Excerpted from:

* Article: Rethinking Common vs. Private Property. By David Ellerman

David Ellerman writes, , on The fundamental brain-washing myth about private property:

* The medieval origins of the fundamental myth

The fundamental myth, accepted by both the Right and Left, is that the current economic system is founded on the “private ownership of the means of production” so that any basic changes would be a violation of “private property.”

The basic myth goes back to the old idea, prominent in the Middle Ages, that the governance or Lordship over people residing on and using the land was considered part and parcel of the Ownership of the land. As Maitland put it: “ownership blends with lordship, rulership, sovereignty in the vague medieval dominium,….” [Maitland 1960, 174] The landlord was the Lord of the Land. But then socialists and capitalists alike—each for their own reasons—carried over the idea that “Rulership and Ownership were blent” [Gierke 1958, 88] to the “ownership of the means of production.”

It is not because he is a leader of industry that a man is a capitalist; on the contrary, he is a leader of industry because he is a capitalist. The leadership of industry is an attribute of capital, just as in feudal times the functions of general and judge were attributes of landed property. [Marx 1977 (1867), 450-451]

Indeed, that bogus analogy is why the current system is called “capitalism.”

Note that the issue here is not whether the owner of property in land or capital has the legal right to exclude others and to make them trespassers if they use the property without the owner’s consent. The idea is that the ownership of land or capital carried with it the right of governance (in the case of land) or management (in the case of capital), and thus any alternative arrangement where the owners of land or capital were not in discretionary control would be a violation of those “property rights.” The Right uses this idea to defend the “capitalist” system, and the Left accepts the idea just as strongly and then concludes that these “private property rights” must be over turned in favor of the “social ownership” or “common ownership” of business enterprises. But, as we will argue:

this idea that “Rulership and Ownership [are] blent” is a myth even in the current system, the current system is not based on the “private ownership of the means of production” but on the institution for the voluntary renting of human beings (the employment contract),[3] and when private property is refounded on applying the responsibility principle to the products of labor, which would entail abolishing the human rental contract, that automatically implies that enterprises would have to be restructured as worker cooperatives or some form of democratic firm.

* Why the fundamental myth is only a (successfully brain-washed) myth

To see the fallacious nature of the myth, one only has to take a few seconds to consider the case where the ownership of the capital assets (e.g., machines, buildings, land, or other capital goods) stays the same but the assets are rented, leased, or loaned to another legal party who undertakes the productive process. Then the asset owner still has his ownership of the capital asset but has no ownership of the products or management rights over the process (which might include rented or leased assets from many owners). One would think this suppose-the-capital-is-rented-out argument would be easily available to people on the Right and Left who constantly use phases like “ownership of the means of production.” But the misuse of these phrases is ubiquitous and takes many different forms. Even if a person, perchance, understood the argument in one context, they may still make the same mistake in other contexts.

For instance, one way to state the point is that “residual claimancy”[4] is not a property right attached to the ownership of the “means of production”; residual claimancy is a contractual role determined by who hires what or whom in the marketplace. One would think that those who are much enamored with markets would take the trouble to understand the effects of market contracts. Those who unthinkingly talk about “ownership of the means of production” as if that ownership included residual claimancy are in effect acting like capital cannot be rented. But the characteristic feature of the misnamed “capitalist” economy we have today is not that capital cannot be rented—but that people can be rented.

In the earlier parallel development, as land became seen just as real estate property, the basis used to try to legitimate political Rulership became a contract of subjection.

– Then, when the question about Ownership had been severed from that about Rulership, we may see coming to the front always more plainly the supposition of the State’s origin in a Contract of Subjection made between People and Ruler. [Gierke 1958, 88]

Similarly, the basis for capitalist production (where capital may be rented) is the contract of subjection for the workplace, the renting of the workforce in the employment contract.

Thus in this people-rental economy, the legal party that ends up “being the firm” in the sense of the residual claimant is determined by which way the rental or hiring contracts are made, e.g., by the owners of capital renting people, by people renting capital from its owners, or by some third party renting both the people and assets involved in a productive activity.

When stated in this simple way, it is relatively easy to get agreement that capital can be rented and thus that residual claimancy is determined by the pattern of contracts so “residual claimancy” is not “owned.” But then people will turn around and commit the fallacy in other ways—particularly when the legal party undertaking a productive activity is a corporation. Then they misinterpret the ownership of the corporation as automatically including the “ownership” of residual claimancy in any productive activity using the corporation’s assets—as if a corporation’s assets could not be rented or leased out.[5]

But the ownership of a real estate company that owns a mall does not include residual claimancy in the stores that operate in the mall. Or the ownership of an oil company or cab company does not include the residual claimancy in the operation of the gas stations or cabs leased to independent operators. Depending on the contracts, a corporation can be just the owner of assets leased to other operators or it can be the operating company using those assets in a productive activity. Thus the residual claimancy in the going concern that uses capital assets owned by a corporation is not part of the ownership of the corporation but depends on the pattern of market contracts.[6] And it might be emphasized again that this is not a normative argument about what property should be; it is an argument about the current private property system that it is only a myth that the product and management rights are part of the “ownership of the means of production.”

* Common examples of the myth

Marx’s “ownership of the means of production,” indeed Marx’s notion of “capital,” which was used to misname the current system, was based on this fallacy. By “capital” Marx did not simply mean financial or physical capital goods (which Marx called the “means of labor”); he meant those goods used by wage labor with private ownership of the means of production and where the capital owner is the “firm” in the sense of being the residual claimant. Otherwise, “capital” becomes just the “means of labor.”

In short,

Marx’s “capital” = “means of labor” + “contractual role of being the firm.”

If one wishes to use the word “capital” in that Marxian sense, then one gives up being able to talk about the “ownership of capital” since there is no “ownership” of the contractual role of being the residual claimant. But Marx continued to talk about “capital” (in the sense that includes residual claimancy) as being owned in a linguistic move that might be called a “semantic straddle” (i.e., an invalid argument based on using the same word with two different meanings in different parts of the argument).

There is a similar ambiguity in the common language notion of “owning a factory.” There is the ownership of factory buildings (and the ownership of corporations with such assets), but there is no “ownership” of the going-concern aspect of operating a factory as that is a contractual role in a market economy (residual claimancy). If the owner of a factory building leased it to an operating company, then the factory owner would not be the “firm” or residual claimant for the business being conducted in the factory.

By using the same Janus-phrase “owning a factory” to straddle both meanings, one could seem to have an argument that the contractual role of operating a factory was “owned”:

“Owning the factory” = “Owning the factory building” + “contractual role of being the firm.”

For instance, when it is argued to many economists today that “owning the factory” (in the sense of operating it) is a contractual role, not an extra owned property right, the typical response is: “Yes, but it is that role which is called the ‘ownership’ role.” After thus using “ownership” to name a contractual role, they then straddle back to the old meaning and talk of “ownership” as a property right. If one wants to talk about the contractual role of residual claimancy as the “ownership role” then one loses the freedom to switch back to the other meaning of “ownership” as a property right. It is surprising hard for well-trained social scientists to resist this use of the same phrase with different meanings in the same “argument,” particularly when dealing with ideologically sensitive matters.

* The misformulated capitalism-socialism debate

This confusion as to what is involved in the ownership of the “means of production” is crucial to the misframing of the whole capitalism-socialism debate. The socialist side of the debate believes in the misframing as vehemently as the so-called “capitalist” side so that it will support their desired socialist conclusion that any non-capitalist mode of production must involve social if not government ownership of the means of production.

Even the debate about workplace democracy is similarly misframed as being about “social” versus private ownership of the means of production. For instance, the Yugoslav notion of the self-managed firm was based on an utterly muddled notion of “social ownership.” Many who defend economic democracy [e.g., Dahl 1985] still see the conventional firm as being based on the muddled notion of “private ownership of the means of production” (rather than the contract to rent human beings). Since they see the governance and product rights as being part of that “private ownership of productive property,” they see a “conflict” with democratic principles—which they would resolve in favor of democratic principles. Thus the democratic socialist position wants to “socialize” those non-existent property rights—particularly in corporations that are so big that they are in some sense already “social.” Thus the misframed debate about whether residual claimancy should be privately or socially “owned” misses the point that it is not owned at all. Being the firm is a contractual role, and the key institution in the misnamed “capitalist” system is not the “private ownership of the means of production ” but the voluntary contract for the renting of human beings.

The real debate is not about “socializing” private property but about the abolition of not just the voluntary self-sale contract but also the voluntary self-rental contract in favor of firms that generalize the family firm and self-employed business person to a larger scale where all the people working in the firm are its legal members. Far from socializing private property, that would for the first time base the appropriation (and termination) of private property in the products of labor on the just basis of the juridical responsibility principle.”