Of Property Rights, Civil Society, and Shampoo

Who defines and enforces property rights?

If you are the average person, an undergraduate student, or even a mainstream economics professor, that answer is easy: the government. Look it up! Municipal and county governments determine the deeds to your property and various usage rights including wetland setbacks and easements. State governments create regulations that affect residential and commercial property and how businesses may go about their business. And the federal government controls patent and copyright protections, sets environmental policies, and enacts many other rules determining how one can use real estate and intangible assets.

Sometimes property rights are not well defined, particularly when some new “thing” arises from technological innovation. The explosion of the internet in the 1990s posed a challenge to the ownership of information. Artificial intelligence is doing something similar today. But even when such novel situations arise that require defining ownership and usage, we still reflexively defer to government as the primary (if not sole) source for defining property rights.

But what if I told you that there was a bigger and more amorphous entity that determines who owns and how we use all the stuff and junk in our daily lives? And what if I called that entity “civil society,” the spontaneous order of social norms, values, conventions, and rituals that coordinate human interaction without centralized direction? Would you want to know how that works?

If yes, allow me a rather trivial example to illustrate the importance that civil society plays in defining property rights.

Who Can Take the Shampoo?

“Everyone knows” that hotel guests are allowed to take home the small bottles of shampoo and conditioner provided for individual use, not to mention lotion and mouthwash at fancier resorts. Admittedly, I love collecting them and possess several bins of diminutive aromatic toiletries. But recently, major hotel chains have moved away from individualized-use shampoo, substituting large dispensers attached to shower walls. This is ostensibly to minimize the waste and environmental damage that single-use bottles cause.

But here is a question that I posed to several very smart political economists at a recent workshop I attended at Wabash College: Is it permissible for hotel guests to take the large dispenser bottles of shampoo and conditioner home?

The immediate answer was “no!” But I prodded them, “Why not?” The initial answer was that the bottles were attached to the wall. I quickly volunteered to teach them how to dismantle these wall mounts; it isn’t hard. (Don’t ask how I know this.)

The next answer from a prominent scholar proves my point above about our reflexive deference to government. “It is against the law to do that,” he claimed. I challenged him to show me the exact code stating “thou shalt not take thine hotel’s large bottles of shampoo.” While there are indeed laws against theft, there are no laws that specifically refer to hotel shampoo. No hotel that I know of calls the police on customers for taking the small bottles, which are as much the hotel’s initial property as the large bottles. So why is it a matter of just size? Taking small toiletries is fine, but snatching larger ones is felonious? Who says?!? What is and is not theft (i.e., what are the property rights) is what is under contention here.

I pushed the matter further by asking if it was acceptable for me to bring small empty bottles on business trips and fill them up with shampoo from the wall dispensers. Here, I would only be taking the amount of soap that I would have taken if the hotel still provided the six-ounce tubes. The reaction of the intellectuals gathered was one of… well… bemused horror? What kind of ne’er-do-well brings empty bottles to pilfer hotel shampoo?! (I invoked the Fifth Amendment.)

It didn’t stop there. I asked if anybody took home the half-used roll of toilet paper (a valuable commodity back in the pandemic spring of 2020). How about the towels? “Wait, you can’t take the towels because those can be washed and reused!” Fair point, but can’t small bottles of shampoo be washed out and refilled? “Gill, you’re being ridiculous.”

While my questions over breakfast may have seemed silly, it so happens that those same examples became the empirical fodder of discussion for one of the papers being presented at the workshop. The trivial nature of toiletries became the focus of a broader intellectual debate. (For those interested in great debate, I encourage you to toss these questions to your friends and family to see their reactions.)

Political Economic Explanations of Property Rights

All the questions regarding hotel amenities above are about property rights. As I have yet to fully define the term, property rights are the socially agreed-upon rules about who owns a particular asset and how that asset can be used. Sometimes social agreement comes via government decree. Having paid off my mortgage, I legally own the title to my house and acreage, although my county government has specified that I cannot construct any building within 500 feet of the stream near the back of the property. My rights are not absolute, and I must conform my behavior to a government regulation. That’s the easy political economy explanation—I own and can use what the government tells me I can.

But what about those hotel shampoo bottles?

The scholar who suggested that one cannot take large bottles of shampoo because it is the illegal also noted that we cannot take the hotel mattresses home. Good point; I had never thought about doing that because most mattresses are hard to fit into a suitcase. Moreover, mattresses are expensive and time consuming to replace; a hotel would likely track the guest down and either force them pay for the mattress or call the authorities to report a dastardly bedding theft.

Here we have an economic explanation for defining property rights that conforms to the thinking of eminent scholars such as Harold Demsetz or Armen Alchian. Property rights are defined by the costs and benefits of communicating, monitoring, and enforcing rules. A claim on the use of an asset is only as good as one’s ability to monitor and enforce any misuse of that thing. As such, it is not just a matter of creating a formal rule, but of communicating that rule to others and somehow ensuring everybody obeys. To that end, the costs of creation, communication, monitoring, and enforcement all affect the actual nature of a property right.

No hotel manager will find it cost effective to track down someone taking six ounces of hair conditioner. However, they will go after you if you take the mattress or television as those assets are costly to replace. Understanding the costs and benefits of enforcement, we can see why the property rights over small bottles of shampoo shift de facto to the hotel guest. Likewise, there is a regulation in my state that homeowners cannot capture and store the rainwater falling on their land (as it seeps into a underground watershed considered to be communally owned and managed by the government). However, I know that bureaucrats will not be policing my small 10-gallon rain barrel used to store water for my plants in the summer (and they openly acknowledge that). It is not worth the cost of policing such de minimus transgression, thus I de facto own ten gallons of rainwater each year despite the official policy against it.

But what about that murky middle ground befuddling my academic colleagues? Will a hotel chase after you if you take the large shampoo dispensers? Or pump the shampoo into a half dozen smaller bottles? Or grab a half-roll of toilet paper for home use? Probably not. Some fancy hotels provide fluffy robes for room use but place a notice that they are not to be removed (or that they can be purchased upon departure). As the asset in question becomes more expensive to replace, the benefits of policing also increase shifting the de facto ownership clearly to the hotel. Clear communication about who owns what is important in this murky zone. (Note: There are websites informing travelers that they can take “complimentary” items provided in hotels, but they don’t define what “complimentary” is, which is a statement of a property right. It is best to ignore those pages and just refer to what you learn below.)

A Civil Society Explanation

While government regulation and the costs and benefits of enforcement over an asset help explain how property rights are inevitably defined, there is yet another explanation. And this gets to the issue of the toilet tissue. While I stumped my colleagues about whether it was acceptable to fill my own bottles with dispenser shampoo, there was a universal revulsion that anyone would think of taking the toilet paper home. They all thought I was weird for even suggesting it!

And therein lies the other answer for who decides property rights—civil society. As it turns out, everybody (and nobody in particular) really decides how we allocate and use different pieces of property encountered in our daily lives.

Despite our first reaction that governments define property rights, it would be impossible for any government to do so completely; there are just too many things used in so many different ways that formally codifying rules would be overwhelming. Moreover, how many officially promulgated by government property rules do you know? Not many, I’m guessing. Few people (including lawmakers) read the Federal Register where such rules are defined at the national level. States, counties, and municipalities have their own code books that are also duly ignored by the public.

But without knowing the formal government-defined property rights, we all somehow manage to get by because we rely upon a set of social norms and conventions to guide our actions.

Consider a city sidewalk. While technically “public property” owned by the government (or “the people”), citizens make private temporary claims on portions of the walkway all the time and in changing ways. When walking in large groups, we yield the right of way to anyone in a wheelchair who needs extra maneuvering space. Shopkeepers keep sidewalks clear to foster foot traffic and shoo away loiterers or buskers. Of course, there are formal regulations that may govern the use of sidewalks (e.g., laws against loitering or begging), but for the most part our use of this important asset is governed by common sense and an appeal to what is “normally” expected (emphasis on the “norm”).

There are other examples I provide my students with. Choosing seats in a lecture hall on the first day of class is usually determined by the convention of first come, first served, the most common cultural rule for allocating open access (public) resources. Nonetheless, students will cede specific seats to left-handers or those with a disability needing a front row seat. These are the norms of civil society, and they define how important assets are used.

Enter the Impartial Spectator

The beauty about property rights being defined by civil society norms is how they are enforced. Sometimes, we resort to shaming individuals for violating common norms of property use. A side glance or a “tsk tsk” is sometimes all we need to get a group of people to walk single file in a crowded hallway or not take two chairs for themselves and their jacket in a crowded conference room. Continued violations may result in ostracism. Punishment isn’t necessarily pre-determined as in a formal legal code but is usually adjusted to meet the circumstances. Flexible justice prevails.

But property rights are also self-enforced. As Adam Smith noted in The Theory of Moral Sentiments, humans want to be loved and be lovely; we want others to think well of us by conforming to reasonable social expectations. And when it becomes difficult to know who might own a particular piece of property or how it should be used, we often resort to what Smith calls the impartial spectator. Here, we look at the situation from the outside and ponder how other individuals would be perceived if they made various choices. Hopefully, after performing this assessment, an individual chooses the most socially-acceptable course of action, gaining the esteem of others.

This works quite well. Knowing that my colleagues think it strange to take toilet paper from the hotel, I choose not to do so. Social norms dictate such action would bring disapproval upon myself. Notice how strongly this works. While it is unlikely that any colleague of mine would ever know that I put toilet paper in my suitcase, I nonetheless abstain from this action (de facto making the hotel the ultimate owner of the unused tissue, even though it is “complimentary”). If we perform a thorough accounting of our daily choices with respect to different things (i.e., property), it is astounding how much social norms, not formal law, guide our daily decisions.

The other beautiful aspect of social norms is that we are all part of the process of contributing to and communicating those norms, as well as monitoring and enforcing them. It is anarchy in action; the good kind of anarchy and not the “burn down Portland” kind. The impartial spectator operates in this arena and sensitizes individuals to how their choices impact the broader society. To channel Ronald Coase, we voluntarily internalize our externalities by way of Adam Smith’s “man within the breast” and not via “the man of system.”

Norms do slowly change through an uncountable number of tiny negotiations (involving social approval and disapproval) of human action over time. (See Friedrich Hayek’s discussion of this in his epilogue to Law, Legislation, and Liberty.) It is how we define and redefine “the common good,” even though all may not agree. But this is truly democratic (more so than voting) in that we all become involved in crafting, recrafting, promulgating, and enforcing the property rights that ensure free markets work and that society prospers.

For those seeking to promote human flourishing, it is worthwhile to consider not only how to draft formal rules, but to think deeply about how our civic culture determines prosperity. That is something to think about next time you’re shampooing your hair at the Sheraton.

Footnotes

[1] Anarchy in action is the idea that a viable, stateless society is possible—not through impersonal markets or state enforcement—but through the cohesive, egalitarian bonds of small-scale community relations. This comes from Michael Taylor’s book, Community, Anarchy, and Liberty. (Cambridge University Press, 1982.)

[2] Daniel B. Klein, Erik W. Matson, and Colin Doran, “The man within the breast, the supreme impartial spectator, and other impartial spectators in Adam Smith’s The Theory of Moral Sentiments.” History of European Ideas. Volume 44, 2018.

[3] F.A. Hayek, Law, Legislation, and Liberty. University of Chicago Press, 2024.