Introduction to Proprietary Cities

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by Mark Lutter

There has been a lot of discussion about what Tyler Cowen calls shareholder states. A shareholder state is a territorial governance structure where the decision-makers have a monetary incentive for performance: Decision-makers would be rewarded for decisions leading to long-term growth. This system contrasts with democracy, where decision-makers rarely think past the next election cycle.

But the discussion has been missing an understanding of the intellectual history of proprietary communities, the “purest” type of shareholder state. A proprietary community is a territorial governance structure under a single owner. This structure more closely approximates private property, giving it an advantage over other governance structures. In a proprietary community, there is a single decision-maker with an interest in property values, which are highly correlated with economic development.

The typical example of a proprietary community is a shopping mall. The mall has a single owner who then rents out store space. The mall provides local public goods (lighting, public areas, security) to make the mall more attractive for shoppers, thereby increasing the rental fees the mall owner is able to charge. A proprietary city would follow the same model as a proprietary community, but on a much larger scale.

The history of proprietary communities starts with Henry George. George was a nineteenth-century thinker who advocated complete free trade in everything but land. In George’s scheme, all government functions would be funded by a land tax. The logic here was that, since the supply of land is inelastic, it would not decrease under a tax.

The first advocate of proprietary communities was industrialist and Georgist Spencer Heath. Heath made enough money during World War I to retire early, then devoted his later years to ideas. He helped fund the Henry George School in New York and taught there for several years before being asked to leave by Frank Chodorov.

Heath’s insight was that government could be removed from Georgism. A proprietor could replace the government, overcoming moral and public choice problems. His thoughts are compiled in his book, Citadel, Market and Altar.

Heath was also influential early in the libertarian movement. The Circle Bastiat visited him in his New York apartment, and Rothbard cited him numerous times in Man, Economy, and State, showing great familiarity with his work. Rothbard even acknowledged Heathian anarchism as an alternative to his preferred vision of non-territorial defense agencies.

Heath’s grandson, Spencer MacCallum, carried on his legacy. Trained as an anthropologist, MacCallum examined existing forms of proprietary communities, including industrial parks, hotels, and trailer parks. MacCallum is currently archiving his grandfather’s records. His book, The Art of Community, can be found online.

Since MacCallum, the research program has been largely dormant. Fred Foldvary has been doing research along similar lines, but has tended to focus on homeowners’ associations. Edward Stringham had a brief exchange with Peter Leeson about the viability of Heathian anarchism. Otherwise, there is no literature of which I am aware.

There should be. Not only is there a popular resurgence of interest in proprietary communities and similar ideas, they might be put into action soon. Honduran ZEDEs offer the potential to try a proprietary community on a larger scale. Should they succeed, there will undoubtedly be copycats. People interested would do well to understand the proprietary community’s intellectual heritage.

Source: Foundation for Economic Education