Thursday, July 30, 2009

The Privitazation of Grazing Rights Circa 1984

An Old But Interesting (Regan Era) Article by the good folks at the CATO Institute; here we will learn some new and strange sounding words like title by "usus" or "usufructuary rights" of ranchers, "fee simple" and "arms length" sales are examples......

Posting this article is by no means an endorsement of the mindset expoused by the authors that "privatization of public lands" is the way to go. I am not so sure about that....there has to be a "happy (and fair") median in all things, which is certainly NOT what we have now with the underhanded, secretive and dirty dealings of the Various Departments of the Inferior, ooops I mean Interior. Goodness me, I didnt mean to goof.(Yeah, right) Take That! U Greedi Ba$T@rD$! Give up your grazing permits and give the land back to the people of the USA. Give the land back to the horses! Your Rancher Welfare programs are costing billions of dollars each year that the tax payers have to pay. Talk about "ear-marks," the BLM is nothing but one big one for whomever is holding those grazing permits.

*Interesting and related factoid: FY 2010 budget appropriates over 120 Bil to Ag. Dont think the "favored sons" ranchers wont get a BIG chunk a' dat..

Read on, my friends, and weep.

Richard Auster;CatoJournal, Vol. 3, No. 3 (Winter 1983/84).

The author is Associate Professor of Economics at the University ofArizona, Tucson,Az.


As the gains from privatization necessarily increase with the density

of usage of the commons, it is quite natural that we find the movement

to privatize public land holdings emerging, Privatization is both

natural and correct and it is in no way the purpose of this paper to

argue against it, Private ownership is clearly a more efficient method

of controlling the usage of our now public lands, Efficiency is not the

only issue, however, There is also the issue of equity, of preventing

in-justice and theft. That is, since governments are simply service

firms which are publicly held in democracies,’ there is the issue of

selling assets for what they are truly worth and not in effect giving

them away. The recent suggestion by Professor Hanke (1982) that

we sell all the rangeland in the West to the ranchers who now hold

Bureau of Land Management (BLM) leases for something under $19

per acre is in effect giving the land away.

Hanke would have us believe that because the “custom” has arisen

of linking BLM grazing rights to particular parcels of private land,

the ranchers who own these private parcels have either implicitly or

explicitly paid for all of the value the BLM land represents, save that

sum which is the present discounted value of the grazing fees they

are required to pay. Hanke, claiming we should not steal from them,

argues that it naturally follows that we must first offer the ranchers

the right to buy the land in fee simple at the present discounted

value of those fees, a sum which averages out to slightly under $19

per acre! This is wrong; let us see why,

It must be remembered that! value in exchange is derived from

value in use. Since the only use permitted the ranchers under their

current leases is that of grazing, the full value of the public tracts

cannot have been incorporated into the market values of their private

holdings, Only the value of the use of the land for grazing could have

been capitalized; not the mineral rights, timber rights, or rights to

subdivide and develop. What has been capitalized, even if it is the

full value of the BLM grazing rights net of the lease fees, can only

be a small fraction of the total value of these lands when held in fee

simple. This point becomes particularly important when we contemplate

the continued shift of population from the East to the West. At

$19 per acre we are contemplating one of the biggest giveaways in a

long history of such misguided government transfers.

Actually, it is impossible that even the full value of the grazing

rights have been capitalized into the values of the ranches. The full

capitalization of the grazing rights into the value of the private holdings

would have taken place only if there were certainty about the

future status of these rights. Since they had never been granted in

law, this is most unlikely. Moreover, full capitalization assumes that

the market for these holdings was in perfect equilibrium, which is

exceptionally unlikely given the dramatic population shifts that have

been occurring, the imperfections in capital markets, and the lumpiness

of the transacted quantities. I think the issue of the presumed

certainty of their continued exclusivity with respect to the BLM

grazing rights is the key defect of this aspect of the Hanke plan. The

exclusivity of these lease rights—that is, their failure to be open to

all in a process of public bidding—is only a relatively recent phenomenon,

an administrative oversight as it were, While it is certainly

politically smart to buy out a most organized part of the opposition,

in this case the ranchers, we must wonder at the implicit encouragement

such a policy of compensation would give to future squatting

on the public domain. Moreover, once we begin to recognize what

are in a sense usufructuary* (by "usus") or "use") rights to the public domain and

the consequent need to compensate losers from its privatization, we are

opening up a large can of worms.

Much of the same reasoning that Hanke applies to the rights of the

ranchers applies with equal, if not more, strength to the implicit

rights of the public workers whose functions I (and Professor Hanke,

I understand) wish to privatize as well. Since in many instances their

jobs were covered by civil service tenure rules, it would seem that

their claims would be stronger. Will we need to compensate them as

well? Perhaps we should think this through before we leap.’

‘Actually, I have at times argued that we should compensate public workers whose

functions arc privatized. See Auster (1982). For example, we could give the postal

workers the plant and equipment of the U.S. Postal Service in return for the

elimination of their monopoly privileges. The political finesse of such a procedure

is appealing, but the area needs a lot more debatc.



Ultimately what is wrong with the Hanke proposal is that inadvertently

he has fallen into the planner’s trap of believing that markets

might be dispensed with and prices calculated at the center. What

we need to do is to rely on markets. The public lands should be put

up for auction as Professor Smith (1982) suggests. If we really believe,

and I must confess to agnosticism on this point, that the ranchers

have by now acquired a right to use the BLM land for grazing through

usus, then we should grant them deeds to that effect and auction off

the other rights to the land. The allocation of the rights to the commonly

owned lands by competitive auction is in the true spirit of

modern economics.’ Professor Hanke seems to have forgotten his

own criticisms of central planning. He now seems vaguely like those

socialists who in the great “calculation of prices under central planning”

debates proposed that a collectivist economy could solve its

price calculation problem by using the prices revealed by the free

markets in capitalist countries.

Markets, however, are processes which are situation and time specific.

The answers of one market (price, quantity, quality) will not

hold for others or for it at other times and situations. There is no

perfect substitute for an actual market. Even if privatization is desirable,

which it is, how one gets there is important.


Auster, R. D. “1982 Public Choice in the Streets: The Libertarian Campaign

in Arizona District 5.” University of Arizona, 1984. (Mimeographed,)

Auster, R. V., and Silver, M. “The State as a Firm, Economic Forces in

Political Development.” In Studies in Public Choica, No. 3. Boston and

The Hague: Martinus Nijhoff, 1979.

Hanke, Steve H, “The Privatization Debate: An Insider’s View,” CatoJournal

2 (Winter 1982): 653—62.

Smith, Vernon L. “On Divestiture and the Creation of Property Rights in

Public Lands.” Gate Journal 2 (Winter 1982): 663—85.

Having just praised my colleague Professor Smith’s paper, perhaps in closing I can

point out a problem with it as well, This problem arises because of the imperfection

of existing capital markets, which I take as a fact, Given this, it will not he

equitable to auction off the rights even if they are initially allocated as he

suggests, although that will go a long way in that direction. The Dorn suggestion

(p. 675, n. 19) if coupled with the government carrying back the bid amounts to all

citizens at the same interest rate would, I believe, complete the equity picture.




Steve H. Hanke

Before dealing with the central issue raised by Professor Auster,

several assertions contained in his comment must be addressed, since

they are either in error or misleading.’

First, Professor Auster claims that I propose to sell all the public

lands for an average price of slightly under $19 per acre. This assertion

is incorrect.

To illustrate the method for computing a first-refusal price for

public grazing lands, I use data from a single 1,500-acre parcel of

Bureau of Land Management land.’ Contrary to Professor Auster’s

claim, I do not propose to use the first-refusal price fbr this one parcel

as aprice for all federal grazing lands. In fact, I clearly state that firstrefusal

prices should be calculated separately for each lease that is


Second, Professor Auster asserts that under my privatization proposal

ranchers would obtain, in addition to “surface rights,” both

timber and mineral rights. This assertion is incorrect.

In my article, I only address issues that are associated with President

Reagan’s program to privatize some of the public lands. This

program does not include the sale of any mineral rights. Moreover,

my article is further limited, since it only addresses the issues associated

with the sale of “surface rights” on public grazing lands. It

does not address the problems associated with the sale of other assets

contained in the president’s program, such as lands that contain

timber rights.

Third, Professor Auster implies that ranchers who currently lease

grazing lands from the federal government do not own any private

property rights in the public lands. He argues that these usufruct

rights are similar to the “implicit rights” that public workers have in

job security. This analogy is incorrect and misleading.

Ranchers’ usufruct rights are much different than public workers’

“implicit rights” to job security. Unlike public workers,,ranchers

purchase their usufruct rights.3 This occurs when ranchers pay private

premiums for private lands that have public leases attached to

them. These usufruct rights are, therefore, not only purchased, but

they are recognized by the Internal Revenue Service and valued for

purposes of determining inheritance taxes,

Although Professor Auster and I agree that public lands should be

privatized, we have a fundamentally different view of the theory of

justice and its relationship to the establishment of property rights.

Professor Auster believes that the state should be invested with the

original rights in the nation’s natural resources, and that the state

should then sell these “assets for what they are truly worth” instead

of “in effect giving them away.”4

My position is based on John Locke’s theory of natural rights.5 This

theory does not suggest that the original rights to property should be

invested with the state and then sold to the highest bidder. Rather,

the fundamental tenet of natural rights theory is that rights should

be originally invested with those who discover, work, and invest in

resources with their energy and savings

My proposal for privatizing public grazing lands not only protects

existing holders of usufruct rights (rights that have been paid for and

are recognized), but it also formulates a method for establishing

absolute rights by a process that is in keeping with the natural rights

theory ofjustice.6

‘This statement does not apply to those private ranch lands that, since the passage of

the Taylor Grazing Act, have never been transferred in an “arms length,” market


“Auster, p.

‘For an excellent exposition of this theory of justice and its relation to property rights,

see Murray N. Bothbard, “Justice and Property Rights,” in Property In a Humane

Economy, ed. Samuel I~.Blumenfeld (LaSalle, Illinois: Open Court, 1974).

‘It is important to mention that we are not starting the process of privatization

from a pure state of nature. Hence, I have accepted the current state of affairs and

recognized both the existing usufruct rights of ranchers and those of the government

as a lessor of grazing rights. Given the acceptance of existing government arid

private grazing rights in public lands, my privatization proposal protects these

rights and then applies the “homestead principle”—a principle derived from the

natural rights theory ofjustice.


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