Question

1. Review the Source of Property Rights Background Material ( “Rule of Law” ).
2. As a group, discuss the definitions of the 3 sources of property rights and generate a list of examples - movies, fictional stories, current news reports, historical instances etc. - in which each of these 3 categories is in evidence. (i.e. In old western movies, the rule of physical force was in evidence, both as land was taken from American Indians and as cowboys and vigilantes enforced property rights in cattle and horses.)

5. Using background reading and these real-world examples, fill the chart

The Rule of Law

Background

A better future for the world’s impoverished people rests on the ability of capitalist economies to generate growth, and fundamental to the creation of increased wealth is the institution of property rights. Without defined, enforced rights to private property, the poor cannot even hope to ascend the economic ladder. However, if property rights are to provide incentives for economic growth, they must be secured within a framework of law.

The structuring of property rights influences economic incentives to save and to invest in capital improvements. They also affect the ability to acquire capital by determining whether property will be accepted as collateral for productive debt. Well-defined and enforced property rights free owners from the restriction of constant vigil over the land, business, homes, or buildings they own and allow them to spend more time producing.

Societies may define, allocate, and enforce property rights in a variety of ways:

• by the rule of physical force, or anarchy
• by the rule of men, or
• by the rule of law.

The methods differ in the extent to which they encourage investment and economic growth.

Rule of Physical Force (Anarchy)

• The source of property rights is coercion by physical force. Access to property is restricted to those with the physical ability to take and defend it.
• Property rights are enforced by vigilance or personal policing, which uses resources that could be used in other ways. (There is no effective enforcement by the state.)
• Peaceful transfer of property rights is difficult and uncommon. It is limited by disorder, by lack of a consistent enforcement, and by the absence of formal and recognized proof of ownership.
• The resulting uncertainty and instability surrounding ownership of assets means that property is relatively useless as collateral for taking on debt.

Rule of Men

• The rule of men is “the ability of government officials to govern by their personal whim or desire.”
• Formal law may exist, but the elite determines if, when, and how it is applied.
• Decisions are frequently arbitrary, tinged with political favoritism.
• The source of power to grant and enforce property rights lies in inherited positions, usually backed by political connections and military might.
• Enforcement is frequently arbitrary and lacks consistency.
• Transfer of assets and/or property rights is restricted by the need to obtain permission from those “in charge.”
• Because ownership continues only at the whim of the elite, assets are of little use as collateral.

Rule of Law

• The National Standards for Civics and Government define the rule of law as “. . . an essential component of limited government. The central notion of a rule of law is that society is governed according to widely known and accepted rules followed not only by the governed but also by those in authority.” (p. 47)
• The rule of law . . . establishes limits on both those who govern and the governed, making possible a system of ordered liberty which protects the basic rights of citizens and promotes the common good. This basic notion of the rule of law has been accompanied by the ideal of equal protection of the law . . .
• The standards go on to specify the benefits of the rule of law:
• It “establishes limits on both those who govern and the governed.”
• It “makes possible a system of ordered liberty that protects the basic rights of citizens.”
• It “promotes the common good.”

Nations in which the rule of law prevails share the following characteristics:

• there is a (usually written) constitution
• there is a written body of law that applies to all
• government officials are not exempt from the law
• government power is limited by a system of checks and balances
• there is an independent (non-partisan) judicial branch which makes decisions based on written law and/or precedent
• the court system guarantees the provision of due process before life, liberty or property is taken

Source and Foundation of Property Rights

Method	Anarchy: Rule of Physical Force	Rule of Men	Rule of Law
Real Life Example
Source of Power
Access to Property Rights
How Property Rights are Acquired
Enforcement Mechanism
Degree of Consistency of Enforcement
Transferability of Property Rights
Encourages Capital Formation? (Source of collateral for loans?)

Answer 1

Method	Anarchy: Rule of physical force	Rule of men	Rule of law
Real life examples	Political ruling in some countries which are ruled by kingdoms	Democracy governments	Freedom of press and freedom for living
Source of power	Lies with single plan who is the ruler	Lies with people	Lies with constitution and ruling law
Access to property rights	Ruler or leader	People	Law or constitution
How property rights are acquired	Decision will be taken by leader or ruler	Majority decision and right of voting	Legally guided and acquired as per rule of law
Enforcement mechanism	Top to bottom, enforced by force	Majority consent and enforced through constitutional amendments	Enforced through law
Degree of consistency of enforcement	Higher degree	Medium degree and not consistent as it should	Higher degree and through law
Transferability of property rights	No	Possible through amendments	Possible through law
Encourages capital formation? (Source of collateral of loans)	At a lower level	Higher degree of encouragement as people’s participation will be higher in this	Legally possible and legal entities will be collateral