Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

Rothbard the Urbanist Part 3: Prevention of Blockades

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In the last post, we discussed the first paragraphs of chapter 11 of Murray Rothbard’s For A New Liberty. (available free from Mises.org as pdf, web page, and audio book) Those paragraphs discussed the private ownership of all land, including streets and roads. Rothbard clearly and concisely argues that private ownership of streets would result in safer public spaces.

Discussions I have had with people often lead to the topic of forestalling, in which a sinister land owner decides to completely surround a neighbor’s property, preventing him from using it. This valid concern can be eased through a principled analysis of such a situation:

At this point in the discussion, someone is bound to raise the question: If streets are owned by street companies, and granting that they generally would aim to please their customers with maximum efficiency, what if some kooky or tyrannical street owner should suddenly decide to block access to his street to an adjoining homeowner? How could the latter get in or out? Could he be blocked permanently, or be charged an enormous amount to be allowed entrance or exit? The answer to this question is the same as to a similar problem about land-ownership: Suppose that everyone owning homes surrounding someone’s property would suddenly not allow him to go in or out? The answer is that [p. 204] everyone, in purchasing homes or street service in a libertarian society, would make sure that the purchase or lease contract provides full access for whatever term of years is specified. With this sort of “easement” provided in advance by contract, no such sudden blockade would be allowed, since it would be an invasion of the property right of the landowner.

A likely solution to this issue of forestalling, would be the emergence of “access insurance”. This would be similar to title insurance, which is a system that emerged as a result of the United States system of document recording “in which no governmental official makes any determination of who owns the title or whether the instruments transferring it are valid.” The US system seems anarchic, but the Title Insurance system emerged through the marketplace.

Such a system of “access insurance” would likely emerge to become as universal as the title insurance system, and likely be required by lenders. A buyer of a property would purchase insurance to ensure that access to the property would not be denied by any parties. If some neighbor decides to invade the property rights of the insured by blockading him in, the “access insurance” company would have to compensate the policy holder for the full value of the property (or other amount insured). Thus, the heavily capitalized insurance company has every incentive to use its vast resources to prevent such an event from occurring to defend the property from blockades.

  • Justus

    I think Rothbard's response is unacceptably handwavey given already known facts about how people deal with contracts and license agreements they receive on a regular basis. When was the last time you read a software EULA word-for-word? Or a new license agreement from your credit card company? And every day I can find newspaper articles about people unhappy about the HOA CCRs that they agreed to but are apparently unaware of.

    He is assuming, contrary to what seems to me to be clear evidence, that all individual persons would exhibit a certain level of due diligence in negotiating and signing contracts. I think this is especially true given what behavioural economics has shown us about how people measure long versus short term gains.

    Regardless of the initial terms of the “easement” it seems likely that an eternal corporation could eventually renegotiate all such easements to a year-to-year basis with limitations on transfers and unspecified commercial use. At least those that are made with parties that have limited time horizons such as individuals and small businesses.

    I think it would eventually gravitate toward an environment wherein all startups would be forced to negotiate easements with large holders who have interlocking agreements with conglomerates to extract exorbitant rents from startups that threaten established enterprises.

    At least, those are my concerns.

  • Thanks for bringing this into the discussion.

    When was the last time you read a software EULA word-for-word? Or a new license agreement from your credit card company? And every day I can find newspaper articles about people unhappy about the HOA CCRs that they agreed to but are apparently unaware of.

    He is assuming, contrary to what seems to me to be clear evidence, that all individual persons would exhibit a certain level of due diligence in negotiating and signing contracts. I think this is especially true given what behavioral economics has shown us about how people measure long versus short term gains.

    I think the purchase of land, presumably as a dwelling or place of business is a much more scrutinized agreement than an EULA, credit card agreement, etc. When I bought my properties, I always hired a lawyer to explain what was getting into, and I don't bring my lawyer to upgrade to Windows Vista.

    But, in most cases of real property there is another level of due-diligence – that of the lender. No lender wants to own the note for the property that could become useless because of a sinister neighbor. Just as no lender wants to learn that the purchaser does not have valid title, which is why they require title insurance.

    You mention HOAs. This is a perfect example of an entity that owns the property surrounding a dwelling unit. Yet, I've never heard of a situation where a property owner was denied access to his home under unreasonable terms.

    Regardless of the initial terms of the “easement” it seems likely that an eternal corporation could eventually renegotiate all such easements to a year-to-year basis with limitations on transfers and unspecified commercial use. At least those that are made with parties that have limited time horizons such as individuals and small businesses.

    I don't know about you, but I would never purchase a property with the condition that I must renegotiate an easement to access it every year. Perhaps I misunderstood something. What would be the conditions where an “eternal corporation” would be able to legitimately default on the initial terms of its agreement?

  • Justus

    “Yet, I've never heard of a situation where a property owner was denied access to his home under unreasonable terms.”

    Well that's because laws provide an easement of necessity basically automatically. That's something that falls outside of the contract, however, and is long standing part of common law and presumably wouldn't exist in a libertarian society like Rothbard describes.

    “What would be the conditions where an “eternal corporation” would be able to legitimately default on the initial terms of its agreement?”

    They don't need to default, they just need to wait it out. I think it would be a major failure of fiduciary responsibility to grant more than a 20 or 30 year contract. And the more important the access the more incentive to keep the contract terms relatively short (say, 3–5 years).

    Sure, you don't buy a house that doesn't have every-year renegotiation. But you DO buy a house that has a renegotiation due in 15 years. And in 15 years what is the incentive for the right holder to switch to anything other than year-to-year. How much money would they demand from you? From a small business owner? From Intel?

    I suppose you could claim that other corporations would offer better terms and people would move to cities/streets that don't have year-to-year right-of-way agreements. I think the real world evidence on mobility argues about that being very plausible, however.

    I'm just having a hard time wrapping my head around how what seems (to me) an obvious imbalance of power would play out in real life. Now, I think privately owned streets — especially in things like residential cul-de-sacs and corporate officeparks that have limited “communal use” — are an attractive idea. I just don't see them existing solely in a land of contracts and without significant government interventions/regulation.

  • Well that's because laws provide an easement of necessity basically automatically. That's something that falls outside of the contract, however, and is long standing part of common law and presumably wouldn't exist in a libertarian society like Rothbard describes.

    I'm not familiar enough with such laws. Nonetheless, I think I agree that in the absence of contract on this matter, such law is legitimate. I say this because to deny one his property is a violation of that person's property right. Which brings us to the next point…

    They don't need to default, they just need to wait it out. I think it would be a major failure of fiduciary responsibility to grant more than a 20 or 30 year contract. And the more important the access the more incentive to keep the contract terms relatively short (say, 3–5 years).

    To first continue from the previous, it is important to remember that the corporation cannot justly deny the property owner access to his land. In my opinion, any justice system (public or private) would have to recognize that as a violation of property rights, to be legitimate.

    That aside, if it had to come down purely to contract, I agree that it is in the corporation's best interest to keep the terms short. However, it is in a homeowner's best interest to keep the terms long or perpetual. I just can't see a potential homeowner being too interested in purchasing a property where he would have to renegotiate every few years just to be able to use it. And if he did, I'm certain he would know exactly what he is getting himself into and the value of the land would reflect the uncertainty of access. On top of that, I can't see a lender being too interested in making a 30 year mortgage for a property that may become worthless in three years if an easement cannot be renewed.

    I suppose you could claim that other corporations would offer better terms and people would move to cities/streets that don't have year-to-year right-of-way agreements.

    Yes. I just don't see it being in the best interest of the hypothetical corporation to scare away business because it has dastardly intentions to entrap people.

    I'm just having a hard time wrapping my head around how what seems (to me) an obvious imbalance of power would play out in real life. Now, I think privately owned streets — especially in things like residential cul-de-sacs and corporate officeparks that have limited “communal use” — are an attractive idea. I just don't see them existing solely in a land of contracts and without significant government interventions/regulation.

    I totally agree that there are far too many unknowns to imagine with any certainty how such a private system would actually look. But, as we know, the balance of power in the current system favors the powerful interests with access to the political system (such as corporations, unions, and lobbies), not the individual. Through my personal examination, I am inclined to think a voluntary system is more likely to offer a level playing field. But, I'm open to consider other ways of looking at it if you have more insights.

  • Although we might not like to admit it (and especially those who see individual homeownership as the paragon of free market capitalism), there ARE economies of scale in land, and this is precisely one of them – the larger plot you own, the less likely these sorts of things are to happen (along with other nuissances such as skyscrapers blocking out light and noisy neighbors). I think these economies of scale alone would be enough to make occurences like this very rare.

  • Absolutely! The advantage of large scale developments is that they are able to internalize externailies. (positive and negative) Successful developers know how to capitalize on this internalization.
    Take shopping malls for example. Mall owners subsidize the rent of the large anchors because they attract shoppers. This loss is made up by the higher rent of the smaller stores.
    The example here would be that safe, desirable locations offer positive externalities to its surroundings. Large managers of land have the incentive to internalize these positive aspects.
    Nonetheless, there are forms of home ownership that could be compatible with this model, such as condos, HOAs, land leases, and covenants…

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