How can roads be provided by the market? – in cities

Posted on September 12, 2010


Roads are not a consumer good but a capital good in the production of land for rent. This is traditionally the state’s business. The abolition of the state is impossible without destroying this enterprise. However, the creation of a free market of states will make roads competitive. The state is not an evil in itself, but has become corrupted and evil by seizing the power of government.

One question that holds up many people who attempt to think about freedom is the problem of streets and roads. They cannot imagine roads being produced by any other agency than the state. When it is pointed out that roads can be produced by organizations such as home owners’ associations, this often reveals another confusion – aren’t HOAs functioning just like private governments?

The contemporary libertarian movement struggles with four controversies, all of which have an economic misconception underlying them. They are land ownership (the state), justice (government), natural and intellectual property, and citizenship and residency (immigration). What I will show in this article is that the problem of roads in fact has nothing to do with roads, but is the problem of land ownership being understood in a narrow perspective, and that once land ownership is understood broadly, producing roads turns out to be a mundane activity, while producing land becomes the focus of a very interesting economic debate, which is also touched by residency.

Before we begin to ask how a market for roads can function, we must first make some economic observations. It is not the case that all goods have an economic exchange value. Some goods are only valuable as inputs or composites of other goods. For example, a house is made up of many goods – a roof, walls, windows, a garage door, a kitchen set, etc. However, there does not exist a rental market for roofs and walls. When one seeks to buy or rent a house, one must buy the whole house. The roofs and walls cannot be negotiated away, because they are an integral part of the house. So is a driveway: a small road whose purpose is to make access to the house more convenient. If one rents an apartment in a large building, then it is understood that a driveway or garage is part of the rental price.

Roads, it turns out, are the same good at a much greater scale. It is not necessary to picture multiple “road companies” competing with tolls at every corner, as the doomsayers are fond of proposing. It is only necessary to picture an arrangement where a market for rental land exists, and this land is improved with roads to increase its value and market price. It can also be improved with sewers, parks, public squares, parking spaces, and any other kind of service that is considered to be a municipal mandate, up to the exclusion of undesirable cultures and individuals (residency rights). This arrangement is, evidently, the way that land tenure has worked for centuries, and continues to work today. It was not an invention of government – how could a government have created such a complex industry?

Cities are some of the largest, most highly capitalized enterprises in the world. As such, it was almost inevitable that the socialist revolution would target them for nationalization, as part of their attack on the “commanding heights” of economic production. This nationalization has lasted for such a long period that it is impossible even for many economist and libertarians to imagine their operation as anything but government-owned. What is debated is the level of service that should or should not be offered, or the level of regulation that is preferable, but these are economic decisions that can only be made from the point of view of property ownership – owning the positive and negative consequences of making choices of exclusivity regarding a property. While some libertarians argue that cities should not have a police force, they never make the argument that shopping malls should not employ security guards. In fact, they are one and the same good.

But then we come to the final misconception – at what point is a shopping mall a city, and thus a government? That confusion involves a historical twist. During the medieval era in Europe, before the modern state was formed, the only way to accumulate wealth was by owning land estates that would be rented out to tenants, thus earning an income. These landlords were often in conflict with one another, and thus had to keep men at arms to defend their holdings. As such, people would turn to them when they sought justice, since the landlords had the means to enforce their judgement in a dispute. Although the lords had the right to determine how their land was to be used, and were sometimes called upon to judge the law in some dispute, the two activities were not as inseparable as they are considered to be today. While it may have been convenient to turn to the landlord for justice for geographical reasons, the lords were not a monopoly of justice over their domains – if they ruled wrongly, people could always go to the next town over for justice. (Some towns were famous throughout Europe for their courts of justice.) The monopoly over justice was established in European law only after the Thirty Year’s War in the Treaty of Westphalia, which made the lord the only sovereign authority in his estate. The lords conspired with one another not to compete in the production of justice, and their estate gradually transformed into the modern absolutist state.

How are we to determine today if a city or county is a government, or just an enterprise? If it can legislate, that is to say rule the conflicts that it itself creates. So while the city of New York can impose a smoking ban and there is no appeal that any merchant can make against it, a HOA cannot impose a ban that is not part of the contract agreement between its members. Similarly, a city is not a government, but is an enterprise, if its shares can be bought and sold, subdivided and merged, like all other forms of private property. Thus cities and counties can be rearranged by capitalists who want to invest in their improvement and seek profit-making opportunities, and this is how a market for roads operates. Because under the current political system all cities and counties are socialized or owned in common, they cannot go bankrupt and be salvaged by new ownership – they must decay to utter ruin as their prices are raised while their value plummets, such as has happened to many cities of the American rust belt. Should these cities be subject to other authorities, they would cease being governments and would most likely immediately go bankrupt. At this point the new authority would have to act as bankruptcy judge to reorganize its ownership structure.

From this point of view, a program for the privatization of roads can easily be promoted even within the current state political system: simply open up the ownership of cities to the capital markets. Transform city debt into equity by selling shares of their ownership, bringing much needed economic governance to their administration.

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