When are ‘secure’ property rights bad for growth?
Greg Clark has argued that private property was secure in medieval England on the basis that
‘Medieval farmland was an asset with little price risk. This implies few periods of disruption and uncertainty within the economy, for such disruption typically leaves its mark on the prices of such assets as land and housing’ (p 158).
And on the basis of low taxes in medieval England, he goes on to claim that:
‘if we were to score medieval England using the criteria typically applied by the International Monetary Fund and the World Bank to evaluate the strength of economic incentives, it would rank much higher than all modern high-income economies—including modern England’ (p 147) . . . If incentives are the key to growth, then some preindustrial societies like England had better incentives than modern high-income economies. And incentives may be much less important to explaining the level of output in economies than the Smithian vision assumes’ (p 151).
Even if most would not go so far as Clark, many economic historians now argue that property rights were secure in late medieval and early modern England, and that some property rights actually became less secure after the Glorious Revolution. Drawing on the work of Jean-Laurent Rosenthal, Dan Bogart, and Gary Richardson, Bob Allen summarizes these findings as follows:
‘Growth was also promoted by Parliament’s power to take people’s property against their wishes. This was not possible in France. Indeed, one could argue that France suffered because property was too secure: profitable irrigation projects were not undertaken in Provence because France had no counterpart to the private acts of Parliament that overrode property owners opposed to the enclosure of their land or the construction of canals or turnpikes across it’
See here, here and here for links to the academic work that underpins these claims. For the sake of argument let us agree that they are correct. What does this finding mean?
It does not mean that insecure property rights are good for growth.
It does mean that feudalism was bad for growth.
The property rights that Clark and others describe as being secure in medieval Europe were feudal property rights. Feudalism structured ownership rights in such a way as to channel rents to the king and the military elite. Feudal property rights were designed to maintain concentrated holdings of land, large enough to support feudal armies. Feudal laws limited land sales that would break-up large estates and bundled together rights over land with rights over individuals.
In a market economy, where rights are clearly defined, assets will be allocated to their highest-value user so long as transaction costs are not too high. In this type of environment protecting asset holders from expropriation provides the best incentives for investment and growth. But this was not true of the medieval world.
What Bogart and Richardson establish is that these feudal rights impeded efficient land use in England and made it difficult to organize the provision of public goods. They show how Parliament in the 18th century was able to rewrite and override existing property rights. Their work suggests that given the initial allocation of rights and the extremely high transactions costs associated with feudal land law, a reconfiguration of property rights was necessary for economic growth to begin.