What profits are for

A coffee stall at one corner of The University of Melbourne claims to have a 'new concept of business'. They let the customers decide how the profits from their cup(s) of coffee would be distributed: to the owner, or to one of their causes (social, environment or cultural). Every time they buy coffee or snack, customers would be given a card, which they will put into one of four pigeon holes representing each purposes. At the end of every month, profits will be distributed based on the distribution of cards in each pigeon holes.

Yesterday, for the first time I bought their coffee (it tastes and smells good, and costs less than other coffees in the university and its surroundings, by the way). Then I put my card into the first pigeon hole: the owner. Yes, I want the profit from my cup to be enjoyed by the owner. My philosophy is simple. It is a small business, and if the owner can't enjoy a substantial profit, they might go out of business. Somehow, most of their customers also think so. The highest percentage of cards so far went into the 'owner' hole.

My preference may be different had it been, say, Starbucks or Dunkin Donuts. Not that I want to 'punish' them for making big profits. But those companies may have earned enough profits to keep them in business. Up to some point, a reallocation the profits may leave them as well-off as before, but it increase my utility if they sponsor an exhibition, a movie project or a concert. Off course, needless to say, that would also depend on to where or what kind of activities they will share their profits.

Liberal Communist, A Philosophical Misnomer

What do you call a person who happens to not only make a lot of money out of market transaction (or capitalism), but also spend a considerable sum of it for charities or deeply concern with social responsibility?

Think people like Bill and Melinda Gates, Bono, or you --who is working at the heart of capitalism, the firm, but love to buy only fair trade product, deliberately join anti-globalization protest, or sincerely pay the zakat more than legally required.

Slavoj Žižek, in his latest provocative book, Violence, calls them liberal communist.

In his words, they are the true citizens of the world today, who think that they can have the capitalist cake, i.e, thrive as profitable entrepreneurs or workers, and eat it too, i.e. endorse for social responsibility and ecological concern.

I think Zizek is just caught off guard: in the standard myth of capitalist, one can only win in the market only if he/she applies maximum greed. A class of citizen, who bypass the state to effectively channel the resources for redistribution, also does not support the ideal of socialism.

In my opinion, however, nothing's funny about this. Such behavior does not violate the standard argument that people maximize his/her utility by combining their actions --not only the ones with financial reward, like working your ass off in a company, but also ones with non pecuniary reward, like seeing the poor children's utility goes up by giving them scholarship, and at the same time avoiding government, because to them, it is a dis-utility.

I would just call them good guys.

Rethinking Yunus

I used to think that M. Yunus' work on Grameen Bank tells that, contrary to common belief, lending to the poor outside regular banking system can be profitable, because they are equally good, if not better, in repaying their debts than the non-poor.

But I don't understand why, when his idea has been seriously taken by people that really want to make profit by lending to small and poor investors, the microfinance, he was fumed and pointed them as moneylenders, the bad guys he wants to get rid of.

I read this in Tim Harford's article (HT: Marginal Revolution) that summarizes the debate on whether it is appropriate to actually make money and adopts profit maximizing value in microfinance, or should it be left as non profit motive. This, I think, an important topics and we'd be in a better situation should this be read and discussed by anyone seriously involved in microfinance frenzy in the country.

Tim wrote:

There is nothing intrinsically sinful about pawnbroking or intrinsically virtuous about microloans: what matters is the effect on the clients. And to our discredit, we don't really know what that effect is. There have been only two serious cost-benefit analyses - and they've produced a split decision as to whether, given the subsidies involved, microfinance delivered value for donor dollars.

Dean Karlan, a microfinance economist at Yale, is frustrated by this lack of serious research into what works. He also thinks Yunus's talk of "the moneylender's thinking" is unhelpful. "If you're trying to make the world a better place but you're not, that's bad. If you're trying to make profits and don't care about people, but make them better off anyway, that's good," he says.

Thus we don't really know, empirically, whether microfinance initiatives helps the poor. Which brings me into a question to friends advocating microfinance that might read this posting: do we have empirical evidence on the impact of microfinance to, say, poverty in Indonesia?

Also it is interesting to discuss two buzzwords that oftentimes brought in to argue the superiority of Grameen-like microfinance: the peer control, or group liability, and the role of women as debtor, because:

Already, solidly held beliefs about microfinance have been shaken. The "group liability" system, in which a group of borrowers guarantee one another's loans, is still supposed by many to be the secret behind Grameen Bank's low default rates. But a randomised trial in the Philippines conducted by Karlan and a World Bank economist, Xavier Gine, found that group liability was discouraging new customers without improving repayment rates. Grameen itself quietly dropped group liability some time ago.

Another sacred cow of microfinance is that women make best use of the money - the Grameen Bank says 97 per cent of its borrowers are women. But another randomised trial, conducted in Sri Lanka by a team of researchers including David McKenzie of the World Bank, found that male borrowers seemed to make a far higher return on their capital. As with the ZaFinCo study, it's just one experiment in one country.

Anyone in the business or aware of the issue, please feel free to jump in and join the fray.

Capitalism is Dead. Not.

For those who wished that capitalism would die due to the current US financial crisis --and socialism to arise--, this editorial from the usually liberal (in US politics term, that is, a left-leaning) Washington Post, may come as a bugbear. The first paragraph reads:

Is this the end of American capitalism? As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush's ideology. But this is wrong in two ways (...the bold is mine...). The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government's failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.

Also, it would be interesting to see what's gonna happen to Hugo Chavez's oil-financed socialism as the world (ironically, capitalistic) economic growth decreases and brings the country's oil demand and price down.

Slamming Neoliberalism by Setting Up A Straw Man

Martin Manurung wrote an op-ed on the US crisis in Kompas daily. I think he made some points.

First, the US administration doesn't give you a good example of neo-liberalism (or to be precise, classical liberalism). My take: agree and by that, it is wrongheaded, like many of us would like to do, to identify classical liberalism with what US administration does and has done.

Second, when it comes into what makes the crisis, Martin said:

Initially, many corporations have been given incentives to grow by excluding them from regulations that impede wealth (or capital?) accumulation. They are "being facilitated" by regulations that deliberately made easy that let moral hazard through the creation of various "peculiar" and high risk financial products.

Yes, some government regulations seemed to facilitate that peril. Fannie Mae and Freddie Mac, for example. They are government sponsored programs.

Third, he also said:

It strongly suggests that the return of state role in the US tends to become an effort to protect more capital owner than public. The thesis of the state as capital owner's benefactor, as had been said by Karl Marx, is really manifested in the US crisis.

If so, can we just get rid of minimize the role of the state?

Well never mind, but can we just see the bailout as an attempt to save the economy in general, too --regardless whether you like the idea or not?

p/s: I am reading an open letter to my friend on the left (HT: Aco)

Alternative to (Mis) Using the Taxpayer Money

So the US government planned to launch probably the most expensive bailout ever by buying up the distressed mortgage to rescue the economy.

But Luigi Zingales of Chicago has different idea:

As during the Great Depression and in many debt restructurings, it makes sense in the current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the financial sector. It has the benefit of being a well-tested strategy in the private sector and it leaves the taxpayers out of the picture. But if it is so simple, why no expert has mentioned it?

The major players in the financial sector do not like it. It is much more appealing for the financial industry to be bailed out at taxpayers’ expense than to bear their share of pain. Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of private property rights than a massive bailout, but it faces much stronger political opposition.

I think it's a worth-to-consider proposal to save capitalism and prevent the US to become the USSRA.

HT: Marginal Revolution

A Kind of Déjà vu --In a Reversed Course

Prior the 1998 Asia financial crisis, money flew in from the US and any other developed countries to then the rosy Asian capital market. Then when it turned out that the Asian economies did not live up to expectation, --and fueled by god-knows a sudden lost of confidence--, the investors frantically pulled out the money. Asia went to a devastating crisis.

Now ten years later, the US government bailed out and took over Freddie Mac and Fannie Mae. Of course they did it to prevent the collapse of their huge domestic housing market, as well as their financial market related to it. But so much for the problem they may face, it doesn't justify the radical step for a take-over. The government can just provide more channels to capital without effectively nationalizing the agencies. Arguably, there might be something bigger than that.

And that is the Chinese Central Bank --along with other Asian counterparts-- factor. As the Chinese has been investing 340 billion USD to the agencies' perceived as risk-free government backed securities, any slight doubt against the US government and its economy to live up to expectation would lead them to move the money out of the country. And that would be catastrophic, even to the US economy, since the very large chunk of capital inflow to US comes from the Chinese and petrodollar countries.

Washington clearly understands that the Uncle Sam can not afford to have those capital fled and suffer the way Asian countries did ten years ago, so they stepped in to restore the market confidence.

To make a stronger case on how much now Asian money is being important force in the US economy, let us look at the latest crisis in the Lehman Brothers. The free fall of Lehman's share price in the last two days was mainly due the fact that they can not close the deal with the Korean Development Bank to provide the much needed capital.

Of all countries, it's Korea, the country that went deep under ten years ago as the US investors, perhaps including Lehman, pulled the capital out of the country, that their refusal put Lehman, a very mighty financial firm of the world, on the brink of collapse --and perhaps the whole US financial market, too.

Now you see, this becomes very interesting. Stay tuned on this dangerously alarming period for the US economy and financial market and how the US government may, or may not, manage to get out of troubles.

Your Days Are Numbered

At first, I was being intrigued by a pile of Ayn Rand's Atlas Shrugged on the text book shelf for Econ undergrad here. Still I was reluctant to read it. The book is so thick and I have so little time outside the courses.

But then I learn from New York Times that Alan Greenspan, whose latest book everyone in econ blogsphere are talking about, is also Ms. Rand's big fan. So I changed my mind: perhaps it is worth to reading the philosophy that has shaped the mighty Alan Greenspan's view, the legend of US monetary policy.

Here I am now reading the book in my spare time at snail pace despite the delight of Ms. Rand's storytelling. One of the warm glows comes from my finding of a tagline that I kept remembering from a good German film, The Edukator, that I can't find its source anywhere. It says, "Die Fetten Jahre sind vorbei", or "Your Days of Plenty Are Numbered".

I thought it was quoted from a leftist book since in the film the words were to express an anti-capitalist sentiment. What I got from Ms. Rand's otherwise capitalist manifesto is a dialogue between an old chief clerk, Pop Harper, and Eddie Willers,

"You're ready for the junk file, old pal. Your days are numbered."

Not a precise quote, but I think it says similar thing. Or do you have any better source?

And do you know whose days are numbered?

where the hell is NIKE PR?

Nike came into focus in Indonesia because it stopped ordering shoes from 2 firms (owned by a lady) that employs 14,000 people because Nike thinks that those firms have been continuously underperforming and would like to shift order to other firms (possibly within Indonesia or to other countries).

Nike is obviously just a buyer. Those firms, owned by the same lady, are the employer of 14,000 people, thus they are the ones who should be responsible for recruiting, paying, training, and managing production. On the contrary, from a business contract point of view, Nike has no slightest obligation to navigate the fate of those workers.

So far public opinion is split between those who understood that this is a an employment contract issue between two firms and their employee, versus those who think Nike is the actual employer.

Luckily many good op-eds have come forward to say that the owner of those firm is manipulating her turf card, 14,000 workers, to get the best out of this chaos.

But where is NIKE PR? How come I have not seen a sober and rational explanation behind what is going on? Is it really the case that shoes produced by those firms are lemons? Or is it Nike who is looking ways to shift to suppliers in other countries?

Whichever the reason is.. Where the hell is Nike PR effort??

The President Needs to Update His Reading Materials

SBY's jumbled speech against "communism", "capitalism", and "neoliberalism" on the 60th National Cooperative Day in Nusa Dua, Bali, has not gone entirely unnoticed. Ape said it's a pointless speech. In his fourth dispatch for us, MT writes that SBY has grown to be an ineffective president, and his incoherent speech merely reflects the administration's incoherent policies. - Manager

The President Needs to Update His Reading Materials
by MT

Whenever leaders fail they resort to either fascism or populism. More than two years after he was directly elected president, with an unprecedented level of popularity, President Susilo Bambang Yudhoyono finally registered the worst in his job approval rate. He also has grown to become ineffective President, with all his directives getting lost in the redundant bureaucracy. Case in point, his handling of Lapindo mudflow (also more than two years after the infrastructure summit, investors are running away from numerous toll roads project).

Last year, I went with him in a visit to Singapore and Malaysia during which he met with prominent business circle and offered scores of projects, but to this day I never heard them expressed interests. The palace asked me to join the President for a trip to South Korea next week, but I am taking a leave already). It is therefore predictable, that his administration resorted to jingoistic terms when dealing with calls for separatism.

In only less than a month, Yudhoyono administration had to deal with what could be considered as efforts on seccesionism; the South Maluku Republic (RMS) flag-waving incident in Ambon, the display of Morning Star flag during a dance performance at the Papuan Tribal Council Congress and the decision by former Free Aceh Movement big wigs to use the symbol of the former rebel group as logo for a new local party. Senior ministers in his cabinet said something about refusing to tolerate separatism and will resort to severe measures to crush it. The separatism issue, however, is a hard sell. Beyond sporadic protests from Muslim student-based organization, we saw no serious and organized responds for the so-termed separatism campaign.

But the most glaring example of Yudhoyono’s incompetence is his ill-advised decision to resort to populism. It is difficult to believe that in the early 21st century, a country leader made a head-scratching call for a rollback to bygone ideals.

The first was his decision with a smack of populism was to disband the Consultative Group on Indonesia (CGI) earlier this year. And last week we learned that the government decided to hike the foreign debt.

Last week, he said something about taking a middle ground between communism and market-based capitalism. Market-based economy, he said, has proved incapable of bringing social justice and equality to the people, and instead fosters greater disparity between rich and poor."Meanwhile, communism, in which the government fully controls the economy, has failed to reach the goal it believes it can achieve," he said. And to ensure equal distribution of wealth, Yudhoyono pledged to boost the roles of the government! But was it not the reason why this country has problems eradicating corruption? The rhetoric, however, was less an indication of his believe to olden days ideals than the incoherence of his government policies. And if his series of stately speech was of any indication, it is obvious that he had problems looking at problems and how to devise policies to address them.

Earlier last week, when he opened the exhibition of tourism-related products, he said the need for Indonesia to jump from capital-intensive economy to creative industry-based one. (I thought we needed first to make a leap from land-based economy to technology-intensive first). In the speech, he also makes a reference to futurist Alvin Toffler (again this is early 21st century and yet he quotes a book conceived like twenty years ago).

But it also dawn in my mind that aside from his haphazard efforts to remain relevant but choosing big, empty slogans, it seems that he needs to read his reading materials.

Are economists free-market ideologists?

Yes, according to a recent article in the New York Times. Read the article's opening paragraph:

For many economists, questioning free-market orthodoxy is akin to expressing a belief in intelligent design at a Darwin convention: Those who doubt the naturally beneficial workings of the market are considered either deluded or crazy.

The brighter side is, according to the author, there is "a Growing Will to Debate Fundamental Assumptions."

Of course this is an overstatement. Even Dani Rodrik, himself quoted in the article as one of the 'outside-the-box economists,' agreed so.

The degree of disagreement among economists are greater that the article portrayed.Like religion, surely there are zealots or fanatics. And that can happen in any discipline, not just economics. (There are fanatics in the environmental science, gender studies, philosophy etc., are they?). But still many economists critically believe in market mechanism. That said, the 'debate over fundamental assumptions' have been consistently happening . Not just recently, as the article suggests.

And what happened to those who dispute the free-market fundamental assumptions? They (well, at least some of them) got the Nobel Prize, said Greg Mankiw:

Many economists in the past have questioned "free-market orthodoxy"--for example, Samuelson, Tobin, Modigliani, Solow, Sen, Stiglitz, Akerlof, Phelps,.... Does the economics profession consider these guys "deluded or crazy?" No, we give them Nobel Prizes!

And not all fields within economics are the same. For example, on how theoretical versus empirical they are, said George Borjas:

There are some fields in economics--for example, labor--that are heavily empirical. The voice of the data rules. There are other fields in economics that are much less empirical and have a much stronger tradition of theoretically derived prescriptions. For example, trade.

As for me -- maybe because I was trained in a School of Government (as opposed to the traditionan Econ Department) in the East Coast (as opposed to the 'freshwater' tradition), I used to see free-market believers argue for 'what is the right intervention to a specific problem.' Some people, like these guys, are even establishing their own 'sect' which aim is to calculate the impact of a certain intervention.

And, contrary to the common perception, nowadays it's harder to find free-market believers in this place.

Related stories:

• SBY's speech, a very bad one, about his catch on ideologies and economic systems.
• How a recent policy on public transport safety was a typical Chicago-school solution.

On Being Socialist

This is from touching yet hilariously funny Lewycka's novel A Short History of Tractors in Ukrainian, a dialog between Nadhezda and her big sister Vera on becoming socialist --or its opposite side

Of course she remembers. She hasn't forgotten the smell of diesel, the swish of the windscreen wipers, the unsteady sway of the bus as it churned newly fallen snow into slush; coloured lights outside the windows; Christmas Eve 1952. Vera and I, muffled against the cold, snuggling up against Mother on the backseat. And a kind woman in a fur coat who leaned across the aisle and pressed sixpence into Mother's hand: 'For the kiddies at Christmas.'

'The woman who gave Mother sixpence.'

Mother, our mother, did not dash the coin in her face; she mumbled, 'Thank you, lady,' and slipped it into her pocket. The shame of it!

'Oh, that. I think she was a bit drunk. You mentioned it once before. I don't know why you go on about it.'

'It was that moment -more than anything that happened to me afterwards- that turned me into lifelong socialist.'

There is silence on the other end of the telephone and for a moment I think she has hung up on me. Then: Maybe it was what turned me into the woman in the fur coat.'

If you come to think of it, for one to be a socialist or capitalist can come from similar trauma, or event, you may want to call it --and they share quite similar imagined ending. But in between, the process, the method, is extremely different. And it is what matters, I guess.

Oh, and the book. It is a very recommended weekend reading by the way --an English wit poking on technology, immigration, European future, politics and class consciousness.

Capitalism is good (even for the poor)!

Loan sharks (rentenir; tengkulak; lintah darat) are always portrayed as the enemy of the society. As the name portrays, they are fierce predators of the poor farmers or traders. In Indonesian they are called lintah darat (leeches) because they live by sucking other people's blood.

Are they really bad? As usual, we economists do not have the moral judgements. We are more interested in why they exist. Well, simply they exist because there is an excess demand of capital. There are poor village enterpreneurs with high needs of capital to start up or expand their small businesses. However, for many reasons, they can not borrow from the banks. Perhaps because they do not have anything to serve as collateral. Perhaps because the scale of their businesess is too small for the banks to make a significant margin out of it. Perhaps because there are no banks around.

Loan sharks fill this gap. They offer accessible loan with small or no collateral. In some ways, they contribue to making the local economic wheel rolling. True, when the debtors fail to pay, loan sharks turn into true sharks. But the fact that they do exist and continue to exist means the demand for their 'service' is still high. (Remember also that by lending their money, loan sharks are also subject to risk and opportunity cost of money.)

Moral of the story: what the poor enterpeneurs need is access to capital. Not that they don't know how to do business. They do - but they just don't have the necessary capital.

Not that they need to be helped in paying the interests. Remember, many of them are able to repay the loan sharks' exorbitant interests. A study by LPEM-FEUI (thanks to my colleague Syarif Syahrial) showed that microfinance activities in Kuningan, West Sumba and East Sumba had no problem with unpaid loans even though they charged higher interest rate compared to the market price.

This explains why Adi Sasono's initiative when he was the Minister of Cooperatives and Small-scaled Enterprises during the Habibie administration (1998-99) failed. Assuming that SMEs were hurt by high interest rate, the government offered a subsidized interest rate for SMEs, at 13% compared with then market interest rate of 40-50%.

But people responds to incentives. Many new SMEs were established. But the motive was to be able to borrow at 13%, put it in the bank, then got the 30%+ interest margin. Who wants to do real business at that time, when the economy and security was very uncertain?

So, developing financial market and institution that reaches the poor is one important way to alleviate poverty. Since financial market is the backbone of modern capitalism, we can conclude that capitalism is good for the poor. At least, we can't conclude it is bad for the poor.

Rural finance

The rise of philanthrocapitalism

I don't think the Economist editors are regular visitors of this cafe. But following Aco's posting several weeks ago, the Economist's just wrote a special report on philanthrophy. Not that philanthrophy business is a new thing, but it has been flourishing during the last few years.

The report shows that philanthropic tradition is stronger in the U.S. than in any other rich countries. The philanthriophic giving in the U.S. in 1995-2002 amounts for almost 2% of the GDP. This is far more than Canada and all welfare-state type Western European countries. Of course we can see this as a substitute between state and private efforts. Because of the welfare state tradition in Europe, the government has been leading the philanthropy-like activities and redistribution efforts.

While during the past few years there has been rising criticisms against capitalism (neoliberalism) and growing concerns about widening inequality, the rise of philanthropism may be an anomaly to the current trend. This may be lead to various interpretation. One can argue that this only shows that men are not necesarrily homo economicus, as assumed by the liberal economists. On the other hand, there will always be debates on what motivates the philanthrophists. If we don't like the term pure altruism, we can see it as a social investment, or just expecting a positive utility by helping people. On a more cynical view, people may see philanthrophy as ways of escaping tax (that is, a way of getting richer), or even putting a Dr. Jekyll's mask in the face of Mr. Hyde dirty, illegal business.

Whatever the true motives are, philanthropism is an inherent aspect, an underrated one, of the development of capitalism. As the report quoted Uday Khemka, and Indian philanthropist, "Philanthrophy will increasingly come to resemle the capitalist economy." Claire Gaudiani
even further argued that philanthrophy can (will) save capitalism.

But as this 'business' is growing, doing it also requires the logic of capitalism: the right incentives and competition. It needs the right incentives, both for the giver - the rich who wants to donate their wealth, as well as for the taker - how to avoid the money create distortion to the behavior.

And, contrary to the old saying "don't let your left hand knows what the right hand gives," the report argues that you need to show other people what you do. This will create competition among philanthropists. With competition, no one will be too powerful due to their money. Also, when an effort is made public, people would know what efforts work and what did not.

Rationality | Philanthropism | Capitalism

Why aren't we all capitalists yet?

Just had a conversation with a fellow Bostonian-Indonesian regarding the left-wing governments in Latin America. The triumph of Bolivia's Evo Morales made the fourth left-wing governments in the region, after Brazil's Lula da Silva, Venezuela's Hugo Chavez and Argentina's Néstor Kirchner. Michelle Bachelet, of the center-left Concertación coalition looks almost certain to be the next Chilean president.

As I told my friend, the triumph of the left-wing parties does not mean the triumph of socialism. Lula's economic policy has been very conservative. It pays, though, by controlled inflation. His predecessor, Cardoso, was even the famous dependency theorist back in the '60s. Nevertheless, Cardoso appeared to have unsubscribed from his ideology when he became the president.

Apart from making controversial statements about the U.S. and appearing as a populist leader, no significant brekathrough from Chavez. And in Chile, despite ruled by the center-left party for the past few years, the country was one success story about establishing the fully-funded pension system. Something even have yet to happen in the U.S. And Mrs. Bachelet's economic advisor during the campaign is my Harvard Professor Andres Velasco, who is far from a left-winger in economic term.

Evo Morales is an interesting story (read a piece written by my leftist friend's blog). His first action was to cut the presidential salary (yes, his own) by almost a half. We'll see how he can write the success story of a modern left-wing government. Nevertheless, the instrumentalist and structuralist Marxians have long argued that once one become the ruler, he or she will either act as a capitalist (structuralist), or become the instrument of the capitalist (instrumentalist). Meanwhile, Maggie Thatcher once said, "There is no alternative (other than capitalism)!"

I am no Thatcheriam, nor a Marxian of any branches. But I'd say, unless you disagree that men are rational and will maximize own interest, why people still do not trust market economy?

By the way, A friend of mine forwarded a newspaper story that a former left-wing activist has been appointed commisionner of PT Pos Indonesia. I should've cheered that decision, but in fact I feel a bit sad. Read my personal take on it in my Gallery of Mind.

Friedman's paradox?

In “Capitalism and Freedom (1962),” Friedman discussed property rights mainly in the context of the limited role of government. He argued that the justification that the government may exist is that it has a role in defining and protecting property rights. Yet, he did not explicitly discuss or make any arguments about the basis of property rights claim by an individual. The only explicit argument that he made was “the existence of a well specified and generally accepted definition of property is far more important than just what the definition is (p.27).”

One thing we can infer from this argument is that property rights is basically a constructed definition that is generally accepted. But at the same time, he also argued that it is the role of the government to make such definition. Corollary, in Friedman’s view, government is the only source of property rights.

I found this position quite problematic. The whole point of Friedman’s argument in “Capitalism and Freedom” is about how the government is merely a tool to serve individuals’ interests. This means, individuals exist before any forms of government. That should imply that before there was government, there have already been property rights. But this contradicts the earlier statement that defining property rights is the role of government.

Anyone has an idea on explaining this paradox?