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 herehere 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.



Some arrangements of property rights are bad for growth. Because transaction costs are not zero, arrangements that impede transparency and clarity in definition and value are bad for growth. Is that a fair description?

It always puzzles me that people who expound a Hayekian view of loosely evolving knowledge by market participants - who claim not to endorse a more rigid Misesian value system - don't positively scream for laws that oblige all sorts of public pricing and wage setting, public Torrens-like titles, and self-evaluating trigger tax laws. Privacy in contract harms the provision of market knowledge, and yet we expect the dread State and its armed men to enforce these contracts. And the root of financial crisis begins there, doesn't it?

Do not the terms of a contract become public knowledge when the state is called in to enforce them? Are not most court documents open to the public?

What are public Torrens-like titles, and self-evaluating trigger tax laws?
And don't markets seem to do a reasonable job even without laws obliging all sorts of public pricing and wage setting and etc? Private parties do make money providing independent pricing information in some areas (eg Platts' energy prices), I don't see why you think laws are needed. I think you have a long way to go before you persuade me I should be screaming for this.

"It always puzzles me that people who expound a Hayekian view of loosely evolving knowledge by market participants – who claim not to endorse a more rigid Misesian value system"

I have read a fair amount of Mises and Hayek, but I have no clue what it means to say that Mises had a "rigid value system." Can you explain this?

Interesting idea. Although the property rights that existed might have been secure, they lacked intellectual property rights such as patents and copyrights.

And property rights for whom? What does it mean to say that "property rights were secure" when some part of the population is slaves, serfs, peasents, or share croppers? I can assert that pre civil war plantation ownership rights were secure in the south of the US, but in the context of legal slavery does that mean anything?

Does "security" in land rights mean anything if there is no security in tangible property, or rights of the person, and so forth?

And basing an argument for security on the basis of prices suggests that severly rent controlled properties are the most "securely owned" of all assets - does anyone actually believe that?

Acemoglu makes this point.

Wallace, North & Weingast's "Violence and Social Orders" has some good stuff on the transition from complicated feudal arrangements to fee simple property that we take as normal.

If Greg Clark or anyone else wishes to hitch their wagon to Medieval economics, by all means, take all the rope needed. I really don't want to read this book. The ground news is, it sounds like I don't have to.

I found the NYT's Benjamin Friedman's blurb on the Amazon link to be disturbingly stupid.

Also, Tyler seemed to give the book a nice endorsement. So... well played, New Guy!

Gregory Clark wrote "A Farewell to Alms" one of my favorite books (albeit his econ eugenics claims are a bit stretched) ranking right up there with William Easterly's books on Africa. As for medieval property rights, they were quite flexible in the late Middle Ages, as you could subdivide them so a 'lower ranked' vassal ended up with more power than the 'upper ranked' vassal that nominally controlled him. But serfs / slaves tied to the land were a form of property that inhibited innovation (like in population rich China) since it discouraged doing anything with a machine. Abolishing serfdom and slavery were necessary first steps to the Age of the Machine.

This is a GLARING hole in his thesis.

It also gets worse, because while you could own the property, what you could do with it was /severely/ restricted by the ban, and by the profusion of government granted monopolies. Furthermore, property was owned by the nobility.

Excellent point by Ray. Expanding on it, I can't see how a functional labor market would develop with such a large amount of the population tied to the land. Without a functioning labor market, there are not the incentives and mechanisms in place to move labor between sectors of the economy. It sounds like Clark has overlooked this point.

If public goods are so valuable, then we can likely afford to pay people for their property, or go around.

I have proposed the government use land options. If they want a right of way, they can buy these land options in an eye-shaped arc around starting point and desired destination. If the land is useful for such uses, then it is simply internalizing that value to the lucky or foresighted land owners. When they have enough options to complete their project, they execute the ones that work.

(not to mention, this gets you closer to what Obama calls "no-such-thing shovel-ready." So, Keynesians and rational expectations people, I will accept your praise and gratitude here.)

It's not about property (of land). At the beginning of the end of the sixteenth century, the state of Friesland suddenly alienated most of the (very extensive) land holdings of the Roman Catholic Church. This land was mainly used by farmers renting farmsteads - and the government did not infringe their use-rights. Frisian society was as market oriented as you can wish for, in this period. And it turned out that a revolutionary change in ownership rights which however kept use-rights intact did not impede the pattern of economic development. Not even a small dent. A mayor improvement in this time was however the broadening of the tax base enacted by Caspar the Robles (who literally had to hang some petty noblemen to do this) when, after the svere flood of 1570, money was needed to repair and, especially, enhance the dikes. The incentive of Caspar the Robles was his need to pay his soldiers for which he needed the money from the land tax which could only be levied when the dykes were repaired. He was kicked out after he improved the tax base and reorganized the dike maintenance organizations. For this improvement he even got a statue (a statue for a foreign opressor who increased taxes (and repaired the dikes)...). Don't trust your government. Be your government!

The land of the church (in fact: the cloisters):

Background information: http://www.abebooks.com/Lokkich-Frysl%C3%A2n-een-studie-naar-ontwikkeling/6243600778/bd

The statue: http://nl.wikipedia.org/wiki/Stenen_Man

Coase would understand. But you have to assume that political transactions costs are lower than private transactions costs to argue for a successful new political policy to make a difference.

As for England, no one mentions the War of the Roses and the ghastly struggles involved, or Henry VIII's religious prosecutions. The Tower of London didn't exist for common thieves. How secure was property and liberty? For that matter, the 100 years war with France didn't promote much property security either.

What about property rights in capital, stock, bank accounts etc? Most economic historians are fixated on real-property but capitalism requires protection of capital. When did that occur?

The most expensive items of households were often cattle and the hay stack or the amount of grain in storage or on the land (in the case of farmers) and... beds. Cettles Houses were for a long time 'persihables', at least until they were made of bricks (this is the Netherlands I'm speaking about). Probate inventories however show that from the sixteenth century on people increasingly owned 'petty debts' (and owed petty debts) - this was very much a credit based economy, not a coin based economy. This was mainly protected by social ties. It's difficult to steal petty debts owned by a shoemaker. People however also started to amass earthenware, pewter, copper and whatever - as a store of value. Very slowly, beds lost their prominence as the most expensive capital good owned by many households. Stock, bank accounts and the like come much, much later. I'm still searching for a good book about these beds. Also - one of the defining (not less!) elements of 'modern economic growth' seems to have been that, in the long run, houses became ever more expensive and durable. And capital - well, government bonds of (parts of) the United Provinces of the Netherlands were often kept at home.

What an anachronism. The World Bank does not score for pressgangs, indentured servitude, or many other features of medieval England that no longer obtain in the 21st century.

Press-gangs & indentured servitude were features of colonial America. Medieval europe had serfs and the peasant levy.

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