On the Socialization of Wealth

Real wealth constantly passing from the domain of private property into the communal domain

by Sheldon Richman

That … veil which is spread before the eyes of the ordinary man, which even the attentive observer does not always succeed in casting aside, prevents us from seeing the most marvelous of all social phenomena: real wealth constantly passing from the domain of private property into the communal domain.

Wealth marvelously passing from the private to the communal domain? It sounds like a socialist’s redistributionist fantasy!

But wait — Frédéric Bastiat, the great laissez-faire radical, wrote those words in his book Economic Harmonies, chapter 8, provocatively titled “Private Property and Common Wealth.”

He repeats the point throughout his fascinating chapter:

And so, as I have already said many times and shall doubtless say many times more (for it is the greatest, the most admirable, and perhaps the most misunderstood of all the social harmonies, since it encompasses all the others), it is characteristic of progress (and, indeed, this is what we mean by progress) to transform onerous utility into gratuitous utility; to decrease value without decreasing utility; and to enable all men, for fewer pains or at smaller cost, to obtain the same satisfactions. Thus, the total number of things owned in common is constantly increased; and their enjoyment, distributed more uniformly to all, gradually eliminates inequalities resulting from differences in the amount of property owned.

Here’s what Bastiat has in mind. In a competitive marketplace with advancing technology, as the effort required to produce and, hence, acquire things diminishes, the price of gaining utility falls. For example, if the average worker had to work two hours, 40 minutes, to buy a chicken in 1900, but only 14 minutes as the 21st century approached (actual statistics), Bastiat would say the chicken “is obtained for less expenditure of human effort; less service is performed as it passes from hand to hand; it has less value; in a word, it has become gratis, [though] not completely.” In other words, most of the utility that had to be paid for with painful effort in 1900 was free by 2000. (By “less value,” Bastiat meant that the market price has fallen, not that the chicken is less useful.)

Thus progress through the market order consists in ever more people satisfying more of their wants at less and less effort. Bastiat calls this a move from private property to common wealth because he roots property in effort, and greater wealth is available to all with less effort. What makes this possible? Technological innovation. As Bastiat puts it, “Production has in large measure been turned over to Nature.”

The goal of all men, in all their activities, is to reduce the amount of effort in relation to the end desired and, in order to accomplish this end, to incorporate in their labor a constantly increasing proportion of the forces of Nature.… They invent tools or machines, they enlist the chemical and mechanical forces of the elements, they divide their labors, and they unite their efforts. How to do more with less, is the eternal question asked in all times, in all places, in all situations, in all things.….

The gratuitous co-operation of Nature has been progressively added to our own efforts.…

A greater amount of gratuitous utility implies a partial realization of common ownership.

But technology only makes this “marvelous social phenomenon” possible. What makes it actually happen? Competition, of course. If one producer attempted to charge the older, higher price — if he tried to capture the returns to what Bastiat called “the contribution made by Nature” — he would be inviting competitors to undersell him (unless government privileges, such as licensing or intellectual “property” blocked competition). Rivals would be able to undersell because a lower price would still recover the costs of the human effort involved in production. Competitive entrepreneurship drives prices down toward costs. As F. A. Hayek put it, 

“The empirical observation that prices do tend to correspond to costs was the beginning of our science.” (On the relationship between cost and price, see my “Value, Cost, Marginal Utility, and Böhm-Bawerk.”)

Bastiat, like his predecessor Adam Smith, acknowledged that this process of passing wealth from the private to the communal domain is driven by people’s self-interest: “What other stimulant would urge them forward with the same degree of energy?” Today it is largely unappreciated that the market order — private property, competitive entrepreneurship, free pricing, profit/loss — aligns private and public interest as no other institutional setting possibly could. (For a pre-Austrian, Bastiat got an amazing number of things right, but he got one thing badly wrong when he rejected the idea that trade requires a double inequality of value.)

To be sure, Bastiat did not want his praise of the expanding communal realm to be mistaken for communism. (“I anticipate it, and I am resigned to it.”) Unlike the communist, he favored the socialization of the fruits of nature, not of human effort.

By the communal domain is meant those things that we enjoy in common, by the design of Providence, without the need of any effort to apply them to our use. They can therefore give rise to no service, no transaction, no property. Property is based on our right to render services to ourselves or to render them to others for a remuneration. What the communist proposes to make common to all is not the gratuitous gifts of God, but human effort, or service.

So communism and the communal domain have nothing in common but a word root. Bastiat suggested that more people might favor free markets if they understood the distinction he was making.

If the legitimacy of private property has appeared doubtful and inexplicable, even to those who were not communists, it seemed so because they felt that it concentrated in the hands of some, to the exclusion of others, the gifts of God originally belonging to all. We believe that we have completely dispelled this doubt by proving that what was, by decree of Providence, common to all, remains common in the course of all human transactions, since the domain of private property can never extend beyond the limits of value, beyond the rights laboriously acquired through services rendered.

And, when it is expressed in these terms, who can deny the right to private property?

While Bastiat appeared sanguine about what was going on around him, he understood that the reigning political-economic system indeed enabled the illegitimate privatization of what in a free market would have gone into the communal realm. “Of course, I know that in practice the ideal principle of property is far from having full sway,” he wrote. “Against it are conflicting factors: there are services that are not voluntary, whose remuneration is not arrived at by free bargaining; there are services whose equivalence is impaired by force or fraud; in a word, plunder exists. ” Bastiat, who coined the phrase “legal plunder,” of course had the state in mind as the chief culprit.

Why is Bastiat’s distinctive framing of the case for the free market worthwhile? Because there is, I believe, an untapped potential constituency for radical libertarian ideas among people who have an aversion to free markets only because they mistakenly believe “free market” means corporatism and illegitimate gains. Before these people can be persuaded by libertarian arguments, we must get their attention, and the best way to do that is to present the free market as a process that embodies social cooperation and, à la Bastiat, the “socialization” of wealth.