Why is private property and the protection of property rights so crucial to the success of the market economy?

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Market economies are most often associated with capitalism. Capitalism is defined by the privatization of forces of supply and demand. The effects of supply and demand transfer capital from less desirable investments to investments that offer a more substantial return on the investment. Private property is a form of capital...

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Market economies are most often associated with capitalism. Capitalism is defined by the privatization of forces of supply and demand. The effects of supply and demand transfer capital from less desirable investments to investments that offer a more substantial return on the investment. Private property is a form of capital investment in one sense. A capitalist economic system differs from a Marxist or socialist economy on how capital is distributed and on private ownership of property. In a Marxist or socialist economy, in theory, there is no private ownership of property. Property is for the public good, and the use of the property or the distribution of property is government-controlled.

In a capitalist economic system, private property is considered an investment, and its use with some restrictions is controlled by individuals. Protecting property rights is one way of managing wealth. In countries where there is little or no protection for property rights, capital does not easily flow into the economy. If the idea is to maximize the return on investment for capital, no one is going to risk placing significant amounts of capital investment in countries where industries or private property can be confiscated and nationalized.

One example that underscores this point is Cuba. Before the revolution in Cuba, the country boasted a dynamic economy with capital flowing into Cuba from many parts of the world. After the Cuban Revolution of 1959 and the confiscation of private business (such as American owned oil refineries as well as other companies), private investment stopped. This eventually led to the nationalization of all private property, including property owned by native Cubans. The economy in Cuba today consists mostly of a handful of companies that are allowed to operate because they are affiliated with the current regime. Cuba is an example of why protecting property rights is essential to a market economy.

Don't be misled in thinking the United States has a perfect record for protecting property rights. For example, asset forfeiture and property seizure for drug arrests, suspected terrorist activities, and for some civil infractions have become too familiar of a practice that many civil libertarians are calling for national legislation to be enacted to protect people from the unwarranted seizure of assets.

Other examples are the expansion of eminent domain laws. Eminent domain laws allow the government to seize property that is deemed in the public good. If the government plans to build a road and your house stands in the way, under eminent domain laws, if a satisfactory agreement between you and the government can't be negotiated, in some cases property has been confiscated when it is deemed in the public interest. You will be compensated for the property, but the compensation may be far less than the investment and usage you have for the property.

Without the protection of property rights, a capitalist market economy would have little chance for survival. Protecting property rights has to balance with maintaining the public good. These two events inevitably conflict with each other. We then rely on the prudence of the legal system to settle claims of inequitable treatment of property rights.

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In a market economy, the people are free to make economic decisions based on their own self-interest. Buyers want to get their goods at the lowest price and sellers wish to get goods for the best possible price. The value of goods is based on their availability in the market and the demand for the product. If there is a high demand for the product, then the seller is at an advantage. If the market is saturated with the product, then the buyer is at an advantage.

Private property rights are important to the function of a market economy. People are free to do as they wish with their property. They can sell to whomever they wish at whatever price they want. They can either sell their product right away or wait until a better time. If the government takes away one's private property, then it takes away the incentive for one to own it in the first place. Likewise, if the government dictates that one must own a certain good, then it gives the supplier too great of an advantage because he/she knows that they can supply the product at a higher cost.

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A market economy is a system where prices and economic decisions are based on the forces of supply and demand. Government involvement in such systems is maintained at a minimum.

Private property and protection of property rights are important because it helps the economy deal with the issue of resource scarcity by ensuring its use is controlled through ownership. The private owner of a resource is expected to act in their self-interest to develop products and enhance profitability as provided by the forces of supply and demand. The individual would choose to use the resource or rent it out to the highest bidder. This results in a controlled competitive market where each participant is striving for increased satisfaction.

Private property and protection of property rights encourage investment because the owner enjoys a sense of security that enables increased focus on economic growth.

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A market economy only works if people are free to do what they want (within reason) with their property.  They are allowed to have money and are free to buy what they want.  They are allowed to have property (like land or machinery) and use it how they will.  This allows consumers to buy what they want and manufacturers to make what they think will sell.  This is the basis of a market economy.

In addition, if people cannot be secure in their property, a market economy cannot develop.  Who would spend money building a factory if the government might come and take it away from them?  If people fear the government will not respect their property rights, they will not do the things that are needed to build a market economy.

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