D2.Eco.9.9-12: Property Rights and the Rule of Law in a Market Economy

Overview

Lesson Procedure

65-80 minutes of class time across 5 phases.

1. Warm-Up5-10 minutes
2. Direct Instruction20 minutes
3. Guided Practice15-20 minutes
4. Independent Practice15 minutes
5. Closure10-15 minutes

1. Warm-Up5-10 minutes

   Warm-Up Prompt

   "Imagine you could spend all summer building a treehouse in a park, but anyone could take it over in the fall, and the person who settles disputes is the friend of the biggest kid on the block. Would you build it? What two changes would make you willing?"

   Collect answers and sort them into two lists: changes about who owns what (a written claim, marked boundaries) and changes about how disputes are settled (fair rules, a neutral judge). Tell students these are the two institutions named in D2.Eco.9.9-12: clearly defined property rights and the rule of law.

2. Direct Instruction20 minutes

   Key terms for D2.Eco.9.9-12 (working definitions)

   Term	Meaning	Example
   Property right	A recognized right to use a resource, keep what it earns, and sell or transfer it	Owning a farm, a patent, a share of stock or a toll-bridge charter
   Clearly defined	Boundaries, owner and allowed uses are known and can be checked	A surveyed lot recorded in a public registry
   Rule of law	Laws are public, known in advance, applied equally to all, and enforced by courts that follow them	A court that decides a land dispute by the recorded deed, whoever the parties are
   Contract	A promise the law will enforce	A lease, a loan agreement, a state charter
   Charter or franchise	A grant from a government giving a corporation rights, such as collecting tolls	The 1785 charter of the Charles River Bridge
   Collateral	Property a borrower pledges to a lender in case the loan is not repaid	A house that secures a mortgage
   Transaction costs	The costs of making a trade besides the price: searching, checking, bargaining, enforcing	Paying for a survey and a title search before buying land

   Part 1: Four jobs that property rights do. (1) Incentives: people invest, plant and maintain when they expect to keep the results. (2) Exchange: a clear title lets strangers buy and sell without a long investigation, which lowers transaction costs. (3) Credit: property that can be checked and seized if a loan goes bad can serve as collateral, so lenders charge less. (4) Fewer conflicts: clear boundaries leave less to fight about. Use Examples 1-3.

   Part 2: What the rule of law adds. A deed or a contract is only worth what courts will enforce. The rule of law makes enforcement predictable: the same published rules apply to the powerful and the weak, to officials and to private citizens, and judges decide by those rules rather than by favor. Without it, even well-written property rights are insecure, because the outcome depends on who you know. Use Example 4.

   Part 3: A real tension. Property rights must be secure, but they must also have limits. A right drawn too broadly, such as an exclusive right to all traffic across a river, can block competitors and new technology. A right drawn too weakly invites others to take the gains. Diagram 1 shows the connections; Diagram 2 shows how insecurity can wipe out the expected gain of an investment.

   • Incentives (invented)

     Invented example: planting an orchard costs $12,000 and is expected to earn $3,000 a year for 8 years. A farmer with secure title estimates a 5% chance of losing the land before the trees pay off; a farmer with insecure title estimates 50%. What is each one's expected net gain, if losing the land means losing all the earnings?

     Result: Total earnings: $3,000 x 8 = $24,000. Secure: 0.95 x $24,000 - $12,000 = $22,800 - $12,000 = $10,800. Insecure: 0.50 x $24,000 - $12,000 = $12,000 - $12,000 = $0. With insecure rights the same orchard is not worth planting, even though the land and trees are identical. Diagram 2 graphs this.

   • Credit (invented)

     Invented example: a family needs to borrow $20,000 to open a repair shop. With a recorded title to their house, a bank lends at 6% a year. Without a title they can use as collateral, the only lender charges 18%. What is the first year's interest in each case?

     Result: With title: 0.06 x $20,000 = $1,200. Without: 0.18 x $20,000 = $3,600. The difference, $2,400 a year, comes from the lender's risk: it cannot count on taking and selling property it cannot verify. Clear property rights turn a house into usable collateral.

   • Exchange (invented)

     Invented example: a buyer wants a $90,000 lot. In Town A, a public registry search costs $300 and takes one day. In Town B, there is no registry; the buyer must pay a surveyor and a lawyer $4,500 and wait four months, and may still face a rival claim. What share of the price is the checking cost in each town?

     Result: Town A: 300 / 90,000 is about 0.33%. Town B: 4,500 / 90,000 = 5%. Higher transaction costs mean fewer sales, and land moves less often to the people who would use it best. Defining property clearly is a public service that lowers these costs for everyone.

   • Rule of law (invented)

     Invented example: a city council member's cousin builds a fence two meters onto a neighbor's recorded lot. In City X, the court orders the fence moved within three months. In City Y, the dispute goes to the council, which rules for the cousin. What role does the rule of law play?

     Result: In City X the recorded right is enforced the same way for everyone, so owners can plan and invest. In City Y the same deed is worth less because the outcome depends on connections. Owners there may spend money on guards, bribes or lawyers instead of improvements, and outsiders become reluctant to buy or lend.

   Teacher tip. Students often treat "property rights" as "the more protection, the better." Charles River Bridge is useful because both justices favor investment and still disagree. Ask pairs: "Whose interests is each justice protecting, and what does each one fear?" Have them answer from the texts before you discuss, and keep their answers for the moot court.

3. Guided Practice15-20 minutes

   The case. Context note: In 1785 Massachusetts chartered the Charles River Bridge company to build a toll bridge between Charlestown and Boston, and the charter was later extended to 70 years. In 1828 the legislature chartered the Warren Bridge, which started near the old bridge in Charlestown and ended about 800 feet from it in Boston; it would charge tolls only for a few years and then become free. Travelers switched, and the old bridge's tolls collapsed. Its owners argued that their charter was a contract that implied an exclusive right, and that the 1828 act impaired it, which the Constitution's Contract Clause forbids to the states. In 1837 the Supreme Court ruled against them. Chief Justice Taney wrote for the Court (Source 1); Justice Story dissented, joined by Justice Smith Thompson (Source 2). Glossary: "line of travel" (a route that travelers use), "exact toll" (collect a fee), "implied contract" (a promise read into a document though not written in it), "turnpike corporations" (companies that built toll roads), "in jeopardy" (at risk), "construed liberally" (read broadly), "cogency" (force, persuasiveness), "complexionally" (by temperament), "co-extensive with the grant" (as wide as what was granted).

   1[...] No one will question that the interests of the great body of the people of the state, would, in this instance, be affected by the surrender of this great line of travel to a single corporation, with the right to exact toll, and exclude competition for seventy years. While the rights of private property are sacredly guarded, we must not forget that the community also have rights, and that the happiness and well being of every citizen depends on their faithful preservation.

   [...]

   2And what would be the fruits of this doctrine of implied contracts on the part of the states, and of property in a line of travel by a corporation, if it should now be sanctioned by this Court? To what results would it lead us? [...] And what is to be the extent of the privileges of exclusion on the different sides of the road? The counsel who have so ably argued this case, have not attempted to define it by any certain boundaries. How far must the new improvement be distant from the old one? How near may you approach without invading its rights in the privileged line? [...] Let it once be understood that such charters carry with them these implied contracts, and give this unknown and undefined property in a line of travelling; and you will soon find the old turnpike corporations awakening from their sleep, and calling upon this Court to put down the improvements which have taken their place. The millions of property which have been invested in rail roads and canals, upon lines of travel which had been before occupied by turnpike corporations, will be put in jeopardy.

   1But it has been argued, and the argument has been pressed in every form which ingenuity could suggest, that if grants of this nature are to be construed liberally, as conferring any exclusive rights on the grantees, it will interpose an effectual barrier against all general improvements of the country. For myself, I profess not to feel the cogency of this argument; either in its general application to the grant of franchises, or in its special application to the present grant. This is a subject upon which different minds may well arrive at different conclusions, both as to policy and principle. Men may, and will, complexionally differ upon topics of this sort, according to their natural and acquired habits of speculation and opinion.

   2For my own part, I can conceive of no surer plan to arrest all public improvements, founded on private capital and enterprise, than to make the outlay of that capital uncertain, and questionable both as to security, and as to productiveness. No man will hazard his capital in any enterprise, in which, if there be a loss, it must be borne exclusively by himself; and if there be success, he has not the slightest security of enjoying the rewards of that success for a single moment. If the government means to invite its citizens to enlarge the public comforts and conveniences, to establish bridges, or turnpikes, or canals, or railroads, there must be some pledge, that the property will be safe; that the enjoyment will be co-extensive with the grant: and that success will not be the signal of a general combination to overthrow its rights, and to take away its profits. The very agitation of a question of this sort, is sufficient to alarm every stockholder in every public enterprise of this sort, throughout the whole country.

   1. Read Source 1. Prompt: in paragraph 2, what questions does Taney say the bridge owners' lawyers could not answer? Teacher note: how far the exclusive right reaches, "How far must the new improvement be distant from the old one?" A right nobody can measure cannot be applied the same way twice, which is a rule-of-law problem as well as a property problem.
   2. Read Source 2. Prompt: in paragraph 2, which kinds of public works does Story list, and who pays to build them? Teacher note: bridges, turnpikes, canals and railroads, "founded on private capital and enterprise": in his view private investors, not the state, put up the money.
   3. Map the disagreement. In pairs, students fill in a two-column chart, Taney and Story, with rows: Whose property is at stake? What risk does he fear? What rule does he want the Court to follow? Collect the charts for Activity 1.
4. Independent Practice15 minutes

   Defining property on a continental scale. Context note: Source 3 is from the Bureau of Land Management (BLM), the federal agency that manages public lands and keeps the national survey records. The Land Ordinance of 1785 set up the rectangular survey that divided western lands into townships six miles square and sections of one square mile before they were sold. A plat is an official survey map; a monument is a permanent marker set at a survey corner. Students read Source 3 on their own and answer: (1) What four things do cadastral surveys do to boundaries? (2) According to paragraph 2, who uses the information, and for what? (3) Why would a buyer or a bank care that the BLM still restores "lost original survey corners" today?

   1The BLM’s Cadastral Survey program is one of the oldest and most fundamental functions of the U.S. Government. Originating with the Land Ordinance of 1785, cadastral surveys create, define, mark, and re-establish the boundaries and subdivisions of the public lands of the United States.

   2The word "cadastral" is derived from cadastre, meaning a public record, survey, or map of the value, extent and ownership of land as a basis of taxation. These surveys provide public land managers and the public with information essential to correctly determining ownership rights and privileges, and facilitating good land management decisions.

   [...]

   3As a young nation, the U.S. faced the daunting task of surveying over 1.8 billion acres of acquired public domain lands. Over the past two centuries, almost 1.5 billion acres have been surveyed into townships and sections and monumented. This represents the greatest land surveying project ever undertaken, requiring vast human energy for carrying heavy equipment, dragging chains, cutting trails, climbing mountains, placing monuments, digging pits, and blazing "witness" trees.

   4The BLM is the official record keeper for over 200 years' worth of cadastral survey records and plats. In addition, the agency continues to complete numerous new surveys each year, mostly in Alaska. The agency also conducts resurveys to restore obliterated or lost original survey corners.

   Collect the answers; Quiz questions 7-9 use Source 3.

5. Closure10-15 minutes

   Two valleys. Introduce Source 4, an invented scenario, for the quiz and the homework. Students read it on their own and underline every difference between the valleys' rules.

   1Invented scenario, written for this page. North Fork and South Fork are two farming valleys in an invented country. The soil, rainfall and crops are almost the same in both. The rules are not.

   2North Fork. Every farm has been surveyed, and its boundaries and owner are written in a public land registry that anyone can search for a small fee. When neighbors disagree about a boundary or a sale, a court decides within about six months, using laws that are published in advance and apply to everyone, including officials. Banks accept registered land as collateral (property a borrower pledges to the lender in case the loan is not repaid) and lend to farmers at 7% a year.

   3South Fork. Farm boundaries are described by landmarks, such as "from the old oak to the creek," and there is no registry. Disputes are settled by the valley's governor, who often rules for his friends, and some cases wait for years. Most banks will not accept South Fork land as collateral. Farmers who borrow pay a private lender 15% a year.

   4A choice. In both valleys, an irrigation system costs $50,000 and would raise a farm's profit by $8,000 a year for 10 years. Farm families in North Fork estimate a 2% chance of losing their land in a dispute during those 10 years; in South Fork they estimate 25%.

   5The record (invented data). Over the past 10 years, 62% of North Fork farms installed irrigation, compared with 18% in South Fork. Farmland sells for about $4,000 an acre in North Fork and about $2,500 an acre in South Fork.

   Exit ticket: In Source 4, name one difference that is about property rights and one that is about the rule of law. Predict one effect of each on farmers' choices.

   Teacher note on the sources and on balance: Sources 1 and 2 are quoted exactly as printed in the 1837 U.S. Reports and give the two sides of a real disagreement among the justices; neither is presented as the right answer, and students' arguments are scored on reasoning. Source 3 is a current federal agency text, and its claims about the survey (for example, "the greatest land surveying project ever undertaken") are the BLM's own. Source 4 is invented, including its probabilities and prices. The public lands that the survey divided were the homelands of Native nations, which had their own systems of land use and ownership. The United States took over these lands mainly through treaty cessions, many made under pressure, and through war and forced removal, such as the removals of the 1830s; some land was taken without any treaty. Teachers may connect this to the question of whose property rights the new system recognized, which is separate from how clearly it defined them.

Differentiation Strategies

Assessment Guidance

1. Question 1 of 20 · Multiple Choice

   In Source 1, paragraph 1, what does Taney say the Court must keep in view while it guards private property?

   AThat corporations may never collect tolls from travelers BThat the community also has rights that must be preserved CThat the state should own every bridge and road itself DThat old charters always outrank new acts of a legislature

2. Question 2 of 20 · Multiple Choice

   In Source 1, paragraph 2, Taney calls the bridge owners' claim an "unknown and undefined property in a line of travelling." Why is that a problem for a market economy, in his view?

   AA right with no clear limits could block new roads and railroads BUndefined property cannot be taxed, so the states would lose the money they need CTravelers would never know which of the bridges charged the lower toll DCourts are not allowed to decide any cases about corporations at all

3. Question 3 of 20 · Multiple Choice

   According to Source 1, whose investments would be "put in jeopardy" if the Court read exclusive rights into old charters?

   AThe owners and stockholders of the old turnpike roads BThe state's taxpayers, who paid for the courts and roads CInvestors in rail roads and canals on old routes DThe travelers who paid tolls each day to cross the river

4. Question 4 of 20 · Multiple Choice

   In Source 2, paragraph 2, what is Story's main economic argument?

   ACompetition between two bridges always lowers the tolls BGovernment should build all of the public works itself CCourts should leave every contract question to legislatures DInvestors risk capital only if they can keep the rewards

5. Question 5 of 20 · Multiple Choice

   In Source 2, paragraph 1, what does Story admit before he states his own view?

   AThat the bridge owners' charter never mentioned tolls BThat he had changed his mind during the case CThat different minds may reach different conclusions DThat the Constitution does not protect contracts

6. Question 6 of 20 · Multiple Choice

   Which statement best compares Sources 1 and 2?

   ABoth justices say their rule would protect investment BTaney favors investment in public works, and Story opposes it CStory favors competition between bridges, and Taney opposes it DBoth justices say property rights matter little in a market

7. Question 7 of 20 · Multiple Choice

   According to Source 3, paragraph 1, what do cadastral surveys do?

   ACollect taxes on the public lands of the United States BDecide which of the nation's citizens may buy public lands CSet the prices at which all of the public land is sold DCreate, define, mark and re-establish land boundaries

8. Question 8 of 20 · Multiple Choice

   Source 3 says almost 1.5 billion acres have been surveyed into townships and sections. A section is one square mile, or 640 acres. About how many sections is 1.5 billion acres?

   AAbout 2.8 million BAbout 2.3 million CAbout 960 billion DAbout 234,000

9. Question 9 of 20 · Multiple Choice

   Source 3, paragraph 2, says the surveys provide "information essential to correctly determining ownership rights." How does that information help a market for land work?

   AIt lets buyers and lenders check what is owned cheaply BIt sets a fair price for every single acre of the land CIt guarantees that the value of land will rise each year DIt removes the need for any courts or written laws at all

10. Question 10 of 20 · Multiple Choice

    Use Source 4. A farmer borrows $40,000 for one year at the usual rate in each valley. How much more interest does a South Fork farmer pay than a North Fork farmer?

    A$2,800 B$6,000 C$8,800 D$3,200

11. Question 11 of 20 · Multiple Choice

    Use Source 4. If losing the land means losing all of the extra profit, what is the expected net gain from irrigation for a North Fork farm over 10 years?

    A$30,000 B$78,400 C$28,400 D$10,000

12. Question 12 of 20 · Multiple Choice

    Use Source 4. At what chance of losing the land would the irrigation system just break even (expected net gain of $0)?

    A37.5% B62.5% C25% D50%

13. Question 13 of 20 · Multiple Choice

    Which feature of South Fork in Source 4 is mainly a failure of the rule of law, rather than of how property is defined?

    ABoundaries are described only by landmarks BThe governor often rules for his friends CThere is no public land registry to search DBanks will not accept the land as collateral

14. Question 14 of 20 · Multiple Choice

    In Source 4, farmland sells for about $4,000 an acre in North Fork and $2,500 in South Fork, although the soil is almost the same. Which explanation fits the lesson best?

    ASouth Fork farmers choose to grow worse crops on purpose BNorth Fork land can be kept, sold and borrowed on safely CNorth Fork's government sets higher land prices by law DBuyers in South Fork have much more money to spend on land

15. Question 15 of 20 · Multiple Choice

    Invented examples: which new city rule would most weaken the rule of law?

    AA rule that every building permit must be decided within 30 days BA rule that all land sales must be recorded in a public office CA rule that publishes every zoning law online before it applies DA rule that city council members are exempt from building codes

16. Question 16 of 20 · Short Answer

    Using Source 2, explain why insecure property rights discourage investment. Then use the invented data in Source 4 to show this effect in South Fork.

    Show model answer

17. Question 17 of 20 · Short Answer

    Taney and Story disagree about how property rights should be defined. Explain each justice's view of how broadly the bridge charter's rights should be read, and the risk each one sees in the other's view.

    Show model answer

18. Question 18 of 20 · Short Answer

    Using Source 4, describe two different roles that clearly defined property rights play in North Fork's economy. Give a detail for each.

    Show model answer

19. Question 19 of 20 · Short Answer

    North Fork has a land registry, but Source 4 also says its courts decide disputes by laws that "apply to everyone, including officials." Explain why the registry would be worth much less without that second feature.

    Show model answer

20. Question 20 of 20 · Short Answer

    Which ruling would better support a growing market economy: Taney's, which let the new bridge compete, or Story's, which would have protected the old bridge's charter? Take a position and support it with one source and one economic reason, and answer one point from the other side.

    Show model answer

These standards connect to D2.Eco.9.9-12: prerequisites to review first, parallel standards at the same level, and next steps that build on it.

Standard text: National Council for the Social Studies (NCSS), The College, Career, and Civic Life (C3) Framework for Social Studies State Standards: Guidance for Enhancing the Rigor of K-12 Civics, Economics, Geography, and History (Silver Spring, MD: NCSS, 2013). NCSS was not involved in the production of this lesson and does not endorse it.