chapter  6
17 Pages

The classical economist perspective on landed- property reform


Introduction Many classical economists were prominent participants in the political controversies that led up to a sequence of land-law legislative initiatives introduced from the mid-nineteenth to the turn of the twentieth century. An important dimension of the ongoing debate related to demands to dramatically alter longstanding inheritance rules, which acted to make it difficult for sitting tenants, that is, the family member in possession, to dispose of entailed property. Another dimension was the call to extend to Irish farm tenants greater security in their farm holdings, generally at the expense of landlords. A primary interest of this chapter is to weigh to what extent the attitudes of prominent classical economists regarding changes in land law were either normative, that is redistributional, rather than positive in the sense of Pareto improving. Indeed, Pareto improvement may itself be construed as a normative criterion. In our discussion this realisation may be important because we are dealing with a reassignment of property rights, leading to wealth redistribution and thereby to the possibility of a different Pareto efficient outcome. Nevertheless, as is discussed below, reassigning property rights to existing assets comes at a substantial additional cost, which may arise from a badly instituted policy that imposes any new badly specified property-right reforms. Normative tendencies among classical economists may have arisen due to close relationships with financial and mercantile interests. Many early economists also had legal training and anti-landed-wealth sentiment was typical of many lawyers of the period, as well as a commonly held opinion of many of the liberal elite. Particular hostility was directed against the House of Lords, which was the forum through which the dominant families of landed wealth advanced their interest. Moreover, anti-landed-wealth political sentiment became more acute after the extension of the franchise in the 1860s.1 Both entail and tenant rights issues were fuelled particularly in the Irish context. For example, John Stuart Mill clearly realised both issues were closely intertwined with the “Irish Question”. Furthermore, significant legislative changes that were at first applied to Ireland, served later as a model for national legislation. For example, many of the features of the Encumbrances Act were

later adopted in England, and many characteristics of Irish tenant legislation were later extended into parts of Scotland. We are interested in the change in inheritance laws in general, and in legislation favouring Irish tenant farmers. The political controversies surrounding each included both redistributional and social efficiency aspects. Opposition to existing inheritance laws centred on the elimination of the strict-settlement system which worked to reduce the potential mal-incentives of a sitting tenant to squander family wealth to the detriment of future generations and current family members. The latter typically received life-long annuities. The parental malincentive aspects of the system were apparently largely discounted by classical economists. As will be elaborated below, many classical economists believed that strict settlement was an impediment to the free transfer of land, reducing the supply available to meet the increasing demand for land for urban or industrial uses. Since its establishment at the end of the seventeenth century, the strictsettlement system acted to perpetuate the aristocratic ownership of large landed estates. The system declined from the mid-nineteenth century, but was not effectively eliminated until the first quarter of the twentieth century. Arising from the long-term political trend aimed at improving the welfare of Irish tenants, a second controversy arose. In part, this was motivated by the belief that land reforms would improve agricultural productivity.2 However, proagricultural tenant sentiment was also based on the belief that somehow large landholdings had a somewhat illegitimate origin. As is elaborated below, this was clearly the view of many of later classicists and particularly that of the institutional classicists. As noted previously, Irish-style legislation was soon used as a model applicable to fringe areas of Scotland, where the population was also alleged to have a different property-right tradition. Eventually, at the turn of the twentieth century some of its features, such as compensation for tenants for “unjust” eviction, were extended to England. The story of Irish tenant-right legislation marks an unprecedented and remarkable trend in Britain in the erosion of traditional rights over property for the individual, reflecting a dramatic transformation in the psychology of the political elites of the period. For example, the Deasy Act passed during the 1860s aimed to improve tenant welfare through more clearly defining the traditional rights and obligations of both tenants and landlords. Nevertheless, that approach was abandoned in subsequent acts. Ostensively to promote investment, in the early 1870s the Gladstone government granted Irish tenants greater protection against eviction if in good standing, and the right to compensation for “improvements”. Subsequent legislation in the early 1880s, also passed under a Gladstone government, set up a new Land Commission to administer “fair rents”, which required that Irish tenants be granted fixity of rent and fixity of tenure. Fixity of tenure and fixity of rent extended to the Irish tenant farmer de facto co-ownership (Solow 1971: 23). Consequently, the provisions of the Act were considered to violate for the first time the traditional private property maxim of the individual having the right to dispose of his property as he saw fit. Later legislation extended to the Irish tenant farmer the legal right to sell his “ownership

interest” thereby enabling him to also capitalise on his co-ownership. Arguably this additional legislative step encouraged Irish farm tenants to invest further in political bargaining. In retrospect, it is unsurprising that subsequent legislation at the end of the century subsidised eventual full ownership for sitting tenants. Regarding their general view on all property ownership, classical economists, at least up to John Stuart Mill and John Elliot Cairnes, followed the lead of Adam Smith in the belief that the pursuit of self-interest led to the common good. This led them to the laissez-faire conclusion that an individual should be left free to use his property and to freely contract as he saw fit. The classical theory of rent, which was apparently independently developed by Torrens, Malthus and Ricardo, may have reinforced leading economists in opposing the Corn Laws (Seligman 1903). It can be argued that classical economists saw correctly that, in a well-defined property right system, rents were generated by the scarcity of land, and were independent of who received them. The classical theory of rent should in fact have reinforced the traditional hostility to landed property redistribution. Consequently, classical economists writing in the early nineteenth century followed Smith in accepting Locke’s natural-law view of property rights, whereby the role of the state was limited to the protection of existing property rights.3 It is interesting to contrast a Lockian inspired state system to that of a Hobbesian. The latter argues that the existence of government is a necessary precondition in order to avoid the costly and therefore welfare-reducing condition where each individual is inclined to predate against his neighbours’ property. Significantly, the role of the Hobbesian state is to both assign as well as to enforce its preferred bundle of property rights. Nevertheless, ceteris paribus, an obvious advantage of a Lockian over a Hobbesian property-right system is that the former acts as a better prophylactic against the prospect of any state-inspired property redistribution in future periods, arising out of political realignments or new technology. While it may be always important for the law to adapt to new problems, successful economies invariably always extend strong protection to existing property rights in order to avoid substantial costs generated by time inconsistency problems. It is important to note that it was through the perspective of Benthamite utilitarianism that many lawyers and elements of the growing bureaucratic establishment became convinced of the classical economic approach to resolving property and contractual problems (Atiyah 1979: 293).4 Benthamism was in basic agreement with the other classical economists regarding traditional property rights, but differed from the Smithian notion that the pursuit of self-interest naturally leads to the public good. Indeed, Bentham argued that the public good had to be protected against the excessive pursuit of self-interest. Thus his approach to government intervention is wholly consistent with Lockian principles. The influence of Benthamite doctrine over nineteenth-century legal and other elites was replaced during the late 1860s and early 1870s by historicist ideology, particular the work of Henry Maine. Maine’s approach to jurisprudence was greatly influenced by the evolutionary approach of Savigny and other German

historicists (Atyiah 1979: 603). The important aspect of the new historicist hegemony in the legal profession is that it served as a rationale for the weakening of traditional landed property rights, particularly in regard to non-English contexts such as Ireland, where claims of customary tenant privileges, resting on natural law sentiments, generated greater political resonance. Significantly, historicist relativism also gained influence among economists organised around the Oxford-Dublin School. Prominent Irish economists such as Leslie and Ingram were well-known historicists who to varying degrees influenced nineteenthcentury Irish land law (Black 1953: 118). The rest of this chapter is organised as follows. The next section discusses the political arguments of classical economists regarding the strict-settlement system with the aim of attempting to identify the reasons underlying their inherent dislike of the system. We will conclude our discussion on the strict-settlement system by identifying some of its potential social advantages, which were seemingly overlooked by nineteenth-century economists. The following section contrasts the property-right approach relating to farm tenancies of early classical economists, such as Nassau Senior and James McCulloch with the more redistributional approach of John Stuart Mill and John Elliot Cairnes. The latter discussion concludes by comparing the views of the latter with subsequent legislation.