as “negotiable,” if A steals it from B and then sells it to C without the latter’s knowledge of the theft, B cannot take the good back from C. Despite the fact that A was a thief and had no proper title to the good, C is decreed to be the legitimate owner, and B has no way of regaining his property. The law of negotiability is evidently a clear infringement of property right. Where property rights are fully defended, theft cannot be com­pounded in this manner. The buyer would have to purchase at his own risk and make sure that the good is not stolen; if he nonetheless does buy stolen goods, he must try to obtain restitu­tion from the thief, and not at the expense of the rightful owner.

      What of a cartel agreement? Would that be enforceable in a free society? If there has been no exchange of property, and A, B, C . . . firms agree among themselves to set quotas on their production of a good, this agreement would surely not be illegal, but neither would it be enforceable. It could be only a simple promise and not an enforceable case of implicit theft.[47]

      One difficulty often raised against a free society of individual property rights is that it ignores the problem of “external disecon­omies” or “external costs.” But cases of “external diseconomy” all turn out to be instances of failure of government—the enforcing agency—adequately to enforce individual property rights. The “blame,” therefore, rests not on the institution of private prop­erty, but on the failure of the government to enforce this property right against various subtle forms of invasion—the failure, e.g., to maintain a free society.

      One instance of this failure is the case of smoke, as well as air pollution generally. In so far as the outpouring of smoke by fac­tories pollutes the air and damages the persons and property of others, it is an invasive act. It is equivalent to an act of vandalism and in a truly free society would have been punished after court action brought by the victims. Air pollution, then, is not an ex­ample of a defect in a system of absolute property rights, but of failure on the part of the government to preserve property rights. Note that the remedy, in a free society, is not the creation of an administrative State bureau to prescribe regulations for smoke control. The remedy is judicial action to punish and proscribe pollution damage to the person and property of others.[48]

      In a free society, as we have stated, every man is a self-owner. No man is allowed to own the body or mind of another, that being the essence of slavery. This condition completely over­throws the basis for a law of defamation, i.e., libel (written defa­mation) or slander (oral defamation). For the basis of outlawing defamation is that every man has a “property in his own reputa­tion” and that therefore any malicious or untruthful attack on him or his character (or even more, a truthful attack!) injures his reputation and therefore should be punished. However, a man has no such objective property as “reputation.” His reputa­tion is simply what others think of him, i.e., it is purely a func­tion of the subjective thoughts of others. But a man cannot own the minds or thoughts of others. Therefore, I cannot invade a man’s property right by criticizing him publicly. Further, since I do not own others’ minds, either, I cannot force anyone else to think less of the man because of my criticism.[49]

      The foregoing observations should firmly remind us that what the enforcing agency combats in a free society is invasion of the physical person and property, not injury to the values of property. For physical property is what the person owns; he does not have any ownership in monetary values, which are a function of what others will pay for his property. Thus, someone’s vandalism against, or robbery of, a factory is an invasion of physical prop­erty and is outlawed. On the other hand, someone’s shift from the purchase of this factory’s product to the purchase of a com­peting factory’s product may lower the monetary value of the former’s property, but this is certainly not a punishable act. It is precisely the condition of a free society that a property owner have no unearned claim on the property of anyone else; there­fore, he has no vested right in the value of his property, only in its physical existence. As for the value, this must take its chance on the free market. This is the answer, for example, to those who believe that “undesirable” businesses or people must be legally prevented from moving into a certain neighborhood be­cause this may or will “lower the existing property value.”

      One method of acquiring property that we have not discussed yet is fraud. Fraud involves cases where one party to an agreed-upon exchange deliberately refuses to fulfill his part of the contract. He thus acquires the property of the other person, but he sacrifices either none of the agreed-upon goods or less than he had agreed. We have seen that a debtor’s deliberate fail­ure to pay his creditor is equivalent to an outright theft of the creditor’s property.

      Another example of fraudulent action is the following ex­change: Smith agrees to give up 15 ounces of gold to Jones in exchange for a package of certain specified chinaware. When he receives the package, after having given up the gold, Smith finds that he has received an empty crate instead of the goods that the two had agreed to exchange. Jones has falsely represented the goods that he would exchange, and here again this is equiva­lent to outright theft of Smith’s property. Since the exchange has been made falsely, the actual form of which might not have been contracted had the other party not been deceived, this is not an example of voluntary exchange, but of one-sided theft. We therefore exclude both explicit violence and the implicit violence of fraud from our definition of the market—the pattern of voluntary interpersonal exchanges. At this point we are dealing only with an analysis of the market unhampered by fraud or vio­lence.

      We have not here been discussing what type of enforcing agency will be set up or the means it will use, but what type of actions the agency will combat and what type will be per­missible. In a free market, all invasive acts by one person against another’s property, either against his person or his material goods, will be combatted by the enforcing agency or agencies. We are assuming here that there are no invasive acts in the society, either because no individuals commit them or because they are successfully combatted and prevented by some sort of en­forcing agency. The problem then becomes one of defining in­vasive, as distinguished from noninvasive, acts, and this is what has been done here in various typical examples. Each man would be entitled to ownership over his own person and over any prop­erty that he has acquired by production, by appropriation of unowned factors, by receiving gifts, or by voluntary exchange. Never has the basis of the free, noninvasive, or “voluntaryist” so­ciety been described more clearly in a brief space than by the British political philosopher Auberon Herbert:

(1) The great natural fact of each person being born in possession of a separate mind and separate body implies the ownership of such mind and body by each person, and rights of direction over such mind and body; it will be found on examination that no other deduction is reasonable.

(2) Such self-ownership implies the restraint of violent or fraudulent aggressions made upon it.

(3) Individuals, therefore, have the right to protect themselves by force against such aggressions made forcibly or fraudulently, and they may delegate such acts of self-defense to a special body called a gov­ernment . . .

Condensed into a few words, our Voluntaryist formula would run: “The sovereignty of the individual must remain intact, except where the individual coerced has aggressed upon the sovereignty of another unaggressive individual.”

      Elaborating on the first point, Herbert continued:

If there is one thing on which we can safely build, it is the great natural fact that each human being forms with his or her body and mind a separate entity—from which we must conclude that the entities belong to themselves and not to each other. As I have said, no other deduction is possible. If the entities do not belong to themselves, then we are reduced to the most absurd conclusion. A or B cannot own himself; but he can own, or part own, C or D.[50]



[32]On the importance of services, see Arthur Latham Perry, Political Econ­omy (21st ed.; New York: Charles Scribner’s Sons, 1892), pp. 124–39.

[33]This is not to deny, of course, that the existence of several violinists of different quality will affect the consumer’s evaluations of each one.

[34]If he has taken the property of another by means of such an agree­ment, he will, on the free market, have to return the property. Thus, if A has agreed to work for life for B in exchange for 10,000 grams of gold, he will have to return the proportionate amount of property if he terminates the arrangement and ceases the work.

[35]In other words, he cannot make enforceable contracts binding his future personal actions. (On contract enforcement in an unhampered market, see section 13 below. This applies also to marriage contracts. Since human self-ownership cannot be alienated, a man or a woman, on a free market, could not be compelled to continue in marriage if he or she no longer desired to do so. This is regardless of any previous agreement. Thus, a marriage contract, like an individual labor contract, is, on an unhampered market, terminable at the will of either one of the parties.

[36]In a credit transaction, it is not necessary for the present and the future goods exchanged to be the same commodity. Thus, a man can sell wheat now in exchange for a certain amount of corn at a future date. The example in the text, however, highlights the importance of time prefer­ence and is also more likely to occur in practice.

[37]Léon Wolowski and Émile Levasseur, “Property,” Lalor’s Cyclopedia of Political Science, etc. (Chicago: M.B. Cary & Co., 1884), III, 392.

[38]See the vivid discussion by Edmond About, Handbook of Social Econ­omy (London: Strahan & Co., 1872), pp. 19–30. Even urban sites embody much past labor. Cf. Herbert B. Dorau and Albert G. Hinman, Urban Land Economics (New York: Macmillan & Co., 1928), pp. 205–13.

[39]If a channel has to be a certain number of wave lengths in width in order to permit clear transmission, then the property would accrue to the first user, in terms of such width.

[40]Professor Coase has demonstrated that Federal ownership of airwaves was arrogated, in the 1920’s, not so much to alleviate a preceding “chaos,” as to forestall this very acquisition of private property rights in air waves, which the courts were in the process of establishing according to common law principles. Ronald H. Coase, “The Federal Communications Com­mission,” Journal of Law and Economics, October, 1959, pp. 5, 30–32.

[41]It is rapidly becoming evident that air lanes for planes are becoming scarce and, in a free society, would be owned by first users—thus obviating a great many plane crashes.

[42]Flowing water should be owned in proportion to its rate of use by the first user—i.e., by the “appropriation” rather than the “riparian” method of ownership. However, the appropriator would then have absolute con­trol over his property, might transfer his share, etc., something which cannot be done in those areas, e.g., states in the West, where an approach to appropriation ownership now predominates. See Murray N. Rothbard, “Concerning Water,” The Freeman, March, 1956, pp. 61–64. Also see the excellent article by Professor Jerome W. Milliman, “Water Law and Private Decision-Making: A Critique,” The Journal of Law and Eco­nomics, October, 1959, pp. 41–63; Milliman, “Commonality, the Price System, and Use of Water Supplies,” Southern Economic Journal, April, 1956, pp. 426–37.

[43]On Ingalls and his doctrines, see James J. Martin, Men Against the State (DeKalb, Ill.: Adrian Allen Associates, 1953), pp. 142–52, 220ff., 246ff. Also cf. Benjamin R. Tucker, Instead of a Book (2nd ed.; New York: B.R. Tucker, 1897), pp. 299–357, for the views of Ingalls’ most able disciple. Despite the underlying similarity and their many economic errors, the Ingalls-Tucker group launched some interesting and effective critiques of the Georgist position. These take on value in the light of the excessive kindness often accorded to Georgist doctrines by econo­mists.

[44]This is true even if the actor had previously agreed in a contract that he would pay damages. For this is still merely a promise; he has not implicitly seized someone else’s property. The object of an enforcing agency in a free society is not to uphold promise-keeping by force, but to redress any invasions of person and property.

[45]Sir Frederick Pollock thus describes original English contract law:

Money debts, it is true, were recoverable from an early time. But this was not because the debtor had promised to repay the loan; it was be­cause the money was deemed still to belong to the creditor, as if the identical coins were merely in the debtor’s custody. The creditor sued to recover money . . . in exactly the same form which he would have used to demand possession of land . . . and down to Blackstone’s time the creditor was said to have a property in the debt—property which the debtor had granted him. Giving credit, in this way of thinking, is not reliance on the right to call thereafter for an act . . . to be performed by the debtor, but merely suspension of the immediate right to possess one’s own particular money, as the owner of a house lot suspends his right to occupy it.  . . . The foundation of the plaintiff’s right was not bargain or promise, but the unjust detention by the defendant of the plaintiff’s money or goods. (Sir Frederick Pollock, “Contract,” Encyclo­pedia Britannica [14th ed.; London, 1929], VI, 339–40)

[46]Wordsworth Donis­thorpe, Law in A Free State (London: Macmillan & Co., 1895), p. 135:

In Rome one could recover stolen goods, or damages for their loss, by what we should call a civil process, without in the least affecting the relation between the thief and the public by reason of the theft. Restitu­tion first and punishment afterwards was the rule.

[47]This reason for the unenforceability of a cartel agreement in a free society has no relation to any common-law hostility to agreements allegedly “in restraint of trade.” However, it is very similar to the Eng­lish common-law doctrine finally worked out in the Mogul Steamship Case (1892). See William L. Letwin, “The English Common Law Con­cerning Monopolies,” University of Chicago Law Review, Spring, 1954, pp. 382ff.

[48]Noise is also an invasive act against another, a transmission of sound waves assaulting the eardrums of others. On “external diseconomies,” the only good discussion by an economist is the excellent one in Mises, Human Action, pp. 650–53. For an appreciation of the distinction be­tween judicial and administrative action in a free society, as well as a fine grasp of property rights and governmental enforcement, see the classic discussion of adulteration in Donisthorpe, Law in A Free State, pp. 132–58.

[49]Similarly, blackmail would not be illegal in the free society. For blackmail is the receipt of money in exchange for the service of not publiciz­ing certain information about the other person. No violence or threat of violence to person or property is involved.

[50]Similarly, blackmail would not be illegal in the free society. For blackmail is the receipt of money in exchange for the service of not publiciz­ing certain information about the other person. No violence or threat of violence to person or property is involved.