The Bundesbank wants slowly and quietly out.

Has The Imploding European Shadow Banking System Forced The Bundesbank To Prepare For Plan B?

by Tyler Durden

While much has been said about the vagaries in the European repo market elsewhere, the truth is that the intraday variations of assorted daily metrics thereof indicate three simple things: a scarcity of quality assets that can be pledged at various monetary institutions in exchange for cash or synthetic cash equivalents, a resulting lock up in interbank liquidity, and above all, a gradual freeze of the shadow banking system. As we have been demonstrating on a daily basis, we have experienced all three over the past several months, as the liquidity situation in Europe has gotten worse, morphing to lock ups in both repo and money markets. As a reminder, both repo and money markets (for a full list see here), are among the swing variables in shadow banking. And shadow banking is nothing more than a way to expand credit money while undergoing the three traditional banking "transformations" - those of maturity, liquidity and credit risk, although unlike traditional liabilities, these occur in the "shadow" or unregulated area of finance, interlocked between various institutions, which is why the Fed has historically expressed so much caution when it comes to discussing the latent threats in it.

Indicatively, of the $15.5 trillion in shadow US liabilities (by far the biggest such system in the world), $2.6 trillion are liabilities with money market mutual funds and just $1.2 trillion are repos. Indicatively, traditional plain vanilla bank liabilities amounted to $13.4 trillion as of Q2 (an updated for Q3 is imminent). As such, the focus on repo while useful, misses the forest for the trees, which is that not the repo market, but the entire shadow banking system in Europe is becoming unglued.

What explains this? Two simple words, which form the foundation of modern finance - "risk" and "confidence", and in Europe both are virtually nil. Seen in this light, the unwind of the shadow system explains much: the inability of Germany to place bunds, the parking of cash with the ECB, the freezing of repo, the plunge in the currency basis swaps, the withdrawal of money markets, the blow out of various secured-unsecured lending indicators, etc. All of these fundamentally say the same thing: there is too much risk and not enough confidence, to rely on the abstraction that is shadow risk/maturity/and liquidity transformation. All this is easily comprehended. What is slightly more nuanced, is the activity of the ECB and especially the Bundesbank in the last few weeks, whereby as Perry Mehrling of Ineteconomics demonstrates, we may be experiencing the attempt by the last safe European central bank - Buba - to disintermediate itself from the slow motion trainwreck that is the European shadow banking (first) and then traditional banking collapse (second and last). Because as Lehman showed, it took the lock up of money markets - that stalwart of shadow liabilities - to push the system over the edge, and require a multi-trillion bailout from the true lender of last resort. The same thing is happening now in Europe. And the Bundesbank increasingly appears to want none of it.

So just what is happening? Mehrling first explains the European funding status quo:

Apparently everybody, borrowers and lenders, public and private, wants the ECB as their counterparty.  Reluctant though the ECB may be to step into that role, and vocal as the ECB has been about that reluctance, what we are seeing in practice is that it has no choice, literally. Clearing imbalances within the Eurozone that cannot be resolved in the interbank market show up mechanically as imbalances between national central banks on the books of the ECB (see here  for details).  The ECB lends to the central bank of the deficit country and borrows from the central bank of the surplus country, so expanding its own balance sheet on both sides.   (Think Greece on the asset side, and Germany on the liability side.)
Something quite similar happens when private banks settle private clearing imbalances not by shifting reserves from deficit to surplus but rather by the deficit bank borrowing from the ECB and the surplus bank lending.  Again, the ECB balance sheet expands on both sides.Why is this happening? The underlying problem is that deficit central banks and deficit private banks increasingly have nothing to sell (or to pledge) that surplus central banks and surplus private banks want to buy (or accept as collateral for a loan).   The ECB is also reluctant to buy--it is serving as pawnbroker of last resort , not dealer of last resort.
The consequence is that the ECB  is more or less forced to lend, against more or less whatever collateral is offered; even bad collateral is better than no collateral.  (The famous Bagehot Principle offers an out, since it urges valuation of collateral at non-stress prices.) 

So far so good: this is the system that as noted above is slowly crumbling. So what is happening next? One read is the following:

Now comes the latest deal over eurozone fiscal rules , presumably the deal that ECB President Draghi asked for last week .  It is a deal about sovereign budget discipline.  But if I read Draghi's speech right, we should not expect him to be buying sovereign debt.  (That will be the IMF's job, if anyone's, and with strict conditionality; details to be sorted later.)
Instead, he'll be buying bank debt, specifically the debt of the banks that hold the sovereign debt.  Banks currently borrowing from their own national central banks will therefore be able to repay, and consequently the national central banks will be able to repay the ECB.  This takes national central banks out of the picture on the asset side.What about the liability side?  Here, perhaps in a longer time frame, I think the logical move is again to take the national central bank out of the equation, by replacing liabilities to the Bundesbank with deposits to the credit of private banks.    Freed from the responsibility to fund ECB loans to other central banks, the Bundesbank will be able to return to its preferred asset holding, German sovereign bonds.

One conclusion that is possible is that one proposed by Mehrling: "we're not going to be using the payment system to hide imbalances any more.  The ECB is going to serve as a proper lender of last resort to the banking system, affirmatively and up front rather than mechanically and through the back door.  But it will be doing so only to the banking system, not to sovereign debtors." It would be expected that some combination of EFSF/IMF funding would sourced the balance. In effect the ECB would intermediate itself directly in the national bank bailout scheme, allowing it to be more like the Fed, which has been the primary complaint against the ECB all along.

There is also one other explanation: the Bundesbank wants slowly and quietly out.

As a reminder, while the Fed is the one central bank in the world which supposedly has the biggest amount of gold in possession with 8.1 thousand tonnes, Buba is #2  with 3,401 tonnes. In other words, it has a solid backing to its fiat asset representation. However, unlike the Fed, the Bundesbank is part of a nation that has a natural trade surplus and thus is cash flow positive from a current account perspective. One may say that Germany, far more than the US and the UK, is the world's truly AAA-rated nation. All this means that the Bundesbank, if disambiguated from the ECB, where it currently is accountable for funding a major portion of deficit nations' funding deficiency, would regain its status as the world highest quality monetary institution. And going back to the beginning, it is the Bundesbank which is effectively depleting "good money" in exchange for "bad" either in the form of undervalued collateral through the repo markets, or soon to be devalued fiat.

Here one has to keep in mind the primary prerogative of the Buba - keep inflation low. If that means detaching from a failing currency, or halting asset-liability matching in which it hands out good money in exchange for worthless assets, so be it.

Which is why another interpretation of the ECB's proposal is not to bring the ECB as a lender of only resort closer to the peripheral, deficit nations, but to commence proceedings for severing the umbilical cord of the Bundesbank with a Eurozone which is doomed in all but the most optimistic eyes. Bringing us to our question: for anyone wondering what the future of the Eurozone is, should they merely observe what steps  the German central bank is stealthily starting to take. Because if indeed the Buba wants to have as little as possible with Europe, what does that mean for the EUR, and for Europe itself?

Imperial presidents

Did FDR Provoke Pearl Harbor?

By Patrick J. Buchanan

On Dec. 8, 1941, Franklin Roosevelt took the rostrum before a joint session of Congress to ask for a declaration of war on Japan.

A day earlier, at dawn, carrier-based Japanese aircraft had launched a sneak attack devastating the U.S. battle fleet at Pearl Harbor.

Said ex-President Herbert Hoover, Republican statesman of the day, “We have only one job to do now, and that is to defeat Japan.”

But to friends, “the Chief” sent another message: “You and I know that this continuous putting pins in rattlesnakes finally got this country bit.”

Today, 70 years after Pearl Harbor, a remarkable secret history, written from 1943 to 1963, has come to light. It is Hoover’s explanation of what happened before, during and after the world war that may prove yet the death knell of the West.

Edited by historian George Nash, Freedom Betrayed: Herbert Hoover’s History of the Second World War and Its Aftermath, is a searing indictment of FDR and the men around him as politicians who lied prodigiously about their desire to keep America out of war, even as they took one deliberate step after another to take us into war.

Yet the book is no polemic. The 50-page run-up to the war in the Pacific uses memoirs and documents from all sides to prove Hoover’s indictment. And perhaps the best way to show the power of this book is the way Hoover does it — chronologically, painstakingly, week by week.

Consider Japan’s situation in the summer of 1941. Bogged down in a four year war in China she could neither win nor end, having moved into French Indochina, Japan saw herself as near the end of her tether.

Inside the government was a powerful faction led by Prime Minister Prince Fumimaro Konoye that desperately did not want a war with the United States.

The “pro-Anglo-Saxon” camp included the navy, whose officers had fought alongside the U.S. and Royal navies in World War I, while the war party was centered on the army, Gen. Hideki Tojo and Foreign Minister Yosuke Matsuoka, a bitter anti-American.

On July 18, 1941, Konoye ousted Matsuoka, replacing him with the “pro-Anglo-Saxon” Adm. Teijiro Toyoda.

The U.S. response: On July 25, we froze all Japanese assets in the United States, ending all exports and imports, and denying Japan the oil upon which the nation and empire depended.

Stunned, Konoye still pursued his peace policy by winning secret support from the navy and army to meet FDR on the U.S. side of the Pacific to hear and respond to U.S. demands.

U.S. Ambassador Joseph Grew implored Washington not to ignore Konoye’s offer, that the prince had convinced him an agreement could be reached on Japanese withdrawal from Indochina and South and Central China. Out of fear of Mao’s armies and Stalin’s Russia, Tokyo wanted to hold a buffer in North China.

On Aug. 28, Japan’s ambassador in Washington presented FDR a personal letter from Konoye imploring him to meet.

Tokyo begged us to keep Konoye’s offer secret, as the revelation of a Japanese prime minister’s offering to cross the Pacific to talk to an American president could imperil his government.

On Sept. 3, the Konoye letter was leaked to the Herald-Tribune.

On Sept. 6, Konoye met again at a three-hour dinner with Grew to tell him Japan now agreed with the four principles the Americans were demanding as the basis for peace. No response.

On Sept. 29, Grew sent what Hoover describes as a “prayer” to the president not to let this chance for peace pass by.

On Sept. 30, Grew wrote Washington, “Konoye’s warship is ready waiting to take him to Honolulu, Alaska or anyplace designated by the president.”

No response. On Oct. 16, Konoye’s cabinet fell.

In November, the U.S. intercepted two new offers from Tokyo: a Plan A for an end to the China war and occupation of Indochina and, if that were rejected, a Plan B, a modus vivendi where neither side would make any new move. When presented, these, too, were rejected out of hand.

At a Nov. 25 meeting of FDR’s war council, Secretary of War Henry Stimson’s notes speak of the prevailing consensus: “The question was how we should maneuver them (the Japanese) into … firing the first shot without allowing too much danger to ourselves.”

“We can wipe the Japanese off the map in three months,” wrote Navy Secretary Frank Knox.

As Grew had predicted, Japan, a “hara-kiri nation,” proved more likely to fling herself into national suicide for honor than to allow herself to be humiliated.

Out of the war that arose from the refusal to meet Prince Konoye came scores of thousands of U.S. dead, Hiroshima, Nagasaki, the fall of China to Mao Zedong, U.S. wars in Korea and Vietnam, and the rise of a new arrogant China that shows little respect for the great superpower of yesterday.

If you would know the history that made our world, spend a week with Mr. Hoover’s book.

Idols of the professional left

Stern Idiocy

A leading Obamaite union man would impose the Chinese model on his own country -- and he's hardly alone.

By Ross Kaminsky 

The professional left in America and their chattering-class useful idiots have followed a consistent pattern for a century: sympathizing with tyranny in their musings over how to implement policies fueled by jealousy and an undying fear of economic liberty.

There has hardly been a better example in recent years than Andy Stern's Wall Street Journal December 1st op-ed entitled "China's Superior Economic Model." In his article, Stern approvingly quotes Intel Corporation co-founder and former CEO Andy Grove who stated in a 2010 Business Week article that there is "emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better."

Before getting to the details of why Mr. Stern, until recently the head of the Service Employees International Union -- which spent at least $27 million to help Barack Obama get elected in 2008 -- is wrong in almost every detail, can I take you back more than two decades to the "Japanese Miracle" (and American near-panic) of the 1980s?

As someone who was studying economics in college in the mid-1980s, I endured countless comments about how American corporations' narrow focus on "next quarter's earnings" (as if that were true) was congenitally inferior to the longer-term view supposedly taken by Japanese companies.

Over the next several years, the Japanese bought Rockefeller Center (from my alma mater, Columbia University), CBS Records (purchased, renamed, and still owned by Sony), and the famed Pebble Beach golf course.

Harvard professor Ezra Vogel published (actually in 1979) a book called Japan As Number One: Lessons for America, in which he argues, as a reviewer for the Economist magazine put it, "that the United States should give itself a political and cultural heart transplant. A more competitive America, he says, needs a much stronger government, an elite civil service composed of 'the ablest young people of their generation' and a White House staffed by these new mandarins." Not surprisingly, given the natural human impulse toward ego-boosting,Professor Vogel's Harvard web page (which makes no mention of his ever having studied economics) notes that the book "remains the all-time best-seller in Japan of non-fiction by a Western author." (Whether this points to Vogel's ego or the egos of Japanese readers I shall leave to your determination.)

In 1995, the Mitsubishi Group, which had purchased Rockefeller Center, forced the project into Chapter 11 bankruptcy, losing nearly two billion dollars for their efforts. And a few years later, as Golf Digest's Mark Seal put it, when Peter Ueberroth put together a group to buy Pebble Beach for less than the Japanese had paid for it, the deal "bankrupted a Japanese boom-time golden boy, and, most recently, sent an army of Japanese bankers back home with little to show for their seven years of superlative stewardship but their good names."

Since then, Japan has turned in not just one but two "lost decades" with its persistent near-zero interest rates frequently being described as "pushing on a string." According to a recent Heritage Foundation study, "In 2010, the Japanese economy looks to have been smaller than it was in 1992, an incredibly poor result. It is not just a matter of a decline in output; it is also a remarkable decline in total wealth. In 1991, excluding micro-states like Luxembourg, Japan was the fourth-richest country in the world as measured by GDP per capita. In 2010, it was no longer in the top 20, was below the OECD average, and would have likely fallen further but for Europe's own economic troubles."

So when you hear people -- especially non-economists with political agendas -- long for the statism that characterizes most of America's economic competitors, listen with great skepticism.

Now, back to the two Andys.

As you read Mr. Grove's article from which Stern gathers inspiration, it is worth noting Grove's political bent: A search of Andy Grove's political donations shows a distinct left-leaning bias. Other than small donations to the presidential campaigns of John McCain and Rudy Giuliani during the 2008 cycle , his only contribution to a Republican in the past decade was to Arlen "I lost my last election as a Democrat" Specter. (The McCain and Giuliani donations combined were less than Grove's gift to Barack Obama's presidential campaign.)

Grove argued that America is good at startups but bad at scaling up and thus bad at allowing a new technology company to jump from a few guys in a garage to something that employs hundreds or thousands of people. Yet he makes no attempt other than looking at labor costs to determine the cause of this problem and instead simply assumes that since China creates more technology manufacturing jobs than American does, it must be the fact that China's government is more involved than the U.S. government in a "strategic role setting the priorities and arraying the forces and organization (necessary for job creation)."

Could it instead be the massive regulatory burden imposed on manufacturing companies and the uncertainties created by our government, such as whether Barack Obama will get his wish and cause "electricity rates [to] necessarily skyrocket"? And if all that weren't bad enough, who would risk any business growth that might subject management to dealing with unions and the true tyrants at Obama's National Labor Relations Board? Really, if you were going to start a business that would be likely to hire a thousand or ten thousand workers, wouldn't you go out of your way to avoid people exactly like Andy Stern?

Grove, refusing to understand how the global market works rather than how he wants it to work, then turns to the left's cure-all: he calls for "an extra tax on the product of offshored labor" and adds, "If the result is a trade war, treat it like other wars -- fight to win."

But Andy Grove forgets that wars come at great cost, even to victors -- which it is far from certain we would be despite Mr. Grove's tough talk.

In a solid refutation of Grove's article that ran in the subsequent edition of Business Week, Vivek Wadwha responds to the former Intel CEO's trade militarism: "The problem is that American companies will be the first casualties in such a war, and American jobs will be lost. There is no way to win."

The foundation of all Human Rights

Property Rights

by Armen A. Alchian

One of the most fundamental requirements of a capitalist economic system—and one of the most misunderstood concepts—is a strong system of property rights. For decades social critics in the United States and throughout the Western world have complained that “property” rights too often take precedence over “human” rights, with the result that people are treated unequally and have unequal opportunities. Inequality exists in any society. But the purported conflict between property rights and human rights is a mirage. Property rights are human rights.

The definition, allocation, and protection of property rights comprise one of the most complex and difficult sets of issues that any society has to resolve, but one that must be resolved in some fashion. For the most part, social critics of “property” rights do not want to abolish those rights. Rather, they want to transfer them from private ownership to government ownership. Some transfers to public ownership (or control, which is similar) make an economy more effective. Others make it less effective. The worst outcome by far occurs when property rights really are abolished (see tragedy of the commons).

A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals. Society approves the uses selected by the holder of the property right with governmental administered force and with social ostracism. If the resource is owned by the government, the agent who determines its use has to operate under a set of rules determined, in the United States, by Congress or by executive agencies it has charged with that role.

Private property rights have two other attributes in addition to determining the use of a resource. One is the exclusive right to the services of the resource. Thus, for example, the owner of an apartment with complete property rights to the apartment has the right to determine whether to rent it out and, if so, which tenant to rent to; to live in it himself; or to use it in any other peaceful way. That is the right to determine the use. If the owner rents out the apartment, he also has the right to all the rental income from the property. That is the right to the services of the resources (the rent).

Finally, a private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the owner determines (provided someone is willing to pay that price). If I am not allowed to buy some rights from you and you therefore are not allowed to sell rights to me, private property rights are reduced. Thus, the three basic elements of private property are (1) exclusivity of rights to choose the use of a resource, (2) exclusivity of rights to the services of a resource, and (3) rights to exchange the resource at mutually agreeable terms.

The U.S. Supreme Court has vacillated about this third aspect of property rights. But no matter what words the justices use to rationalize such decisions, the fact is that such limitations as price controls and restrictions on the right to sell at mutually agreeable terms are reductions of private property rights. Many economists (myself included) believe that most such restrictions on property rights are detrimental to society. Here are some of the reasons why.

Under a private property system the market values of property reflect the preferences and demands of the rest of society. No matter who the owner is, the use of the resource is influenced by what the rest of the public thinks is the most valuable use. The reason is that an owner who chooses some other use must forsake that highest-valued use—and the price others would pay him for the resource or for the use of it. This creates an interesting paradox: although property is called “private,” private decisions are based on public, or social, evaluation.

The fundamental purpose of property rights, and their fundamental accomplishment, is that they eliminate destructive competition for control of economic resources. Well-defined and well-protected property rights replace competition by violence with competition by peaceful means.

The extent and degree of private property rights fundamentally affect the ways people compete for control of resources. With more complete private property rights, market exchange values become more influential. The personal status and personal attributes of people competing for a resource matter less because their influence can be offset by adjusting the price. In other words, more complete property rights make discriminationmore costly. Consider the case of a black woman who wants to rent an apartment from a white landlord. She is better able to do so when the landlord has the right to set the rent at whatever level he wants. Even if the landlord would prefer a white tenant, the black woman can offset her disadvantage by offering a higher rent. A landlord who takes the white tenant at a lower rent anyway pays for discriminating.

But if the government imposes rent controls that keep the rent below the free-market level, the price the landlord pays to discriminate falls, possibly to zero. The rent control does not magically reduce the demandfor apartments. Instead, it reduces every potential tenant’s ability to compete by offering more money. The landlord, now unable to receive the full money price, will discriminate in favor of tenants whose personal characteristics—such as age, sex, ethnicity, and religion—he favors. Now the black woman seeking an apartment cannot offset the disadvantage of her skin color by offering to pay a higher rent.

Competition for apartments is not eliminated by rent controls. What changes is the “coinage” of competition. The restriction on private property rights reduces competition based on monetary exchanges for goods and services and increases competition based on personal characteristics. More generally, weakening private property rights increases the role of personal characteristics in inducing sellers to discriminate among competing buyers and buyers to discriminate among sellers.

The two extremes in weakened private property rights are socialism and “commonly owned” resources. Under socialism, government agents—those whom the government assigns—exercise control over resources. The rights of these agents to make decisions about the property they control are highly restricted. People who think they can put the resources to more valuable uses cannot do so by purchasing the rights because the rights are not for sale at any price. Because socialist managers do not gain when the values of the resources they manage increase, and do not lose when the values fall, they have little incentive to heed changes in market-revealed values. The uses of resources are therefore more influenced by the personal characteristics and features of the officials who control them. Consider the socialist manager of a collective farm under the old Soviet communist system. By working every night for one week, he could have made, say, one million rubles of additional profit for the farm by arranging to transport the farm’s wheat to Moscow before it rotted. But because neither the manager nor those who worked on the farm were entitled to keep even a portion of this additional profit, the manager was more likely than the manager of a capitalist farm to go home early and let the crops rot.

Similarly, common ownership of resources—whether in the former Soviet Union or in the United States—gives no one a strong incentive to preserve the resource. A fishery that no one owns, for example, will be overfished. The reason is that a fisherman who throws back small fish to wait until they grow is unlikely to get any benefit from his waiting. Instead, some other fisherman will catch the fish. The same holds true for other common resources whether they be herds of buffalo, oil in the ground, or clean air. All will be overused.

Indeed, a main reason for the spectacular failure of the 1980s and early 1990s economic reforms in the former Soviet Union is that resources were shifted from ownership by government to de facto common ownership. How? By making the Soviet government’s revenues de facto into a common resource. Harvard economist Jeffrey Sachs, who advised the Soviet government, once pointed out that when Soviet managers of socialist enterprises were allowed to open their own businesses but still were left as managers of the government’s businesses, they siphoned out the profits of the government’s business into their private corporations. Thousands of managers doing this caused a large budget deficit for the Soviet government. In this case the resource that no manager had an incentive to conserve was the Soviet government’s revenues. Similarly, improperly set premiums for U.S. deposit insurance gave banks and S&Ls (see savings and loan crisis) an incentive to make excessively risky loans and to treat the deposit insurance fund as a “common” resource.

Private property rights to a resource need not be held by a single person. They can be shared, with each person sharing in a specified fraction of the market value while decisions about uses are made in whatever process the sharing group deems desirable. A major example of such shared property rights is the corporation. In a limited liabilitycorporation, shares are specified and the rights to decide how to use the corporation’s resources are delegated to its management. Each shareholder has the unrestrained right to sell his or her share. Limited liability insulates each shareholder’s wealth from the liabilities of other shareholders, and thereby facilitates anonymous sale and purchase of shares.

In other types of enterprises, especially where each member’s wealth will become uniquely dependent on each other member’s behavior, property rights in the group endeavor are usually salable only if existing members approve of the buyer. This is typical for what are often called joint ventures, “mutuals,” and partnerships.

While more complete property rights are preferable to less complete rights, any system of property rights entails considerable complexity and many issues that are difficult to resolve. If I operate a factory that emits smoke, foul smells, or airborne acids over your land, am I using your land without your permission? This is difficult to answer.

The cost of establishing private property rights—so that I could pay you a mutually agreeable price to pollute your air—may be too high. Air, underground water, and electromagnetic radiation, for example, are expensive to monitor and control. Therefore, a person does not effectively have enforceable private property rights to the quality and condition of some parcel of air. The inability to cost-effectively monitor and police uses of your resources means “your” property rights over “your” land are not as extensive and strong as they are over some other resources such as furniture, shoes, or automobiles. When private property rights are unavailable or too costly to establish and enforce, substitute means of control are sought. Government authority, expressed by government agents, is one very common such means. Hence the creation of environmental laws.

Depending on circumstances, certain actions may be considered invasions of privacy, trespass, or torts. If I seek refuge and safety for my boat at your dock during a sudden severe storm on a lake, have I invaded “your” property rights, or do your rights not include the right to prevent that use? The complexities and varieties of circumstances render impossible a bright-line definition of a person’s set of property rights with respect to resources.

Similarly, the set of resources over which property rights may be held is not well defined and demarcated. Ideas, melodies, and procedures, for example, are almost costless to replicate explicitly (near-zero cost of production) and implicitly (no forsaken other uses of the inputs). As a result, they typically are not protected as private property except for a fixed term of years under a patent or copyright.

Private property rights are not absolute. The rule against the “dead hand,” or perpetuities, is an example. I cannot specify how resources that I own will be used in the indefinitely distant future. Under our legal system, I can specify the use only for a limited number of years after my death or the deaths of currently living people. I cannot insulate a resource’s use from the influence of market values of all future generations. Society recognizes market prices as measures of the relative desirability of resource uses. Only to the extent that rights are salable are those values most fully revealed.

Accompanying and conflicting with the desire to secure private property rights for oneself is the desire to acquire more wealth by “taking” from others. This is done by military conquest and by forcible reallocation of rights to resources (also known as stealing). But such coercion is antithetical to—rather than characteristic of—a system of private property rights. Forcible reallocation means that the existing rights have not been adequately protected.

Private property rights do not conflict with human rights. They are human rights. Private property rights are the rights of humans to use specified goods and to exchange them. Any restraint on private property rights shifts the balance of power from impersonal attributes toward personal attributes and toward behavior that political authorities approve. That is a fundamental reason for preference of a system of strong private property rights: private property rights protect individual liberty.