§ 1. The place of private property. § 2. Nature of property. § 3. Relation of wealth, property, and capital. § 4. Some theories of private property. § 5. Origin vs. justification. § 6. Limitations of private property. § 7. Limitations of bequest and inheritance. § 8. Social expediency of private property. § 9. The monetary economy. $ 10. The competitive system. § 11. Limitation of competition by custom. § 12. Effect of modern forces upon custom. § 13. Adam Smith's influence. § 14. The wage-system.

§ 1. The place of private property. Of fully equal importance with material wealth in determining the economic power of a people is the social system under which the nation lives. This is the term applied to the whole complex of institutions and arrangements in which and by which people live together in society. It is the embodiment of the opinions, ideas, and habits of life inherited by each generation from its forebears. It is, indeed, a people's whole state of civilization, with its political, economic, intellectual, scientific, religious, and esthetic aspects.

The most important economic aspect of the existing system is, broadly speaking, the institution of private property. So closely connected with this that they are hardly more than different phases of the same thing are the use of money (the monetary economy), the wage system, and competition as a mode of distribution. "The institution of private property" is the general expression for the way in which men in the modern state make use of their own energies and of material wealth within the nation. We live in a regime of private property, and all our economic problems are affected by that fact. The determination of the exact boundaries of private property makes up a large part of the politico-economic problems which the people in each generation have to solve. A large share, possibly, in a certain sense, every one of the economic problems that are discussed involve change, limitation, definition, or, more radically, abolition of present laws of property. Broadly understood, as above, therefore, determination of the nature of private property is the essential problem in economic legislation.

§ 2. Nature of property. Property means ownership, and ownership is the abstract noun expressing the quality of possessing a thing. Correspondingly, owner is the Anglo-Saxon equivalent of "proprietor." Property thus, fundamentally, means, not an object held or possessed, but the right in or belonging to a person to control something that he owns. Ownership is a legal right to control under certain conditions.1 Physical possession of an object is not necessarily ownership.

The law makes between property rights and equitable rights some subtle distinctions, which have their reason in the history, if not in the logic, of the law, but which are not essential to economic discussion. In some states this distinction has been in large measure abolished. What interests us are the rights (claims) that men have to the control of wealth and services, whether by technical law these are called legal or equitable, and this right is what is meant by "property" in our discussion of it.

There are different kinds of ownership. It may be private, as that of individuals, families, partnerships, or corporations; or it may be public, as that of nations, states, counties, cities, and towns, owning such things as public buildings, parks, highways, the Adirondack forest reserve, or the Erie Canal. These two kinds are equally effective as against the claims of outsiders, but the rights of those inside the circle of ownership differ. For example, the rights of one shareholder against another, or the rights of one member of a family as against another, are not the same as the rights against outsiders. Private property is the characteristic feature of our present industrial society, but it exists side by side with public property and with many intermediate grades between private and common property.

1 See Vol. I, pp. 264-267.

Though property meant originally and essentially the intangible right to a thing, the word came to be applied also to the object of the right. This is done both in common speech and in judicial decisions, with inevitable ambiguity. This may be readily seen by trying to substitute the word ownership for property, a thing quite simple in some cases but impossible in others. One would not point to a house and say, "This is my ownership," but either, "This is my property," or "I exercise ownership over it." It is well recognized that a man may have a property right in this abstract sense in or over his own services, as to practise a trade or in the "good will" of a business, or in an intangible patent or a copyright, quite as well as in a material object.

§ 3. Relation of wealth, property, and capital. A failure to see this distinction and to keep it clearly in mind has led to confusion, even on the part of legislatures, learned judges, and able economists. If property is said to be (for example) a house and lot and at the same time the right to that house and lot, then there are two properties at once for each economic good, viz.: the object itself and the right to it.2

This difficulty could be avoided by the consistent definition and use of terms. A material economic object is a good, is a form of wealth. The usance of wealth and the service of laborers at the moment rendered constitute forms of income. The right of ownership, i. e., the right to control, use, or direct the use of wealth and services, is property, which is therefore the right to receive incomes. The value of the income of an individual constitutes his capital. Goods, rights to goods, value of rights to goods: these three things are clearly distinguishable.

2 This confusion has had important practical consequences in the field of taxation. See Vol. 1, pp. 265-267, and above, ch. 18, §§ 3-5.