The Adaptability of Property Rights

by Andy Hanssen, PERC Lone Mountain Fellow

What Naomi Lamoreaux has termed “The Mystery of Property Rights” has two aspects. On the one hand, secure and stable property rights are essential to economic development and growth. On the other hand, a set of property rules that cannot evolve in the face of technological and social change may be unable to adapt in ways that facilitate progress.

In this context, consider the United States. The United States is an economically successful country with well-respected enforcement of property rights – so much so that it serves as a destination for capital fleeing less stable regimes. Yet the United States also has a record of making abrupt alterations to property rights (creating losers as well as winners) in the face of new technologies and/or the availability of new resources.

When a parcel of land is taken via eminent domain for a “public use,” its owners are entitled to “just compensation.” These two requirements (public use and just compensation) are written into the U.S. federal constitution and the constitutions of most states, and ostensibly check the ability of governments to take private property. In fact, each requirement has proven sufficiently malleable so as to allow a broad range of takings. Although debates over the proper definition of public use have generated controversy, unhappiness with how just compensation is determined has also sparked much concern. That unhappiness became particularly pronounced in the 19th century when a practice known as the benefit offset was employed (see Fleck and Hanssen 2010).

The idea behind the benefit offset is simple: If an owner has land taken for a public use via eminent domain and the value of the remaining land rises as a result, the taker can “offset” required compensation by that rise in value. For example, assume a farmer loses 10 of his 100 acres to a railroad, the pre-railroad price of farmland is $100 per acre, and the price rises to $105 per acre when the railroad lays its line. The farmer is due compensation equal to $1000 (10 x $100) for taken land, less $450 (90 x $5) for the increase in the value of the remaining land, summing to a net payment of $550.

The benefit offset was one of several “expediting doctrines” used to promote public infrastructure projects – highways and canals – in the early 19th century. The “expediting” was justified by the alleged importance of the projects to the general public.

The benefit offset was also used to subsidize railroad building. Why subsidize railroads, and if doing so, why use the benefit offset?

Various explanations for a subsidy are possible, but holdup problems were likely to have been of concern. Infrastructure projects entail large sunk investments, with returns generated over a period of years. Nonetheless, the benefit offset seems a roundabout form of dealing with a holdup problem. One possible explanation is that the benefit offset enhances the incentive to choose the most valuable route (in terms of willingness of shippers to pay).

Rail rates (as with rates for canals or highways) were regulated, which may have prevented companies from capturing the full value of a line through pricing (this would be a form of holdup). As a result, a rail company will choose the cost-minimizing route, which may not be the value-maximizing route as landowners are concerned. The benefit offset may have helped overcome this problem.

As Lone Mountain Fellows at PERC this summer, Robert Fleck and I are taking a closer look at this issue. By examining how the benefit offset was used and when it changed in different states, we highlight factors that underline the adaptability of property rules—but which don’t threaten the security promised by the property regime.

 Andy Hanssen is a 2012 PERC Lone Mountain Fellow and an associate professor of economics at Clemson University. He is the co-author, along with Robert Fleck, of the 2007 PERC Policy SeriesDo Profits Promote Pollution? The Myth of the Environmental Race to the Bottom.”


Lessons From the Old West: The 150th Anniversary of the Homestead Act

On May 20, 1862, Abraham Lincoln signed the Homestead Act, an effort by the U.S. government to make 160 acres available to anyone who would move to unclaimed territory, build a cabin, farm the land, and live there for five years. Eventually 270 million acres were privatized by the process, ushering in the great era of “free land.” Now, 150 years later, we have the opportunity to look at homesteading as it actually worked.

Throughout the nineteenth century the federal government was committed to disposing of the vast acreage that it owned. The privatization process was important for the growth of the market economy. But the homesteading process was a wasteful way of creating private rights, and the land sales that preceded homesteading were a much less wasteful method.

There were several problems with the original Homestead Act and its subsequent alterations. The original provision of 160 acres was insufficient for agriculture in the arid west, and even when it was expanded to 320 acres in 1909 and 640 acres in 1916 it still did not provide enough acreage to support a family in most of the places where people settled. In fact, only 40 percent of those who started the homestead process were able stick it out and finalize their claims.

An even more important lesson is that it is very difficult for the government to give away almost anything for free. In the case of homesteading, much of the land available was beyond the “profitable frontier,” the point at which the lack of a market for agricultural products made settlement unprofitable. But settlers knew the land was going to be valuable at some point in the future so they raced into the West, making their claims as early as they possibly could in order to have secure property rights when the returns from the land turned positive.

People bid for the land not with money but with wasted resources, the time and effort they put into “proving up” their claims in anticipation of future profits. Many families suffered years of deprivation trying to eke out a living until they could make their claim profitable or, once they had established property rights, buying out someone else in order to obtain an operation large enough to survive.

Think of what would happen if your institution announced that it was running a budget surplus and that on June 1st $1000 would be given to the first 20 people who lined up outside the CFO’s office. People would calculate how much time they could spend standing in line in order to get $1000 and, in the limit, $20,000 would leave your organization’s coffers. But almost no benefit would be bestowed on the recipients. People would be quite willing to spend $900 of their time in order to get $1000. Some would spend $999.

The other problem with the homesteading process was that it was so costly and difficult to use that much of the western United States remained as public lands. Today, more than half of the land in the West is under federal ownership. These lands have been subject to environmental and financial mismanagement, as documented by PERC’s Holly Fretwell.

Thus the Homestead Acts had two unfortunate results: 1) the process was an unduly costly way to dispose of federal lands and 2) because of the unworkability of homesteading much of the land was never privatized.


Lessons From the Old West: Don’t Ban It, Brand It

Last Saturday was roundup and branding day at my ranch in the Madison River Valley, about 20 miles west of Bozeman. Neighbors came to help and I put the P J (my registered brand) on the left side of my calves. As I carefully placed the irons on each calf (yes, they are hot, and yes, there is short term pain but it seems to subside quickly) I was reminded of why branding came to work so well in the West.

In the old West a statewide registration of brands developed rapidly. Often a brand registration system was one of the first pieces of legislation a territory would pass (for more details, see Anderson and Hill’s The Not So Wild, Wild West). Those registrations continue today. You can go to the Montana Brand Registry and find that if a cow has a P on the left rib and a J on the left hip, that cow belongs to the P J Ranch. Or, a PJ on the left shoulder of a horse establishes my clear claim to that horse. I can issue you a bill of sale if you buy one of my horses or cows, and that serves a proof of a legitimate transfer of rights.

This system works well for the people in white hats, my neighbors who want to know who a stray belongs to, and against those in black hats, the rustlers who might want to steal my livestock. The state maintains the registration and enforces ownership claims. And I can use the existing court system to enforce my property rights.

Branding cattle and horses carries important lessons for environmental problems, namely that we should move towards greater branding of transitory resources, particularly air and water. This would help both the white hats, people who behave responsibly, and constrain the black hats, the villains that dump their waste on other people’s property. PERC has outlined how this can be done with marine fisherieswater markets, and other resources, but, unfortunately, environmental regulations have focused more on command and control than on lowering the costs of measuring and monitoring pollution. If only a fraction of the money that is spent on formulating, enforcing, and complying with environmental regulations was devoted to developing branding technology we would be much better off.

Atrazine is a common chemical used to control broad leaf weeds. Its widespread application in the Midwest has caused concern over its presence in drinking water. Should atrazine be banned, as it has been in most of Europe? Used correctly, atrazine is a cheap way of lowering the cost of food production. Instead of banning it, why not brand it? One could require every user to of atrazine to have, at the time of purchase, a particular tracer placed in his or her container of pesticide. A registration of users would be maintained by the state. Then if levels of atrazine in drinking water exceed a specified level, those harmed (and proof of harm is an important part of common law remedies) could take those responsible to court.

Of course the use of tracers must be coupled with a common-sense understanding that “the dose makes the poison.” We now have the ability to measure extremely minute amounts of potentially harmful chemicals in our air and water. The fact that atrazine may be measured in ground water doesn’t necessarily mean harm has been done. If one of my cows sticks her head through the fence and eats a mouthful of grass, I may owe my neighbor a couple of pennies. But my neighbor shouldn’t be able to shut down my entire ranching operation.

Notice that branding doesn’t remove the state from the scene, but instead focuses its coercive power on the definition and enforcement of property rights, which penalizes those who act irresponsibly and rewards those who don’t infringe on the property rights of others. Having my cattle branded reduces the transaction costs of running a responsible ranching operation. Branding pesticides and herbicides would have the same positive effect on environmental quality.


Between a rock and a hard place: The Mining Law of 1872

by Brennan Jorgensen

In the New York Times, Robert M. Hughes and Carol Ann Woody call for the end of the Mining Law of 1872 as a means to protect fragile ecosystems from invasive mining practices. They cite the Environmental Protection Agency’s estimates that headwater streams in 40 percent of Western watersheds are polluted by mining.

Originally established in response to the California Gold Rush, the Mining Law allows United States citizens and firms to explore for minerals and establish rights to federal lands without authorization from any government agency. The only cost to mining companies is an annual $100 holding fee for each claim, with a maximum claim size of 20 acres. Claimants may then acquire outright title to the land by obtaining a patent, at a per-acre cost of $2.50-$5. Mining firms do not pay royalty taxes on the minerals taken from federal land.

While environmental activists call for the end of the Mining Law and stricter regulations on mineral exploration and development, a PERC Policy Series by David Gerard offers a more comprehensive summary of the problem, as well as an alternative solution:

Reform advocates often imply that since the Mining Law contains no environmental protection measures, mining is unregulated. Of course, this is not the case. Mining activities on federal land are subject to federal, state and local regulations for air and water quality, solid waste, public safety and fire control. The Forest Service and BLM have their own regulations. Although regulations such as the National Environmental Policy Act, the Clean Air Act, and the Clean Water Act are not mining-specific, mining firms must comply with them.

Hughes and Woody claim that the mining industry’s track record on environmental protection, “hardly inspires confidence,” but as Gerard points out, the majority of environmental degradation is a byproduct of abandoned sites, which were mined before environmental regulations went into effect.

While environmentalists speak as though polluters should be liable for the harm they cause others, a number of deficiencies in federal laws violate this principle. These deficiencies are not found in the Mining Law but, rather, in environmental laws such as Superfund and the Clean Water Act. In particular, the requirement that mining companies take on responsibility for others’ damages is hindering cleanup, not helping it. Superfund and the Clean Water Act are keeping both mining companies and state governments, which have an increasing role in environmental-protection matters, from active reclamation of abandoned sites.

The Mining Law as it now stands is not without merit. The holding fee was enacted in 1992 under the Clinton Administration, which cut the number of claims reported to BLM from one million each year down to an estimated 340,000. Additionally, the holding fee allows claimants to hold marginal sites in anticipation of changing market conditions. “Market forces rather than a statutory time constraint may determine if and when production begins,” writes Gerard.


Q&A with Steven Medema on the Coase Theorem and Environmental Economics

There has been plenty of confusion surrounding the work of Ronald Coase since his article “The Problem of Social Cost” appeared in 1960 – so much, in fact, that two scholars wrote in 1992 that the so-called Coase theorem has “generated a negative externality for economists.” To clear up some of the confusion, we talked with Steven Medema for the next installment of PERC’s Q&A series.

Few know more about the legendary economist and his impact on economic thought than Steven Medema. He is the author of many books and scholarly articles on the history of twentieth-century economics, with an emphasis on the work of Ronald Coase. His latest book, The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas, was awarded the 2010 Book Prize by the European Society for the History of Economic Thought.

Medema is a professor of economics at the University of Colorado Denver and a 2011 PERC Lone Mountain fellow. For more of PERC’s Q&As, see the series archive.

Q: Ronald Coase’s 1960 article on “The Problem of Social Cost” had a tremendous impact on economics, including PERC’s work on free market environmentalism. What is the “Coase theorem” and how has it evolved in economic thought?

A: The Coase theorem tells us that if property rights over the relevant resources are well-defined and the costs of transacting are zero, parties who disagree over the use of those resources will negotiate to an efficient solution, regardless of to whom the property rights are assigned. The upshot of the theorem is that private negotiations or other market-like processes can efficiently resolve social cost (“externality”) problems such as those associated with air and water pollution. Of course, transaction costs are never zero, and much of the discussion of the theorem over the years has attempted to work out the possibilities and limitations of negotiated solutions when transaction costs are positive. Though much of the early reaction to the theorem was negative, the discussion has evolved into one that focuses somewhat less on the theorem per se (that is, with its highly restrictive assumptions) and somewhat more on departures from these conditions and how Coase-theorem-like processes may be operative under more realistic conditions.

Q: Over the years, people have come to refer to a hypothetical world of zero transaction costs as a “Coasian world.” Is this view accurate?

A: Those who refer to such a world haven’t read Coase very closely. The world of zero transaction costs is a fiction—but a sometimes useful fiction, not unlike a vacuum in physics. It was also a bedrock assumption of mainstream economics for ages, including of the economics against which Coase was reacting in “The Problem of Social Cost.” What Coase showed was that, in the world of neoclassical economics, government regulation was unnecessary for an efficient resolution of social cost problems. If property rights are assigned over the resources in question and there are no costs of transacting, the parties will efficiently resolve the problem through negotiation. So, Pigovian remedies are unnecessary in a Pigovian (costless transacting) world. But Coase’s emphasis was on the fact that the costs of transacting are not zero, and nor are the costs associated with government action to deal with social cost problems. The evaluation of how society should deal with such problems thus involves a comparison of the benefits and costs of alternative courses of action—including the possibility of allowing the problem to persist if the costs of “curing” it are worse than the disease itself.

Q: We hear a lot about the Coase theorem in environmental economics. How has the Coase theorem impacted discussions of environmental economics and environmental policy?

A: I think that its central impact has been in the way of making scholars—and later policy makers—aware of the possibility of using the exchange process to deal with social cost issues. Of course, the Coase theorem is an idealized construct that does not reflect the world in which we live. But by showing how property-rights-based solutions can generate private, efficiency-enhancing moves, the theorem opened the door to the subsequent analysis of exchange solutions in the real world, and thus to both theories and policies that employ such a framework.

Q: You suggest that the Coase theorem is widely recognized among environmental economists and taught in most textbooks, yet its relevance is often viewed as extremely limited. Why is this so? Why then are so many environmental economists interested in Coase?

A:  My sense is that most environmental economists see Coase as important because he emphasized that social cost problems are ultimately problems related to incomplete property rights. This makes Coase’s analysis the natural starting point for the analysis of social cost issues. The rub comes in where one goes from there. Some continue to hew to what we might call a “Pigovian” line—emphasizing that regulatory mechanisms or taxes are necessary to correct the problem—while others are more interested in exploring whether markets or market-like mechanisms can be utilized to resolve the problem. But there is broad general agreement that social cost problems have their roots on the property rights side, and this viewpoint owes to Coase.

Q: Discussions of environmental economics often center around externalities. Coase avoids this term. How has Coase’s work influenced the way we think about external costs?

A: My sense is that, at a minimum, he impressed upon some that social cost problems, or externalities, are reciprocal in nature. One can view this in two ways. First, it takes two to tango. That is, if A is generating smoke that harms B, B may be said to be as much the “cause” of the harm as A, since B could mitigate damages by, e.g., moving away. Second, A may be imposing harm on B, but to restrain A’s activity in favor of B is to impose harm on A. Some see this as a “right-wing” sort of point, but it is not. It actually has a long history in jurisprudence and was held by none other than J.R. Commons, a prominent Institutionalist economist and Progressive in who worked during the first half of the twentieth century. But value judgments often get in the way of sound reasoning when it comes to things like externalities, so not everyone has gotten on board with Coase’s notion of reciprocity.

Q: Critics of Coase often contend that transaction costs in markets are too high for Coasian-type bargaining to occur: negotiations can be costly, multiple parties can be affected, and information is diffuse. This is no doubt often the case, yet transaction costs are also present in the political process. How do these costs affect the way we understand Coase’s relevancy to environmental policy?

A: If one adopts an efficiency-based perspective on these things, the point to be taken is that there is no such thing as a determinate optimal solution to social cost problems. One can only come to grips with these things on a case-by-case basis, weighing the benefits and costs associated with alternative courses of action and recognizing that both markets/exchange and government activity have associated with them certain costs—often substantial. Coase is not about the Coase theorem; he was a strong advocate of comparative institutional analysis and that, at a minimum, economic benefits and costs have an important role to play in evaluating policy options. With this came a great concern about the costs associated with government action—costs that he (rightly) believed had been underplayed or ignored in the theory and practice of social cost policy.

Q: Why are concerns about equity so prominent in environmental discussions of Coase?

A: Probably because Coase focused so heavily on efficiency. But there was good reason for this—it was the language in which the welfare economics of social cost issues had been discussed for a half-century. And as we all know, there are plenty of occasions when the dictates of efficiency collide with some people’s sense of what is “right.” The very possibility that the “victims” of pollution should bribe the factory owners to reduce their pollution levels is anathema to many. Interestingly, though, Coase talks about larger concerns (“aesthetics and morals”) toward the end of “The Problem of Social Cost.” But since most readers failed to pay attention to his arguments beyond the Coase theorem material (the first 15 pages of a 44-page article), they didn’t seem to notice this.

Q: What can we take away from Coase’s work and apply to the area of free market environmentalism?

A: I believe that there are two key insights. The first is that markets/exchange can work to resolve certain social cost issues. The question is which ones, and this can only emerge from careful and patient study. The second is that neither markets nor government are panaceas. Both generate imperfect solutions, and the question is that of which of these imperfect solutions is best for dealing with the problem at hand. This, too, can only be determined from careful and patient study. Unfortunately, too many economists and policy makers do not want to hear such things. But “create markets” or “we need government to solve the problem” takes us nowhere. These are difficult problems, and we seldom find that difficult problems have easy solutions.


Feeding More From Less

Halloween marked a new population milestone with the birth of the seven billionth person — an idea that is scary for some but sanguine for others. Worried about the finite resources available to a growing population, there is fear among some that we are headed toward famine and starvation in a world where population exceeds the earth’s carrying capacity.

A similar concern was demonstrated by Thomas Malthus 200 years ago. Population grows exponentially, Malthus explained, while food production grows at the slower arithmetic rate. Everything else the same, starvation would be indisputable.

Everything else is not the same. Crop yield is not constant, it has increased (see chart). The United States provides a good example of how population and food production have grown in a region with a strong rule of law. While corn yield has doubled nearly every ten years over the past half century, it took the population 36 years to double. At current rates of growth, it will be the next century before population doubles again. The growth in yield for other crops, such as wheat and rice, has also exceeded population growth rates (data here). In the end we are growing more food on less land, feeding ourselves and helping to feed the world.

Adapted from Environmental Trends.


Don’t Bother with “The Darwin Economy”

I purchased The Darwin Economy: Liberty, Competition, and the Common Good by Robert Frank thinking I would learn something. I did. I learned that I should not have purchased it.

Frank takes a very simple game theory used to explain the arms race (and naively applies it to elk antlers, arguing that one elk grows big antlers and gets all the cows so that others must also grow such big ones to compete), applies it to market competition, and concludes that competition can lead to bad things for the group as a whole.  In the case of elk, he claims that large elk antlers make elk as a species worse off because the antlers make it difficult for the bull elk to run through the woods and therefore more susceptible to wolf predation; obviously he has never seen a bull lay his head back so that the antlers are tucked neatly against his back and ribs and run through the thickest trees; never seen a bull use the antlers for defense against wolves; and doesn’t ask how it is that elk are thriving by moving to more open spaces in the presence of wolves–spaces which they occupied before human pressure moved them to the mountains. Finally, Frank argues that taxes can fix the problems–and yes, of course, most importantly the problem of global warming. No data, no theory, no knowledge of wild species, but lots of rhetorical arguments.

Save your money, and if you get a complimentary copy, save your time by not reading it.


Q&A with Claire Priest on the Origins of American Property Law

This week we sat down with Claire Priest, Professor of Law at Yale Law School. Her expertise is in the area of property and American legal history. Her current book project is titled Creating an American Property Law, and examines the evolution of property and inheritance law in America from 1650 to 1820 through the lens of credit and financial markets, slavery, and debtor/creditor relations.

Claire visited PERC as a 2011 Lone Mountain Fellow. We thank her for taking the time to answer our questions. For more of PERC’s Q&A series, visit the archived Q&As here.

Q: Your book project provides a new account of the evolution of property law in early America. What will your book emphasize that other historical scholarship has not focused on?

The role of property in historical accounts has generally related to the ideological revolution taking place during the Founding Era of the United States. The political leaders of the Founding Era believed that dismantling vestiges of aristocracy was crucial to the success of a republican society. They emphasized the need to make property in land dynamic and available in the market, rather than having the legal system protect stable landholding by an aristocracy. Historians have traced the path of republican views from the colonial era forward, to demonstrate the republican underpinnings of the Revolution.

I focus on a wider range of issues. In my view, the central force shaping property law in early America from the earliest years of colonization was the desire to use land and other assets, such as slaves, as collateral for the purpose of obtaining credit. The colonists brought English law and legal traditions with them but reformed those laws to adapt to the new conditions present in the colonies. Reforming the law to encourage credit markets was a major trend. One reform was to legally define land as a “chattel” commodity when creditors’ interests were involved. This allowed more stream-lined processes to be used when creditors tried to seize debtors’ land in the case of default on a debt. In addition, in contrast to England, in the American colonies, creditors were given legal priority to land over the landowner’s heirs during inheritance proceedings. Colonial courts and land recording offices also innovated by making title interests and the claims against those interests publicly accessible. Credit markets in the American colonies were robust.

Unfortunately, strong credit markets encouraged the expansion of slavery, a form of labor that depended on upfront payments of money. Slaves were often purchased on credit and themselves became a primary form of collateral in credit agreements. I believe this story is very important to our history.

Q: How did the emergence of these laws and institutions relating to property in early America affect the way we view property rights and law in modern America?

A:  We take it for granted in America that credit is easy to come by and that we will receive financing for purchase of assets from cars to homes. Filing a financing statement to use chattel goods as security is inexpensive and easy. In many countries, however, the institutions and courts are costly and time-consuming to navigate. I have been interested in how history might explain the vastly different legal environments around the world today.

I also think the history is closely related to the insights of PERC:  being able to use property rights to achieve conservation outcomes requires a system that is flexible. To give a prominent example, markets in carbon credits are now well-established in our country. Where did the flexibility in the system come from that allows trading in a good like carbon emissions? [Read more…]


2,000 Years of History in One Chart

This chart from The Economist is worth staring at for a while:

The vertical axis is the percentage of total economic output or person-years lived over the past two millennia. According to the chart makers:

By this reckoning, over 28% of all the history made since the birth of Christ was made in the 20th century. Measured in years lived, the present century, which is only ten years old, is already “longer” than the whole of the 17th century. This century has made an even bigger contribution to economic history. Over 23% of all the goods and services made since 1AD were produced from 2001 to 2010, according to an updated version of Angus Maddison’s figures.

In other words, in terms of years lived, one third of post-1AD human history has occurred since 1900, and more than three quarters of total economic output. What accounts for this phenomenon? Matt Ridley’s latest book, The Rational Optimist, provides a great explanation. (Hat tip to Mark Perry)


The Non-tragedy of the Bison Commons

M. Scott Taylor, in a forthcoming article in the American Economic Review, provides important evidence about the driving force behind the rapid killing of bison on the Great Plains between 1870 and 1883. Taylor’s explanation of the rapid expansion of foreign demand for hides because of technological innovations in tanning is convincing.

Taylor uses his empirical evidence, however, to draw incorrect conclusions about the role of property rights, or the lack thereof, in the slaughter of the bison. In his introduction he states, “The theory shows how the combination of an innovation in tanning, fixed world prices for hides, and open access proved fatal to the buffalo.” And in his conclusion he even draws lessons for developing countries when he argues:

The Slaughter on the Plains tells us that putting development before environmental protection can be a risky proposition: in just a few short years, international markets and demand from high income countries can destroy resources that otherwise would have taken decades to deplete.

The crucial question is the role of property rights in the near-extermination of the bison. He falls into the trap of many economists who think that the killing of most of the bison is a good example of the tragedy of the commons, or more accurately, the tragedy of an open-access resource. This argument depends importantly on what would have happened to the bison if the hide market had not existed.

The research that I have done has a very different implication (which Terry Anderson and I discuss in our book The Not so Wild, Wild West). While the demand for hides did speed up the process, something that Taylor acknowledges, the killing off of most of the bison was not because of the open access nature of the property rights institutions. In fact, a strong case can be made that, even if settlers would have been able to establish clearly enforceable property rights to bison, they would have eliminated most of them anyway. This conclusion is driven by the fact that, as the West became settled, grass was the main Great Plains resource that was valuable. And, those who had property rights to the grass needed a way to convert it into a marketable product. Bison were efficient convertors of grass to meat, but the costs of marketing that meat was extremely high. Cattle were a much better alternative.

I have estimated that in 1870 it cost approximately 30 cents per ton-mile to deliver bison meat to a railhead, while the comparable cost for cattle was 1.67 cents. The significant factor in the price difference was the relative ease of trailing cattle long distances quite easily; bison cannot. Ten cowboys could trail 3000 head of cattle. Ten cowboys could hardly herd ten bison to a common point.

Cattle were rapidly moving onto the plains during this time period and came to represent a much more viable way of securing a marketable product in that they ate the same grass as their major competitor, the bison. By 1890 there were more cattle on the High Plains than there were bison in 1870.

Without the hide hunters it is not clear what the mechanism for removing the bison would have been, but the 10 million that existed in 1870 were doomed because of the economics of meat production. Thus hide hunting may have speeded the process up, but the fact that it occurred rapidly is not a “tragedy” in the sense of the economic waste that such statements usually imply. In fact, because hides were valuable meant that at least some economic gain existed from the slaughter of the bison. In the absence of the hide market, bison would, in all likelihood, simply been killed and left to rot.

The other interesting aspect of Taylor’s argument is his recognition that entrepreneurs were important in saving bison. Although the population dwindled to about 1000 head, today there are over 500,000 in the U.S. and Canada. It is true that, as bison numbers declined certain individuals perceived the importance of saving some of the species. It would appear, however, that they were not motivated by the prospect of marketing bison meat, but rather by the amenity value of the species. We can be grateful for a few ranchers with enough entrepreneurial vision to preserve some of the species, but there is no evidence that they thought bison meat was valuable enough to cover the much higher costs of production and market compared to cattle.

Of course the advent of the tractor-trailer for hauling bison in the 1930s lowered the cost of getting the meat to market, and there has developed a niche market to support a few bison herds in the U.S.

We should be grateful for Taylor’s work in providing a more complete understanding of the evolution of the hide market, which did speed up the killing of the bison. But one should not see that slaughter as an example of the tragedy of an open-access resource.


Tribute to P.J. Hill

There are a few very special teachers of economics.  Paul Heyne was one.  Ken Elzinga is another. And PJ Hill is another.

That’s Pete Boettke commemorating the teaching career of PERC’s very own P.J. Hill, who is retiring from teaching at Wheaton College this week. Here is an excellent tribute to Prof. Hill written by a former student.

In honor of P.J.’s celebrated teaching career, here are some of P.J. Hill-related readings:


New in PERC Reports: Barbed wire entrepreneurship

By Daniel K. Benjamin 

Joseph Glidden transformed the American Plains. In 1874, Glidden patented the first practical design for barbed wire. The invention dramatically reduced the costs of separating cattle from crops and thus the costs of enforcing property rights to land. Farmers and historians have long been aware of the qualitative importance of barbed wire, but recent research by Richard Hornbeck (2010) makes clear the pivotal role of the invention in the late 19th century settlement of the American Plains.

Cattle wander, and without effective fencing they are so destructive to neighboring crops that cattle and crops cannot coexist. The early colonies adopted legal codes that required farmers to fence out others’ livestock. Without a “lawful fence” a farmer could expect no compensation for damages done by wandering livestock. New states entering the Union continued this legal tradition.

As a practical matter, if farmers wished to protect their crops, fencing was a necessary—and substantial—investment. In 1872, the value of the fencing capital stock in the United States was roughly equal to the value of all livestock. Equivalently, the value of the fencing stock was as great as the national debt or the value of all railroads in the United States. In fact, annual fencing repair costs exceeded the combined tax receipts of all levels of government.

Continue reading at…