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cr rewards equal to those she could find else- Kinder would "fire" PG&E and sell her services iimployer who values them more. On the other * Kinders productivity at PG&E must at least that of her potential replacements, or she and will likewise part ways. Kinder will retire after with a gold watch firom PG&E only if their lent relationship continues to be mutually otos.

is this selfish? Of course it is, but dont be too » dismiss it on that account First of all is there evidence that everyone would actually be bet-"if they toiled for the benefit of others instead of Ives? For instance, do you know other peo-its as well as you know your own? Do they know n the other hand, we can think of a good cruelties, barbarities, fiascoes, and follies committed at least nominally for unselfish like honor, nature, duty, love, etc. Greed may black name, but j)erhaps motives are best their deeds. Nonetheless, if we are to judge it rather than result, is there a qualitative differ-:tween the greed of Kinder and that of PG&E? e tempted to say yes, because PG&E is so big ider is so small, then you are no longer object-agreed per se, but greed coupled to size. But take you to even muddier ground. After all, ers of PG&E, its stockholders, are often just wish to prudently provide for old age. may be a million dollar executive. In any case, r«conomics cannot pronounce upon ethical wgs, it does have a thing or two to say about effects. book we will concentrate upon the deducible Uxat flow from the possession of property rights.


Property rights are the legal rights to use a m certain ways and to sell it for other more Jpo goods. A common misconception concerning •perty rights is that they are in conflict wth and infe-to human rights. But this view is errant nonsense. :rty rights are in fact human rights to the use of . For example, so long as you pay your land-ycnt. you not only have the right to use your apart-h V "6° exclude others from moving

jposing of garbage, or collecting firewood there, .ithout the property right to exclude others, you dnt have an effective human right to the space. other hand, you do not have a property right "Id bonfires in the middle of your living room use diat would infringe upon the human rights of

your neighbors, not to mention those of your landlord. Similarly, to the extent that your landlord lacks the property right to sell his building, his incentive to build or own property is diminished. This in turn diminishes your human right to rent an apartment.

All societies limit property rights to some extent. For example, you cannot use your apartment for printing twenty dollar bills. But limited though property rights may be, conflict between property and human rights can never occur because property itself has no rights: Your apartment does not have rights; only you and your landlord have rights. Those who loudly - and self-righteously - champion themselves as favoring human rights over property rights are talking utter nonsense. controversy is never a conflict between the rights of humans and the rights of property; its always a conflict over which humans will have the rht to control property.

Property rights can, of course, be reassigned; for example, the right to property can be transferred from individuals to the government. Such a reassignment will affect the character of society, perhaps drastically, but all societies assuredly assign some property rights to someone. The alternative is a state of complete anarchy, which is to say, the absence of organized society itself.

Normally we take the presence of our own property rights as routine. Nonetheless, the possession of property rights even to ones own personal resources has been, if anything, the exception rather than the historic rule. The ancient world and the antebellum South, for instance, were characterized by slavery, an institution whereby the owner had a property right to the personal resources of the slave and all the production that flowed from them. Medieval Europe was organized primarily through tradition; the feudal serf was by no means free to sell his resources at the highest price they could fetch. In modern communist societies one accepts the wage (and other) terms of the state because competition from other buyers is not permitted. Moreover, these states limit, or prohibit outright, the embodiment of ones labor in income earning assets. For example, labor income cannot be traded for income producing assets in communist societies; these too are the monopoly of the state. Most communist countries likewise ban the out-migration of workers seeking better terms for their human talents. In western societies private ownership of assets is, of course, allowed; nonetheless, the income streams generated from these assets are partially appropriated by the government. For instimce, in the U.S., the corpo-


rate income tax approaches 50%; that part which is distributed is then subject to additional personal taxadon.


While buyer and seller cooperate to their mutual benefit, compeddon exists among sellers for the favor of buyers, and among buyers for the favor of sellers. Retail sellers and manufacturers, for instance, would be far less interested in pleasing their customers in the absence of compedtion firom other retailers and manufiicturers anxious to attract buyers. Moreover, buyers of labor services know that they must offer attracdve packages of vrage and job benefits or their employees will move on to other labor buyers offering better terms.

Ck)mpeduon for the favor of buyers is not the only possible kind, however. People can also compete to confiscate the existing.wealth through the mechanism of government. For example, in democratic countries coalitions of the poorest 51 % can in principle be organized to confiscate and redistribute the wealth of the richest 49% in the majoritys favor. Moreover, after such a confiscation and redistribution, new coalitions become possible without limit. It is easy to see why litde wealth would be generated in such a society and, indeed, poUtical thinkers for thousands of years considered democracy unfeasible and chaotic for this very reason.!

In the American economy legal safeguards have been built into the Constitution and into the general system of laws which limit naked confiscation and redistribution of this sort For example, the Bill of Rights requires the government to compensate the owners of property taken under the governments power of eminent domain. Nonetheless, wealth is often confiscated via political compedtion. For example, while taxpayers might be unwilling to purchase private coastal land for public parks, they may perhaps pass zoning ordinances forbidding construction or vrater ordinances forbidding hook-ups on such land. This may make the property in question useless for private purposes and thus in effect confiscate it without compensation.

Competition to attach the wealth of others via the political process is far from the exclusive domain of majorities, however. The contest has been open to all manner of minorities for years. For example farmers get price supports, payment-in-kind (PIK) programs, and other crop restrictions, many of which are captured by wealthy landowners as tax shelters. The children of the rich and middle class can get an enormously subsidized education at tax supported univer-

sities such as UCSB. Rich people likewise have their t exempt municipal bonds and the poor can enjo MediCal, medicare, food stamps, subsidized housij subsidized reproduction, and survivors insurant delivered by middle class vendors earning comfortah livings by fighting poverty. Its hard, in fact, to find minority which doesnt owe at least a part ofits incon to its ability to attach the majoritys wealth throu political competition

But why in a democratic country does majority tolerate it? Consider the interests of the j ticipants. Suppose, say, the logging industry wants! favor firom Sacramento which would cost the majo only a few cents per capita. If the logging industry] a highly concentrated interest in winning the fa perhaps hundreds of dollars per capita, it will crash] Sacramento like a falling redwood, while the nujo will pay litde attention. The favor most likely v] granted. For similar reasons, the Sierra club is likelyj get its vray when it seeks a favor against the dif majority interest for the minority constituencies it i resents. (The only real contest occurs when minority such as the loggers batdes another sue the Sierra Club.) Multiply such examples over the 1 dreds of other minority interest groups, most of wh quite sincerely believe in the justice of their sp interest, and we see why political competition wealth has become such a growth industry.

Price and political competition are onlyj types, however. other kinds of competitionj and do occur, especially when price compedtionj been suppressed. Ifyou are taking this course in i winter, you have probably noticed that we have applicants than spaces at our current price. Since ] competition for enrollment into the course is 1 a variety of non-price methods have been ration (allocate) the limited existing places: pre-er ment, willingness to wait in line, allocation by g.J etc. In any case, some form of non-price compet is absolutely inevitable when price competition! been thwarted.

Competition stems not from the will of i nor from the type of economic system, but firomj sheer brute fact of scarcity. In general, our res are limited so that we cannot have all of what we i This means not only that competition of some must emerge as people seek to satisfy their inc tent wants, but also that decisions must be made s how resources are to be combined to satisfy the ofwhich compjcdtors. The manner in which cc don is manifested under capitalism consututes theJ ject matter of this book.

; However, we will not attempt to explain or cat-ifc the economy in detail; otherwise we could go forever and get nowhere. Instead we will concen-X in an abstract way upon certain highly simplified Jtylized aspects of the economy through the ess of modelling. A model concentrates on the Itjal features of the subject at hand and ignores Jutter. Whether a particular model is a good one §i<Is upon its logical consistency and upon its abil-accurately predict behavior. The validity of a ldoes not depend upon the correctness of the aiptions which go into it. These assumptions are "libsolutely correct because of the overriding 0 isimplify to get at the central features. We wish phasize that there is nothing unusual in this.

; inevitably work with models. There are mod-liart disease, atoms, psoriasis, and the Universe.

ion feature is the falsity of their underlying stions. Thus, the theory of the ideal gas falsely i that gas molecules have no mass and no inter-attractions or repulsions. Nevertheless, the theory is useful for a wide class of observed Simena, although not when the gas is under high ie. In that case a more appropriate model is Similarly, the models used in this book rest upon Qpdons which are not always true; nonetheless, ; you will find them enlightening for the prob-ley address.

& OPPORTUNITY COST The limitations imposed by scarcity are por-4n the guns and butter model below of Table I igure I. If societ) puts all its human and natural

resources to work making guns with its given level of technical know-how, it can have let us say, 16 guns. With all resources dedicated to gun production, however, no butter whatsoever can be produced. On the other hand if society throws all its limited resources into butter production, then it could have, say, 9 units of butter, but no guns at all. Table I displays the maximum gun production as the first entry and the maximum butter production as the last; it also gives various intermediate combinadons of guns and butter obtainable with the resources at societys disposal. The same information has been graphed and displayed as the production possibilities curve in Figure 1. For example, ifwe want to know how many guns can be produced Lf society produces 8 units of butter, wed first fmd 8 butter on the butter axis of the figure, draw a horizontal line to the production possibility curve, and then drop a vertical line to the guns axis to see that 5 guns can be produced tmder these circumstances in a given period of time. The period is arbitrary and, for example, might be a year or perhaps a decade, depending upon the purpose ofthe model. Similarly, when we reverse the procedure, we find that if 15 guns are produced, society can have at most 1 unit of butter.

We stress that the points on the production possibilities curve require society to use aU resources at its disposal. If less than all resources are used, output would fall short of the points along the curve, leaving us somewhere inside such as point G. Anytime society operates at a point within the curve such as G, it can have more of both goods without the sacrifice of either. (See for yoursetfby considering all points to the northeast of G.) Because workers are unemployed during business recessions, such downturns represent the

Table I Production Possibilities

Fig. I Production Possibilities Curve





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. I


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- 1-------1

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10 12



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