Liberal Property Law vs. Capitalism

PUBLISHED

Katharina Pistor is the Edwin B. Parker Professor of Comparative Law at Columbia Law School.

PUBLISHED

Katharina Pistor is the Edwin B. Parker Professor of Comparative Law at Columbia Law School.

This is part of our symposium on Hanoch Dagan’s book, A Liberal Theory of Property. For a concise version of Dagan’s argument, see this restatement. Image credit: Sam Abell, National Geographic.

Hanoch Dagan has written a wonderful, thoughtful, and thought-provoking book. Its publication could have hardly come at a more prescient time. Many observers and commentators rightly despair over the lack of opportunities the current economic and legal regime offers to the many while it privileges the few. Calls for socialism are growing louder as there seems to be no alternative given the realities of the neoliberal order.

Against this background, Hanoch develops a theory of private property that is truly liberal in the original meaning of the term: a theory built on the principle of individual autonomy, or “self-authorship,” but also on structural pluralism and relational justice. This requires a legal order, a commitment to recognize and enforce only rights that meet these fundamental norms, which is why his is a theory of property law and not merely property. Property law confers rights on individuals, which they can use against the state, but, critically, also against fellow humans. A liberal property law, Hanoch argues forcefully, shall not condone the use of property rights to suppress others.

From this normative vantage point it is impossible to endorse private property rights as a Blackstonian “sole and despotic dominion.” “Law’s constitutive role in property law implies that it cannot abdicate its responsibility for any of its consequences” (p. 166). Neither is it sufficient to rely on the state’s regulatory and taxing powers to mitigate excesses of such a regime and distribute some of its gains, as advocated by Kantian theorists of property. Instead, Hanoch conceives of property law, and of private law in general, as relational law. Property rights exist only in relation to other individuals who hold equal rights to self-authorship. The right to exclude others may be protected when it comes to one’s home or intimate life, but not in the public sphere that owners of a business access when opening an inn or a shop. A liberal property law does curtail an imagined absolute right to exclude; such an absolute right does not exist. Property rights are conferred ab initio as rights that consider the equally deserving rights of others.

As the author of a book, “The Code of Capital,” that paints a very different picture of property and private law, I have enjoyed reading and debating Hanoch’s work with him. When I presented draft chapters of my book at Tel Aviv University in March 2018, Hanoch bristled at my depiction of private law as inherently exploitative, as the very cloth from which capital is cut. This, he suggested, was at best a caricature of what a liberal private legal order should look like. The question we left unanswered in our discussion then, is whether a liberal private legal order is feasible within capitalism. My answer to this question is an unequivocal no. Hanoch’s liberal property law thus calls for change that is more radical than the title suggests. It calls for an order that is neither socialist nor capitalist even as it is rooted in norms that both regimes have claimed to legitimize orders that have in the past  manifestly failed to advance them.

One of Hanoch’s many great strengths is that he combines sophisticated theorizing with a deep knowledge of the law. This enables him to point to many instantiations of property law that meet the demands of a liberal order – from marital property law to anti-discrimination law – even in a capitalist economic order. Courts, as he shows in his nuanced analysis of case law, are quite capable of balancing conflicting interests against the backdrop of broad equitable standards that require careful interpretation in specific context. I would add to this that some legal systems have even explicitly embedded the protection of private property rights in a normative order based on principles of human dignity as well as relational and social justice. As is well known, Germany’s Basic Law of 1949 provides that property confers not only rights, but also obligations. It further stipulates that the content and limits of property rights shall be determined by the legislature. Germany has put these principles into practice in the context of regulatory takings claims and by mandating that employees must be represented on the boards of large firms (co-determination).

Still, the constitutional fortification of these principles notwithstanding, they have been eroded over time – mostly as a result of unleashing legal and regulatory competition during the age of hyper-globalization (Rodrik 2011). Competition for legal rules, that is, the ability to pick and choose the rules by which one wishes to be governed irrespective of the ramification of this choice for others, may be one of the greatest dangers for a liberal order. Hanoch does not ignore the fact that we live in a world of plural orders, which facilitates the picking and choosing, but he might underestimate its consequences. For the most part, his analysis focuses on structural pluralism within a single polity—and as a genuine liberal he celebrates pluralism within the bounds of a liberal, other-respecting normative order. He conceives of markets as places for the free exchange of goods and services supported by a liberal property and contract regime, but says little about competition under conditions of a binding survival-constraint (Minsky 1986) that rewards selfish behavior.

In actually existing capitalism, property law is part of the essential tool kit for turning abundant resources into scarce assets, ready to be monetized and exploited for gain. As I argue in my book, this has been a powerful driver for the evolution of core features of private law over the past several centuries, including property law. Hanoch holds against this that a truly liberal order should not blindly endorse the private property rights of whoever has the best access to the patent office, courts, legislatures, or technology. It should afford only such rights that are commensurate with the value of a liberal property regime, namely individual autonomy, structural pluralism, and relational justice. It should also be open, I might add, to property rights that are cooperative and communal, whether or not they produce economic gain, or protect such rights in a head-on competition with claims that promise greater economic returns.

This accommodation, however, has not happened and will not happen within a capitalist order. The reason is that capitalism is itself rooted in an illiberal property regime. It is premised on private parties using the power of property the law confers on them to turn it into a means of extraction, and not only of labor, but also of social resources, including the financial safety nets that central banks provide, and even of law itself.

I agree with Hanoch about the desirability of a liberal property law and that such a regime is feasible not only as a theoretical proposition. Enough islands of liberal property law exist within the sea of capitalist, or illiberal property, law to imagine it. Yet, to succeed, a liberal property law would have to prevail in commerce and the economy at large, and the ability to opt out of it and its animating principles would have to be restricted. To protect itself against the forces of erosion, such a regime would have to deny the creation of new property rights for the sole purpose of creating scarcity and thereby securing personal gain. It would have to be embedded in a monetary order that makes money widely available to facilitate broad participation in free markets—of the kind originally envisioned by Knut Wicksell and more recently advanced by Robert Hockett. This new monetary order would have to discourage hoarding and excessive dependence on credit, the private money that places debtors into positions of structural dependence.

Moreover, it would arguably have to move beyond the good old common law as we know it. While we may find inspiration in the bottom up, decentralized process of legal innovation, historically, this process has favored the interests of capital, not relational justice. Judges, especially judges recruited from the bar (as is in the case in common law countries) cannot be trusted to advance a truly liberal property law on their own. At a minimum, their case law should be guided by legislative if not constitutional principles that balance that mandate a balancing of interests and rights with the goal of preserving individual self-authorship for all.

Lastly, such an order would have to extend beyond the borders of the liberal order itself. Hanoch argues that acceding to a property regime should be a voluntary act. A polity should therefore not have the power to unilaterally extend its regimes to others. But the same must hold for private parties; they should not be allowed to shop for illiberal property law elsewhere and enforce it back home. Further, the “property compact” that members of a truly liberal order enter into must therefore extend to outsiders as well. Members of a liberal order would have to commit not to avail themselves of illiberal property rights when dealing with strangers in foreign lands.

Only by shielding a liberal order from illiberal imports and by extending commitments to liberal values beyond its own shores can its foundational principles be sustained. It would take a dose of well targeted illiberalism, such as the recommendations above, to protect a liberal order that is true to its norms. Such an order could well be transformative and offer a third way between capitalism and socialism as we know them.

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