The Creation of Knowledge in Society: Waste Defined by Property and Exchange.

• Author: Carden, Art

The right to private property is capitalism's institutional cornerstone. Anonymous, impersonal exchange--which generates the market prices that guide people's choices--is easier and more extensive when private property rights are secure. Prices also guide entrepreneurial discovery and make it possible to calculate the profits and losses that tell people when they have corrected (or exacerbated) errors in the structure of production. Private property rights form the institutional context in which people learn, via the resulting market prices, profits, and losses, when resources have been allocated efficiently or wastefully (Kirzner 1973). The ultimate judges of whether an allocation is "efficient" or "wasteful" are the sovereign consumers, who express their beliefs and values through their decisions to buy or abstain (Hutt 1936 [1990], 257-72). Private property rights serve an important allocative function, and they also generate the knowledge we would need to know whether goods have been "wasted" or "spoiled."

In his Second Treatise of Government ([1690] 1980), John Locke provided one of the most important and well-known justifications for the original acquisition of private property. According to the "Lockean Proviso," two conditions justify the original acquisition of a previously unowned resource. First, there is the "enough, and as good" condition. As Locke writes:

Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men: for this labour being the unquestionable property of the laborer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common for others. (19; emphasis original)

The second condition, which Thomas Mautner refers to as the "non-spoilage condition" (1982, 260), is regarded as "less significant" (Mack 2009, 61) of the two and is satisfied if the originally acquired resource is not wasted or left to spoil. Locke explains:

It will perhaps be objected to this, that if gathering the acorns, or other fruits of the earth, makes a right to them, then any one may in gross as much as he will. To which I answer, Not so. The same law of nature, that does by this means give us property, does also bound that property too ... As much as anyone can make use of to any advantage of life before it spoils, so much he may by his labour fix a property in: whatever is beyond this, is more than his share, and belongs to others. Nothing was made by God for man to spoil or destroy. ([1690] 1980, 20-21; emphasis original)

Robert Nozick's Anarchy, State, and Utopia (1974) inspired a large and growing body of research by economists, philosophers, and political scientists defending the Lockean Proviso and using economists' tools to identify when it holds (Vaughn 1980; Schmidtz 1990; 1994; Rasmussen and Den Uyl 1991; 2005; Ekman 2017; Carden 2018; Kogelmann and Ogden 2018).

Given the importance of this Proviso to private property's defenders and its implications for social order, what is the relationship between private property and the Lockean Proviso? We pay particular attention to the "non-spoilage" requirement. (1) We argue that, if the Lockean Proviso is a normative condition of private property, then this can be realized only in a context of private property itself. Therefore, the knowledge required for the Lockean Proviso's satisfaction emerges as a by-product of private property because private property establishes the institutional precondition for exchange, which creates meaningful market prices. Market prices, in turn, encourage people to economize on resources, and therefore generate the context-specific knowledge that makes it much easier to detect waste and "spoilage." This is especially important when exchange is anonymous and when no one person knows precisely why, say, the marginal tree is more valuable as furniture than paper. "The most significant fact about this system," Hayek writes, "is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action" (1945, 526-27). Moreover, just as profits and losses are not independent aspects of market pricing in a capitalist, private-property economy, the Lockean Proviso's conditions are also not independent of one another. Whether there is "enough, and as good" of a resource cannot be understood independently of whether a resource is left to spoil or be wasted. Therefore, identifying "spoilage" or "enough, and as good" requires context-specific knowledge. Private property and voluntary exchange generate market prices that communicate context-specific knowledge, particularly when exchange extends beyond repeated face-to-face interaction. Furthermore, an object's "value" is contingent upon the bundle of rights attached to it (Pejovich 2012, 11). There is no "value" independent of the bundle of rights. Changing the bundle changes the value.

Our argument builds on literature integrating Austrian and transaction-cost economics (Williamson 1979; 1991; Langlois 1992; Klein 1999; Pejovich 2003; Anderson and Hill 2004; Candela and Geloso 2019; Burns and Fuller 2020; Piano and Rouanet 2020; Candela, Boettke, and Jacobsen 2023). From the standpoint of these two traditions, the question is not whether waste and spoilage can be understood, detected, or identified. Transaction costs are ubiquitous, and so are waste and spoilage. We ask how people can evaluate waste and spoilage in a complex economy with an extensive division of labor and anonymous exchange.

An Austrian approach emphasizes how market pricing provides "a system of telecommunications which enables producers" (Hayek 1945, 527) to value resources' alternative uses, particularly when exchange is anonymous. A transaction-cost approach explains how private property emerges because it reduces measurement and information costs (Barzel 1982; North 1990; Munger 2018). Ronald Coase explains how Austrian economics and transaction-cost economics complement one another: "a large part of what we think of as economic activity is designed to accomplish what high transaction costs would otherwise prevent or to reduce transaction costs so that individuals can freely negotiate and we can take advantage of that diffused knowledge of which Hayek has told us" (1992, 716; emphasis added).

By interpreting the Lockean Proviso in light of Austrian and transaction-cost economics, we highlight private property's epistemic importance (see Boettke 2018). Specifically, private property guides people toward resource distributions, satisfying the Lockean Proviso with reference to market prices. Economic analyses of the Lockean Proviso have emphasized the "enough, and as good" condition. Even if a resource was acquired justly, whether the "enough and as good" condition has been satisfied requires market prices to communicate the opportunity costs of this acquisition, which makes it possible to determine whether or not the acquisition satisfies the "non-spoilage" condition. Market prices provide the context-specific knowledge necessary to determine whether the conditions of the Lockean Proviso are satisfied, particularly when we are coordinating millions of people's diverse, and often conflicting, wants. With anonymous exchange and an extensive division of labor, the normative satisfaction of the "non-spoilage" and "enough, and as good" conditions are opposite sides of the same economic problem.

The next section examines the positive rather than normative attributes of the Lockean Proviso. Then we explore entrepreneurial discovery and the market process (Kirzner 1973; [1989] 2016). Entrepreneurial discovery is not only compatible with Locke's labor-mixing theory of private property. The Lockean Proviso's satisfaction depends on it. People must discover and learn if a resource has been wasted to learn if "enough, and as good" has been left for others. The final section concludes with implications for future research.

Resources and Waste Defined in the Process of Their Emergence

"Arguably the most controversial component in the Lockean tradition of liberalism," according to Douglas Rasmussen and Douglas Den Uyl, "is the natural right to private property" (2005, 97). For Locke, the "great and chief end, therefore, of men's uniting into common-wealths, and putting themselves under government, is the preservation of their property" ([1690] 1980, 66; emphasis original). This helps us understand how the Lockean Proviso's normative implications flow from a positive understanding of property rights.

According to Eirik Furubotn and Svetozar Pejovich, property rights refer "to the sanctioned behavioral relations among men that arise from the existence of things and pertain to their use" (1972, 1139; emphasis original). They define people's ability to exercise choice over a resource, and therefore they define the rights to an action rather than an object per se. Excluding others from a resource is one choice, and property rights create residual claimancy that concentrates the benefits and costs of choice on the owner. Property rights also confer the ability to use a resource for present consumption, future consumption (i.e., savings), or indirect consumption via specialization and exchange. The ability to exchange distinguishes private property from other forms of property (Mises [1920] 1975; Alchian 1965, 822; see also Ostrom 2010) because it establishes the institutional preconditions for the emergence of exchange ratios...