Property Rights, Exchange, and the Production of Economic Development
Peter J. Boettke
George Mason University - Department of Economics
Rosolino A. Candela
George Mason University
August 9, 2014
Encyclopedia of Law and Economics, ed. Jürgen Backhaus. Springer, Forthcoming
GMU Working Paper in Economics No. 14-33
This chapter argues that economic development originates not from the gains from trade and specialization under a division of labor, but fundamentally from an institutional framework of property rights which permits the gains from trade and innovation emerge on a societal wide scale. It is this framework that enables the transition from small scale trading and capital accumulation to medium scale trading and capital accumulation and finally to large scale trading and capital accumulation. All of humanity was once poor; those societies that have been able to escape from poverty are those that were able to get on this development path by adopting the institutional framework of property, contract, and consent. We argue that well-defined and exchangeable private property rights yield economic growth by operating as a filter on economic behavior – the establishment of property rights embedded in the rule of law weeds out unproductive entrepreneurship and the corresponding politicized redistribution of property rights with rent-seeking and predation as its consequence, and engenders instead productive entrepreneurship, and a more efficient allocation of property rights, and with that a realization of the gains from trade and the gains from innovation. The fundamental cause of economic development, we argue, is the institution of private property, as it is this institutional framework that results in productive specialization and peaceful cooperation among diverse and disparate individuals.
Number of Pages in PDF File: 19
Keywords: Armen Alchian, James Buchanan, F.A. Hayek, Ludwig von Mises, Property Rights, Economic Development.
Date posted: August 11, 2014 ; Last revised: February 28, 2016