‘The first man, who, after enclosing a piece of ground, took it into his head to say, “this is mine”, and found people simple enough to believe him was the true founder of civil society..’
- Jean-Jacques Rousseau — The Discourse on the Origins of Inequality
One of Gandhi’s seven social sins is relevant to this chapter — Wealth without Work. In modern societies, there are three main ways this is achieved. The first is that identified by political theories on the left — ‘capitalists’, meaning business owners — make money by taking profit from the labour of their workers. The second is to make money by renting out land or property. The property generates wealth perhaps with little or no effort on the part of the owner. (Just the development of infrastructure and other properties around a particular piece of land, for instance, will result in an increased value of the land, without the owner doing anything.) The third way to acquire wealth without work is through money itself, for instance by making loans and then charging interest. All three forms are sometimes known as ‘economic rent’, even where no actual renting is involved. ‘Rent-seeking’, it is often argued, is the ultimate cause of economic disparities, and any changes that might be proposed to society must in some way have an impact on rent-seeking in order to be relevant. (Or, we could say, it is wealth disparity that is the cause of rent-seeking — it cuts both ways.) But this might mean changing the minds of the rent-seekers. A tall order.
I should add here that the definition I am using of economic rent is not agreed on by everyone. Some economists have added other forms of rent-seeking to the traditional definitions given above. This might be seen as muddying the waters, but on the other hand, it may point to the way things are moving in the societies of the developed world. We’ll be taking a look at some of this in later chapters, but for now I’m sticking with just the three types of economic rent given above. In this chapter, what is meant by the ownership of land and property is the main concern, and in exploring this, we will be in a good position to move forward into looking at the commons and ideas about sharing. Our explorations around ownership, and then sharing and the commons in the next chapter, will have a bearing on the various governance systems that we will be looking at later, in Chapter 4. Further chapters will then build on this groundwork, to show how the various commons and economies relate, and how we might choose to look at things in different ways as we seek a new story for the future.
The themes taken up in this chapter might seem at first to be a bit unrelated. I am introducing several subjects that we will pick up later in the work. They do however have a narrative running through them. The main themes here are — the meaning of capital, the means of production, ownership itself (more precisely, how our ownership is increasingly geared towards commodities rather than utilities) and the economic rents from land, labour and finance. Finance, in turn, then grows in importance.
Capital starts off as an accumulation of wealth. Once we had settled into agrarian societies, the surplus we created became important. We gathered into small cities and the division of labour added to the importance of capital but also led us into questions of who controls labour. We may have worked largely for ourselves, but exchange became more important (because of specialisation) hence the rise of the ‘commodity’ (goods produced for exchange) over ‘utility’. And it is this rise in commodity that in turn fuelled a consumer mindset — hence the predominance and attraction of ownership. So this condensed history shows us the link between all the themes of this chapter, and we will see how commodities — or, commodification — feature heavily in our further discussions, along with the issues around economic rent.
We could simply describe this as a class issue — with the ruling class, monarchies, then land owners and capitalists — ruling over the poorer commoners — serfs and the working class. For a while the division was clear — between the rent-seekers and those who had no resources from which to extract rent. But now it is sometimes said that these class divisions are no longer so clear cut. We have all become ‘rentiers’ — entrepreneurs, to put a positive spin on it. Or, more realistically, we are the ‘precariat’ of a ‘gig economy’ — struggling to survive by renting out whatever assets we have at our disposal.
From the explanation above, we can see the importance of capital in framing our understanding of ownership. So before we set about looking at ownership, we need to make a small diversion into understanding the word ‘capital’ and some basics on the way our economies function. (As with all matters relating to economics, it has to be said that almost every statement that can be made is likely to be contested by some economist or another. I have chosen to take a few key works — cited in the Endnotes and Bibliography — as the basis of my descriptions. In one sense, it is not overly important if definitions are contested. I am not setting out a new theory of economics, just trying to glean enough understanding to give context to the ideas about utopia and a new story, which is the main aim of the book.)
We need to reach an understanding of capital by some other key ideas central to our economy — ‘land’, ‘labour’, ‘wealth’ and a few others. The word ‘land’ is used in economics to mean more than just the ground on which, for instance, a house may sit. Land has traditionally meant air, water, and other material resources, as well as just ground. It might also include tides and sunshine, soil and photosynthesis. To try to avoid any confusion in this book, I am using the term ‘material resources’ for all the things that nature affords us. Within this, land takes on its more limited and more typical meaning of just ground.
When people labour with these material resources, we produce material wealth, which is then either consumed or used to aid us with further production — and hence it is described as capital. The first meaning of capital then is, that part of production that is retained, either for later consumption, or for re-use.
Capital can also be the ‘means of production’, that is, the machinery and tools contained in a factory, for instance, and indeed the factory building itself. (This is described as ‘constant capital’, as opposed to labour, which is ‘variable capital’.) All of this is the result of the past use of labour and material resources. We also produce the infrastructure that allows for future goods and services to be manufactured. In recent years, the word capital has expanded in meaning somewhat beyond the strict definition above, and we will look at this in more detail in later chapters.
Adam Smith (The Wealth of Nations) summarises the meaning of wealth and capital: ‘His whole stock [wealth], therefore is distinguished into two parts. That part which, he expects, is to afford his revenue is called his capital. The other is that which affords his immediate consumption.’ In order to clarify the more traditional use of the word capital here, I am describing the production process as creating material capital. The basic components of material capital are illustrated in the figure below, and I’ve added the other elements of classical economics that are understood to constitute the production process — Land and Labour — to show how these fit in.
Figure 2.1
One point to note especially in this diagram, is labour. There is no capital without labour, and we will see later that this golden rule applies to even the more abstract definitions of capital that are with us today. Another point, as we have been exploring above, is the difference between capital and wealth, and also ‘land’. The meanings of these terms have slipped over the years — with more and more things that are, strictly speaking, ‘land’ carried into the term capital. Henry George (Progress and Poverty) long ago said: ‘The term land embodies […] all natural materials, forces and opportunities, and, therefore, nothing that is freely supplied by nature can be properly classified as capital.’ George continues: ‘Capital is not a necessary factor of production. Labor exerted upon land can produce wealth without the aid of capital.’ Elsewhere, George provides a description of wealth and the three factors in production, illustrated above. See the endnote for further quotes.1
We sometimes hear the word capital used to also just mean money. Money in modern societies has taken on a life of its own, and, unfortunately, we can no longer ignore the term ‘financial capital’, which will be explored in Chapter 7. Money, in its right place, lubricates the world of trade and flows modestly between the inputs to goods and services and the takings from consumption. (See Figure 7.1 in Chapter 7.) Money, out of control, gets us into big problems, because as was said above, all capital, of whatever kind, ultimately relies on someone’s labour. The more abstract the financial economy becomes then the further it is removed from labour (see Figure 7.2 in Chapter 7), but labour must still be there at some point. Money made just from money works only for the few — someone’s labour must ultimately pay.
The diagram above is a starting point for our descriptions of the commons, and the various ‘capitals’ and ‘economies’ that follow on throughout the book. It is worth keeping this diagram in mind as we move forward, to see how the various things that are now described as ‘commons’, ‘capitals’ etc. relate back — or, sometimes, do not relate back — to the basic model.
Owning the Means of Production
Owning the means of production is the basis of one of the types of wealth without work mentioned at the beginning of the chapter — earning money from the labour of others. Wealthy capitalists own the tools and the factories where things are made, so this inevitably leaves the rest of us in the compromised position of selling our labour, as this is the only thing we have to offer in the process of society reproducing itself. Traditional left-wing politics has looked to ‘the proletariat’ (that’s us workers) seizing the means of production and therefore allowing a more equitable distribution of the wealth raised through manufacture. Sometimes this process is seen as merely an exchange of goods and wealth, rather than being about the relations between those involved in the manufacturing processes themselves. Karl Marx (Capital), and subsequent Marxists, thought it was the class relations, in particular, that are key. Remember the critical importance of labour, mentioned above. It is the social relation that needs to be healed — the relations of workers with one another, with their customers and with their ‘bosses’, or whoever it is that is managing the business. Otherwise, this argument is just a reversal of the power game — with the working class taking what is currently with the rich. A more balanced approach might be to ask that everyone gets a fair share of what we produce as a society. And we might go further — the question is not who owns the means of production, but what we do with that ownership — what we make and who we serve. Do we honour others in our communities with our work? Rather than destroy businesses and overturn ownership, can those who own companies see the benefit of sharing their gains with their workforce, such that the ‘profit’ is only such as is needed to sustain the business, and is not a ‘rentier’ gain by the owner? I’d suggest that the economic rent derived from the labour of others is not an inevitable consequence of the capitalist system. It could be changed without the whole system being overturned.
Why is it that we are so keen on owning stuff? Some books on economics tell us that society is based on scarcity. (Since they regard us as creatures of unlimited wants, it’s perhaps not surprising that they see scarcity everywhere! Aristotle (The Politics) told us: ‘It is the nature of desire to be infinite, and most people live for the satisfaction of desire.’) For most of human history, for most people, scarcity was the norm — at least in terms of material possessions. Is it true today? Yes and no. Sometimes a scarce resource is exploited and sold back to us — or something is made to seem scarce so that its price can be increased. But from the perspective of this book, we might say that today our world of Privatopia is based on abundance (with the promise of more abundance as Privatopia evolves into Cornucopia). There is the promise, guarantee even, that anything that we could ever want is out there to be bought, or could be made for us. Advertising, meanwhile, creates a psychological need to consume. If there is scarcity, then it is mainly scarcity of money. The scarcity of money leads therefore to a ‘scarcity’ of stuff. The actual abundance of stuff, combined with the scarcity of money is a lethal combination. It makes us cling tightly to our possessions, as they are often hard-won.2
There are also ‘positional goods’, such as a house in the countryside — where there can only be a few houses, by definition, before it ceases to be ‘countryside’. Or a positional good may be a product that can only be made by skilled craft-workers, and is therefore scarce. It is the scarcity of these things that make them positional, and hence gives rise to status. So the status conferred by particular goods is another reason for owning. This is where scarcity has a bearing on our desire for ownership and consumption. It is this type of scarcity derived from positional goods that makes things symbols of our status. We are, in turn, very keen to protect what we own, and rightly see some things to be ‘irreplaceable’.
A further reason for owning is that ownership helps to define who we are. This might be by way of positional goods, as described above, but it can more generally just be by our consumer choices, for things that are not necessarily scarce. For better or worse, our choice of clothes, houses, cars, furniture, gadgets, jewellery and all the rest, give us a sense of identity and sends out signals to others about what we are like as people, or at least, how we would like to be perceived.
Economists also recognise things such as time spent with family and friends as not being ‘positional’ and to be essentially outside the economy. In this book, anything that is considered ‘outside the economy’ is especially interesting! In later chapters we will see how there are wholly different economies at work in society ‘under the radar’ so to speak, and how important it is to bring these into the light when we are trying to devise a new story for our future.
Some utopias, including Thomas More’s original, suggest that ownership is wrong. But ownership is so wrapped up in our identity it is difficult to see the world in any other way. It might be concluded that this is a cultural thing. The surrounding culture, especially via advertising, persuades us that owning is good and important. Faced with the excess of stuff presented to us by consumer capitalism, our survival instinct goes into overdrive and leads us to store up goods which are really just there for the taking (or for the buying). The message implicit in this claim is that humans are not naturally selfish. We are just led along by a system that has become out of kilter. We are the victims rather than the perpetrators of excess. Those who take such a view are suggesting that if the system were to change then people would no longer have occasion to act in a seemingly selfish manner. There is not something inherently bad about us, they are saying. Given the right circumstances and we will behave less selfishly. The opposing idea is that actually we are selfish, and it is selfishness that has built the system of consumer capitalism and selfishness that sustains us. So we come down to what will be a familiar topic throughout this book — is it people who must change, or is it the system? Various aspects of this question will crop up throughout the chapters that follow.
This book takes the stance that any utopia worth the name is very much place-based. As such, questions of land and property ownership are especially important. Land, like many forms of material resource, is a finite resource and therefore ownership of land has its limits. We have to recognise limits to what can be owned, used, and indeed used up, by humans so that nature has space to endure and to thrive. Under capitalism however, land is almost invariably treated like a financial asset or just another form of capital and as if it were fully ‘fungible’ (convertible) to other types of resources.
Being an owner of land inevitably means being a ‘rentier’ — even if the owner does not literally rent out the land to someone else. Ownership of land leads to one of the ways of accumulating wealth without work. So this is our second definition of economic rent that we introduced at the head of the chapter. Because land — as distinct from some other material resources — is inevitably finite, it is especially susceptible to this accumulation of wealth — it embodies the scarcity on which economics is so often premised. Land, in a sense, is the ultimate ‘positional good’, and the ultimate monopoly. Winston Churchill said of land:
‘Land monopoly is not the only monopoly, but it is by far the greatest of monopolies — it is a perpetual monopoly, and it is the mother of all other forms of monopoly.’ (Speech to the House of Commons, 4th May 1909.)
If things are so bad, then why have we allowed the monopoly of land to continue? Well, those who own land have sought to perpetuate their advantage and meanwhile the ordinary citizen’s lack of any real say in politics means we have little choice but to accept the status quo.
Owning land, therefore, is different from other types of owning. As we move from personal property (such as clothes, furniture and gadgets) towards ownership of land, then I suggest that we are moving from personal ownership towards a shared responsibility. Being a custodian of land is an important distinction from merely owning or using it. Land is a natural commons — as we will explore in the next chapter — and should therefore be treated differently from other types of resource. I am not necessarily suggesting that land should not have any owners at all, just that what is meant by ownership needs to be looked at closely and perhaps re-considered. I suggest that stewardship or custodianship are the key elements here and define what ‘ownership’ might mean.
‘Usufruct’ means the right to enjoy and benefit from property held in common, provided that the property is not damaged or destroyed in the process. It goes back to the religious idea of stewardship. In a letter to James Madison, Thomas Jefferson says:
‘…the earth belongs in usufruct to the living… No man can, by natural right, oblige the lands he occupied, or the persons who succeeded him in that occupation, to the payment of debts contracted by him. For if he could, he might, during his own life, eat up the usufruct of lands for several generations to come, and then the lands would belong to the dead and not the living.’
A phrase beloved of socialists comes from anarchist Pierre Joseph Proudhon. It is usually translated as, ‘property is theft’, but the context suggests that Proudhon had rather the social sin of wealth without work in mind when he said this. It is the economic rent derived from ownership that constitutes the theft. By contrast, elsewhere, Proudhon comes out strongly in favour of individual ownership.3 In a similar manner, Wendell Berry is looking especially at land when he writes about the nature of ownership.4 He suggests that caring for what we own is especially important, and this is all the more the case if that ownership is about a resource that will be used by others.
And again, Henry George:
‘But who made the earth that any man may claim such ownership of it, or any part of it, or the right to give, sell or bequeath it? Since the earth was not made by us, but is only a temporary dwelling place on which one generation of men follow another; since we find ourselves here, are manifestly here with equal permission of the Creator, it is manifest that no one can have any exclusive right of ownership in land and that rights of all men to land must be equal and inalienable. There must be exclusive right of possession of land in order to reap the products of his labor. But his right of possession must be limited by the equal right of all, and should therefore be conditioned upon the payment to the community of an equivalent for any special valuable privilege thus accorded him.’
Henry George — Progress and Poverty
Along similar lines, here’s Thomas Paine:
‘And it is impossible to separate the improvement made by cultivation from the earth itself, upon which the improvement is made, the idea of landed property arose from the inseparable connection; but it is nevertheless true, that it is the value of the improvement, only, and not the earth itself, that is individual property…. Every proprietor, therefore, of cultivated lands, owes to the community a ground-rent (for I know no better term to express the idea) for the land which he holds.’
Thomas Paine — Agrarian Justice
John Locke, in turn, suggested that what a person, ‘removes out of the State that Nature hath provided, and left it in, he hath mixed his labour with, and joyned to it something that is his own, and thereby makes it his property.’
Jean-Jacques Rousseau (The Social Contract) sought to put some restraints on how land is owned: ‘In general, the following conditions are required in order to justify the right of first occupancy of any given piece of land. First, the land must as yet be uninhabited; secondly, no more must be occupied than needed for subsistence; and in the third place, possession must be taken not by empty ceremonies, but by work and cultivation, the only mark of ownership which ought, in default of juridical title, to be respected by others.’ These restraints on the ownership of land have come to be known as the ‘Lockean proviso’. (Locke may, in turn, have derived his ideas from Joseph Pufendorf — see, for instance, The Noble Duty of Man According to the Law of Nature and The Moral Person of the State.)
Both Proudhon and George are making a distinction between property and possession. Property takes on the attributes of something owned outright — with no necessary responsibilities of stewardship and custodianship that are discussed above. Possession, however, is ownership with social responsibility. The quotes from Paine and Locke are introducing a further point to the question of ownership of land, and that is the argument about ‘improvement’. It is again tempting to interpret this — as is so often done — as just a direct argument for ownership, pure and simple, and indeed an argument for the ‘property’ kind of ownership discussed above. But it’s clear, from Paine at least, that he is suggesting possession, and the resultant responsibilities that this entails. Improvement does not therefore necessarily lead to inalienable rights on the owner, and this is a point we will be looking at again in the next chapter.
In The Mystery of Capital, Hernando de Soto presents the very simple argument that security of land and property makes an enormous difference to developing nations. Property rights took sometimes hundreds of years to emerge in the developed nations. Somehow these nations are so used to the idea of owning land and property that they often completely overlook the problems that lack of secure tenure causes in developing nations. Ownership, therefore, is not something to be automatically challenged. Secure tenure — hopefully with the understanding that this implies care, responsibility and custodianship — is enormously important. (We can also note that forced re-distribution of land has been practised, arguably quite successfully, by capitalist, democratic nations as well as by communism, as explored by Andro Linklater in Owning the Earth.)
We can conclude that the wealth without work issue, concerning this form of economic rent, is more about the inappropriate exploitation of land and property than about ownership direct.
Trade, of course, existed long before there was money. The ‘coincidence of wants’ allows bartering to take place, such that if you happen to have something I need, and vice versa, we can make an exchange that benefits us both. Money was initially a useful intermediary for this process. Money’s first definition then is as a means of exchange. It is a veil, so to speak, for what we are really doing when we buy and sell things. A purchase is just an exchange, usually of our work, for something that we really want or need, like food or holidays. ‘Owning’ money is pointless by itself, since money is only the intermediary for goods. Money’s further definition is as a way of defining value, a shorthand for what we consider useful, or scarce or desirable in its own right. In the meantime, what is used as money — that is, currency — has changed from something that held value in itself (‘commodity money’) to something that represented that value (‘representative money’) to just an abstract concept that no longer links directly to physical things (‘fiat money’).
Borrowing money came along as another intermediate step for when there was too much money, or too little, for an exchange of goods to take place directly. Banks give some guarantee of the legitimacy of currency and they also allow the saver and the borrower to ‘find’ each other. A modest charge for this service (and for creating the currency, the ‘seigniorage’) is arguably justified, but an excess charge is usually termed as ‘usury’. Aristotle (The Politics) for instance, said: ‘The trade of the petty usurer is hated the most with reason: it makes a profit from currency itself, instead of making it from the process that currency was meant to serve.’ Usury, in turn, leads us to our third type of wealth without work — money from money itself.
There are many discussions about when capitalism, as a system, really got going. One suggestion is that it was when money was first lent at interest that capitalism truly began. It’s the interest payable on loans, the argument goes, that keeps the capitalist system in business, as more and more resources go towards paying off the ever-increasing indebtedness. Would it still be capitalism, we might ask, if there were no debts? I think it’s less important to decide on how capitalism began, and more important to address that question of whether debt is its inevitable consequence. We will be taking that question up later in the book.
When we deposit money with a bank, invest in an insurance policy or a pension scheme, or buy shares in a company, we are in a way participating in the process of accumulating money without work, or, more accurately, money via the labour of others, since everything eventually leads back to someone’s labour. The banks even have a habit of describing their services as ‘products’, as if they wish to suggest that what they have to offer us is something material and tangible. But what they offer is, on the contrary, increasingly abstract. Lending money with interest has escalated over the centuries into all types of financial transactions. As with the other forms of economic rent, there is no clear-cut division for what is reasonable and what is exploitation here. I hope we’ve seen that ‘ownership’, has a bit of flexibility. I hope we’ve seen too, that making money from another’s labour — owning the means of production — hides a deeper concern over the social relations involved in our economies. There might be some flexibility with money as well. Borrowing and selling stock in a company are arguably beneficial to society, but when financial transactions such as hedge funds and derivatives proliferate, the situation is increasingly complex.5
What do the Utopias have to say about ownership?
Privatopia loves ownership, and it is arguably progressing towards a ‘rentier’ society, where not just the rich and powerful are the owners extracting economic rent, everyone will be in on the act. The virtual monopoly created by land ownership is not acknowledged, but heavily subsidised and supported as a good and obvious thing to be doing. This can only continue with Cornucopia, and Chapter 13, A Wider Commons, explores possible futures of ownership under this vision. It is only Ecotopia that challenges the notion of ownership. Increasingly, this challenge refers to the commons — both in land, and in the other material resources that we use — and use up — as a society. So the commons, and the question of what should we share, is where we now turn.