Capitalism, Property Rights, and the Environment

A common lie I hear parroted by environmentalists time and time again is that capitalism isn’t sustainable. It’s sad that this lie has perpetuated so far and wide because the truth is entirely difference, environmentalism is a side effect of capitalism and absolute property rights.

How can I claim this? Doesn’t capitalism encourage the consumption of resources as fast as possible? I’ve refuted this claim before:

If one has possession of a valuable resource it is in their best interest to manage the extraction and sale of that resource in a way that maximizes profits. Why would somebody extract all the iron ore on their property and sell it immediately? Iron ore, being a non-renewable resource, becomes more valuable over time as it becomes more scarce.

Likewise I explained how the temporary nature of property rights in today’s society lead to the consumption of resources as fast as possible:

Property rights in most countries aren’t absolute and one can never be sure when their property will be seized through eminent domain laws. If you’re only likely to hold a property for a temporary amount of time it then becomes your best interest to extract all the value from it immediately. When you’re not sure if regulations or ore extraction are going to remain stable or change in a manner that makes extraction more expensive it becomes your best interest to extract it all immediately.

We have a situation where resources are extracted and sold as fast as possible because claims over them may be taken away by the state at any moment. Absolute property rights encourage the opposite by rewarding those who conserve their resources for sale at a later date when the prices are higher.

Another benefit of absolute property rights is the fact property owners can sue polluters for damages. Today polluters are granted immunity from damages so long as they emit an amount of pollution below that sanctioned by the Environmental Protection Agency (EPA), unless you’re wealthy enough to buy a permit to pollute more that is. Under a system to respects strict property rights any demonstrable damages to property must be corrected. If I dump one ton of sewage onto your property then I am responsible for paying the entirety of the cleanup and restoration costs as well as any costs incurred by you to get me to cleanup and restore the land (court fees for example).

Walter Block wrote a very interesting paper titled Environmentalism and Economic Freedom: The Case for Private Property Rights [PDF] that goes over many aspects of free market environmentalism. One of the more interesting exerts comes from his coverage of the history of property rights:

Contrary to Pigou and Samuelson, manufacturers, foundries, railroads, etc., could not act in a vacuum, as if the costs they imposed on others were of no moment. There was a “way to force private polluters to bear the social cost of their operations”: sue them, make them pay for their past transgressions, and get a court order prohibiting them from such invasions in future.

Upholding property rights in this manner had several salutary effects. First of all, there was an incentive to use clean burning, but slightly more expensive anthracite coal rather than the cheaper but dirtier high sulfur content variety; less risk of lawsuits. Second, it paid to install scrubbers, and other techniques for reducing pollution output. Third there was an impetus to engage in research and development of new and better methods for the internalization of externalities: keeping one’s pollutants to oneself. Fourth, there was a movement toward the use better chimneys and other smoke prevention devices. Fifth, an incipient forensic pollution industry was in the process of being developed.16 Sixth, the locational decisions of manufacturing firms was intimately effected. The law implied that it would be more profitable to establish a plant in an area with very few people, or none at all; setting up shop in a residential area, for example, would subject the firm to debilitating lawsuits.17

But then in the 1840s and 1850s a new legal philosophy took hold. No longer were private property rights upheld. Now, there was an even more important consideration: the public good. And of what did the public good consist in this new dispensation? The growth and progress of the U.S. economy. Toward this end it was decided that the jurisprudence of the 1820s and 1830s was a needless indulgence. Accordingly, when an environmental plaintiff came to court under this new system, he was given short shrift. He was told, in effect, that of course his private property rights were being violated; but that this was entirely proper, since there is something even more important that selfish, individualistic property rights. And this was the “public good” of encouraging manufacturing.18

Until the 1840s property rights were held as more of an absolute and property owners could successfully sue polluters. That all changed after the 1840s when the idea of the “public good” began to outweigh the rights of property owners. In effect socialist ideology and interventionism, two ideals commonly held by so-called environmentalists, began superseding property rights and the free market. This granted polluters a license to emit as many undesirable and damaging pollutants as they could get away with under the guise of the “public good.”

Let’s switch gears and talk about the role free market capitalism plays in environmentalism. At its heart free market capitalism is a method of dividing scarce resources. If one person toils to extract and refine a resource they can trade it to somebody who desires it. For example an automobile manufacturer would be more than happy to buy steel from a steel manufacturer who had previously purchased raw iron ore from an ore miner.

Iron ore is a finite resources and as scarcity increases so does the price. When iron ore is abundant the prices is fairly low so more consumption occurs and as more consumption occurs the amount of ore is reduces and the price increases encouraging conservation. A good example to use is water.

Water is abundant in some areas and scarce in others. If you live in a desert water is going to be more valuable to you as it’s harder to come by whereas water has less value to those living in Minnesota. What this means is people living in deserts aren’t going to waste water keeping a lawn green (unless the government subsidizes the cost of water as they do in places like Southern California). Likewise farmers aren’t going to grown crops in deserts that require a great deal of water. The price mechanism of capitalism is also a mechanism that encourages the conservation of scarce resources.

It’s kind of funny that the path of individual liberty is also the path to environmentalism. Really it’s ironic because the most staunch environmentalists usually strongly oppose capitalism and absolute property rights. They want more socialistic controls but fail to know their history, because as pointed out by the Walter Block paper linked above, socialism has a pretty poor track record of environmental friendliness:

If this criticism of the market were true, one would expect that, even if the Soviets couldn’t successfully run an economy, they could at least be trusted as far as the environment is concerned. In actual point of fact, nothing could be further from the truth.

Exhibit “A” is perhaps the disappearance of the Aral and Caspian Seas, due to massive and unchecked pollution, over cutting of trees, and consequent desertification. Then there is Chernobyl, which caused hundreds, if not thousands of deaths.13 For ferry boats in the Volga River, it is forbidden to smoke cigarettes. This is not for intrusive paternalistic health reasons as in the west, but because this river is so polluted with oil and other flammable materials that there is a great fear that if a cigarette is tossed overboard, it will set the entire body of water on fire. Further, under Communism, there was little or no waste treatment of sewage in Poland, the gold roof in Cracow’s Sigismund Chapel dissolved due to acid rain, there was a dark brown haze over much of East Germany, and the sulfur dioxide concentrations in Czechoslovakia were eight times levels common in the U.S. (DiLorenzo, 1990).

I find it quite sad that environmentalists have been so duped. They stand up and decry the destruction of the environment yet support the very ideologies that allow the destruction to occur in the first place. These people generally oppose the only real solution to environmental protection, free markets and absolute property rights.

5 thoughts on “Capitalism, Property Rights, and the Environment”

  1. I fully agree with you. Private Property is the only way to protect the environment and to offer proper redress of infractions, like polluting. You elude at the beginning of your post to how the Price System plays a key role in aligning the individual plans of buyers and sellers of any raw material. Moreover, how the Price System leads to innovation in the production and use of materials in our society.

    Your example about iron ore was on the money and as I lived on the Minnesota Iron Range for several years; I can added to your analogue. The example that comes to mind is the mining of iron hematite in northern Minnesota. As a raw material the ore content was the highest available for production, so it only made sense to mine it first and sell it into the market. Once that material started to dry up, the mines had all this land and needed to find an alternative use for it, which they found in the production and sale of taconite (a mineral with a lower ore content), which was previously considered waste before then. This led to innovation and the creation of a new refinement was invented to extract the ore.

    The other end of the transaction is from the customer’s perspective. If resources are becoming scarcer (a reduction in supply) and no innovation occurs to increase the supply, then it follows that prices will increase. Customers will start to self select by substituting alternative products in to use or they simply stop using the product. The market equilibrates, meaning that everyone who wants the product at the new higher price will get it. My favorite example is gas prices. When they go up, people drive less, carpool more, and if it lasts long enough invest in vehicles that have a higher MPG or manufactures make models with higher MPG. They conserve the resource, which is what environmentalists are calling for anyway.

    People don’t need to have bureaucrats or technocrats tell them how to live their lives, they’re perfectly capable of doing it themselves. Moreover, when government intervenes they are effectively putting all our eggs in one basket, so any miscalculation or misallocation becomes systemic and catastrophic rather then a bump in the road. And that’s not even taking into account your analysis of the crony-ism and blatant malfeasance that occurs. Simply look at the U.S. Park Services and their horrendous logging practices.

    (Disclaimer: The mining and logging businesses in Minnesota have long been in bed and under the protection of the state. See IRRRB, also known to residents as the Iron Range Mafia. So, it’s likely that distortions have occurred and continue to occur, but the principles all hold, and if prices/profits go high enough, more people will jump into the market or previously untapped resources become useful)

  2. “I find it quite sad that environmentalists have been so duped. They stand up and decry the destruction of the environment yet support the very ideologies that allow the destruction to occur in the first place. These people generally oppose the only real solution to environmental protection, free markets and absolute property rights.”

    I would imagine this is because we have never experienced a truly free market in this country, at least not lately, and having been told over and over that what we have (corporatocracy) IS the free market, us ignorant folks might be forgiven for casting about for something to battle it with. I don’t think most environmentalists particularly support socialism or collectivism in the political sense, or at least not consciously. I would say the inherent support largely comes about as a reaction to perceived power taking over our lives and “ruining the environment for everyone.” Education and an understanding of history is probably the only way we can build a better system, but keep in mind that most folks are like me, ignorant as all get-out and there are apparently powerful forces at work to keep it that way 🙂

  3. As an addition to the above, it occurs to me that part of the perception problem may also lie in the fact that the only people we see talking about (and apparently caring about) the environment, are from those liberal, collectivist circles. I rarely ever hear libertarians bringing up the subject, and that’s too bad.

    1. I rarely ever hear libertarians bringing up the subject, and that’s too bad.

      This is a good point I never really stopped to consider. Many libertarians never stop to discuss how the free market can deal with environmental issues, which is part of the reason I like to address the issue periodically. Likewise the free market environmental advocates get zero press. Seriously, how many people have actually heard of the Property and Environment Research Center? How many people who know of Murray Rothbard also know he wrote about air pollution?

      I have a hard time addressing the issue because every time I bring up free market solutions I’m instantly shouted down. Environmental problems are taken very personally by many environmentalists and they will lash out at anybody they believe is advocating against their perceived solution. When they hear me advocate free market solutions they instantly go on the defensive because they are absolute sure that capitalism is the cause of modern environmental issues. They don’t care to hear the history of legal traditions regarding environmentalism, they just believe capitalism was the cause and will not even consider an argument that opposes that belief. Once an issue has become personal it’s almost impossible to argue it as emotions play to heavily on the issue and no room is left for rational discussion.

  4. I agree. So similar to the dynamic that happens in the gun-control/gun-rights debate. It is almost impossible to fight fear and denial with logic, or even with historical fact.

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