The Bear’s Lair: We might as well be serfs!

The Federal government’s rental evictions moratorium has now been extended until March 31, and there is every prospect it will be extended further. This yet again weakens the property rights of landlords, eroded steadily since World War II. With shareholders also attacked by the ESG movement and interest rates going negative in many countries, no form of property is exempt from expropriation. We might as well be serfs!

“Britons never, never, never shall be slaves” they caroled in 1740 at Cliveden House, in front of Frederick Prince of Wales and his wife, Princess Augusta. It was the chorus of the last number in a masque “Alfred” about the foundation of British freedom, a song now known as “Rule, Britannia,” intended as a stirring invocation of Tory freedom against entrenched Whig tyranny.

Four hundred years earlier, they could not have sung it, because almost all Britons were in a state of semi-slavery known as serfdom. Britons’ emancipation from that state was an enormous civilizing achievement, involving the creation of property rights, that had not been matched elsewhere in Europe in 1740, except in the Netherlands. Those property rights are now being very severely eroded; if they disappear, our re-inserfment in some form will be the result.

1348, just under 400 years before the premiere of Arne’s masterpiece, was the beginning of ordinary people’s liberation from serfdom in Britain for one reason: the Black Death. Since that plague wiped out about a third of the population, it raised the bargaining power of serfs relative to landowners, who were desperate for labor to work their estates. The serfs realized they preferred to sell their labor to the local lord for cash, rather than being enslaved – if the lord objected, they could move to another village, where empty cottages would be available and they would be welcomed.

Since repeated smaller plagues kept the population well below the carrying capacity of the land until the 16th century, the result over the next century was a substantial rise in living standards and the wholesale replacement of feudal tenure in land by freeholds that could be bought and sold. This did not happen elsewhere in Europe (or if it did partially, as in the Holy Roman Empire, anti-reforms in the impoverished and war-torn 17th century reversed the process). Even by 1500, Britain had private property at all levels of the system and had more or less eliminated both serfdom and feudal tenures.

Over the next 300 years, the security of private property in Britain became rock solid. The Dissolution of the Monasteries was an attack on private property (that of the Catholic Church) as well as on religion, but it created a myriad of new property holdings, the rights of which were stoutly defended. James I and Charles I attacked property rights with their arbitrary grants of monopolies, among other things, but the initial Civil War revolt was one of property holders against a monarchy believed to be arbitrary.

Then the great Earl of Clarendon’s Restoration Settlement cemented property rights as a central pillar of the British constitution. The first deposit taking bank, Clayton & Morris, specializing in mortgage loans to the gentry, was started just before the Restoration and built its business on the gentry’s absolute right to their lands and to the rents arising from their tenants. (Surveying the lands and extracting the rents from the tenants were both major practical problems for a business whose lending was nation-wide, given 17th Century communications and the sketchy and amateurish nature of existing documentation.)

John Locke in his 1689 “Two Treatises of Government” defined life, liberty and property as the fundamental rights of civilized Man, thus joining even radical Whigs to the Tories in their defense. (French thinkers were never as robust; so Thomas Jefferson was able to substitute Montesquieu’s “pursuit of happiness” for Locke’s “property” and subvert the freedoms of his countrymen for the next 250 years.) Rock-solid property rights were essential for the Industrial Revolution to happen; by the time it got going around 1780 they were firmly in place in Britain although, as events were to prove, not in France. With solid property rights, even for intellectual property (the Monopolies Act of 1624 and the Copyright Act of 1709 were both ground-breaking) it was possible to develop new machinery and industrial techniques, and to finance their development either from the 700 country banks that existed in Britain around 1800 or from local holders of Consols, the highly liquid 3% government bonds.

The destruction of property rights was mostly a 20th Century failure and can be blamed very substantially on two world wars and the work of John Maynard Keynes. During the world wars, governments seized private property in vast quantities, and there was no chance of objecting because it was “for the war effort.” A friend’s family had their very nice 18th century country house burnt to the ground by London “evacuees” who had been billeted on them. They were given compensation after the war, but with inflation what it was, the compensation was only enough to build a far smaller and less pleasant home. There was a great deal of socialism and class hatred in the property seizures made during both World War I and World War II; by 1945 it was quite clear that property was held only on sufferance. As Sir Hartley Shawcross, the Attlee government’s Attorney General put it, property owners were “lower than vermin.”

In the long run, Keynes’ theories were even more damaging. (Joseph Proudhon had said “Property is theft” as early as 1840, but he was French so nobody took any notice.) Keynes aimed at “the euthanasia of the rentier” which he would achieve through punitive taxation, high inflation and, more recently, artificially low interest rates. British middle-class savers like my Great-Aunt Nan, infinitely poorer than my friend’s family with the country house, were equally thoroughly expropriated after 1945 by holding British government bonds, supposedly safe, and watching their capital vanish through inflationary Keynesian monetary and fiscal policies. Theoretically, Great-Aunt Nan could have put her money in equities and preserved the real value of her capital; in practice, she didn’t know any stockbrokers, being from the wrong social class.

The United States was for the first two centuries of its existence a safer haven for property rights than Britain, despite Thomas Jefferson’s attempt to subvert them. After all, many of the pioneers came to the country seeking their own property, as a refuge from the expropriations of Europe. However, since the New Deal, property rights have been under attack in the U.S. also, especially in the area of urban real estate.

In the nineteenth century, rental real estate was a solid investment. Just as country squires bought land and leased it to tenant farmers, so middle- and working-class people who made a little money bought a rental property or two, managing the properties themselves, in the belief that it was well worth fixing a leaking toilet or two to build a secure and comfortable future for their old age and their family. In Britain, that security was wiped out by regulation during the World Wars. In the U.S., since World War II in New York and the 1960s in other urban areas, rent controls have undermined the property rights of these hard-working people.

Now the Federal government is destroying those rights altogether, presumably under the impression that since the crash of 2008, all rental properties have been owned by real estate private equity funds and not by ordinary people. Rental property owners have always been keenly aware of one eternal truth: if you cannot evict a tenant, the rent is unlikely to get paid. Hence laws, Federal or local, which restrict landlords’ ability to evict their tenants are not just damaging real estate funds, they are destroying the property rights of ordinary people who may well be just as badly affected by the economic effects of Covid-19 as their tenants. Ownership of rental real estate can quickly deteriorate into a nightmare of negative cash flows if the rent is not paid. For many unfortunate working people, the government has precipitated this unhappy outcome.

The rights of private property were central to the Industrial Revolution. Their destruction by arbitrary government is central to the anti-industrial destruction that appears to be looming before us. Without private property rights, and with living standards collapsing, mediaeval living standards and a new serfdom lie in our future.

(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)