Why is private property important for technological progress to occur?
Economic theory teaches that Wayland was speaking truth. The right to property is absolutely essential for human flourishing, for it is the social institution necessary for the engines of economic prosperity to function.
Private Property Allows for Division of Labor
I have previously explained the importance of the division of labor for human flourishing. The door to the division of labor is opened by voluntary exchange, because the possibility for exchange allows us to produce goods that are of service to others and not for merely our own use.
If no exchange took place, we would have to make our own food, shirts, pants, shoes, socks, books, desks, notebooks, houses, automobiles, computers, stereos, compact disks, mp3 players, DVD players, bibles—everything. Our standard of living would fall dramatically.
No one has the time to make everything listed above. Our clothes, food, and shelter would be much more crude and much less plentiful. Many goods we would simply have to do without. A noticeable segment of our population would not even survive.
We can benefit from the division of labor, therefore, only if dwelling in a society with institutions supporting voluntary trade. Ownership is one of these institutions. People cannot exchange what they do not own. In order to benefit from the economic development that flows from the division of labor, people must be secure in their property.
Private Property is Necessary for Capital Formation
For people to have the incentive to accumulate capital, they also must be secure in their property. If, for example, the state enforces confiscatory taxation, capital accumulation is hindered in two ways.
Taxes increase the cost of production, reducing the net income from any business venture. When people reap smaller incomes, they are able to save and invest less, which results in a smaller capital stock over time. Additionally, people have less incentive to save and invest, because they a guaranteed a smaller return due to some of profit being taxed away.
Additionally, people are discouraged from putting their savings at long-term risk if they are afraid that at any moment, it may be claimed by the government. The social institution that makes saving and investment both possible and attractive is private property.
Private Property is Necessary for Wise Entrepreneurship
In order for accumulated capital and other factors of production to be wisely stewarded and put toward their most valued uses, entrepreneurs use economic calculation based on money prices to determine profit or loss.
If entrepreneurs need money prices for economic calculation, it is obvious that society must have a monetary economy. Additionally, the money prices they use must be free market prices, because only such prices are manifestations of the subjective values of the buyers and sellers in society.
In order for entrepreneurs to perform their social function, we need, therefore, a system of voluntary exchange – a system in which money prices are the result of voluntary action on the part of both buyers and sellers. Wise entrepreneurship also requires private property, the institutional foundation for voluntary exchange.
The lesson of economics is clear. If we want to promote human flourishing, we need social institutions that foster the division of labor, capital formation, and wise entrepreneurship.
The common condition that is necessary for all of the above is the institution of private property. The more the right to property is embraced and defended, the more empowered are people to participate in fulfilling the cultural mandate God gave our first parents in the beginning.