The free market is one of the more bewildering concepts around. Polemicists who are in favor seem to be living on another planet from those who oppose. When the ideas are put into practice, whether they succeed or fail seems to be a total mystery.
Why did Ireland crash so badly while Hong Kong succeeded? Why is Botswana being pulled out of third world poverty under free market policies, while Russia retreated back to third world conditions for a decade after Shock Therapy?
The answer to all these questions can be traced back to landed property, and economic rent more generally. Land is necessary for all production, and even life itself. Access to land is a prerequisite for any other activity.
A land title is, at root, an arbitrary threat of violence backing up an exclusive right to natural opportunities that neither you nor I have created. If you are stranded on an island that I have claimed, and I have an enforceable right to exclude you, then you are completely at my mercy. If I decide you aren’t welcome, I can send you back into the ocean to your death.
And if I decide to let you stay, the terms by which I allow you to stay are entirely at my discretion, since your bargaining power is nothing. If I decide that I’d like you to be my slave, then your choice is slavery or death.
It wouldn’t matter whether you had a backpack full of rare jewels or not, the terms by which you can live on my island are at my whim. I can demand your backpack. I can demand your subservience. I can demand anything. An exclusive right to land can override virtually any other right you have.
This raises an important question. Under our current system, what is it which is preventing us from this same outcome?
As it stands, virtually all habitable land is owned by someone, but not everyone is a landowner. As Herber Spencer once noted, which I’ve quoted before:
“Supposing the entire habitable globe to be so enclosed, it follows that if the landowners have a valid right to its surface, all who are not landowners, have no right at all to its surface. Hence, such can exist on the earth by sufferance only. They are all trespassers.”
Serfdom is partly defined by landlessness, so why aren’t all landless people serfs?
The answer is largely because we are not living in a “perfect market” and individuals are not solely self-interested. A perfect market requires such things as perfect information, rationally self-interested actors, free entry and exit by producers and consumers, and internalization of costs. We are not living in such a world.
However, there’s good reason to suppose, in the context of exclusive land rights, the more perfect the market becomes, the closer we get to a situation of serfdom.
Communications technology generally is moving us closer to a world of perfect information, and making it harder to prevent entry and exit into markets. Perfect information allows for all manner of behaviors. One such behavior is “price discrimination.”
This means that the prices are charged based on the peculiarities of an individual’s circumstances. Student discounts are a benign example. Under a system with no free land and perfect information, one could envision that rental prices would be subject to price discrimination.
In this circumstance, what I mean by price discrimination is the financial circumstances of individuals are as meaningless as the backpack full of precious jewels on the island. People who earn more in wages, or have more in savings, would simply be charged more in rent. And if they tried to go somewhere else to get a better deal, the other rationally self-interested landlords with perfect information would do the same thing.
Luckily, landlords don’t all have perfect information, and aren’t all rationally self-interested. And the more that are not, the better that is for everyone. Because everyones’ next best alternative is improved. And it is your next best alternative that determines the rent. In my original island scenario, there are no other alternatives. But if there were alternatives, then the owner of the island can only charge the difference between the value of his land over and above the next best alternative.
And likewise, it isn’t literally true that there’s no land upon which one can live rent-free. There’s a variety of mediocre options, such as living in a WalMart parking lot, which allows free parking for RVs, or sleeping on park benches. But the more that cities crack down on this, and the more that private individuals put up “homeless spikes,” the less alternatives are available. And the alternatives of the worst-off affect the best alternatives everyone else, right up the chain. The bargaining power available to everyone is set at the bottom.
Instead of hoping for our system to have more fraying at the edges, we should instead work on fixing it on a deep structural level. Luckily, there is a way to fix it, and it has nothing to do with destroying the free market. Indeed, no market resulting in serfdom can fairly be called a free market, and only cynical rent-takers would dare to call it that.