Mark Kanazawa's Golden Rules is a timely book given that California in 2015 is at the epicenter of a lengthy drought and growing debate over water rights and allocations. Kanazawa examines current California water law and policy through the prism of its origins in the era of the California Gold Rush of the 1850s. The author uses the lenses of history, the common law, and institutional economics to frame this valuable analysis.
At the highest level of generality—and where the concerns of economics and ethics overlap—Kanazawa's book is about “the tragedy of the commons” or (to use economics terminology) where near-complete rent dissipation occurs when “roving bandits” are able to move into an area to exploit a resource, with total unconcern for the resource base and welfare of the locals, and then to move out “before people know what hit them” (p. 26). Institutionalization of private property rights in a scarce resource like western water can impede exploitation by “roving bandits,” but it can have the countervailing negative effect of encouraging “racing dissipation” as claimants race to acquire water rights through uneconomic investments in water development (pp. 7–8).
To simplify a complicated story, Kanazawa compares eastern riparian rights and western appropriative rights. Riparian law, embodied in the English common law, prevailed in the eastern United States, where rivers and rainfall were abundant, where the right to use flowing water was adjunctive to land ownership, where early industrial uses such as water mills did not consume the water that they used, and where all riparian owners, regardless of when they arrived on the scene, had equal rights (pp. 7, 190–201).
However, in the arid West, especially in mining regions, rainfall was less, rivers in shorter supply, and water a scarce resource that became more valuable as gold mining in California moved from “wet diggings” in or near river beds to “dry diggings” that required a shift to capital-intensive and higher-tech strategies to divert water. These new strategies often created negative externalities—including dam failures and the flooding of lower stream users, who typically sought relief under mining camp codes, legislative enactments, or judicial decisions. The parallel evolution in the courts was from property right rules to tort liability rules including nuisance and negligence doctrines (Chapter 9). Another complicating factor, of both immediate- and longer-term interest, was that early western mining and attendant water development occurred overwhelmingly on government-owned land (p. 215).
In California, as the author argues, water law developed in a complicated fashion, from a rejection of riparian doctrine in favor of a doctrine of “prior appropriation” or “first in use, first in right.” This body of law governed water diversion for “reasonable” and “beneficial” uses, as a means or promoting efficient development and rent maximization. Later, the movement was toward a renewed emphasis on government regulation in the public interest, to curb negative externalities and to recognize that water is a multi-faceted resource with other purposes such as habitat preservation which also deserved consideration (p. 269).
Kanazawa's book is valuable in a number of respects. Chapter 3 on “Water and the Technologies of Mining” and Chapter 4 on “Watering the Diggings” will familiarize readers with all they want to know—or perhaps more than they want to know—about this subject. Chapter 5 on “The Informal Law of the Mining Camps” is extremely illuminating on the interplay of customary notions of fairness and justice as well as property rights with economic, technological, political, and legal forces over the course of the 1850s. The author links this to Elinor Ostrom's more general concern with the challenges of self-organizing entities in managing common-property resources (p. 276).
Kanazawa thoroughly surveys both the historical and economic literatures on Gold Rush-era water law development. Western and environmental historians (e.g., Walter Prescott Webb, Donald Worster, Donald Pisani, Rodman Paul, and John Caughey) have debated the relative significance of environmental aridity, capitalist culture, and traditional notions of fairness and “distributive justice” that carried weight both on the Overland Trail and in the mining camps in shaping western water development. Studying history, economists in a more theoretical vein view the creation of property rights in water either as a response to an “anarchic situation” or “original contract” (John Umbeck) or as an efficient mechanism to facilitate turnover in gold claims (Karen Clay and Gavin Wright) (pp. 16–18). In addition, the book is exemplary for explaining the political-legal complex interaction between legislatures prone to “interest group capture,” courts seeking to bow to common law history, and mining camps sensitive to popular rights (except of minorities) in shaping Gold Rush mining and water development.
To use fashionable terminology, this book also is a contribution to the study of water rights viewed as “the end result of an evolutionary path-dependent legal process with roots in the past” (p. 3). The concluding discussion (Chapter 10) offers a short but provocative analysis of the past in relation to present and future. There is a continuing—and increasing—tension between property rights recognition in water (including the new wrinkle of water markets) and concern with negative externalities and distributional consequences (pp. 276–77). However, not everyone is likely to agree with Kanazawa's sanguine conclusion that: “appropriative law can provide doctrinal and practical support for the reallocations of water, including through water markets, which are likely to be called-for in the future” (p. 270).
