Free Markets and Rights: John Locke

by Manuel G. Velasquez

From Business Ethics: Concepts and Cases, 2002

Last modified: October 19, 2012

Introductory note by Dr. Jan Garrett

This reproduces, only for scholarly use of my current students, the greater part of a section from Chapter 3 of Manuel G. Velasquez, Business Ethics: Concepts and Cases, Fifth Edition (Upper Saddle River, NJ: Prentice-Hall, 2002). I have inserted a number of explanatory notes not found in the original in the following form [xxx.—J.G.]

Here are some basic study questions for this material.

For further study, see Locke's Second Treatise of Government, the important philosophical work that provides the basis of this summary. Some of the most important parts are Sections (not chapters) 4, 6, 15, 25-26, and 95-99.


One of the strongest cases [Special Note 1] for an unregulated market [Special Note 2] derives from the idea that human beings have certain "natural rights" that only a free market system can preserve. The two natural rights that free markets are supposed to protect are the right to freedom and the right to private property. Free markets are supposed to preserve the right to freedom insofar as they enable each individual to voluntarily exchange goods with others free from the coercive power of government. They are supposed to preserve the right to private property insofar as each individual is free to decide what will be done with what he or she owns without interference from government.

John Locke (1632-1704), an English political philosopher, is generally credited with developing the idea that human beings have a "natural right" to liberty and a "natural right" to private property.13 Locke argued that if there were no governments, human beings would find themselves in a state of nature. In this state of nature, each man would be the political equal of all others and would be perfectly free of any constraints other than the law of nature, that is, the moral principles that God gave to humanity and that each man can discover by the use of his own God-given reason. As he puts it, in a state of nature, all men would be in:

A state of perfect freedom to order their actions and dispose of their possessions and persons as they think fit, within the bounds of the law of nature, without asking leave, or depending upon the will of any other man. A state also of equality, wherein all the power and jurisdiction is reciprocal, no one having more than another…without subordination or subjection [to another]…. But…the state of nature has a law of nature to govern it, which obliges everyone: and reason, which is that law, teaches all mankind, who will but consult it, that being all equal and independent, no one ought to harm another in his life, health, liberty, or possessions.14
According to Locke, the law of nature "teaches" each man that he has a right to liberty and that, consequently, "no one can be put out of this [natural] estate and subjected to the political power of another without his own consent."15 The law of nature also informs us that each man has rights of ownership over his own body, his own labor, and the products of his labor, and that these ownership rights are "natural"—that is, they are not invented or created by government nor are they the result of a government grant:
Every man has a property in his own person: This nobody has a right to but himself. The labor of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature has provided and left it in, he has mixed his labor with, and joined to it something that is his own, and thereby makes it his property.… [For] this labor being the unquestionable property of the laborer, no man but he can have a right to what that [labor] is once joined to, at least where there is enough, and as good, left in common for others.16
The state of nature, however, is a perilous state in which individuals are in constant danger of being harmed by others, "for all being kings as much as he, every man his equal, and the greater part no strict observers of equity and justice, the enjoyment of the property he has in this state is very unsafe, very insecure."17 Consequently, individuals inevitably organize themselves into a political body and create a government whose primary purpose is to provide the protection of their natural rights that is lacking in the state of nature. Because the citizen consents to government "only with an intention … to preserve himself, his liberty and property … the power of the society or legislature constituted by them can never be supposed to extend farther" than what is needed to preserve these rights.18 Government cannot interfere with any citizen's natural right to liberty and natural right to property except insofar as such interference is needed to protect one person's liberty or property from being invaded by others.

Although Locke never explicitly used his theory of natural rights to argue for free markets, several 20th-century authors have employed his theory for this purpose.19 Friedrich A. Hayek, … and many others have claimed that each person has the right to liberty and property that Locke credited to every human being and that, consequently, government must leave individuals free to exchange their labor and their property as they voluntarily choose.20 Only a free private enterprise exchange economy, in which government stays out of the market and in which government protects the property rights of private individuals, allows for such voluntary exchanges. The existence of the Lockean rights to liberty and property, then, implies that societies should incorporate private property institutions and free markets.

It is also important to note that Locke's views on the right to private property have had a significant influence on American institutions of property even in today's computer society. First, and most important, throughout most of its early history, American law has held to the theory that individuals have an almost absolute right to do whatever they want with their property and that government has no right to interfere with or confiscate an individual's private property even for the good of society. The Fifth Amendment to the U.S. Constitution states that, "No person shall be … deprived of life, liberty, or property without due process of law; nor shall private property be taken for public use, without just compensation." This view (which quotes Locke's phrase, "life, liberty, and property") ultimately derives from Locke's view that private property rights are established "by nature" (when an individual "mixes" his labor into a thing) and so are prior to government. Government does not grant or create private property rights. Instead, it must respect and protect the property rights that are naturally generated through labor and trade. It is only relatively recently, in the late 19th and 20th centuries, that this Lockean view began to give way in the United States to the more "socialist" view that government may limit an individual's private property rights for the good of society. Even today in the United States there is a strong presumption that government does not create property rights, but must respect and enforce the property rights that individuals create through their own efforts. It is important to see that this American and Lockean view of property is not universal. In some countries, such as Japan, resources are not seen as things over which individuals have an absolute private property right. Instead, in Japan, as in other Asian societies, resources are seen as functioning primarily to serve the needs of society as a whole, and so the property rights of individuals should give way to the needs of society when there is a conflict between the two.

Second, underlying many American laws regarding property and ownership is Locke's view that, when a person expends his or her labor and effort to create or improve a thing, he or she acquires property rights over that thing. If a person writes a book or software program, for example, then that book or software program is the property of the person who "mixed" his or her labor into it. A person may, of course, agree to "sell" his labor to an employer, and thereby agree that he will give his employer ownership of whatever he creates. However, even such employee agreements assume that the employee has the right to "sell" his labor, and this means that the employee must have been the original owner of the labor used to create the object. Software developers, for example, are the rightful owners of the software programs they develop not only because they have invested a great deal of time and energy into developing these programs, but also because they have paid the software engineers who "sold" them their labor to produce these programs. We should notice that these views on property, of course, all assume that a private property right is really a bundle of rights. To say that X is my private property is to say that I have a right to use it, consume it, sell it, give it away, loan it, rent it, keep anything of value it produces, change it, destroy it, and, most important, exclude others from doing any of these things without my consent.

Criticisms of Lockean Rights

Criticisms of the Lockean defense of free markets have focused on four of its major weaknesses: (a) the assumption that individuals have the "natural rights" Locke claimed they have, (b) the conflict between these negative rights and positive rights, (c) the conflict between these Lockean rights and the principles of justice, and (d) the individualistic assumptions Locke makes and their conflict with the demands of caring.

[Locke's Unproven Assumption about Precedence of Certain Rights--J.G.]

First, the Lockean defense of free markets rests on the unproven assumption that people have rights to liberty and property that take precedence over all other rights. If humans do not have the overriding rights to liberty and property, then the fact that free markets would preserve the rights does not mean a great deal. Neither Locke nor his 20th-century followers, however, have provided the arguments needed to establish that human beings have such "natural" rights.

Locke merely asserted that, "reason … teaches all mankind, who will but consult it," that these rights exist.21 Instead of arguing for these rights, therefore, Locke had to fall back on the bare assertion that the existence of these rights is "self-evident": All rational human beings are supposed to be able to intuit that the alleged rights to liberty and to property exist. Unfortunately, many rational human beings have tried and failed to have this intuition.22

The problem emerges most clearly if we look more closely at Locke's views on the natural right to property. Locke claims that when a person "mixes" his labor into some object that is unclaimed, the object becomes that person's property. For example, if I find a piece of driftwood on a seashore and whittle it into a pretty statue, the statue becomes my property because I have taken something of mine—my labor—and "mixed" it into the wood so as to make it more valuable. Investing effort and work into making something more valuable makes that thing mine. But why should this be? As the philosopher Robert Nozick has asked, if I "mix" my labor into something that is not yet mine, then why isn't this just a way of losing my labor?23 Suppose that I own a cup of water and I throw my cup of water into the ocean so that I mix my water with the unowned water of the ocean. Does the ocean become "mine"? Clearly, in this case at least, mixing something of mine into something that is not mine is merely a way of losing what was mine, not a way of acquiring something that was not mine. Why is it that when I invest my work at improving or changing some object so as to make it more valuable, that object becomes my "property"? Locke provides no answer to this question, apparently thinking that it is "self-evident."

[The Argument from Positive Rights--J.G.]

Second, even if human beings have a natural right to liberty and property, it does not follow that this right must override all other rights. The right to liberty and property is a "negative" right in the sense defined in Chapter 2. As we saw there, negative rights can conflict with people's positive rights. [By "negative right," Velasquez means a right not to be interfered with, in some way; by "positive right," he means a person's right to something he or she presumably needs. For more on rights concepts in general and the positive/negative rights distinction, see this short article.--J.G.] For example, the negative right to liberty may conflict with someone else's positive right to food, medical care, housing, or clean air. Why must we believe that in such cases the negative right has greater priority than the positive right? Critics argue, in fact, that we have no reason to believe that the rights to liberty and property are overriding. Consequently, we also have no reason to be persuaded by the argument that free markets must be preserved because they protect this alleged right.24

[Free Markets Create Unjust Inequalities--J.G.]

The third major criticism of the Lockean defense of free markets is based on the idea that free markets create unjust inequalities.25 In a free market economy, a person's productive power is proportioned to the amount of labor or property he or she already possesses. Those individuals who have accumulated a great deal of wealth and who have access to education and training will be able to accumulate even more wealth by purchasing more productive assets. Individuals who own no property, who are unable to work, or who are unskilled (such as the handicapped, infirm, poor, aged) will be unable to buy any goods at all without help from the government. As a result, without government intervention, the gap between the richest and poorest will widen until large disparities of wealth emerge. Unless government intervenes to adjust the distribution of property that results from free markets, large groups of citizens will remain at a subsistence level while others grow ever wealthier.

To prove their point, critics cite the high poverty levels and large inequalities of "capitalist" nations such as the United States. In 1995, for example, during a period of relative economic prosperity when the wealth of the riches Americans increased, 36.4 million Americans or about 13.8 percent of the population continued living in poverty (as defined by the Council of Economic Advisors).26 About 40.6 million people lacked health insurance coverage (15.4 percent of the population). Between 300,000 and 3 million were estimated to be homeless and living on the streets.27 One out of every five American children under the age of 18 lived in poverty. In contrast, the top 1 percent of the population held one fourth of all U.S. personal wealth, controlled more than half all of America's stocks, and owned 60 percent of its wealth in bonds. 28 Critics point to the highly unequal distribution of income and wealth among each fifth of the population that has emerged during the last two decades, as Table 3.1 summarizes. By standard measures of inequality, such as the so-called "Gini Index," American inequality has been rising steeply in the United States, as Fig. 3.1 shows. 29 Figure 3.2 shows the steadily growing gap between the haves and the have nots, and Fig. 3.3 shows how the richest 20 percent of U.S. households have come close to having as much income as all the rest combined. [I have not reproduced Figures 3.2 and 3.3 here.--J.G.]

[Questionable Assumptions About Human Nature Prior to Community--J.G.]

Finally, critics have argued, Locke's argument assumes human beings are atomistic individuals with personal rights to liberty and property that flow from their personal nature independently of their relations to the larger community. Because these rights are assumed to be prior to and independent of the community, the community can make no claims on the property or freedom of the individual. However, critics claim that these individualistic assumptions are completely false: They ignore the key role of caring relationships in human societies and the demands of caring that arise from these relationships. Critics of Locke point out that humans are born dependent on the care of others; as they grow, they remain dependent on the care of others to acquire what they need to become able adults. Even when they become adults, they depend on the caring cooperation of others in their communities for virtually everything they do or produce. The degree of liberty a person has depends on what the person can do: The less a person can do, the less he is free to do. But a person's abilities depend on what he learns from those who care for him as well as on what others care to help him to do or allow him to do. [The Partership approach advocated by Riane Eisler incorporates the care perspective being used here.--J.G.]

Similarly, the "property" that a person produces through his labor depends ultimately on the skills he acquired from those who cared for him, and on the cooperative work of others in the community such as employees. Even one's identity—one's sense of who one is as a member of the various communities and groups to which one belongs—depends on the one's relationships with others in the community. In short, the individualistic assumptions built into Locke's view of human beings ignores the concrete caring relationships from which a person's identity and the possibility of individual rights arise. Humans are not atomistic individuals with rights that are independent of others: Instead, they are persons embedded in caring relationships that make those rights possible and that make the person who and what he or she is. Moreover, critics continue, persons are morally required to sustain these relationships and to care for others as others have cared for them. The community can legitimately make claims on the property of individuals and can restrict the freedom of individuals precisely because the community and the caring it has provided are the ultimate source of that property and freedom.


      Percent of Total
U.S. Income
      Percent of Total
U.S. Wealth
      Percent of Total
U.S. Net Worth
Family Net Worth
Group      (1996)      (1983)      (1993)      (1993)
Poorest Fifth      3.7%       -0.2%       7.20%       $4249
Second Fifth      9.0%       1.8%      12.20%      $20,230
Third Fifth       15.1%      5.9%      15.90%      $30,788
Fourth Fifth       23.3%      13.6%      20.60%      $50,000
Richest Fifth      49.0%      78.8%      44.10%       $118,996

Sources: U.S. income figures from Bureau of the Census, Current Population Reports, P60-189. U.S. wealth from Levy, The Economic Future of American Families, 1991. Net worth and median net worth from Bureau of the Census, Current Population Reports, P70-47.

Special Notes

[Special Note 1] Note: a case, i.e., an argument, for something—in this case, the claim that the free market system is morally superior to all alternatives—can be "one of the strongest" for a claim without being stronger than arguments against that very claim!—J.G.]

[Special Note 2. It is doubtful that Locke would have rejected government regulation that requires those who are trying to sell commodities to avoid (appropriately defined) force and fraud. I presume he would have regarded use of these "business tactics" as a violation of the buyer's right to liberty. So the "unregulated" market at issue here would not be an "anything goes" market.—J.G.]

Velasquez's Notes

[I have not reproduced all the notes for this section that can be found in Velasquez's textbook. If any student of mine in current classes wishes more information, she may contact me and request it.--J.G.]

13. The literature on Locke is extensive. See Richard I. Aaron, John Locke, 3rd edition. (London: Oxford University Press, 1971), pp. 352-786 for bibliographic materials.

14. John Locke, Two Treatises of Government, rev. ed., Peter Laslett, ed. (New York: Cambridge University Press, 1963), pp. 309, 311.

15. Ibid., p. 374.

16. Ibid., pp. 328-39.

17. Ibid., p. 395.

18. Ibid., p. 398.

19. C. B. MacPherson, however, argues that Locke was attempting to establish the morality and rationality of a capitalist system; see his The Political Theory of Possessive Individualism: Hobbes to Locke (Oxford: The Clarendon Press, 1962).

20. Friedrich A. Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1944); Murray N. Rothbard, For a New Liberty (New York: Collier Books, 1978); Gottfried Dietz, In Defense of Property …; Eric Mack, "Liberty and Justice,"…; John Hospers, Libertarianism …; T. R. Machan, Human Rights and Human Liberties … 1975.

21. Locke, Two Treatises, p. 311; for a fuller treatment of Locke's views on the law of nature, see John Locke, W. von Leyden, ed., Essays on the Law of Nature (Oxford: The Clarendon Press, 1954).

22. William K. Frankena, Ethics, 2nd ed., …1973.

23. Robert Nozick, Anarchy, State and Utopia (New York: Basic Books, Inc., 1974).

24. For versions of this argument, see Lindblom, Politics and Markets, pp. 45-51.

25. …

26. …

27. Nancy Gibbs, "The Homeless: Answers at Last," Time, 17 December 1990, p. 44.

28. Lars Osberg, Economic Inequality in the United States (New York: M.E. Sharpe, Inc., 1984), p. 41.

29. See Daniel H. Weinberg, "Income Inequality, A Brief Look at Postwar U.S. Income Inequality," Census Bureau, P60, No. 191 (1996).