The following is an excerpt from "Radio Free Rothbard" which I have submitted to the Journal of Libertarian Studies.
An earlier version, called "The Spectrum Should be Private: The Economics, History, and Future of Wireless Technology," was published by the Ludwig von Mises Institute as a Daily Article on Mises.org and as part of the series Essays In Political Economy.
B.K. Marcus
"There is no existing entity called 'society'; there are only interacting individuals. To say that 'society' should own land or any other property in common, then, must mean that a group of oligarchs -- in practice, government bureaucrats -- should own the property, and at the expense of expropriating the creator or the homesteader who had originally brought this product into existence."
Before we address the question of privatization -- the transition from government-held resources to privately held property titles-- we need to address the more basic question of private property itself. Specifically, how does legitimate property come into being?
Strictly speaking, economics has nothing to say on the legitimacy or illegitimacy of property. As a value-free science, economics is the study of cause and effect in the realm of human action. The Austrian School does this through the deductive, or praxeological method, while mainstream economists claim to study the question empirically. The desirability of the effects and the legitimacy of the causes are questions left to esthetics, psychology, and moral philosophy. Without prescribing values, Mises considered it obvious which outcomes rational individuals would seek, given an understanding of cause and effect in the economic sphere.
Mises's student, Murray Rothbard, did not share Mises's confidence that informed rational individuals would make peaceful choices and he was quite willing to integrate individualist ethics with Misesian economics. Thus it is Rothbardian property theory to which we turn in our inquiry into the legitimacy of ownership.
If bandits ride into a village and take over, they will certainly act as if they now own the village, but clearly violent confiscation can't have created legitimate property. We would say that the village had been stolen -- taken, in other words, from the legitimate owners: the villagers. But to agree that the villagers are the legitimate owners, no matter what the de facto situation, is to leave open two vital questions: we still don't know how the villagers became the legitimate owners, and more fundamentally, we haven't addressed the question of who can legitimately own property -- the individual or a collective.
Despite all the political language to the contrary, there is no rights-bearing entity called "society". Neither can a collective entity called "the villagers" have legitimate property rights. When we speak of the villagers as the legitimate owners, we use the collective noun for linguistic convenience. It's easier than saying Villager 1 owns village subsection A, Villager 2 owns village subsection B, etc.
The individual members of a group can hold divisible property titles to a single piece of property, but we'll come back to that later.
Rothbardian property theory borrows from the common law tradition, which found its most famous expression in the writings of John Locke: unowned land becomes private property when an individual "mixes his labor" with the land, such as a farmer clearing a field, or anyone building a house on previously unowned acreage.
This "homesteading" is the first legitimate way to acquire property. The only other way is through voluntary exchange with legitimate property owners.
Where Rothbard takes issue with John Locke's homesteading theory is in the "Lockean Proviso" which would restrict a homesteader's property rights to only those appropriations that leave "enough and as good" for others. Rothbard calls this Locke's "unfortunate proviso" and demonstrates that taken literally, the restriction disallows all private property, since it will be impossible, no matter how little one takes, to leave "enough and as good" for others.
Rothbard's main departure from common law tradition is his disagreement with the common-law principle "that every landowner owns all the airspace above him upward indefinitely unto the heavens and downward into the center of the earth. In Lord Coke's famous dictum: cujus est solum ejus est usque ad coelum; that is, he who owns the soil owns upward unto heaven, and, by analogy, downward to Hades."
But according to Rothbard, the ad coelum rule never made any sense in the context of homesteading: "If one homesteads and uses the soil, in what sense is he also using all the sky above him up into heaven? Clearly, he isn't."
If land property doesn't legitimately extend forever upward and downward, then how far does it extend? Even before facing this question, we need to confront the more immediate problem of the size of the area to be homesteaded. Can I fence off an arbitrarily large area of unowned land and claim it as new property? And what does any of this have to do with radio spectrum? The answer to all three questions lies in Rothbard's concept of the relevant technological unit.
"In a certain sense the development of radio has opened up a new domain comparable to the discovery of a hitherto unknown continent.... And private interests are trying to obtain control of wave lengths and establish private property claims to them precisely as though a new continent were opened up to them and they were securing great tracts of land in outright ownership."
Rothbard writes:
If A uses a certain amount of a resource, how much of that resource is to accrue to his ownership? Our answer is that he owns the technological unit of the resource. The size of that unit depends on the type of good or resource in question, and must be determined by judges, juries, or arbitrators who are expert in the particular resource or industry in question.
What is a technological unit? It is the minimum amount necessary (in whatever relevant dimension) for the use of the property, "enough of it so as to include necessary appurtenances." This unit will vary according to the uses the owner has in mind, and the features of the resource being homesteaded. Rothbard's own example is immediately helpful to us:
For example, in the courts' determination of radio frequency ownership in the 1920s, the extent of ownership depended on the technological unit of the radio wave -- its width on the electromagnetic spectrum so that another wave would not interfere with the signal, and its length over space. The ownership of the frequency then was determined by width, length, and location.
The concept of the technological unit answers another question that sometimes comes up in discussions of private property: if your radio signals enter my home, uninvited, have you committed a trespass against my property?
Frank van Dun, writing in a different context, notes: "Murray Rothbard wisely cut short such an interpretation by insisting that 'property' is a praxeological, not a physicalist concept. Consequently, one's property is only in 'means of action,' not in things as such."
Thus the Rothbardian concept is radically different from how we're used to thinking about property. It is not a physical object, nor a rigidly defined spatial boundary; it is "not in things as such," but an exclusive claim to the use of a scarce resource, a claim to the means of human action.
It happens that with solid objects and land property, the physical concept and the praxeological concept yield similar results. There isn't much practical difference between my ownership claim to a chair and the claim to exclusive authority over use and disposal of that chair.
It isn't until we confront questions of common resources, such as air, water, fish and game, oil, electricity, and radio waves that we're forced to shift from an object-based view of property to a priority-of-use conception of the problem.
Some important ways in which Rothbard's technological unit differs from the ad coelum physical/spatial conception of property:
DeVany, et al., did not use homesteading in their proposal to the presidential commission. Neither did they accept the Rothbardian theory's implications for trespass. Their understanding of property rights is Coasean, which we'll come to in the next section. But where their proposal is relevant to Rothbardian privatization is in their detailed proposal for the relevant technological unit of broadcast property. They call their units "TAS packages," where TAS stands for Time, Area, and Spectrum, meaning: (T) when a transmission is allowed, (A) in what geographical area it may exceed a certain power, and (S) at what frequency.
Their proposed TAS units are similar to the homesteading rights recognized in the 1926 Oak Leaves court case, with one notable difference. In the early days of broadcast radio, few stations transmitted 24 hours a day. If the ABC Company used a certain frequency in New York between midnight and noon, the XYZ Company was free to homestead the same frequency between noon and midnight. The market process was already leading toward 24-hour-a-day spectrum rights, because the ABC companies would often buy out the XYZ companies. But time was definitely considered one of the homesteadable dimensions in spectrum property. DeVany's proposal is for all spectrum property to be defined at first as all-day and in perpetuity, although the owner of a TAS package would then be free to sell the rights to a fraction of his broadcast day.
So should a property title in radio spectrum start as an all-the-time right and break apart, as necessary, through the market process, or should time be a homesteadable dimension from the outset?
Contrary to DeVany, et al., the homesteadable unit is however much of the resource is necessary to the initial use of the homesteader. If I transmit a traffic report on an unused frequency at the beginning and end of the workday, but never use the channel at midnight, then you will not be trespassing by using "my" channel at midnight.
And if you transmit on a certain channel 24 hours each day, and I manage to encrypt a signal on the same channel in such a way that it doesn't interfere with your transmissions, nor with the reception of your listeners, I have not trespassed any more than my neighbor trespasses by taking unclaimed oil reserves from beneath my yard.
The DeVany proposal is an attempt to design a market, at least at its inception. The FCC should, according to DeVany, auction saleable, divisible TAS packages to the highest bidders and let the market work from there. Rothbard admired the proposal enough to recommend it to his readers -- and it's certainly better than the status quo -- but a true free market in legitimate property titles would have to evolve from the homesteading bottom up, not from a presidential commission down.
Getting the technological unit wrong can have devastating consequences, and there's already historical precedent for having the wrong unit statically defined in Washington.
In 1861, U.S. federal land law provided a homesteadable unit of 160 acres. Anyone who, over a certain term, cleared and used 160 acres previously held by the federal government became the recognized owner of that property. This may have been the correct unit for the wet, arable lands of the East, but when settlers reached the dry prairie, 160 acres was far too little for any viable ranching or grazing.
The federal government refused to expand the 160-acre unit to allow the homesteading of larger ranches out West. As a result, the unowned grasslands were used and overused with no title ownership. The famous "open range" of cowboy stories was in fact a tragedy of the commons, with cattlemen grazing too early in the season, no one wanting to risk the wait since everyone else could continue to graze early. Neither was it in anyone's interest to restore or replant the grass, since there was no legal way to keep a second man from reaping what the first man had sewn.
To avoid repeating the error of grassland history, we should reject any centrally mandated, static definition of the property unit, no matter how informed and considered the definition seems to be. Instead, DeVany's TAS package proposal should be treated as an amicus brief to the civil courts that will have to settle property disputes in radio spectrum.
"Current free-market economics is all too rife ... with scorn for ethics, justice, and consistent principle; and with a willingness to abandon free-market principles at the drop of a cost-benefit hat. Hence, current free-market economics is generally envisioned by intellectuals as merely apologetics for a slightly modified status quo, and all too often such charges are correct."
DeVany's 1969 spectrum privatization proposal expanded not only on Coase's groundbreaking 1959 article on the FCC, but also on the 1960 article for which Coase would later win the Nobel Prize.
In "The Problem of Social Cost," Coase presents the paradigm of what would become Chicago School legal theory. If a farmer's wheat fields are next to the railroad tracks, and sparks from a passing train set the wheat on fire, has the train company committed a trespass, and if so, what actions can be taken against them?
Different legal theorists might come up with different answers, but before Coase, the answers would likely have been rights-based. The Coasean answer is not based in property rights per se but rather in the concept of social cost.
For Coase, the answer to the sparks and wheat conflict is whatever resolves the problem at the least cost. You might ask, cost to whom? Coase's answer: cost to society.
We are dealing with a problem of a reciprocal nature. To avoid the harm to B would inflict harm on A. The real question that has to be decided is: should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm.
In other words, it is not only the case that the mugger harms me if he takes my wallet, but also that I harm the mugger if I keep him from doing so. The question of social cost is: does the thief gain more than the victim loses? If so, then society benefits from the mugging. If not, then society is hurt by the mugging. Any claim I might make that the wallet is mine by right is irrelevant to the question of social cost: "The comparison of private and social products is neither here nor there."
We might go on to say that the mugging has negative costs beyond the immediate context, that society loses out if I now divert critical energy into protecting myself from muggers, or if the location of the mugging develops a bad reputation and business is harmed. But the cost-benefit analysis is to be done in a value-free, utilitarian calculus, without any interfering concepts of right or wrong.
"When an economist is comparing alternative social arrangements, the proper procedure," according to Coase, "is to compare the total social product yielded by these different arrangements."
So if the farmer can move his crops out of spark range at an annual cost of a thousand dollars, while the spark suppression system would cost the train company two thousand, then there is a thousand-dollar "social cost" to ruling in the farmer's favor. In other words, "society" spends twice as much if the farmer wins.
Of course, minimizing social cost does not require an all-out victory or defeat for either side. The train company can pay the farmer $1,000 each year to compensate for the unplanted crops. Or they could split the difference. Who pays how much is irrelevant to the question of social cost, however relevant it may feel to the farmer.
The Coasean theory may not have found full expression until the mid-twentieth century, but British courts ruled according to similar reasoning in the previous century, when English farmers brought action against the new factories that were dumping soot on their crops. The court recognized the farmers' common law property right to stop the pollution, but found instead that "society" needed the new factories too much to rule against the polluters.
Rothbard, of course, rejects the entire social cost theory. There is no cumulative "cost" borne by "society" -- there is only the cost to individuals. You can't sensibly add my pain to your pain and deduce a measurable sum called our pain. Same with pleasure. Same with value. Same with costs.
According to Rothbardian property theory -- and yes, he realized he wasn't being value-neutral -- the solution to the case of the train company and the farmer has everything to do with who was there first. If the farmer's crops have been growing on that same acreage for decades, and the railroad company acquired the neighboring property only a few years ago, then the trains' sparks constitute trespass. If, on the other hand, the farmer knowingly acquired property next to the railroad tracks and decided to plant his crops within spark range, he has to bear the cost of that decision himself.
This difference in property rights theory becomes relevant in the DeVany proposal in the section called "Intermodulation interference":
The phenomenon of intermodulation has no close parallel in other resources. It occurs when radio signals transmitted on two different frequencies cause interference to an operator using the same time and area combination but a third, distinct frequency.
For example, suppose radio operators D, E, and F locate their transmitters on the same mountain and serve roughly the same area. Assume that operator D transmits at a frequency of 100 MHz, operator E at 150 MHz, and operator F at 250 MHz. It is possible that D's and E's signals will combine via intermodulation to interfere with F's signal even though F's equipment is tuned to transmit and receive signals at 250 MHz only.
The DeVany proposal defines TAS property rights such that the resolution of conflicts will minimize Coasean social costs. Because operator F has the right to transmit at 250 MHz without interference, either D or E must bear the costs of correcting the problem. The DeVany solution is to hold responsible whoever's transmitter has combined the two signals since this leads to the cheapest fix.
This calculation is entirely alien to Rothbardian property rights. As Chancellor Wilson concluded in the Oak Leaves case, "priority of time creates a superiority in right...." The relevant question is: who was there first, and who was there last? If radio operator F is the newcomer, then he has to either bear the direct costs of overcoming the intermodulation or to make voluntary arrangements with D and E to transmit at his preferred frequency.
When, in 1951, Leo Herzel suggested that the FCC should auction broadcast licenses to the highest bidder, the immediate issue was which of two technologies should be used to transmit color television. CBS proposed one technology and RCA proposed another. Herzel realized that the answer was better found through the efficiencies of market processes than through the central planning of a regulatory body. Let the broadcasters bear the full costs of their technological choices.
There are, however, many problems with the auctioning of licenses, as we see in the case of mining on public lands. If a license gives a mining company exclusive access to certain metal deposits for the next 5 years, the incentive to the licensee is to extract as much metal as profitably possible within that 5-year period. There is no incentive to conserve resources and no incentive to preserve the mining site or to make capital investments past the 5-year window. (This is better than the open-range scenario. It's not a full tragedy of the commons. But the situation has more in common with the commons than it does with private property.) As the license expiration date approaches, the incentive to extract grows larger and the incentive to preserve and invest approaches zero.
Both the optimal conservation of resources and the optimal development of capital structure result from the user of a resource owning the title to its long-term capital value.
To take an example more familiar to most of us: we'd expect a homeowner to take better care of his residence than we would a renter. Not only will the owner take greater care to preserve the structure now, but he'll also make investments toward the capital value (and thus resale value) of his property. The renter, in contrast, cares for his residence only within the boundaries of his own short-term comfort and his legal liability to the landlord.
If an auction is to promote market efficiency in a resource, the items auctioned should be full property titles, not licenses.
In 1998 Leo Herzel published "My 1951 Color Television Article" in the Journal of Law and Economics. In it, he qualifies his support for auctions:
Unfortunately, FCC license auctioning has been adopted for the wrong reason, to raise revenue for the government. My main concern in my color television article was to attain better allocations and uses of FCC licenses, which I still think is the right concern. Auctioning was a convenient means to this end.
Arthur DeVany is exactly right when he says ... about my color television article that I did not think auctions were all that important and that what mattered most to me was the package of rights and obligations that were auctioned. ... As I have explained, I wanted to give FCC licensees the right to choose their own technology for the transmission of color television signals. I chose auctions as a simple, efficient way to achieve this property right.
But is an auction -- even an auction of full property rights -- an acceptable solution?
Rothbard writes:
...why does the government deserve to own the revenue from the sale of these assets? After all, one of the main reasons for desocialization is that the government does not deserve to own the productive assets of the country. But if it does not deserve to own the assets, why in the world does it deserve to own their monetary value?
So how do we privatize the airwaves? If the spectrum confiscation were a recent development, the first answer might be to return the stolen property to its rightful owners or their heirs. When Rothbard wrote about post-Communist desocialization in 1992, it was still possible to do that in Eastern Europe, but probably too late in Russia. With regard to broadcast properties, it is probably now too late in the United States as well, though the heirs of the earliest broadcasters should be given a chance to reclaim their airwaves.
A second option is to issue each citizen a marketable share in the newly privatized resource. Rothbard rejects this option for two reasons: (1) while the idea is simple, the logistical complexity of implementing it is huge, leaving plenty of room for abuse and the discrete preservation of political privilege; (2) "... there are grave philosophical problems with this solution. It would enshrine the principle of government handouts, and egalitarian handouts at that, to undeserving citizens. Thus would an unfortunate principle form the very base of a brand new system of libertarian property rights."
Still, there is an appeal to Boris Yeltzin's defense of the (never fully implemented) egalitarian solution: "What we need is millions of property owners, not merely a handful of millionaires."
But Rothbard's solution is both philosophically consistent with the rest of his libertarian property theory and also has the appeal of creating a "people's capitalism" without resorting to egalitarian handouts. Government-seized resources are not legitimately owned. If there is no legitimate owner, then the would-be property is, philosophically speaking, unowned. And unowned property is available for homesteading. A complete, widespread, diverse privatization requires only that we treat government-held property as abandoned property. In the post-Soviet desocialization, this would have left the workers in charge of their factories, farms, offices, etc.
This may sound like the collective ownership espoused by early communists, but the similarity is in the language and not in the specifics of implementation. Since there is no rights-bearing collective entity, there can be no legitimate collective ownership, only a collection of individual owners. If 100 workers become the homesteaders of a factory, then they each hold a 1% marketable share in the factory's property title. If similar arrangements hold for all the other farms and factories, etc., then the marketable shares quickly form the basis of a new stock market and a radical readjustment from a less efficient capital structure to one that optimizes the production of wealth.
What's the equivalent scenario under a desocialized spectrum? Current de facto users of frequencies become de jure owners of property titles to those frequencies. This is as true of unlicensed "pirate" broadcasters as it is of FCC-approved operations.
There is something unsatisfying in a revolution that leaves the same protectionist corporations in charge of their current broadcast channels, but keep three things in mind: (1) they would no longer enjoy the political privileges of the FCC's protection; (2) their competition will blossom into a diverse array of interests and market models -- educational and commercial, for-profit and non-profit, broadcast and point-to-point, etc.; (3) the consumers will finally be in charge. Any Big Broadcaster who survives the fallout will have earned the right to continue broadcasting. While post-governmental homesteading would produce results less just than initial-appropriation-based homesteading, undoing a century of history is not an option. Homesteading is the best of the strategies left to us.
How much of the spectrum should be privatized? All of it. Even the vast "beachfront property" held by the military? Yes, all of it.
As radical as this sounds, it was the position held half a century ago by both Herzel and Coase, although their vision of privatization was different from Rothbard's, and their preferred size for a surviving government was much larger. Recall that when the FCC's former chief economist said in disbelief, "Surely it is not seriously intended that [government agencies] should compete with dollar bids against broadcast users for channel allocations," Leo Herzel replied, "Such users compete for all other kinds of equipment or else they don't get it." Coase agreed that the most "socially" efficient use of spectrum could only result by requiring the various government agencies to bid against each other and against private bidders in an open auction. Coase doesn't mention the Austrians, but he must have been influenced by Mises and Hayek: without prices, there is no rational calculation. The military's outright appropriation of so much spectrum caused massive waste and inefficiencies -- with all the accompanying "social cost."
But the government doesn't bid with its own money. It uses the money taken from private interests (through direct taxation or the indirect tax of inflation) to bid against those same private interests for scarce resources. There are limits to how much the government can take without bringing the entire economy down, but those limits are nothing compared the practical limits facing any individual private investor.
This is where Rothbard parts company with economic conservatives, classical liberals, and libertarian minarchists. So long as the state holds a territorial monopoly on force and involuntary taxation, no market can be truly unhampered, least of all markets in resources the state wants to acquire.
Requiring government agencies to bid for resources does not free the market, neither does it reduce Coasean social cost. Just to take a recent example, the government borrows, taxes and inflates to conduct wars abroad. Among the resources they need are lumber and other construction supplies. Private citizens are hurt by the military's acquisition of bidding funds, even before their bids on resources drive up the costs of new construction. Raising the price of new homes also raises the price of old homes, which also raises rents. Even if we ignore the economic destruction taking place outside American borders, military "competition" for resources causes harm within our borders.
One might argue that these effects are no different from any wealthy capitalist bidding up prices, but (1) the capitalist is more often driven by projects that he predicts will be profitable (and therefore economically beneficial), and (2) the capitalist got his investment funds through mutually beneficial past voluntary exchange. The military, in contrast, either seizes the resources it needs, or seizes the funds it needs to purchase them. The capitalist makes his bid in a positive-sum context; the government's game is zero-sum even before the auction takes place.
Requiring government agencies to bid for spectrum in open auction is only beneficial to the extent that it reduces the amount of spectrum held by the government. Whatever spectrum they continue to hold is paid for through seizure, which is not, economically speaking, significantly different from having seized that amount of spectrum outright.
But even without Rothbard's preferred abolition of the state, a homesteading principle, applied to all useable spectrum, would drastically reduce government waste. If the Navy wants to keep a certain frequency range, then it has to use it. Neither direct nor indirect seizure is enough to claim it as property.
Most government-held spectrum is currently unused, but remains off-limits to private appropriation. The result, in the United States, is an artificial scarcity well beyond that imposed by the FCC's protectionist practices. In most of Europe, for instance, the Welfare State is bigger than in the United States, but the Warfare State is considerably smaller. As a result of less military appropriation, private European companies have more spectrum to work with for new radio technologies such as mobile telephony and wireless Internet. This puts American companies and consumers at a severe competitive disadvantage in a global market. In a more personal context, it means that my wireless Internet access is slower, less robust, and more expensive than it has to be. What seem like fast-paced changes in wireless and data technology are actually slower than they would be in an unhampered market in radio spectrum.
[...]
"In the long run, economics triumphs over symbolism, hoopla, and radical chic."
Yes, radio spectrum is unique. So is every other resource unique. Thus the technological units of any resource will have to be uniquely determined, but scarce resources cannot be handled with efficiency or justice outside a private property regime. When a resource is "public" it will either suffer the tragedy of the commons or be subjected to political allocation on the part of privileged interests, with all the waste and calculational chaos inevitable under central planning.
While it is true that the history of land property lends itself to misleading metaphors and false understandings of the nature of new resources, the Oak Leaves decision of 1926 illustrates that common-law precedent can guide us to correct answers if we understand which metaphors are useful and which ones don't apply.
Murray Rothbard's praxeological property theory makes common law more coherent -- not just for new resources, but for all scarce resources, including land, labor, and capital -- and obviates our dependency on metaphor. While classical (and neoclassical) property models struggle to adjust to new conditions, the relevant technological unit serves as a principle for judging any new resource -- or new understanding of an old resource. Property is not in things, but in our use of things, in our actions taken in the world. Once we return to the fundamentals of human action, we find that new circumstances are best addressed with old principles.
Wireless technology will continue to change the nature of communication and our uses of information. It will no doubt effect radical changes in the particulars of the market, but it cannot make economic law obsolete. Neither can it change the ethics of property rights.
