The Curious Nature of Wealth and Ownership

on Sunday, May 15, 2011

How do we know that we own anything? Because we have it in our immediate possession? We know that can’t be true, because we can borrow a car, or wheel of cheese we do not own. We hold them in our hands and control them only temporarily; we do not own them. Shipping companies transport goods they do not own, we live in homes we do not own, and we even make use of digital movies that we hold for 24 hours, and “return” them to iTunes, or Netflix. So if holding and controlling an asset does not an owner make, what does? What is this thing we call ownership?

Wealth is anything valued that can be exchanged, and a wealthy man owns wealth. It is the ownership that makes him wealthy, and it is the ownership that he trades when he exchanges his wealth for another man’s wealth. We do not buy and sell wealth, we buy and sell the rights of ownership. People are only wealthy when they own, and it is the ownership that is what we exchange in markets. We do not trade the use of a tool, we trade the right to use the tool. I don't trade the cheese to you, I trade the right to eat the cheese. It is the ownership that is traded, and the ownership is the only thing that can be considered to make a man wealthy. Even if I hand you the physical cheese, it is a meaningless act until I transfer ownership. Your wealth does not increase until I transfer ownership of it to you in whatever method is defined by our legal system.

When I sell my house to you, I do not pick up the house and give you the physical asset. It is not the “real” or physical wealth that is transferred in economic transactions. It is the ownership that is traded in the marketplace, not the assets themselves. There is a strange fuzzy line between "real" and "financial" assets, but the reality is that we are always trading ownership; we are always trading financial assets weather they are written on paper or not. The ownership is all we can ever exchange, and is therefore the only tradable wealth on earth -- the rights to control items that we value.

Sometimes we are fooled into believing that when we trade physical objects we are trading wealth. That is not the case. If we go to a friend’s house and I take a book off the shelf and give it to you, and say “here, this is a gift from me, it's yours now,” you might respond by asking if I own the book. This would be an example of me giving you a physical asset without giving you its ownership, and we can see that trading the physical asset is irrelevant. In order to give you the book it does not matter its physical location. All that matters is the location of its ownership, which still rests with the homeowner. The ownership (and its method of enforcement) is all the matters.

Land deed from 1636
Without government, one enforces the ownership of their assets by personal force. With a government that does this job for us, we are able to own without being in the immediate possession of the asset. Without a system of property rights, the value of assets is always contained in their physical form, and whoever has immediate control is the owner. Previously, to exchange the ownership of wealth, we would exchange the physical wealth, but the ownership is what we were really trading -- it’s what we really value. The ownership is like the soul of the wealth, and it is the collection of souls that makes men wealthy. If a man uses wealth that he does not own, he is not wealthy. The man who flies a multimillion dollar airplane is not necessarily wealthy. It is the man who owns the plane that is wealthy.

Ownership is today determined by the state. Without the state, each man is his own government, and uses his own force in order to own; in modern economies, the state decides who owns. A man who uses wealth is not rich. Only the man that owns wealth is rich. So it is more important to look to ownership and not to the physical location of wealth in analyzing specific economic transactions.

Modern legal systems allow us to own wealth that is not in our immediate possession. The system allows us to hold “title” or “deed” or other paperwork that specifies who owns certain pieces of wealth. These are legal documents that spell out in not-so-plain english exactly who is owns the the car or home. Ownership may be divided between a few people, or one person may own the entire asset. The legal documents point to the owners.

The modern system gets us into trouble when thinking about wealth and ownership, however. We do not intuitively understand a system that is able to transfer the ownership of an asset through time and space. We are now literally able to move ownership anywhere in the world, and move ownership into the future as well, with contracts that specify that ownership will be transferred on a certain date. We can transfer ownership before we even have it, by selling short. All of this is very confusing for our primitive minds, so I have found it more reasonable to think about wealth and ownership in a way that human beings are more easily able to consider; we should think of wealth in the same way that we think of a human being, and think of ownership in the same way that we think of human souls.

With the modern legal system enforcing and regulating property rights, we are able to rip the soul from a home in California, put it in a jar, and keep in in a desk in New York. The soul of any asset is the ownership of that asset. When we move souls through time and space, and store them for later, nothing happens to the “bodies” that used to contain ownership. They continue on as if nothing has changed, but we know better. In the system of law and order that we enjoy today, if you find a house in the woods, you cannot take possession of it, because you do not know where its soul resides. Today we do not own a piece of wealth unless we control its soul, and souls are regulated by the government. We can certainly make use of a house we find in the woods. We can even destroy its zombie body, but we do not own the home in the woods. To own it, we must find its soul.

The process of creating financial (paper) assets is to delineate who will control an asset’s soul. When we create new stock in a company and sell shares to investors, we are selling pieces of the company’s soul to many people. When we create a currency we are dividing a home’s soul (its ownership) into many smaller pieces, each of which we call a dollar, kroner or yen. Those dollars entitle the holder to a piece of an asset’s soul. This entire process of moving and dividing souls is a process that creates liquidity and stability. With the ability to own assets at any point in space or time, we are able to do things that our ancestors only dreamed about, and it is a big reason that our wealth is growing so quickly. The ability to own at a distance, and move assets so easily through time and space allows the most productive among us to produce very efficiently, and to produce in vastly larger amounts than would be possible if he were forced to personally protect each of his factories and assets, or hire armies to defend them.

All of this is made possible through the careful use and threat of force. If you begin living in the house in the woods without owning it, the person that controls the home’s soul has the power to force you out of the house using police. If you refuse to leave, they’ll physically remove you, and if that isn’t possible, they’ll kill you. Similarly, if a burglar enters your home and is trying to take ownership of assets in your home, you are permitted to use force to stop him, and our laws will not punish you for defending ownership. Note that you are not defending wealth, per se, but its ownership. If he takes a car, he does not own it until he can change its serial numbers, and convince the government that he owns the car's soul. If he takes jewelry, the ownership is transferred because there is no way to prevent the soul from following the "body" of the asset. There is no way to stop the ownership from leaving the house with the thief.

If you don't have the legal right to the asset, you don't own it. The only way to own wealth in our modern society is to own its soul (legal right). Souls sometimes remain in the asset and sometimes they are legally moved in space and time, but the only thing that matters is ownership. Without legal ownership we do not control an asset, and without control we do not own. Legal ownership is all that matters in modern economies. You cannot own anything without the blessing of the legal system, and you cannot be wealthy unless the legal system says you are. The rule of law makes the physical asset irrelevant when we are trading with others. We trade papers that show the government who owns, we don't trade the assets themselves. The ownership is all that matters.