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Property Rights and Markets Presentation © 2005 by Barry Brownstein.

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1 Property Rights and Markets Presentation © 2005 by Barry Brownstein

2 Why Are Property Rights Important?  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 spontaneous orders facilitate discovery, help correct errors, fulfil expectations and generate new knowledge  because knowledge is imperfect and decentralized, errors are frequent and pervasive; thus coercion is unwise.

3 Why Are Property Rights Important? (Continued)  “each man should be free to make full use of his knowledge and skill, that he must be allowed to be guided by his concern for the particular things of which he knows and cares.”  without ownership a ‘tragedy of the commons’ develops without roles and responsibilities in the firm things fail to get done with “property rights” employees are free to “utilize local knowledge, make judgements and bear the consequences.”

4 What Makes Civilization Possible? “ When a nation has a legal system based on these bedrock laws, the people can be free and they can organize themselves and accumulate wealth to move forward.” – Richard Maybury

5 © 1991-2005 by Henry Madison Research, Inc. All rights reserved. Richard

6 Kyrgyzstan  More than half of Kyrgyzstan's married women were snatched from the street by their husbands in a custom known as "ala kachuu," which translates roughly as "grab and run."  Kyrgyz men say they snatch women because it is easier than courtship and cheaper than paying the standard "bride price," which can be as much as $800 plus a cow.  The custom is, it is widely perceived as practical. "Every good marriage begins in tears," a Kyrgyz saying goes.

7 Tribal vs. Free Societies Supremacy of tribe or clan as overarching organizing principle “Outsiders” are seen as not worthy of same rights or respect Hatreds, ancient superstitions and powers of tribal leaders are maintained by policies of discouraging relations with other tribes Personality cults arise among some leaders – loyalty to the clan above all Oral traditions and family/clan beliefs dominate Closed societies Supremacy of “Rule of Law” as overarching organizing principle Rights are guaranteed for all Commercial transactions bring people from different countries together causing superstitions to break down Principles above “personality” for leaders. Internet etc. make communications cheap, speed change Open societies -Immigrants are free to maintain superficial differences such as culture, religion etc. as long as they are united in the “melting pot” by their belief in the principles of liberty.

8 A Melting Pot Depends Upon Common Principles  The U.S. is the most diverse melting pot in the history of the world. Various ethnic groups are free to maintain culture while uniting around shared principles.  "An organization's success has more to do with clarity of shared purpose, common principles and strength of belief in them than to assets, expertise, operating ability or management competence, important as they may be.“ – Dee Hock  E Pluribus Unum – Out of Many, One

9 John Locke (Two Treatises of Government)- Natural Rights  Built on the ideas of Sophocles, Cicero and many others.  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.

10 “Positivism”-An Alternative Belief To Natural Rights  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

11 ‘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

12 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.”

13 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. e 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.

14 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.

15 Great Harvest Bread Company: “Do Your Own Thing”  Around 200 stores and growing  “Anything not expressly prohibited by the language of this agreement is allowed”  Simple rules (clean, fresh, quality etc.) allow for faster adaptation, innovation and collaboration.  “Owners do it their way but within the context of a community of like-minded and like-talented and like-spirited owners.  In contrast with ‘Roman Law’ organizations (McDonalds etc.) which prohibit everything that they don’t permit.

16 Time Line  John Locke (1632-1704)  Two Treatises on Civil Government  Thomas Jefferson (1743-1826)  3rd President-author of Declaration of Independence  James Madison (1751-1836)  4th President-"master builder" of the Constitution  US. Constitution- 1787  amended with the Bill of Rights 1791

17 Thomas Jefferson- 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 inherent and inalienable 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…”

18 The Uniqueness of the United States o “The revolutionary basis (of this country) is recognition of the fact that human rights are natural rights, born in every human being with his life, and inseparable from his life; not rights and freedoms that can be granted by any power on earth.”- Rose Wilder Lane Rose was the daughter of Laura Ingalls Wilder and ghost writer of her Mother’s Little House on the Prairie books. Rose’s book the Discovery of Freedom is highly recommended.

19 U.S. Constitution  " All power is originally vested in, and consequently derived from, the people.”- 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.

20 The Bill of Rights  A debate raged over whether a specific enumeration of rights would jeopardize rights because it would disparage unnamed rights. “By enumerating particular exceptions to the grant of power, it would disparage those rights which were not placed in the enumeration…; - Madison  Others believed it was not necessary since the people had vested limited and enumerated powers in government. “Because the powers are enumerated, and it follows, that all that are not granted by the constitution are retained” – Madison

21 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.” Rarely used by Supreme Court  Griswold vs. Connecticut 1965 Use of contraception was against a 1958 state law “The Framers did not intend that the first eight amendments be construed to exhaust the basic and fundamental rights which the Constitution guaranteed to the people.” – Justice Goldberg “In reaching the conclusion that the right of marital privacy is protected, as being within the protected penumbra of specific guarantees of the Bill of Rights, the Court refers to the Ninth Amendment.” –Justice Goldberg After a very short tenure on the court Goldberg was persuaded to resign and serve as UN Ambassador

22 Property in One's Own Person  Three Possibilities  absolute right to own one's body  certain person or persons own other people  Everyone has an equal share in everyone else

23 Natural Rights In the Constitution - (Amendment 1) “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.”

24 Ownership of Physical Property  Three Possibilities  transformer or creator has the property right, (homesteading principle) including the right to pass on property to one's heirs  another man or group of men have the right to appropriate the property by coercion  everyone has equal quotal share in all property ("property is theft")

25 Property Rights in the Constitution- (Amendment 5) ...Nor shall private property be taken for public use without just compensation.  “ Eminent domain. Originally, that power could only be exercised to take property “for public use”—to build bridges or make roads; things the public at large uses. It was not intended to let government transfer property from one private party to another whenever it becomes politically expedient.”

26 Kelo v. City of New London (2005)  Supreme Court held that the city of New London, Connecticut had the right to place private economic development over the property rights of individual homeowners.  In a free-market the value of a property for commercial use is to be determined by voluntary negotiated contract between the developer and the homeowner. The Court decision relieves the developer of this obligation.

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