Private Property and Property Rights

What It Means

One of the most basic conditions necessary for a capitalist economic system (in which people are allowed to pursue profit and in which market forces such as supply and demand dictate most of the system’s features) is the existence of private property and clear property rights.

Property is anything that can be owned; it can be tangible (land, house, car, computer, shoes, carrots) or intangible (a bank-account balance, an investment such as a share of stock in a company, the patent on an invention). Private property is property that is owned by an individual or group of individuals (such as a company or corporation), rather than by the government or society at large. The legal systems of all nations have rules regarding the ownership of property and answering questions regarding who is entitled to use, profit from, sell, and otherwise take advantage of the various things that people can own. These rules amount to a system of property rights, which define the extent to which any given country supports private ownership of property.

Property laws are meant to establish peaceful means of competing for property. Instead of killing one another to take possession of land or shares of stock, people who live in a nation with clear and enforceable property rights can compete for these items in a market setting. This means that forces such as supply and demand set prices, and ownership can be transferred from one person to one another in exchange for money.

In a system without private property, the risks and rewards of economic activity diminish. For example, if a tire company is owned by the government, the head of that company has little incentive to push for efficiency and high quality, because he does not get to claim the profits from the tire making. By contrast, a system that promotes private ownership of property encourages economic efficiency. The owner of a tire company risks poverty if his products do not sell and he has to shut his company down, and he stands to enrich himself if he can sell a large number of tires at a high rate of profit. These pressures will theoretically spur him to organize his business and manufacture tires in the most efficient way possible, and to ensure that the final product is of good quality.

When Did It Begin

One of the earliest thinkers to deal with the notion that we now call private property was the ancient Greek philosopher Aristotle. In his work Politics, Aristotle pointed out the tendency of people not to respect or maintain property that was public. Likewise, he noted, when people are required to share equally both the burdens and rewards of property ownership, there is a high likelihood that they will become displeased over disparities in workloads and rewards. While humans came into conflict over many issues, Aristotle observed, they were especially likely to do so over issues arising from common ownership of property.

Western systems of property rights evolved from classical Roman law as it was established in the years 1 through 250 ad . The Romans defined a concept called dominium, or proprietas (ownership), which acknowledged the current possessor of a thing to have certain rights, powers, and privileges to do what he wanted with that thing. Current notions of property rights are further based on laws created in England at the end of the twelfth century. During this time the feudal lords who owned estates began granting tenants (people who farmed or used a certain portion of an estate but were not the ultimate owners) certain rights over the land that they were allowed to use. Previously lords could dictate tenants’ rights as they pleased, but the laws that evolved during this period essentially limited the lord’s control to the collecting of rent payments. Some experts believe that this bestowing of rights on individual tenants, rather than only on aristocrats, paved the way for the modern legal approach toward property rights, in which these powers are one of the individual’s basic rights.

Still, tenants on aristocrats’ land in medieval England did not have rights equal to those of their lords, and property rights were not absolute. It was not uncommon for a king or queen (in England or anywhere else in the Middle Ages) to strip people of their possessions if they were perceived as a threat to the monarchy. Private property as we know it today (for example, land that could be freely bought, sold, and rented) did not come into being until around the sixteenth century. With the rise of capitalism in the sixteenth through eighteenth centuries, and with the great expansion of capitalism in the nineteenth and twentieth centuries, clearly defined property rights increasingly became a priority in the Western world.

More Detailed Information

Private property is commonly divided, by law, into different types. One of the most important distinctions is between real and personal property. Real property is land and those things permanently attached to the land, such as buildings. Personal property includes all objects that can be moved. In other words, a person’s house and yard are considered real property and are subject to certain laws, while everything he or she owns that is not attached to the house or yard is considered personal property and is subject to different, but related, laws.

An owner’s private-property rights consist of three basic elements: the exclusive right to choose how property will be used, the exclusive right to any benefits derived from property, and the right to exchange property with someone else on terms that are mutually agreeable to the two parties.

In a society that entitled owners to complete private-property rights, an owner of a building would have the right to decide whether to live in that building herself, rent it out to others, renovate it, or tear it down. If she chose to rent it out, she alone would have the right to benefit (that is, to collect rent payments). And if she wanted to sell it for the highest price the real estate market would support, or to give it away to a homeless person, she would have the legal right to conduct these exchanges of her property.

Complete private-property rights do not, however, actually exist in the modern world. National, state, and local governments commonly restrict property rights to some extent. They do so for a variety of reasons, including political traditions and beliefs, the desire to promote the well-being of a community, and the need to combat social problems.

In the realm of real property, most governments (including the U.S. federal government and many state and local governments) increasingly imposed restrictions during the twentieth century. For example, private-property rights are restricted in some cities in the form of rent controls, which prevents owners of certain buildings from demanding whatever rent prices the market will allow. Instead, rent controls limit the amount of rent some landlords can charge, with the intent of preserving affordable housing options when prices rise. Likewise, there are numerous zoning requirements that specify the uses to which certain properties might be put. For instance, cities and towns of all sizes often restrict commercial uses of property to certain streets in order to preserve a residential feel in other parts of town. Zoning codes often specify what kinds of buildings can be constructed in various areas, the quality level of the materials to be used, and the methods according to which structures must be built.

Land and buildings are one of the most regulated forms of property, but they are hardly the only things that fall under the laws concerning property rights. Almost all tangible items can be private property and are subject to government protections and regulation. For example, you have the exclusive right to use, benefit from, and exchange a car once you have purchased it, although these rights are subject to specific laws (requiring registration, licensing, and insurance, among other things) meant to promote public safety. Some tangible things, such as rivers and the air, cannot be owned, but the owner of land adjacent to them might have certain rights to and responsibilities for them. The government might intervene, for instance, if a landowner pollutes a river or the air near his property.

Many intangible things can be owned as well. Some of the most important of these relate to money. Bank-account balances, for example, are not physical objects. They are numerical quantities that exist in computers. Yet it is very important that your right to ownership of these numbers be protected and regulated. If the bank could simply delete your balance at any time or give it away to someone a bank director liked better than you, the banking system obviously could not survive. Similarly, there are highly detailed laws concerning the buying and selling of stock in companies. A stock is nothing more than a contract between an investor and a company, according to which the investor is said to own a portion of the company that may be bought and sold. A stock is, in itself, worth nothing, but the contract that it represents can be worth a great deal. Stocks can dramatically increase or decrease in value (generally increasing in value when a company thrives and decreasing in value when a company struggles), enriching or impoverishing the people who own them. The government therefore takes an active role in regulating and enforcing the property rights of stockholders.

Another form of intangible private property recognized by many governments is intellectual property. If a person writes a novel, for instance, she has certain rights regarding other people’s ability to reproduce, quote from, or make that novel into a movie. When someone buys a physical copy of the novel, they do not own the ideas and words that appear on the page; the author and publisher do.

Recent Trends

One controversial form of government restriction of property rights in the United States is eminent domain. Eminent domain is the doctrine allowing the government to seize an individual’s private property for public use. The government must pay a fair price for the property, but the individual does not have the option to maintain ownership. The construction of highways, for instance, has often necessitated that the government seize land through which the roadway passes.

Beginning in 1954, however, the definition of “public use” was expanded as a result of the Supreme Court’s ruling in the case Berman v. Parker. In this case, the Supreme Court upheld the District of Columbia’s attempt to demolish a neighborhood consisting of some blighted (neglected or abandoned) and some nonblighted homes, for the purpose of letting someone else build a shopping center on the site. “Public use” was interpreted to include the public benefit that would arise from eliminating blighted properties, even though the property was being taken from private individuals and given to other private individuals.

Since that time the U.S. courts have consistently allowed for a further broadening of the definition of public use. In New London, Connecticut, the owners of 115 properties were forced to sell their land and homes to the local government so that a complex consisting of a hotel and conference center, a state park, and new residences could be built. The city claimed that the economic growth that would be generated by the project outweighed the individuals’ property rights, but 15 of the owners refused to sell, and 9 eventually took their legal concerns to the Supreme Court. In 2005 the Supreme Court ruled in Kelo v. City of New London that the government could seize land for the purposes of promoting economic development even if property was not blighted.

This case sparked increasing public awareness of the possible abuses of eminent domain. Critics of the decision felt that it empowered wealthy real estate developers at the expense of private citizens and especially the poor. Many states, in response to such concerns, moved to pass legislation limiting the use of eminent-domain powers.