I spend a lot of time with first-generation founders. They often share the traits of self-reliance and a deep sense of agency, powered by sharp instincts for survival. While their instincts are mostly a virtue, they can be a vice as well, especially when a misconception is held. One major area of misconception is the concept of a company — what it is and what it’s for. In this series, I will explore this fascinating and consequential legal fiction: the practical problems that companies solved in the economy, their history and evolution, and how to think about them today.
Note from author: I am not yet sure how many instalments I will write on this subject. But when we get to the end, I will consolidate the instalments into one essay. If you know of a publisher, please recommend them, and I will submit the essay on their platform. This is therefore an exploratory series, intended to examine a fundamental and seemingly simple concept. But as we know from applying the Socratic Method, what seems simple may be layered and baffling on careful examination. Today’s instalment explores property and ownership, which are fundamental to understanding companies.
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Human beings have the instinct for entitlement. When we enter a room and sit on a chair, a feeling of entitlement emerges. We see this when we stand up, let’s say, and go to the bathroom, only to find someone else occupying it. It is a distinct feeling of loss when it is violated. We also see this in the playground with young children about whom we cannot say concepts of “ownership” have been inculcated. During break time, they dash out of the classroom to claim a toy or a place in the playground. Likewise, a scuffle might break out when the same feelings of entitlement are challenged. “It’s mine!” Cain might say. “No, I got it first!” Abel might retort.
This feeling of entitlement is fundamental to how relationships form and therefore how societies organise. If I possess something valuable, like a cave that shields me from harsh weather and dangerous animals, I could extend access to it and therefore benefit others. And if someone else had a knife or a spear to hunt food and defend the cave, we could strike a mutually beneficial relationship. Even in this simple example, political relations begin to form: As the cave holder, I would have social standing markedly different from those who enjoy the cave because I allow them. Likewise, the knife-holder would have status and entitlements borne out of possessing the knife. In this regard, inequality seems deeply embedded, and some might say intrinsic, to property and ownership.
But what happens when I die? Who would take over the cave? Better yet, what happens if the knife-holder kills me — do they then own the cave? Throughout history, these questions and eventualities have given rise to several concepts, papers and books sufficient to fill libraries. One such concept is property. At what point does a cave become property? In what follows, I will narrate Hugo Grotius, Samuel Pufendorf, John Locke and Immanuel Kant’s ideas of property and ownership, ending with a pre-emptive conclusion of what it means for founders today.
Hugo Grotius (1583-1645) was a prominent Dutch philosopher to whom the principle of first occupancy is attributed — a profoundly influential and possibly one of the most consequential theories in history. He argued that we own something when we take possession of it and control it, provided it was not previously owned. In this regard, my proverbial cave became my property just because I possessed and controlled it, and it was not previously controlled by someone else. This argument is used to this day to justify the ownership of large swathes of land, occupied during the Great Trek and Apartheid, where it is stipulated that the land was unoccupied and unowned.
The problem with Grotius’s theory is that it does not address the inevitable conflict that arises from dual or multiple ownership claims. For instance, suppose I occupied the cave during the day, and someone else came at night and claimed it. One cannot be sure whether their claim is legitimate, that is to say, whether they indeed occupied it first or whether it is an exploitation of the rule. Hence, thinkers like Samuel Pufendorf (1632-1694) enhanced Grotius by adding a social pact to ownership. Pufendorf thought that without others agreeing that the cave is owned, it cannot be deemed so. In this regard, the night-claimant would have to provide socially acceptable proof that they occupied the cave first.
The weaknesses in Pufendorf’s idea of ownership are also evident and remain relevant. What kind of “social pact” legitimises ownership? In this regard, community A might have its own pact, which community B does not recognise. In this case, the property rights enshrined in community A’s pact would be meaningless to community B. I speculate that this weakness justified colonial empire and expansion. In other words, even if people had already occupied land or property by some aboriginal convention, an invader could argue against its legitimacy and therefore undermine it. For instance, people living on tribal land in South Africa, to this day, do not “own” their land and homes because the convention used — that of permission to occupy by a local chief or King — is incompatible with the system enshrined in the country’s laws. As a result, millions of South Africans occupy valuable property, but are excluded from the economy because banks do not recognise their ownership. I call this Pufendorf’s blind spot.
John Locke (1632-1704) was Pufendorf’s contemporary and abandoned occupancy and the social pact in his formulation of ownership. He affirmed that we own our bodies and, therefore, our labour. When we mix our labour with an object previously unowned, like picking a fruit from a tree, that object becomes property and is therefore owned by whoever first mixed their labour with it. This is less an argument for first occupancy and more for mixture with labour. In other words, simply occupying my proverbial cave would not constitute ownership. However, chiselling it out, making it more habitable, creating a fireplace, or maybe securing it better would constitute ownership.
This view of ownership solves Pufendorf’s blind spot in one key respect. Recall that Locke abandoned the social pact and stipulated that mixing one’s labour with an object sufficiently constitutes ownership. In this respect, a Lockean notion of ownership does not require agreement or social conventions — it is pre-political. If South Africa were to adopt this view, strictly speaking, it would have to give automatic title to whoever has mixed their labour with a patch of land — perhaps to build a home. But other problems would emerge. Who then owns the property if I hired someone to build on my behalf? Locke’s view was that labour could be appropriated legitimately. That is to say, if I procured the labour to mix with the cave, then I become the master to whom it is entitled, rather than it belonging to the actual person who worked it. Of course, this raises further philosophical questions that Locke did not answer.
Moreover, Locke did not address the dissociation of labour from economic value. We see this problem clearly in the division of labour. Is an architect’s labour more valuable than the bricklayer’s? If so, on what basis? Economists have since addressed this question with the principle of scarcity. The most scarce labour earns the most, and the bidding is done freely on the market through price. However, in this paradigm, value is subjective and can be influenced by means other than free and fair market participation. For instance, I could acquire labour without paying for it (or by paying nominally), as with slavery in America, or the establishment of townships during the gold rush in South Africa. In both instances, property was created, and ownership was enjoyed, but without the just compensation of labour.
While Locke’s theory solves the need for a social pact, it introduces other practical and philosophical problems about the nature of ownership. Unaddressed, these problems can be (and have been) exploited to create inequalities that endure to this day. Enter Immanuel Kant (1724-1804). Kant argues that ownership is an institutional construct, and not a natural order (Locke’s theory is within the realm of a natural order because it does not require any tacit or implicit agreement — whether social or political). For Kant, human beings find themselves on earth and are therefore entitled to exist. Simply because they exist and have rational will, they occupy or possess things. Kant is therefore closer to Grotius in the sense that he argues for the principle of occupation. Importantly, Kant does not argue for “first occupation” per se; he argues more for an equal right to occupation by virtue of being a rational agent.
Kant then distinguishes occupancy in two ways: First, he posits provisional occupancy. This is closer to Grotius’s idea that merely occupying something first gives grounds for a claim. I am careful not to say “ownership” because Kant thinks anyone, as we have established earlier, can lay the same claim based on first occupation. A stronger claim would be what Kant called peremptory possession. This is when an institution, such as the government, enshrined in law, stipulates ownership. This is stronger than Pufendorf’s pact because it is not a naturally occurring convention; it is a formal construct enshrined in law and protected by the state. In other words, Kant acknowledges that possession is a product of rational beings — it is just what they do — but ownership is completely made up and gains legitimacy through the state.
This brings us somewhat closer to what a company is: a set of laws completely made up to protect property in a very specific way. Importantly, these laws are necessary, and companies only exist because the state can guarantee them. As we will explore in next week’s post, individuals involved in business cannot offer the same guarantees to one another, and therefore cannot achieve the same ends without the institution of a company. However, this also introduces important constraints that define what it means to work within the framework of a company — something that many founders miss because there is nothing instinctive about it.
Until next week
Vusi.
