Before we can discuss "how could free markets work with water," there's much to observe. First, the dismal science, which is neither dull nor unexciting, with life, death, greed, jealousy, self interest, and double dipping all mixed into a soup we call today, Economics. Adam Smith launched it all with his treatise on "The wealth of nations," and we haven't been the same since. Phrases like, division of labor, production, real and nominal prices, soon entered our vocabularies; along with the dictum of "the invisible hand." Smith eloquently summarized much of this as "the real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble to acquire it"
Smith argued "the price of any product reflects wages, rent of land and profit of stock," and that prices depend on supply and demand. All of this eloquently covers both commodities and manufactures; but, sadly it is quite difficult to apply to a static quantity of a resource available across the world.
About the time of Smith, Thomas Malthus opined that population increases spelled food shortages and foretold doom for the world unless population was checked by famine, war, floods, etc. Thus pundits began to call a negative or gloomy perspective on life, a Malthusian outlook.
Water is a finite resource with 326 million cubic miles available on earth. Water occurs naturally in the sea, on land in the form of lakes and rivers, and underground in terms of aquifers. It's all a matter of ownership and control that accounts for supply and demand. Early Spanish settlers in New Mexico established a Plaza system with common ownership of lands, acequia water ditches, along with water management by a major domo. That system flunked the English ownership principles of deeds and title, and there is still argument, lawsuit, and turmoil over land previously held in common, as it raises the questions of, how do you get title insurance, and decide who owns the water?
Canadian water expert and writer, Maude Barlow, asserts that a Blue Water policy of water common ownership is the only viable water option for a world exploding with people. Interesting papers were written in 1833 in England about a "tragedy of the commons," and it's important that we consider this theory updated by Garrett Hardin in 1968.
The original paper showed that on a finite field, sheep will eat all the grass in a common field if demand for wool increases. So too, free access and unrestricted demand for a finite resource ultimately reduces the resource through over exploitation, temporarily or permanently. This occurs because the benefits of exploitation accrue to individuals or groups, each of whom is motivated to maximize use of the resource to the point in which they become reliant on it, while the costs of exploitation by all those to whom the resource is available.
Depletion depends on three factors: number of users wanting to consume; the consumptiveness of the users; and the relative robustness of the commons (amount of stuff available).
When the mayor of Denver asked water users to seriously decrease their water use, they were rewarded with a price increase. This makes lots of sense when you consider Smith, Supply, Demand, Malthus, and Tragedy of the Commons.
For centuries, Rome led the world, politically, militarily, and in water, too. It was simple, Caesar owned all the water; that is the water in the Tiber, the water in the aqueducts leading down from the northern mountains, and all else, too. However, Roman citizens could purchase water rights at a public auction with the legal catch that these rights were only a life estate so when one died; the water reverted back to Caesar. This system would be difficult to inaugurate in the U.S. and tradition and books full of existing law would tie us up in legal knots forever. Next week, we will wrap up the discussion with how free markets could work in a modern world.
Jack Flobeck is the founder of Aqua Prima Center, a nonprofit think tank for water research. Readers can contact him at email@example.com.