Economics 101 & Public Square

Are Markets Just?

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Are markets just?

Answering this question requires examining three main features of the market economy:

  • Institutions that provide for a system of well-defined and readily enforced property rights
  • Voluntary exchange of that property
  • The ability to associate freely with other people and organizations

Today we’ll look at the issue of markets and justice by taking a look at property rights.

Property Rights from an Economic Perspective

To the economist, there are numerous well-known advantages to a system of well-defined and enforceable property rights.

First, such rights put a damper on destructive fights over resources.

When property rights are clearly defined, no one has ammunition to start a battle over whose resources are whose.

Secondly, well-defined and stable property rights encourage investment in long-lasting goods, what economists call capital.

Why bother to invest in factories, facilities, or equipment that can be stolen as their profitability becomes evident? Without stable property rights in the market, people will shy away from starting businesses for fear that they will be seized as soon as they start to succeed. This aspect of property rights is incredibly important in the foundation of the market because it gives people incentive to be innovative and enterprising, leading to economic growth.

Well-defined property rights also encourage owners to be good stewards of their property.

Think about a bike sharing program on a local university campus. Without ownership, students use and abuse the bikes with little thought. It is another case of the tragedy of the commons, in which no one cares for the bikes because they think everyone else using the bikes will. Compare the communal bikes to a bike someone owns. The owner knows she is the only one who will take care of the bike. She locks it up, pumps air in the tires, and takes it inside on a rainy day. She is a good steward of her bike.

Property Rights from a Biblical Perspective

Having made the economic case for well-defined and stable property rights, is that all that anyone, specifically a Christian, can say about issues regarding the market system, property rights, and justice? I think not.

A Christian can draw upon Scripture and its moral implications to argue that some forms of property rights are unjust. The most obvious case is that of abusive chattel slavery in ante-bellum America in which individuals, by accident of their birth, did not possess the right to their own labor.

However, there are also many passages in the Bible that affirm property rights, including:

  • “You shall not steal.” (the eighth commandment)
  • “You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, or his male or female servant, his ox or donkey, or anything that belongs to your neighbor.” (The tenth commandment)

The underlying assumption in these two commandments is that people have property rights. If we are not supposed to steal from our neighbor or be jealous of our neighbor’s house, we are assuming that our neighbor is allowed to own property and it would be unethical and unjust to take that property from him. This is the very basis of property rights.

Further, the Bible has harsh words for those who combine political power with a disregard for property rights, especially those of the poor. For example, Amos condemns dishonest business practices such as perverted weights and measures (Amos 8:5), judging those who have taken from others what they do not deserve.

Amos also talks of those [trampling] “upon the needy and [bringing] the poor of the land to an end” (Amos 8:4). This can be interpreted as illegal expropriation of land from the poor. Again, the Bible condemns this kind of behavior. The Lord says,

“Will not the land tremble for this and all who live in it mourn?” (Amos 8:8).

These pieces of Scripture indicate that violating someone else’s personal property is not only ill-advised, but viewed as unjust from a biblical perspective. The Bible is affirming the idea of property rights by condemning the seizure of other people’s possessions.

Property rights are essential to society from both a biblical and economic perspective. They provide a base for innovation and enterprise and are affirmed as a just principle by the Bible. In my next blog post, we will continue the discussion of the necessity of certain principles in supporting a market economy, commenting on the idea of voluntary exchange.

Editor’s Note: This is a continuation our series of excerpts from IFWE’s forthcoming book, For the Least of These: A Biblical Answer to Poverty. This post begins Dr. R. Mark Isaac’s chapter entitled “Markets and Justice,” which examines the justice of the institutions behind the market system.

How can property rights help the poor? Leave your comments here.

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  • The problem that arises is balance. Yes, there are property rights. No, they are not absolute. And looking at the advantages of stable, well-defined property rights is this, such a statement is to vague to judge whether the benefits are there. Property rights can be well-defined and stable but can also allow elites hoard resources making the rest dependent on their “benevolence.” We even see that with cash where our financial institutions are hoarding cash and that inhibits job growth. Currently, wealth disparity in America is one of greatest in the world. How are our property rights resolving that problem when so few people own so much wealth?

    • Mark Isaac

      One problem is that defining and measuring “wealth” and “wealth inequality” is a very tricky business. Take just one example, attributed in several Google searches (i.e. this is not my original idea, but any errors of interpretation are my own) to Martin Feldstein: Social Security. Social Security tends to form a larger proportion of retirement income for poor rather than for wealthy Americans (it is purposely distorted in exactly that manner). Social Security income is backed by whatever intergenerational political compact keeps those checks coming. But Social Security payments are not a flow from a traditional, measurable asset, and hence there is no measured “wealth” backing them up. If the same people who had that same level of social security income received it instead as interest from their own retirement saving, it would be backed by assets (CDs, equities) that would clearly be measured as “wealth.” That would reduce apparent wealth inequality in the United States. Thus a proposal to have Americans invest their social security taxes in 401(k) accounts, even if providing only the same level of effective annuitized retirement income as under the current system, would produce a statistically more “equal” wealth distribution.

      Secondly, what does it mean for “elites” to hoard resources. I think that is a very interesting question for Christians going back at least as far as John Calvin. Calvin, and the Calvinistic Swiss, as you recall, were very much opposed to ostentatious living. Examples I recall from my past reading included
      opulent fashion, furniture, and china. They even attempted to institutionalize these theological preferences in civil restrictions. As a result, it has been argued, many diligent Calvinists used income to increase saving and investment rather than buying, for example, a third set of silverware. That raises some interesting questions: which behavior do you consider “hoarding” assets: the thrifty Calvinist who put his money to work lending to others, or the profligate who purchased the new silverware? Which person contributes more to a dynamic economy of income and/or wealth mobility: the saver, or the person who hires the silversmith? (For a contemporary reference, I would suggest you look at the political record of what happened the last time the federal government attempted to impose a “luxury” tax on the purchase of yachts, and which politicians complained the most.)

      Finally, the current holding of excess reserves by financial institutions can not be explored outside the current policies of the Federal Reserve System. That is really an issue for a different thread, but that does not mean that Fed policies are trivial on the questions you raised. For example, who has gained and who has lost, in terms of wealth accumulation, from 5 years of near-zero short-term interest rates? Has this been wealth equalizing or has it led to more wealth inequality?

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