Natural vs Artificial Capital

Discussion

Matthew Prewitt:

"A century ago, economists inspired by Henry George drew a distinction between “natural” and “artificial” capital — that is, the products of nature and those of labor. They suggested that rights of private ownership attached more properly to artificial capital than to natural capital. The distinction between these two species of capital is often fuzzy in practice, but it is clear in theory, and important to understand. Let’s explore why.

The case against private ownership of natural capital is rooted in the observation that nobody’s labor created the spoils of nature. Gold, oil, land, and other natural resources exist independently of humanity. So it is illogical for the law to reward private parties for their existence. To be sure, people must procure natural resources. That labor must be compensated, and should be incentivized insofar as it is socially efficient. But, when the market value of a natural thing grossly exceeds the value of the labor needed to procure it, does justice entitle anyone to capture that surplus? What if we’re talking about the last water hole in a drought-stricken country? A massive oil field discovered by chance underneath a backyard?

Contrast natural capital with objects in which artificial capital predominates, like paintings. A painting derives most of its value from its labor, and very little from its constituent natural materials like oil, cotton, and wood. Therefore a painter, far more than a mine owner, enhances the value of naturally-existing materials, and deserves a reward for the sheer existence of her wares. Her right to sell her painting for as high a price as she likes seems much more justified. Likewise with other objects of artificial capital such as sailboats, software, and skyscrapers.

Thus, Georgist economists proposed that common ownership schemes should be applied to natural capital, but not artificial capital. This distinction has efficiency grounds: granting the privilege of private property helps incentivize people to make art, but does not result in the production of additional gold or land. But it also has justice grounds: the privilege of private property may be a just reward for bringing artificial capital into existence, but it is not clear why those who gain possession of naturally-existing things deserve quite the same reward."

(https://medium.com/blockchannel/reimagining-property-fbce9d3832a4)