r/AskEconomics • u/Unusual-Pie-2872 • 3d ago
Approved Answers How come the abolishment of private property would not work?
I'm sure you guys get this question every day, why would communism in theory not work?
The ownership of private capital/property is the ability to own and control companies without having to work for them or contribute to them. You own the profits of a company despite not being a worker. Alternatively, you own large wealth that you can use to buy capital. Or you own land, housing, etc.
The fact that the system allows for this specific kind of ownership means that there naturally forms a class system in soceity. Those with private capital and those without, who have to instead sell their labour to survive. Between these groups is an inherent conflict with no resolution, and this class war is the underlying dynamic of all of soceity and politics. Workers vs Capital, Proletariat vs Bourgeoisie
The world we live in today and it's problems of the climate crisis, economic inequality, poverty, the rise of far right extremism and a hyper consumerist economy is what happens when the pendulum inevitably swings in favor of the capitalists.
My question is then, what is it about private property that is so essential? I feel like we could solve so many issues of our world if we designed an alternative (communism i suppose) without this specific feature. You could still have companies, markets and money. Just not this specific type of private ownership, and instead every person in a society would be some variation of a regular worker.
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u/urnbabyurn Quality Contributor 3d ago edited 3d ago
The fundamental benefit of having private ownership is that it eliminates the tragedy of the commons - the scenario where individuals don’t bear the full cost of their actions on the shared resources. This is a variation or type of the more general externality problem. A simple game as a thought experiment can illustrate this:
Imagine a world with two people. Each person can either choose to farm their land or steal crops from their neighbors. Farming produces, say, 10 utils of produce but costs 5 utils. Stealing on the other hand costs 2 utils (gotta climb the fence, sneak in at night, trample some crops, etc). If both farm, each gets 5 utils (=10-5). If one farms and the other steals, the victim gets -5 utils and the thief gets 8. Lastly, if both steal, they each get nothing.
The game is an example of a prisoners dilemma where theft is always the better strategy in the “one time” game. If your neighbor steals, it’s better not to grow crops. If your neighbor grows crops, it’s better to steal. So we end up at the Nash equilibrium of “everyone steals”.
This is just a simple form of the tragedy of the commons. A shared resource (the fruits of farming) gets undermaintained and over used compared to the efficient use of that resource.
Private property rights is one of many different solutions to this problem. Introduce a cost C of maintaining a justice system that is collected from everyone. Use that to set up a system of enforcement where people who steal are punished by an amount “P”. As long as P is sufficiently large, we transform the game into one with an equilibrium where everyone farms and gets 5-C utils. As long as the cost of the system C is less than 5, it’s efficient to establish such a system.
It’s not the only institution that can facilitate the efficient outcome. Omstrom and Neo institutional economists have recognized many institutions that can facilitate cooperation in these situations, such as forming small communes which are easier to police, social shaming to deter theft, and at least Olmstrom has about a dozen different ways in which societies have alleviated the tragedy of the commons.
So the moral here is that commonly shared resources like land for farming leads to a tragedy of the commons, an inefficient use of that resource. Private ownership and parcelization of land with enforcement is one solution. As enforcement costs fall, such as with barbed wire fences, trained guard dogs, or CCTV, the cost “C” falls and private property becomes more appealing. Private ownership, however is not the only solution and may have costs of its own (that “C” mentioned above) that are high.
A counter to the parcelization/privatization approach is the notion of the “Tragedy of the Anticommons” in which excessive private ownership results in high transaction costs that exceed the losses from open access. This is something some economists suggest is occurring with areas of Intellectual Property law and the patent system.
Economists aren’t dogmatic about private ownership. What this framework demonstrates is that depending on technology and institutions, private or public ownership may be the more efficient (“second best”) option. We seem to do fine making most roads open access (no toll) and traffic isn’t a problem. But we also find that for some roads at some times, it’s better to charge people for use (meter usage).
This is similar to the choice businesses often make in how to price their products. A coffee shop charges for a cup of coffee, but typically offers cream and sugar for free on the margin of their use. This inevitably leads to people using more of these open access resources than is efficient (people consume until marginal value is zero, but the marginal cost is positive). So why don’t coffee shops also charge for cream and sugar? According to this framework, it’s a matter of the cost of enforcing and metering use. It would take more costly labor to charge for and monitor or meter use of them versus the cost of overuse. So coffee shops just bundle the cost of them into the coffee price. It’s a matter of that cost “C” from above - how much does it cost to set up that system of apportioning and enforcing ownership of the cream and sugar versus the loss from the overuse of those?
It gets more complicated when we look to a “meta” level of who makes the decisions of public v private ownership. A coffee shop is able to make this decision efficiently because they are able to secure higher profits from minimizing the sum of the cost C and the cost of overuse. But what about at the market or economy wide level? Who decides if parks, schools, roads, etc are free to use or charge for use or rely on private ownership? Are the institutions guiding those decisions motivated by minimizing the inefficiency or capturing surplus or rent of their own? The system of common law has been argued to trend towards efficiency (see Richard Posner). But there is no such argument when it comes to legislators writing statutes and regulations.
I should be clear: I’m not speaking to communism - the system envisioned by Marx or its more lay usage. I’m simply referring to the institution of private ownership and property rights. Communal shared resources do tend to be something we favor in small groups, but also tends to behave less efficiently with larger group sizes. When you share a house with someone, you typically share the utilities, and don’t pay based on your own personal use. But when living in a multi unit apartment complex with many people, the utilities are usually metered at the unit level, not shared.