Power and Market: Government and the Economy

Conservation laws restrict the use of depleting resources and force owners to invest in the maintenance of replaceable “natural” resources. The effect of both cases is similar: the restriction of present production for the supposed benefit of future production. This is obvious in the case of depleting resources; factors are also compelled to maintain replaceable resources (such as trees) when they could have more profitably engaged in other forms of production. In the latter case there is a double distortion: factors are forcibly shifted to future production, and they are also forced into a certain type of future production—the replacement of these particular resources.50

Clearly, one aim of conservation laws is to force the ratio of consumption to saving (investment) lower than the market would prefer. People’s voluntary allocations made according to their time preferences are forcibly altered, and relatively more investment is forced into production for future consumption. In short, the State decides that the present generation must be made to allocate its resources more to the future than it wishes to do; for this service the State is held up as being “farseeing,” compared to “shortsighted” free individuals. But, presumably, depleting resources must be used at some time, and some balance must always be struck between present and future production. Why does the claim of the present generation weigh so lightly in the scales? Why is the future generation so much more worthy that it can compel the present to carry a greater load? What did the future ever do to deserve privileged treatment?51 Indeed, since the future is likely to be wealthier than the present, the reverse might well apply! The same reasoning applies to all attempts to change the market’s time-preference ratio. Why should the future be able to enforce greater sacrifices on the present than the present is willing to undergo? Furthermore, after a span of years, the future will become the present; must the future generations then also be restricted in their production and consumption because of another wraithlike “future”? It must not be forgotten that the aim of all productive activity is goods and services that will and can be consumed only in some present. There is no rational basis for penalizing consumption in one present and privileging one future present; and there is still less reason for restricting all presents in favor of some will-o’-the-wisp “future” that can never appear and lies always beyond the horizon. Yet this is the goal of conservation laws. Conservation laws are truly “pie-in-the-sky” legislation.52

Individuals in the market decide on the time structure in their allocation of factors in accordance with the estimated revenue that their resources will bring in present as against future use. In other words, they will tend to maximize the present value, at any time, of their land and capital assets.53 The time structure of rental income from assets is determined by the interest rate, which in turn is determined by the time-preference schedules of all individuals on the market. Time preference, in addition to the specific estimated demands for each good, will determine the allocations of factors to each use. Since a lower time preference will connote more investment in future consumers’ goods, it will also mean more “conservation” of natural resources. A high time preference will lead to less investment and more consumption in the present, and consequently to less “conservation.”54

Most conservationist arguments evince almost no familiarity with economics. Many assume that entrepreneurs have no foresight and would blithely use natural resources only to find themselves some day suddenly without any property. Only the wise, providential State can foresee depletion. The absurdity of this argument is evident when we realize that the present value of the entrepreneur’s land is dependent on the expected future rents from his resources. Even if the entrepreneur himself should be unaccountably ignorant, the market will not be, and its valuation (i.e., the valuation of interested experts with money at stake) will tend to reflect its value accurately. In fact, it is the entrepreneur’s business to forecast, and he is rewarded for correct forecasting by profits. Will entrepreneurs on the market have less foresight than bureaucrats comfortably ensconced in their seizure of the taxpayers’ money?55

Another error made by the conservationists is to assume a technology fixed for all time. Human beings use what resources they have; and as technological knowledge grows, the types of usable resources multiply. If we have less timber to use than past generations, we need less too, for we have found other materials that can be used for construction or fuel. Past generations possessed an abundance of oil in the ground, but for them oil was valueless and hence not a resource. Our modern advances have taught us how to use oil and have enabled us to produce the equipment for this purpose. Our oil resources, therefore, are not fixed; they are infinitely greater than those of past generations. Artificial conservation will wastefully prolong resources beyond the time when they have become obsolete.

How many writers have wept over capitalism’s brutal ravaging of the American forests! Yet it is clear that American land has had more value-productive uses than timber production, and hence the land was diverted to those ends that better satisfied consumer wants.56 What standards can the critics set up instead? If they think too much forest has been cut down, how can they arrive at a quantitative standard to determine how much is “too much”? In fact, it is impossible to arrive at any such standard, just as it is impossible to arrive at any quantitative standards for market action outside the market. Any attempt to do so must be arbitrary and unsupported by any rational principle.

America has been the prime home of conservation laws, particularly on behalf of its “public domain.” Under a purely free-enterprise system, there would be no such thing as a governmentally owned public domain. Land would simply remain unowned until it first came into use, after which it would be owned by the first user and his heirs or assigns.57 The consequences of government ownership of the public domain will be further explored below. Here we may state a few of them. When the government owns the land and permits private individuals to use it freely, the result is indeed a wasteful overexploitation of the resource. More factors are employed to use up the resource than on a free market, since the only gains to the users are immediate; and if they wait, other users will deplete the limited resource. Free use of a governmentally owned resource truly inaugurates a “war of all against all,” as more and more users, eager for the free bargain, attempt to exploit the scarce resource. To have a scarce resource and to make everyone believe (because of the free gift of use) that its supply is unlimited, causes overuse of the resource, favoritism, figurative queuing up, etc. A striking example was the Western grazing lands in the latter half of the nineteenth century. The government prevented cattlemen from owning the land and fencing it in, and insisted it be kept as “open range” owned by the government. The result was excessive use of the range and its untimely depletion.58 Another example is the rapid depletion of the fisheries. Since no one is permitted to own any segment of the sea, no one sees any sense in preserving the value of the resource, as each is benefited only by rapid use, in advance of his competitors.59

Leasing is hardly a superior form of land use. If the government owns the land and leases it to grazers or timber users, once again there is no incentive for the lessee to preserve the value of the resource, since he does not own it. It is to his best interest as a lessee to use the resource as intensively as possible in the present. Hence, leasing also depletes natural resources excessively.

In contrast, if private individuals were to own all the lands and resources, then it would be to the owners’ interest to maximize the present value of each resource. Excessive depletion of the resource would lower its capital value on the market. Against the preservation of the capital value of the resource as a whole, the resource owner balances the income to be presently obtained from its use. The balance is decided, ceteris paribus, by the time preference and the other preferences of the market.60 If private individuals can only use but not own the land, the balance is destroyed, and the government has provided an impetus to excessive present use.

Not only is the announced aim of conservation laws—to aid the future at the expense of the present—illegitimate, and the arguments in favor of it invalid, but compulsory conservation would not achieve even this goal. For the future is already provided for through present saving and investment. Conservation laws will indeed coerce greater investment in natural resources: using other resources to maintain renewable resources and forcing a greater inventory of stock in depletable resources. But total investment is determined by the time preferences of individuals, and these will not have changed. Conservation laws, then, do not really increase total provisions for the future; they merely shift investment from capital goods, buildings, etc., to natural resources. They thereby impose an inefficient and distorted investment pattern on the economy.61

Given the nature and consequences of conservation laws, why should anyone advocate this legislation? Conservation laws, we must note, have a very “practical” aspect. They restrict production, i.e., the use of a resource, by force and thereby create a monopolistic privilege, which leads to a restrictionist price to owners of this resource or of substitutes for it. Conservation laws can be more effective monopolizers than tariffs because, as we have seen, tariffs permit new entry and unlimited production by domestic competitors.62 Conservation laws, on the other hand, serve to cartelize a land factor and absolutely restrict production, thereby helping to insure permanent (and continuing) monopoly gains for the owners. These monopoly gains, of course, will tend to be capitalized into an increase in the capital value of the land. The person who later buys the monopolized factor, then, will simply earn the going rate of interest on his investment, even though the monopoly gain will be included in his earnings.

Conservation laws, therefore, must also be looked upon as grants of monopolistic privilege. One outstanding example is the American government’s policy, since the end of the nineteenth century, of “reserving” vast tracts of the “public domain”—i.e., the government’s land holdings.63 Reserving means that the government keeps land under its ownership and abandons its earlier policy of keeping the domain open for homesteading by private owners. Forests, in particular, have been reserved, ostensibly for the purpose of conservation. What is the effect of withholding huge tracts of timberland from production? It is to confer a monopolistic privilege, and therefore a restrictionist price, on competing private lands and on competing timber.

We have seen that limiting the labor supply confers a restrictionist wage on the privileged workers (while the workers pushed out by union wage rates or by licenses or immigration laws must find lower-paying and less value-productive jobs elsewhere). A monopoly or quasi-monopoly privilege for the production of capital or consumer goods, on the other hand, may or may not confer a monopoly price, depending on the configuration of the demand curves for the individual firms, as well as their costs. Since a firm can contract or expand its supply at will, it sets its supply with the knowledge that lowering output to achieve a monopoly price must also lower the total amount of goods sold.64 The laborer need bother with no such consideration (aside from a negligible variation in demands for each laborer’s total hours of service). What about the privileged landowner? Will he achieve a definite restrictionist, or a possible monopoly, price? A prime characteristic of a piece of land is that it cannot be increased by labor; if it is augmentable, then it is a capital good, not land. The same, in fact, applies to labor, which, in all but long periods of time, can be regarded as fixed in its total supply. Since labor in its totality cannot be increased (except, as we have noted, in regard to hours of work per day), government restriction on the labor supply—child labor laws, immigration barriers, etc.—therefore confers a restrictionist wage increase on the workers remaining. Capital or consumer goods can be increased or decreased, so that privileged firms must take their demand curves into account. Land, on the other hand, cannot be increased; restriction of the supply of land, therefore, also confers a restrictionist price of land above the free-market price.65 The same is true for depleting natural resources, which cannot have their supply increased and are therefore considered part of land. If the government forces land or natural resources out of the market, therefore, it inevitably lowers the supply available on the market and just as inevitably confers a monopoly gain and a restrictionist price on the remaining landowners or resource owners. In addition to all of their other effects, conservation laws force labor to abandon good lands and, instead, cultivate the remaining submarginal land. This coerced shift lowers the marginal productivity of labor and consequently reduces the general standard of living.

Let us return to the government’s policy of reserving timber lands. This confers a restrictionist price and a monopoly gain on the lands remaining in use. Land markets are specific and do not have the same general connexity as labor markets. Therefore, the restrictionist price rise is confined far more to lands that directly competed, or would compete, with the withdrawn or “reserved” lands. In the case of American conservation policy, the particular beneficiaries were (a) the land-grant Western railroads and (b) the existing timber-owners. The land-grant railroads had received vast subsidies of land from the government: not only rights-of-way for their roads, but fifteen-mile tracts on either side of the line. Government reservation of public lands greatly raised the price received by the railroads when they later sold this land to new inhabitants of the area. The railroads thus received another gift from the government—this time in the form of a monopoly gain, at the expense of the consumers.

The railroads were not ignorant of the monopolistic advantages that would be conferred upon them by conservation laws; in fact, the railroads were the financial “angel” of the entire conservation movement. Thus, Peffer writes:

There was a definite basis for the charge that the railroads were interested in a repeal of [various laws permitting easy transfer of the public domain to the hands of private settlers]. The National Irrigation Association, which was the most vigorous advocate of land law reform outside of the Administration, was financed in part by the transcontinental railroads and by the Burlington and the Rock Island railroads, to the amount of $39,000 a year, out of a total budget of around $50,000. The program of this association and the railroads, as announced by James J. Hill [a preeminent railroad magnate] was almost more advanced than that of [the leading conservationists].66

The timber owners also understood the gains they would acquire from forest “conservation.” President Theodore Roosevelt himself announced that “the great users of timber are themselves forwarding the movement for forest preservation.” As one student of the problem declared, the

lumber manufacturers and timber owners ... had arrived at a harmonious understanding with Gifford Pinchot [the leader in forest conservation] as early as 1903. ... In other words, the government by withdrawing timber lands from entry and keeping them off the market would aid in appreciating the value of privately owned timber.67

• 50Economists have, until recently, almost completely neglected conservation laws, leaving the field to romantic “conservationists.” But see the brilliant analysis by Anthony Scott, “Conservation Policy and Capital Theory,” Canadian Journal of Economics and Political Science, November, 1954, pp. 504–13, and idem, Natural Resources: The Economics of Conservation (Toronto: University of Toronto Press, 1955); see also Mises, Human Action, pp. 652–53.
• 51Scott points out that this attitude rests on the contemptuous and unsupported view that future generations will not be as competent to take care of themselves as is the present generation. See Scott, Natural Resources, p. 94.
• 52As Scott aptly asks: Why agree “to preserve resources as they would be in the absence of their human users?” Scott, “Conservation Policy,” p. 513. And further: “Most of [our] progress has taken the form of converting natural resources into more desirable forms of wealth. If man had prized natural resources above his own product, he would doubtless have remained savage, practicing ‘conservatism.’ “ Scott, Natural Resources, p. 11. If the logic of tariffs is to destroy the market, then the logic of conservation laws is to destroy all human production and consumption.
• 53Strictly, investors will attempt to maximize their “internal rates of return,” but maximizing the present value is close enough for our purposes. On the difference between the two goals in “Austrian” vs. “neo-classical” thought, see André Gabor and I.F. Pearce, “A New Approach to the Theory of the Firm,” Oxford Economic Papers, October, 1952, pp. 252–65.
• 54In some cases, however, lower time preferences and greater investment activity will deplete natural resources at a more rapid rate, if there is a particularly great demand for their use in the new activity. This is likely to be true of such resources as coal and oil. See Scott, Natural Resources, pp. 95–97.
• 55Entrepreneurs with poor foresight are quickly expelled from their positions through losses. It is ironic that the “plight of the Okies” in the 1930’s, widely publicized as a plea for conservation laws and the result of “cruel capitalism,” actually resulted from the fact that bad entrepreneurs (the Okies) farmed land that was valueless and submarginal. Forced “conservation” investment on this submarginal land or government subsidization of the “Okies” would have aggravated a dislocation that the market quickly eliminated. Much American soil erosion, furthermore, has stemmed from failure to preserve full private property rights in land. Tenant farmers, moving every few years, often milked the capital of the landlord’s property, wasting the resource, in default of proper enforcement of the contractual necessity to return the land to its owner intact. See Scott, National Resources, pp. 118, 168.
• 56A typical conservationist complainer was J.D. Brown who, in 1832, worried over the consumption of timber: “Whence shall we procure supplies of timber fifty years hence for the continuance of our navy?” Quoted in Scott, National Resources, p. 37. Scott also notes that the critics never seemed to realize that a nation’s timber can be purchased from abroad. Scott, “Conservation Policy.”
• 57This system was dimly adumbrated by the Homestead Law of 1862. However, this law imposed an arbitrary and pointless maximum on the size of farm that could be staked out by the first user. This limitation had the result of nullifying the law further West, where the minimum acreage needed for cattle or sheep grazing was far larger than the antiquated legal maximum would allow. Furthermore, the maximum limitation and the requirement that the land be used for farming led to the very “ravaging” of the forests that conservationists now deplore, for it hobbled private ownership of large forest tracts.
• 58See E. Louise Peffer, The Closing of the Public Domain (Stanford: Stanford University Press, 1951), pp. 25–27. On the advantages of private ownership of grazing land, see the petition of the American Cattle Growers Association, March, 1902, ibid., pp. 78–79. See also Samuel P. Hays, Conservation and the Gospel of Efficiency (Cambridge: Harvard University Press, 1959), pp. 50–51. The government’s failure to extend the homestead principle to the larger areas had another important social effect: it led to constant squabbles between the users—the cattlemen and the other homesteaders who came later and demanded their “just share” of the free land.
• 59For an illuminating discussion of private property rights in fisheries, see Gordon Tullock, The Fisheries (Columbia: University of South Carolina Bureau of Business and Economic Research, February, 1962). See also Anthony Scott, “The Fishery, A Sole Resource,” Journal of Political Economy, April, 1955, and idem, Natural Resources, pp. 117–29.
• 60High demand for the product increases the value of the resource, and thereby stimulates its preservation, investment in it, and exploration for it. High-cost sources of supply will now be tapped, thus further increasing the effective supply of the product on the market. See Scott, Natural Resources, p. 14.
• 61See ibid., pp. 21–22.
• 62There is another similarity between tariffs and conservation laws: both aim at national self-sufficiency, and both try to foster national or local industries by coercive intervention in the free market.
• 63For an analysis of government land ownership and government ownership in general, see below.
• 64On the free market, the demand curve for each firm in equilibrium must be elastic above the equilibrium price; otherwise the firm would reduce output. This does not, of course, mean that the demand curve for the entire industry must be elastic. When we refer to a possible monopoly price, the demand curve consulted by each monopolistic firm is its own.
• 65Another example of government creation of a monopoly gain in land has been cited by the Georgist economist, Mason Gaffney: “City governments all over the country deliberately keep ‘dead lands’ off the market, with the avowed purpose of ‘protecting’ other land prices.” Gaffney cites the head of the American Society of Planning Officials as advising that a vacant one-third of urban land be “more or less permanently removed from private ownership” in order to keep up land values for the owners of the remaining two-thirds. Gaffney concludes: “Following this advice, many state and local governments avoid returning tax-reverted lands to use.” Mason Gaffney, “Vituperation Well Answered,” Land and Liberty, December, 1952, p. 126; reprinted in Spencer Heath, Progress and Poverty Reviewed (2nd ed.; New York: The Freeman, 1953).
• 66Peffer, Closing of the Public Domain, p. 54. Senator H.C. Hansbrough also pointed out that the railroads paid $45,000 annually to a leading conservationist magazine, The Talisman, and financed the Washington conservation lobby. H.C. Hansbrough, The Wreck: An Historical and Critical Study of the Administrations of Theodore Roosevelt and William Howard Taft (1913), p. 52.
• 67J.H. Cox, “Organization of the Lumber Industry in the Pacific Northwest, 1889–1914” (Ph.D. diss., University of California, 1937), pp. 174–77; cited in Peffer, Closing of the Public Domain, p. 57. See also Hays, Conservation and the Gospel of Efficiency.