Property Rights and Philosophy – Applied Philosophy – 2

In an eminently readable article in The Objective Standard, Raymond Niles presents the history of the electric grid in America, the formation of state enforced monopolies and the unending stream of problems that has plagued the industry ever since. The thesis of his article is that the problems would not have arisen if the property rights of the utility companies had been recognized. From the article,

“In many cities, if not most, some form of bribery was required to persuade city officials to grant permission to build and operate an electric grid. Because electric utility systems could not be built without using the city streets, city officials were well positioned to coerce money and other terms from utilities. In Chicago, such extortion became an art form, perfected by members of the city council known as the “Grey Wolves.”

Having observed the city’s refusal to grant Yerkes a longer and more secure franchise, Samuel Insull stepped forward with a new idea; he proposed regulation of the electric utility industry at the state level. Instead of challenging the government’s control of the rights-of-way and the corruption it entailed, Insull accepted the government’s involvement and sought a seemingly superior and less arbitrary form of it.”

There are several aspects of this history that deserve analysis.

The motivation of the state officials:
It is notable that it wasn’t the state officials who wanted or proposed state regulation. They were merely exploiting an opportunity to extort money from others achievements – achievements which they could not have hoped to equal but were in a position to control. They either did not know or did not care that a system of extortion is unsustainable – that their victims could not continue to operate under extortion. They did not even have the vision to institutionalize their extortion into a system of regulation.

The motivation of the innovators:
The innovators like Insull were men who had the vision to build large profitable systems. They were driven by their desire to translate their vision into reality and were prepared to overcome any obstacles that others might put in their way. They had the foresight to realize that they could not survive under constant extortion and to seek a “seemingly superior and less arbitrary form of government involvement”.

The motivation of the regulators:
The regulators – the people who propose regulation or attempt to improve it or rid it of corruption – are usually motivated by a genuine but misguided desire to improve the workings of government. They do not necessarily want to expand the role of government, they don’t even see it as an issue. They don’t realize that a system of regulation is fundamentally corrupt – or if they do, they see no way out of it.

The growth of regulation:
The growth of regulation described in the article follows a familiar and tragic pattern. Innovators come up with a vision for a better future – a vision that if put into reality will give them large profits and improve the quality of life of all who deal with them. People in positions of political power see an opportunity to extort money by putting obstacles in their path. The innovators who rarely understand the political issues involved attempt shortcuts to get rid of the obstacles. The worthier innovators attempt to find long term solutions to the obstacles and legalize the process of extortion. Controls breed more controls with time.

This familiar pattern is not inevitable. It is important to realize that the people responsible for the growth of regulation are the innovators. Any significant change in the workings of a society – whether for better or worse – is initiated by its better men – the men of vision who can dream of something new and the men of action who can turn the dreams into reality.

Property rights form the backbone of any political system. Men cannot deal with each other effectively without holding clear, legally recognized title to the products of their efforts. Men cannot plan long range if their actions are controlled by the whims of regulatory boards. But a political system needs a foundation – an understanding of man’s means of dealing with reality, an understanding of the purpose of man’s life, an understanding of men’s interactions in a society and an understanding of the purpose of a political system. This foundation is philosophy. Without this foundation, any political system – whether it be democracy in India or theocracy in Iran or fascism in China – is headed in the same direction – towards chaos. As I mentioned in my previous post in this series, philosophy is difficult. But the first step in understanding and applying it is acknowleding that it is real – that it plays a pivotal role in the life of every man and that it can be discovered and understood.

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2 Responses

  1. There is one more section of society that is responsible in some ways (pressure group politics) for regulations – consumers of services, and groups claiming to represent them. If they don’t get something at a price that suits their pocket, they demand that the government intervene. Too many examples – electricity for one, medicines, health insurance. Basically everything.

    Further, people don’t understand that accepting the idea of “the commons” and the government control it represents means giving up something you morally own for nothing, and then having to beg for the right to use the same.

    PS: Good that you turned off snap shots. It creates more problems than it solves.

  2. Consumer activists are responsible for regulation to some extent but usually that happens with products or services that already have an established market. While an idea is new (and I mean really new here) and its products still expensive, the activists don’t really care.

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