Original Appropriation and Its Critics

by Michael S. Rozeff
by Michael S. Rozeff

The contentious issue

After self-ownership, the second basic axiom of libertarian political theory is original appropriation or homesteading. According to Rothbard: "It follows then that each person justly owns whatever previously unowned resources he appropriates or ‘mixes his labor with.’ From these twin axioms – self-ownership and ‘homesteading’ – stem the justification for the entire system of property rights titles in a free-market society." Given the pivotal role of original appropriation to the libertarian philosophy, it is essential to justify it.

Hoppe provides several cogent justifications. An important one is that acquiring unowned resources is a necessary condition for all living human beings to be alive to argue. Since even the critics of original appropriation cannot escape this condition, they concede original appropriation by living and arguing. Kirzner’s emphasis on entrepreneurial activity gives us another justification from a completely different angle. Resources are not static bits of matter but components of value-creation arising from human creativity, and all human beings have a right to their own creations.

There are numerous critics of original appropriation. For example, the economist and Professor DeLong says: "In an original position in which the bounties of nature are unowned and open to us all, how can private property arise without violating somebody’s rights?" His idea is that if person A appropriates a resource and B does not, then B loses. Other critics might say that B now has "duties," which means B has to respect A’s property and can not use it for himself, or that B has lost freedom. Or here is a very recent blogger’s quote: "The problem for the libertarian here is that any such appropriation necessarily violates the liberty of others, for it prevents them from making use of what they previously had free access to." A good many self-professed libertarians are falling into erroneous analysis of this sort.

These views directly conflict with the correct libertarian view that Hoppe expresses as follows: "Every act of original appropriation improves the welfare of the appropriator (at least ex ante); otherwise it would not be performed. At the same time, no one is made worse off by this act."

In this article, I further examine original appropriation. The goal is to reveal the faults of its opponents’ views (although I do not pretend to analyze all possible views) and to point out the virtues of the idea that original appropriation is justified. Too many misconceptions continue among many critics who have not yet acceded to either Hoppe’s or Kirzner’s (correct) positions.

The critics’ errors

Suppose there is an unowned resource that persons A, B and C have imperfect and/or uncertain knowledge of, such as a field with fertile soil in a distant valley, or a bountiful apple tree, or a possible gold mine that actually has only a trace of gold. At the outset, they may not know where the resource is, what it is, or how much of it there is. If they find the resource, they might learn that it is valuable, or it might be worthless, or something in between; or they might initially think it valuable upon locating it and then waste resources discovering that it is not. As another case, suppose there is oil flowing in a field owned by C that A, B and C all know of, but they all consider it useless as in 1810. This situation is virtually tantamount to an undiscovered field or apple tree, the only difference being that A and B might have to pay C for the land if they wished to get the oil (there is a tie-in between land and oil).

Imagine that A discovers the apple tree or discovers a use for the oil. He then appropriates the land, harvests the apples, or he buys the oil field from C for next to nothing. After incurring some costs, A has a profit, let us say, although it could be a loss. Why is it just for A to keep this profit, and why is it unjust for B or C to get part of A’s profit? The answer is very straightforward. Person A harmed no one in securing a profit, so getting it was just. If B and C take some of what A now has, that is aggression and that is unjust. Why then do the critics persist in criticizing A’s original appropriation and why do they think it is all right for B and C to tap into A’s profit? Where do the critics go wrong?

I begin with two observations. First, my description of potential opportunities contrasts sharply with those political philosophies that assume an over-simplified picture of economic reality in which mankind lives in a world of near-certain knowledge concerning undiscovered resources. (Perhaps the defects of traditional economics instruction explain this.) If one incorrectly views an unowned resource to be known in all respects including value and one views the world as consisting of given "endowments" of resources waiting to be divided up, then one is bound to reach faulty conclusions. For example, Professor Simonis writes: "Let us start out with the question of the equitable distribution of the initial endowment with the entitlements to a common resource."

Second, from an economic point of view, it does not make a great deal of difference whether we are considering an unowned resource (an undiscovered field) or an owned resource (unused oil on a field). In both cases, discovery and value-creation occur, while in the case of the apple tree there is also an act of original appropriation. Since an unowned resource invariably involves some cost of discovery, bringing online, and establishing ownership, it competes with currently owned resources that one might have bought instead. Hence, those who object to property rights in unowned resources logically also object to property rights in owned resources. What they generally are after is a way to deny the justice of property rights altogether, and then they want to argue for the justice of forced redistributions. Hoppe has shown that they can accomplish neither of these objectives.

Directly related to my emphasis on the uncertainty of the value created by discovering and appropriating a resource, Kirzner would have us notice that A’s discovery is entrepreneurial in nature. The only way that A could discover the apple tree or the use for the oil was to decide to invest his time, energy, daring, will, drive, initiative, and attention to activities of travel, or exploration, or experimentation, or thought, that led to the discovery. Similarly, Hoppe notes that "Any other individual could have appropriated the same goods and territories if only he had recognized them as scarce, and hence, valuable."

As an aside, since I use the term creation of value, notice that value-creation can be defined in two ways. One way is through personal (subjective) value scales. For example, suppose that A’s use for the oil is to bathe in it, an act that has no value to anyone else but A. Or suppose that the apples are all rotten, but A enjoys throwing them to the ground. The second way, which is the more typical conception, is that there is pure monetary profit involved: the estimated present value of the cash inflows exceeds the estimated present value of the cash outflows, where, of course, estimates vary among individuals.

Consider those critics who are against value created going to A. They want ex post profit-sharing (another way of saying that they want shared ownership). They are assuming, not that the product arises from human creation or entrepreneurship, but from a known and automatic production process that, as DeLong says, involves known "bounties of nature" that are "open to us all." If all opportunities that might be discovered are viewed as given to us all on a silver platter by nature and known to us all, which is necessary to assume if they are open to us all, then it is indeed difficult to make a case for original appropriation because such stringent and unrealistic conditions assume away the problems of original appropriation. They turn the process of original appropriation, which involves mixing labor with the resource on a speculative basis, into a sure thing in which manna rains down from the sky upon everyone. In such a case, someone like Dworkin can argue that all "productive assets" are to be divided up among all people.

However, in the real world, the moment that a single person takes the initiative and decides to do that which others have chosen not to do – to take advantage of an unutilized resource – that action reveals to us that all opportunities are neither given to us nor known to us all. That is, acts of individual initiative show that we do not live in the perfect knowledge, perfect information, known technology, unchanging tastes, valuations, prices, and costs world that the critics of original appropriation are assuming. Productive assets are not simply waiting around for ready distribution. In a world of uncertainty, unknown valuations, and unknown production methods, no one knows for sure what the productive assets are or how much they might be worth.

To get around this defect in their position, the critics further assume that the act of the original appropriator is, as a rule, random or a matter of luck. Nature or Fate selects a first-mover who might be any one of us. The discoverer does not select himself by an act of will or by having developed unequal knowledge or by having built up by his own effort some other characteristic or trait that sets him apart from non-discoverers. The critics want us to believe that the discoverer does not deserve what he discovers, so that he has no right to it. Then this school of thought can fondly argue for equal shares to all.

Two arguments show that the critics of original appropriation are wrong to assume that Chance selects original appropriators. First, this assumption cannot generally be true, since it assumes that all people think alike. Yet egalitarian statists would not be arguing against the libertarian position if all people thought alike. Second, such an argument assumes away the diversity in human nature and the diversity that arises as people live their lives. The person who discovers a vein of gold is prospecting; he is not digging holes for amusement. Since every act of a human being contributes to the creation of a unique individual, one cannot assume that everyone is equal before the (supposed) bounties of nature without assuming either that acts and decisions are without purpose or that they have random effects on human beings. The critics of original appropriation are therefore implicitly trying to invalidate von Mises’s action axiom, which they cannot do without miring themselves in contradiction.

Although devotees of equality sometimes mention that equality entails equality of burdens as well as benefits, not all do. Some, like DeLong, assume that nature always presents us with "bounties," that is, profitable projects! Nothing could be further from reality. Losses, errors, failures, and mistakes are so common that some economists have concluded that business entrepreneurs actually lose as a group.

If the critics of original appropriation think that there should be ex post profit-sharing, then they also logically have to accept ex post loss-sharing. In other words, if B is to have a just claim on A’s discovery of the apple tree, then B also justly should help pay for all those instances in which A expended his life and resources and failed to find an apple tree. Basically, if everyone is supposed to share ownership in all appropriated resources, then they also share ownership in all ventures that seek but fail to appropriate resources. Implementing such a rule is an impossible nightmare.

To summarize to this point, I have argued that the critics of original appropriation view the whole process in faulty terms. They think that there’s no effort or cost in bringing in an oil well, no occasions when the well is dry, and perfect knowledge of where to drill, how much oil is there, and how much it will fetch, etc. To salvage their position, it is necessary to believe that it makes no difference who discovers or appropriates a resource, that it’s a matter of chance. However, that assumption runs into several contradictions. Finally, the critics tend to focus solely on projects that succeed in creating value and ignore those that destroy value. All of this incorrect characterization conditions their view that everything should be divvied up somehow to create equality.

Running along side their over-simplified view of unowned resources is often another unsound belief, namely, that they are owned by everyone, or they are the "common heritage of mankind," a beguiling phrase that disguises vast grabs of resources by States and/or bureaucratic entities vested with State power. Those who believe in common ownership think that human beings cannot acquire property rights in unowned resources. Yet, as Hoppe shows, their life and arguments are consistent with original appropriation.

I add this. If all unowned resources are actually owned by everyone, then so are all the owned resources since they came from acts of original appropriation. This means that no one owns himself either. As Rothbard pointed out, this leads to the contradiction that no one owns himself but he owns a share of everyone else.

The exceedingly dangerous notion of common heritage of mankind leads directly to world socialist control over resources. Examples include proposals and/or agreements already proclaimed concerning the human genome, the moon and other celestial bodies, and the seabed. If this principle is accepted, its logic will inevitably lead to the domination of all individual human activities by a ruling clique.

Elaborating upon original appropriation

Although the critics of original appropriation usually believe in a State that enforces what they call "distributive justice," only in a free society can justice occur as well as manifold solutions to the apparent problems of inequality that these critics perceive. I will now develop in more detail some of the economics of original appropriation when markets are free. In doing this, we will uncover still more errors that the critics of original appropriation make.

From the viewpoint of a free man, as he looks ahead, he wants to create and/or maintain a broad set of options and opportunities to choose from in the future. Consider, for example, the cases of the apple tree or the fertile valley. Man A does not now know for sure that these resources are there, but he assesses some subjective probability that they are there. He also does not know what costs might be required to bring these resources to fruition, so he does not know what the profits or losses might be. Again, he assesses probabilities of profits and losses. Man B is going through the same assessment process but with different probabilities and judgments. Each also knows that the choice of the other can restrict his future choices. If B discovers a valley first, then A knows that a possible opportunity will have been foreclosed. If he wants to use the valley at that point, he’ll have to rent it or buy it at some price or make some other deal with B.

From the point of view of freedom of choice, both A and B possess freedom of choice now. Both A and B will possess their freedom in the future if they can choose among those opportunities that each will actually possess in the future. Neither A nor B is any less free in the future if one or the other has appropriated a resource first. It is true that if B finds and picks an apple, then A cannot pick it. That means that A’s opportunities may have diminished compared to what they might have been. However, it does not mean that A’s rights and freedoms have diminished. One reason is that before B’s appropriation, A cannot justly assert that he owns all possible future opportunities that might be discovered by B. If he did, he might come into conflict with B’s ownership of an opportunity in the future. That would be an aggression upon B; it amounts to a tax on any of B’s current actions or efforts to attain a resource.

Secondly, since A did not act to seek out the apple (for whatever reason), he relinquished that option. He took into consideration that if he did nothing, someone else might act and foreclose some opportunities. (By the same token, the actions of others sometimes create opportunities.) If someone voluntarily and freely waives the right to search for or avail himself of a possible opportunity, he cannot be said to be less free if someone else succeeds at that venture. This is because by his own inaction he has revealed that the option was not worthy of his action. Both Professor DeLong and many others seem to think that when resources become owned, the non-owning people become less free. By this logic, people are less free if a resource gets used up anywhere, because they no longer have the option to obtain it. This is an untenable concept of freedom because it says that no one can ever be free, a contradiction.

Anyone who thinks that fewer opportunities mean less freedom and more opportunities mean more freedom is confusing wealth and happiness with freedom of choice. Ceteris paribus, everyone prefers to have more opportunities, not fewer. That implies greater happiness, not greater freedom. Slogans like "Freedom from want" mean not being in a state of poverty which, in turn, means possession of goods. Freedom from want does not mean freedom of choice.

Both A and B cannot assert ownership over all future options (of each other) without coming into conflict and aggressing upon each other. Person A would like to maintain options to choose in the future. He thinks: "If I see a fertile field, I ought to be able to farm it." However, B thinks the same thing. Since both can’t farm the field, the conflict means that a rule is required to settle the matter. A basic rule is "first to use, first to own," or "first to use, first to appropriate." This rule has the following property: It is the only rule that is 100% consistent with the non-aggression axiom. This is because the decisions that precede original appropriation – about how to proceed into the future, what actions to take or not, what paths to follow or not, what areas to attend to or not, where to take the initiative and where not – all are free choices of all individuals when the basic rule is "first to use, first to appropriate." If any other rule is imposed by some authority, there is violation of the non-aggression axiom. If a rule is imposed like "first to use, ownership by all," an individual has forcibly lost the opportunity itself and all that he might have done with it, including giving it away. Additionally, ex ante under this rule, a potential discoverer sees that his actions do not necessarily lead to an increase in his welfare, even if the discovery is made. Therefore, not only does the imposition of the rule aggress upon him, but also his incentive to discover a resource is undermined.

I now extend the discussion to consider several possibilities concerning resource appropriation that are usually ignored. In the case at hand, A and B might decide on individual effort, or they might cooperate. Suppose that A and B agree that no matter who discovers the field first, they will be co-owners. This is a possibility. In other words, they form a partnership. The partnership agreement will spell out the contributions of resources to the venture, who will do what, what the sharing rule will be for profits and losses, and many other details. However, the partnership may face competition from a sole individual or individuals.

If there are N people who wish to create a joint venture, that too is possible. Perhaps they will form a corporation and hold property jointly. Under freedom, when individuals assess the future opportunities (and their subjective assessments may differ radically), all sorts of ventures may occur, from sole proprietorships to corporations to mutual societies, etc. We may see villages and tribes that end up owning communal property, or we may see individuals owning vast ranches. We may see families who own property jointly or family businesses. All of these methods of resolving conflict over future opportunities still employ the basic rule of "first to use, first to appropriate." However, their virtue is that they provide scope for individuals to handle a great many issues of uncertainty and cost according to their subjective assessments, their specific knowledge of local situations, and the specific properties of the resources and opportunities under consideration.

If people do not make contracts, if they go their own ways independently, then they are adopting the sharing rule of "individual winner take all." This is one possible rational solution to the existence of future opportunities, just as are the other joint-effort solutions with alternative sharing rules. They all have in common that they are peaceful. None involves aggression. They all are voluntary. They all represent the best ex ante solutions that people can come up with, given their current resources, beliefs, probability assessments, and other factors.

We know a few things about the conditions under which people will get together with other people to form a venture or go it alone. All contracts are costly to make. They all involve costs of negotiation, coordination, monitoring, enforcement, bonding, as well as agency costs. If effort is hard to monitor, forming an organization becomes less likely. If individuals have widely varying assessments of the opportunities that are there potentially to be exploited, then the costs of contracting rise. If there are high costs of communicating, then the costs of organizing rise. When the risks of discovery are high and people wish to share them, then organizing with others may pay off better than going it alone. If the venture requires large capital, then aggregating capital with others may pay off.

The main point of mentioning these fine points is that they are real and important. No externally imposed rule of how to share can possibly deal with the many contingencies and variations of these factors that occur in practice. In reality we observe a variety of voluntary organizations and a variety of ownership structures, reflecting the liberty of individuals in assessing and dealing with a great variety of situations. The critics of original appropriation ignore the ways in which individuals in the real world deal with uncertainty and handle contracting costs. They ignore a panoply of voluntary business organizations that have been invented to deal with important problems. Worse, they often see such organizations as harmful.

These critics, usually out of a concern about equality on some dimension, judge that both A and B ought to own the field, and they recommend State coercion to redistribute income or wealth. There are many more things that redistributionists do not understand. They do not understand that no third party intervention is called for concerning what ought to be done because A and B and other people, including poor people, can decide for themselves. They do not understand the positive incentive effects of the freedom to decide. They do not understand the narrow sources of human preferences that are a source of human diversity, variation in choice and happiness. A person may love baked beans and hate kidney beans, love red cars and hate white cars, or a murderer may prefer brunette victims and not blondes.

In the context of original appropriation, the reasons why person A waives the option to seek out opportunities are not obvious. For example, A might be ignorant, or averse to risk, or exercise poor judgment, or have something better to do, or lack resources, or lack skill, or lack drive, or lack courage, etc. Without a skilled inquiry, it is easy to mislabel A’s position as an injustice. If an egalitarian does not properly discern motivation in this type of situation, then gross attempts to rectify it by State programs are destined to do more harm than good for this one reason alone. The State’s bureaus cannot infer injustice from the presence of poverty or wealth, for example, anymore than discrimination can be inferred by the presence of a community of individuals with some similarity.

Egalitarian statists do not understand how freedom of choice and profit-seeking lead to benefits being spread even to disadvantaged people. For example, entrepreneurs have devised methods, such as mutual funds, for virtually anyone to participate in a wide variety of investments; and the scope of the available investment opportunities has steadily enlarged as time as passed. Why has this occurred? One reason is that when only a few people sought out these opportunities, the returns were very high. High returns suggested to entrepreneurs that money was being left on the table. They realized that they could gain by assisting persons of moderate means also to participate in these investment opportunities. If education were privatized, we would see similar educational or training enterprises arise that cater to low-income people because of the high potential returns to appropriate education and training.

To wrap this up, let’s return to the main question: Why is it just for A to keep the profit of his discovery, and why is it unjust for B or C to get part of A’s profit? The most complete answer to this question, actually a proof, appears in Hoppe’s "A Theory of Socialism and Capitalism."

The briefest possible distillation is this. Property obtained without aggressing upon others is justly obtained, and original appropriation does not involve aggression since the property appropriated is unowned. Therefore, property gotten via original appropriation is justly owned property. For others to take justly owned property forcibly is unjust because it involves aggression. It violates the right of the owner to control his property.

I have also detailed several other aspects of original appropriation:

1. Unowned resources are not simply a bounty of nature. They are usually created by a discovery process under uncertainty. That process often leads to losses.

2. Unowned resources differ in degree, not in kind, from already appropriated resources. In both cases, costs are involved to use them and uncertainties over outcomes prevail.

3. Unowned resources are appropriated consequent to the acts of decision-makers. They are not obtained generally or primarily via chance.

4. Property obtained by original appropriation does not diminish anyone’s freedom or rights. Those who believe otherwise are employing a self-contradictory concept of freedom and they are inadvertently advocating a violation of the non-aggression axiom.

5. The rule of "first to use, first to appropriate" is totally consistent with the non-aggression axiom. The imposition of alternative rules is not.

6. Original appropriation, like any ownership of already appropriated resources, is consistent with a variety of voluntary ownership structures, including individual, partnership, family, corporate, mutual, communal, and tribal.

Many of the statists who blithely propose egalitarian rules that they think ought to be put into place are blatantly anti-freedom. Although supposedly aiming to help uplift mankind, their elitist and State-run schemes betray a lack of confidence in, misunderstanding and distrust of the masses. Mostly they are interested in promoting their pet schemes of equality which they attempt to erect by brandishing the label of justice. May we all realize that their typically complex word games cover up flagrant errors of thought.

September 1, 2005

Michael S. Rozeff [send him mail] is the Louis M. Jacobs Professor of Finance at University at Buffalo.

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