1. Introduction
In his recent article in this journal, Wilson (Reference Wilson2022) explores the origins and explanation of ownershipFootnote 1 as a custom and the relationship between ownership and property rights. Research on the origins and meaning of ownership is an important undertaking but notoriously difficult. This is particularly evident in the legal field, with the legal meaning of the terms property and ownership contested. Ownership has indeed been described as ‘one of the most elusive concepts of English law’ (Goode, Reference Goode2004: 31). On the other hand, economists, including leading proponents of new institutional economics, have placed an undue focus on use rights (possession), and neglected ownership and security interests (Heinsohn and Steiger, Reference Heinsohn and Steiger1996, Reference Heinsohn and Steiger2013; Hodgson, Reference Hodgson2015). In what follows, I will comment on three areas. I first review Wilson's subordination argument and find it unpersuasive and at odds with the actual legal structure. I then review the distinction between ownership and possession and argue that the linguistic evidence used by Wilson fits better with the concept of possession. In the last section, I take issue with Wilson's claim that ownership is a human universal.
2. The subordination of property rights
Wilson criticises what he refers to as the ‘standard approach’ in the analysis of ownership. In his interpretation of that standard approach, a property right is defined as a ‘subset’ of the ‘set of incidents for full ownership’ drawn from Honoré's (Reference Honoré and Guest1961) incidents of ownership (Wilson, Reference Wilson2022: 13). On this basis, Wilson concludes that ‘property rights compose ownership’ in this approach (Wilson, Reference Wilson2022: 13), and that, as a corollary, property rights explain ownership and what he calls the ‘custom of property [ownership]’ (Wilson, Reference Wilson2022: 13).Footnote 2 Wilson argues that the standard view puts things the wrong way around. In his view, the custom of ownership must explain property rights and the latter are subordinated to ownership – hence the title of his paper. Ownership as a custom is defined by Wilson as a set of rules that are socially taught about what things under what circumstances can be claimed as ‘MINE’ and ‘NOT MINE’ (Wilson, Reference Wilson2022: 2, 5). In turn, he argues that the concepts of ‘MINE’ and ‘NOT MINE’ are products of the human mind, as humans have a propensity to conceptualise things as abstract objects that can be claimed as ‘MINE’. Ownership is the primary concept because it is ‘rooted in the abstract concept MINE’ (Wilson, Reference Wilson2020: 183).
I must admit that I have some difficulties following this argument. Honoré positioned his 11 incidents as ‘ingredients in the notion of ownership’ or available criteria for ‘the identification of the interest called “ownership”’ (Honoré's Reference Honoré and Guest1961: 112). Arguably, Honoré's incidents represent features of ownership and not, as Wilson assumes, ‘the most complete and comprehensive set of rights’ or a collection of ‘pieces that are property rights’ that ‘compose’ ownership (Wilson, Reference Wilson2022: 13, 1). Ownership is itself a property right. These conceptual difficulties perhaps illustrate why it is also important from an economic point of view to look closely at the underlying legal structure to gain a complete picture. If we take the example of personal property, which includes items like tools that Wilson (Reference Wilson2020) appears to be most interested in, standard textbooks on commercial law (e.g. Goode, Reference Goode2004) tell us that there are three main forms of property rights in English common law: ownership, possession and the equitable charge (hypothecation). All three are separate rights. The equitable charge is an encumbrance not based on ownership and possession. A closer inspection of the legal concept of possession reveals that it is not carved out of ownership either but created as an original interest when an asset is delivered to another party, for instance a bailee (Goode, Reference Goode2004: 33). Hence, Wilson's argument that all property rights are subordinated to ownership is difficult to reconcile with the actual legal structure.
A further concern relates to Wilson's use of the term ‘custom’. His custom of ownership appears to be an incredibly flexible concept that even encompasses the latest case law decisions (Wilson, Reference Wilson2022: 14–15). In my view, Wilson stretches the term too far and the concept loses explanatory power. How the abstract concept of ‘This thing is mine’, claimed by Wilson to be common to ‘all communities, past and present’ (Wilson, Reference Wilson2022: 2–3), has asserted its primacy and influenced the development of property law as well as specific problems in English and American case law is left unexplained.
3. The distinction between ownership and possession
Pollock and Maitland noted in their landmark history of English law that ‘it is hardly correct to say that Anglo-Saxon customs or any Germanic customs, deal with ownership at all’. They concluded that ‘[w]hat modern lawyers call ownership or property, the dominium of the Roman system, is not recognised in early Germanic ideas’ and that the leading concept was possession. It was possession that was defended and recovered, and ‘to possess without dispute’ was ‘the only sure foundation of title’ (Pollock and Maitland, Reference Pollock and Maitland1898: 34; emphasis in original). It was a time when the law focussed on the restoration of chattels (cattle) and the punishment of thieves. Pollock summarised this view some years later, in 1926, in a letter to Holmes by stating that ‘our ancestors simply couldn't understand owning anything one does not actually possess’ (Pollock, Reference Pollock, Holmes, Pollock and Howe1942: 186).
By contrast, ownership is the leading concept in developed civil and common law systems. An owner does not have to be the possessor to have the best title to an absolute interest in an asset. This becomes evident when ownership is defined based on its residuary character, a concept used to articulate the essence of ownership. For instance, Goode defines ownership in personal property ‘as the residue of legal rights in an asset remaining in a person […] after more specific rights [e. g. possession as part of a bailment] over the asset have been granted to others’.Footnote 3 The conceptual distinction between ownership as a residue of rights and possession as a special right is significant as it underpins the core transactions in modern economies. Here, a vast number of transactions are based on credit and lease arrangements with asset ownership and possession vested in different persons. Take the case where A has taken out a mortgage under general common law rules and obtained a money loan from B. With the agreement of B, A remains in possession and can continue with the economic use of the asset, while ownership is transferred to B as security for the loan. What makes property rights significant is the protection they provide to creditors in the case of a debtor's insolvency. Should A become insolvent, B can realise the security, rather than have to make a claim in competition with other unsecured creditors. Goode has repeatedly reminded us that ‘[i]f it were not for the possibility of the insolvency of A or B, the distinction between a real [property] right in goods and a personal right to goods would be largely academic’ (Goode, Reference Goode1989: 2, emphasis in original; reemphasised in Goode, Reference Goode2004: 25).
The legal analysis of ownership and possession within their economic context thus reveals (i) a concept of ownership as a residue of rights that enables the structuring of secured transactions and bailments, and protects creditor interests in debt enforcement actions; and (ii) a concept of possession that facilitates the economic use of an asset free from interference and is closely aligned with the ancient ideas of ‘mine’ and ‘thine’. This allows me to assess Wilson's claim that terms such as ‘Mine!’, ‘not yours’ and ‘thou shalt not steal’ could ground ownership as a custom (Wilson, Reference Wilson2022: 2). Based on the foregoing discussion, I argue that these terms are more closely aligned with possession. Wilson's term custom of ownership would perhaps be more accurately described as the ‘custom of possession’, with the associated remedies against theft and interference.
I believe that the explanation of ownership as a residue of rights that is distinct from possession requires more sophisticated concepts than ‘MINE’ and ‘NOT MINE’. The commercial context in which ownership in this form becomes essential suggests that it may be grounded in the idea of collateral security or the idea of the lease. Such an explanation was indeed suggested by Heinsohn and Steiger more than 25 years ago. They argued that ownership, conceptualised as an abstract ownership title distinct from possession, was invented by the revolutionary founders of the first ancient city states, when they began to encumber their land allotments as collateral security for money loans, while continuing with their land use and possession.Footnote 4
4. Is ownership a human universal?
Wilson (Reference Wilson2022: 2) claims that ‘[p]roperty [ownership] is one of numerous customs that humans universally practice’. Based on the discussion above, I argue that this statement may hold for possession but not for ownership, unless the term ownership is stripped of its essential legal meaning. Pollock and Maitland argued that both Anglo-Saxon and German customs knew possession but not ownership. A similar argument has been made for communities of hunters and gatherers, feudal societies and the former systems of state socialism.Footnote 5 While some form of possession is encountered throughout human history, societies with ownership only account for a relatively short period of this history. Ownership is not a universal characteristic of human organisation.
The former socialist German Democratic Republic (GDR) provides a particularly instructive example in this regard.Footnote 6 In 1945, the German Communist party in conjunction with the Soviet Military Administration designed a wide-ranging land reform to expropriate the land of national socialists, war criminals and landowners with holdings above 100 hectares (‘Junkers’) without compensation. The expropriated land was transferred into a land fund, with a size equivalent to about 30% of the total land area of the former GDR. The land was redistributed in much smaller parcels as ‘land reform property’ to peasants and farm workers. By January 1949, 13,699 properties with a combined land area of 3,225,364 hectares had been expropriated, with 209,000 new peasant farms created and 120,000 grants provided to existing farms (Sandford, Reference Sandford1983: 113–114). The legal status of the new holdings was described by the leading GDR official as ‘private ownership in land’ and the new East German farmers as ‘masters of their soil’ (Hoernle, Reference Hoernle1946: 4, 12–14). The land could be inherited and the new farmers obtained land title certificates and could register their holdings with the land registry. Old land registers were burned. The authorities made a deliberate effort to give the new land titles the appearance of proprietary rights in order to discourage any future challenge to the reforms (Sandford, Reference Sandford1983: 100). The new land titles would have passed Wilson's ownership test (Wilson, Reference Wilson2022: 6) with flying colours: the new farmers could say about their land reform property: ‘This is mine’ and other people could know that this was true.
Despite the appearance of full private ownership, land reform property was subject to a number of material restrictions. Land reform property could not be subdivided, transferred, leased out or hypothecated and there was a duty to utilise the land. While the new farmers could certainly make the statement ‘this land is mine’, Wilson's custom or rules of ownership applied to the former GDR would have to reflect their inability to sell, lease out or mortgage their land. If abandoned, the individual land holding reverted back to the land fund. As a result, the land titles had come to signify a mere use rightFootnote 7 and had lost their nexus to collateral security, leasing and sales. Would a court of the Federal Republic of Germany recognise an interest in land reform property before German reunification as ownership? Or to use Wilson's terminology, how would the court interpret the socialist custom of ownership related to 30% of land in the former GDR? The German Federal Court decided that the land title did not amount to ownership. Due to the imposed restrictions, the Court held that ‘ownership in land reform property was stripped of its essential meaning as ownership under the German Civil Code’.Footnote 8 Possession, not ownership, was the leading concept in the former GDR.
1. Introduction
In his recent article in this journal, Wilson (Reference Wilson2022) explores the origins and explanation of ownershipFootnote 1 as a custom and the relationship between ownership and property rights. Research on the origins and meaning of ownership is an important undertaking but notoriously difficult. This is particularly evident in the legal field, with the legal meaning of the terms property and ownership contested. Ownership has indeed been described as ‘one of the most elusive concepts of English law’ (Goode, Reference Goode2004: 31). On the other hand, economists, including leading proponents of new institutional economics, have placed an undue focus on use rights (possession), and neglected ownership and security interests (Heinsohn and Steiger, Reference Heinsohn and Steiger1996, Reference Heinsohn and Steiger2013; Hodgson, Reference Hodgson2015). In what follows, I will comment on three areas. I first review Wilson's subordination argument and find it unpersuasive and at odds with the actual legal structure. I then review the distinction between ownership and possession and argue that the linguistic evidence used by Wilson fits better with the concept of possession. In the last section, I take issue with Wilson's claim that ownership is a human universal.
2. The subordination of property rights
Wilson criticises what he refers to as the ‘standard approach’ in the analysis of ownership. In his interpretation of that standard approach, a property right is defined as a ‘subset’ of the ‘set of incidents for full ownership’ drawn from Honoré's (Reference Honoré and Guest1961) incidents of ownership (Wilson, Reference Wilson2022: 13). On this basis, Wilson concludes that ‘property rights compose ownership’ in this approach (Wilson, Reference Wilson2022: 13), and that, as a corollary, property rights explain ownership and what he calls the ‘custom of property [ownership]’ (Wilson, Reference Wilson2022: 13).Footnote 2 Wilson argues that the standard view puts things the wrong way around. In his view, the custom of ownership must explain property rights and the latter are subordinated to ownership – hence the title of his paper. Ownership as a custom is defined by Wilson as a set of rules that are socially taught about what things under what circumstances can be claimed as ‘MINE’ and ‘NOT MINE’ (Wilson, Reference Wilson2022: 2, 5). In turn, he argues that the concepts of ‘MINE’ and ‘NOT MINE’ are products of the human mind, as humans have a propensity to conceptualise things as abstract objects that can be claimed as ‘MINE’. Ownership is the primary concept because it is ‘rooted in the abstract concept MINE’ (Wilson, Reference Wilson2020: 183).
I must admit that I have some difficulties following this argument. Honoré positioned his 11 incidents as ‘ingredients in the notion of ownership’ or available criteria for ‘the identification of the interest called “ownership”’ (Honoré's Reference Honoré and Guest1961: 112). Arguably, Honoré's incidents represent features of ownership and not, as Wilson assumes, ‘the most complete and comprehensive set of rights’ or a collection of ‘pieces that are property rights’ that ‘compose’ ownership (Wilson, Reference Wilson2022: 13, 1). Ownership is itself a property right. These conceptual difficulties perhaps illustrate why it is also important from an economic point of view to look closely at the underlying legal structure to gain a complete picture. If we take the example of personal property, which includes items like tools that Wilson (Reference Wilson2020) appears to be most interested in, standard textbooks on commercial law (e.g. Goode, Reference Goode2004) tell us that there are three main forms of property rights in English common law: ownership, possession and the equitable charge (hypothecation). All three are separate rights. The equitable charge is an encumbrance not based on ownership and possession. A closer inspection of the legal concept of possession reveals that it is not carved out of ownership either but created as an original interest when an asset is delivered to another party, for instance a bailee (Goode, Reference Goode2004: 33). Hence, Wilson's argument that all property rights are subordinated to ownership is difficult to reconcile with the actual legal structure.
A further concern relates to Wilson's use of the term ‘custom’. His custom of ownership appears to be an incredibly flexible concept that even encompasses the latest case law decisions (Wilson, Reference Wilson2022: 14–15). In my view, Wilson stretches the term too far and the concept loses explanatory power. How the abstract concept of ‘This thing is mine’, claimed by Wilson to be common to ‘all communities, past and present’ (Wilson, Reference Wilson2022: 2–3), has asserted its primacy and influenced the development of property law as well as specific problems in English and American case law is left unexplained.
3. The distinction between ownership and possession
Pollock and Maitland noted in their landmark history of English law that ‘it is hardly correct to say that Anglo-Saxon customs or any Germanic customs, deal with ownership at all’. They concluded that ‘[w]hat modern lawyers call ownership or property, the dominium of the Roman system, is not recognised in early Germanic ideas’ and that the leading concept was possession. It was possession that was defended and recovered, and ‘to possess without dispute’ was ‘the only sure foundation of title’ (Pollock and Maitland, Reference Pollock and Maitland1898: 34; emphasis in original). It was a time when the law focussed on the restoration of chattels (cattle) and the punishment of thieves. Pollock summarised this view some years later, in 1926, in a letter to Holmes by stating that ‘our ancestors simply couldn't understand owning anything one does not actually possess’ (Pollock, Reference Pollock, Holmes, Pollock and Howe1942: 186).
By contrast, ownership is the leading concept in developed civil and common law systems. An owner does not have to be the possessor to have the best title to an absolute interest in an asset. This becomes evident when ownership is defined based on its residuary character, a concept used to articulate the essence of ownership. For instance, Goode defines ownership in personal property ‘as the residue of legal rights in an asset remaining in a person […] after more specific rights [e. g. possession as part of a bailment] over the asset have been granted to others’.Footnote 3 The conceptual distinction between ownership as a residue of rights and possession as a special right is significant as it underpins the core transactions in modern economies. Here, a vast number of transactions are based on credit and lease arrangements with asset ownership and possession vested in different persons. Take the case where A has taken out a mortgage under general common law rules and obtained a money loan from B. With the agreement of B, A remains in possession and can continue with the economic use of the asset, while ownership is transferred to B as security for the loan. What makes property rights significant is the protection they provide to creditors in the case of a debtor's insolvency. Should A become insolvent, B can realise the security, rather than have to make a claim in competition with other unsecured creditors. Goode has repeatedly reminded us that ‘[i]f it were not for the possibility of the insolvency of A or B, the distinction between a real [property] right in goods and a personal right to goods would be largely academic’ (Goode, Reference Goode1989: 2, emphasis in original; reemphasised in Goode, Reference Goode2004: 25).
The legal analysis of ownership and possession within their economic context thus reveals (i) a concept of ownership as a residue of rights that enables the structuring of secured transactions and bailments, and protects creditor interests in debt enforcement actions; and (ii) a concept of possession that facilitates the economic use of an asset free from interference and is closely aligned with the ancient ideas of ‘mine’ and ‘thine’. This allows me to assess Wilson's claim that terms such as ‘Mine!’, ‘not yours’ and ‘thou shalt not steal’ could ground ownership as a custom (Wilson, Reference Wilson2022: 2). Based on the foregoing discussion, I argue that these terms are more closely aligned with possession. Wilson's term custom of ownership would perhaps be more accurately described as the ‘custom of possession’, with the associated remedies against theft and interference.
I believe that the explanation of ownership as a residue of rights that is distinct from possession requires more sophisticated concepts than ‘MINE’ and ‘NOT MINE’. The commercial context in which ownership in this form becomes essential suggests that it may be grounded in the idea of collateral security or the idea of the lease. Such an explanation was indeed suggested by Heinsohn and Steiger more than 25 years ago. They argued that ownership, conceptualised as an abstract ownership title distinct from possession, was invented by the revolutionary founders of the first ancient city states, when they began to encumber their land allotments as collateral security for money loans, while continuing with their land use and possession.Footnote 4
4. Is ownership a human universal?
Wilson (Reference Wilson2022: 2) claims that ‘[p]roperty [ownership] is one of numerous customs that humans universally practice’. Based on the discussion above, I argue that this statement may hold for possession but not for ownership, unless the term ownership is stripped of its essential legal meaning. Pollock and Maitland argued that both Anglo-Saxon and German customs knew possession but not ownership. A similar argument has been made for communities of hunters and gatherers, feudal societies and the former systems of state socialism.Footnote 5 While some form of possession is encountered throughout human history, societies with ownership only account for a relatively short period of this history. Ownership is not a universal characteristic of human organisation.
The former socialist German Democratic Republic (GDR) provides a particularly instructive example in this regard.Footnote 6 In 1945, the German Communist party in conjunction with the Soviet Military Administration designed a wide-ranging land reform to expropriate the land of national socialists, war criminals and landowners with holdings above 100 hectares (‘Junkers’) without compensation. The expropriated land was transferred into a land fund, with a size equivalent to about 30% of the total land area of the former GDR. The land was redistributed in much smaller parcels as ‘land reform property’ to peasants and farm workers. By January 1949, 13,699 properties with a combined land area of 3,225,364 hectares had been expropriated, with 209,000 new peasant farms created and 120,000 grants provided to existing farms (Sandford, Reference Sandford1983: 113–114). The legal status of the new holdings was described by the leading GDR official as ‘private ownership in land’ and the new East German farmers as ‘masters of their soil’ (Hoernle, Reference Hoernle1946: 4, 12–14). The land could be inherited and the new farmers obtained land title certificates and could register their holdings with the land registry. Old land registers were burned. The authorities made a deliberate effort to give the new land titles the appearance of proprietary rights in order to discourage any future challenge to the reforms (Sandford, Reference Sandford1983: 100). The new land titles would have passed Wilson's ownership test (Wilson, Reference Wilson2022: 6) with flying colours: the new farmers could say about their land reform property: ‘This is mine’ and other people could know that this was true.
Despite the appearance of full private ownership, land reform property was subject to a number of material restrictions. Land reform property could not be subdivided, transferred, leased out or hypothecated and there was a duty to utilise the land. While the new farmers could certainly make the statement ‘this land is mine’, Wilson's custom or rules of ownership applied to the former GDR would have to reflect their inability to sell, lease out or mortgage their land. If abandoned, the individual land holding reverted back to the land fund. As a result, the land titles had come to signify a mere use rightFootnote 7 and had lost their nexus to collateral security, leasing and sales. Would a court of the Federal Republic of Germany recognise an interest in land reform property before German reunification as ownership? Or to use Wilson's terminology, how would the court interpret the socialist custom of ownership related to 30% of land in the former GDR? The German Federal Court decided that the land title did not amount to ownership. Due to the imposed restrictions, the Court held that ‘ownership in land reform property was stripped of its essential meaning as ownership under the German Civil Code’.Footnote 8 Possession, not ownership, was the leading concept in the former GDR.