Novels, Constitutions, and Mineral Rights

Gustave Doré, Don Quijote 2.22 (1869)

I wondered what all the fuss was about after I saw the movie There Will Be Blood (2007). It’s visually remarkable but overly moralizing. After two and a half hours, you’re supposed to think American capitalism is about greed, treachery, and murder. In Texas the movie is a litmus test for how you feel about the Republic. Just let the man get the black gold out of the ground!

Based on Upton Sinclair’s novel Oil! (1926), the film floats flaming jiggers of fatalism over socialist syrup. Booze and violence go so good with capitalism; ergo there’s plenty of drinking, fire, and murder in There Will Be Blood, and most viewers accept at face value the ruthlessness of Daniel Plainview. Plainview won that year’s Oscar for Daniel Day-Lewis. The progressive era seems to persist. There’s still nothing more despicable than an oilman—and critics gushed. Writing for The Times in London, one reviewer ranked There Will Be Blood second only to Casablanca (1942). Nonsense.

If capitalism unleashes evil, why are we the world’s richest nation? There’s the theft-and-exploitation argument. But lots of nations rob and enslave others without generating wealth. People suspicious of markets also like to think human decency somehow reins in our dangerous ambitions. Madison’s Federalist 51 (1788) and Bastiat’s The Law (1849) challenge the implied counterfactual here. If Mr. Plainview had not shown up to wreak havoc at that oilfield near Los Angeles, would angels have pumped it instead? No, men are not angels, especially when money is involved. Moreover, if devils oversee the oil companies, then why should we assume devils haven’t taken over the government too? We know they have. Whether we fear capitalists or authoritarians, our tyranny is checked not by innate morality (Rousseau) but by competing interests (Montesquieu).

I can also report that oilmen are no more covetous than others. My grandfather, father, and cousins worked the Texas oilfields. And finally, having written a constitution for a successful Western country, I know a bit about the legal framework that fosters competition in the recovery of mineral wealth. Chile has yet to adopt my constitution, so what I say below mostly regards the problem, not the details of the solution. In sum, tradable mineral rights are critical for freedom.

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When writing a constitution, try to consider what makes some societies more prosperous than others. Western Civilization seems relatively prosperous. Niall Ferguson says six “killer apps” explain this: property, competition, science, medicine, consumerism, and work. By contrast, Jared Diamond sees Europe’s advantages as a bundle of feedback loops buttressed by oblique factors like geography and fauna. Diamond thinks Europeans are lucky rather than thoughtful, and so the factors he emphasizes don’t inspire actions or plans. Ferguson’s take is more helpful, but we shouldn’t get carried away by him either. All six of his apps can be subsumed under the freer social conditions allowed by the weakness of English government during the Renaissance. That weakness resulted from the right to property and competition. These two apps ground the others. Work, consumerism, science, and medicine are less likely to develop when a society has one ruler or one owner. Without freedom of conscience and property, the other apps are dead in the water.

What explains the social conditions produced by the weakness of authority in Renaissance England? To ask another way, how did early propertied classes resist rulers? For starters, the nobility never threw in too long with the Crown. The English restrained their kings from the Magna Carta (1215) to the beheading of Charles I (d.1649). Circumscribed princes and the decentralizing effects of common law work in tandem. The Glorious Revolution of 1688 turns this restraint over to the bourgeoisie, and the American Revolution pushes it further.

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But what explains the economic success of common law? Two factors, one intangible but decisive, the other specific and exceedingly material. First, no code furnishes answers to legal questions. Rival interests constantly revisit the rules via a series of cases. A marketplace for legal ideas lets society arrive at best practices by arguing and testing. It’s messy near term but efficient long term. Because nothing is ever “one and done,” bad laws made by sovereigns don’t make a codified mess. Paul Mahoney has estimated that common-law countries generate half of one percent (0.5%) more annual GDP than countries with Napoleonic codes. Compounded annually for two centuries, this correlates well with GDP differences between the U.S. and Latin America.

But common law vs. codified law is only half the story. Once—while writing a constitution—an exemplary common law caught my attention. The “law of capture” holds that “whoever owns the ground, it is theirs all the way to Heaven and to Hell” (cuius est solum eius usque ad coelum et ad inferos). The law protects an owner’s right to hunt what flies over her land; but it also protects her right to any gold or silver she might find there. Behold the medieval English common-law origins of our tradable mineral rights in the state of Texas.¹

Adrian Scott Stokes, Hunters on the moor north of Skagen (1886)

I’m skeptical this law was ever designed to protect huntresses. To believe so one must imagine something that isn’t there. A bird underground? That’s mad, like a foreign movie or a sonnet to the color red. It’s easier to imagine silver, oil, or gold down there. I wager the law of capture echoes a struggle over who mines precious metals, thereby controlling the production of money. Why control the production of money? Because changing the quality and quantity of money lets you extract even more wealth from your citizens. Thus, princes and states want to own mines and mints. And anyone who would oppose their power needs to counter that urge.

Whatever its origins, the law of capture was a centrifugal political force in medieval and early modern England. It underwrites decentralization and competition. It means the landed gentry and, later, the bourgeoisie want to and get to control the government, which then mirrors their interests. Ideas can be accidents of history or geography, but they can also affect habits and governing structures.

Many Latin Americans instinctively blame Spain or the U.S. for their misfortunes. “Gold, God, and Glory” were the sinister motives of these two invaders, and so angelic pledges to fight materialism, religion, and individual gain win many votes south of the Rio Bravo. Presumably the conquistador and the gringo only want to extract wealth, and yet many domestic politicians throughout Latin America have also proven adept at extracting wealth. No, the anti-colonialist ideology is an imaginary, unproductive result of both “The State” and “The People” as the self-fulfilling beneficiaries of a centrally planned economy. The failure this inevitably produces only adds to the fatalism that retards progress in Latin America. And this, in turn, reinforces an unfortunate aura that attaches to North Americans. Let’s take apart this aura.

It’s important to recognize that Texas was a counterexample of how the law of capture fails before it was a positive example of how the law of capture can be made to work for the common good. Because we fear others will shoot every stag—leaving us a stag short or stagless—we’re doomed to overhunt stags, unless we can figure out a way to coordinate hunting. Likewise, everyone in East Texas drilled willy-nilly in the 1930s, depleting field pressures and flooding the market with cheap crude. Poverty played a role. There was always some poor sap willing to drill in the hopes of pocketing the tiniest margin, and so everyone felt forced to do the same. Fortunes evaporated, wells ran dry, prices collapsed. A negative feedback loop was already decimating the wealth promised by the discovery of oil in Texas in 1901.

In response, politicians, businessmen, and citizens embraced a very specific kind of government action. An opportunity arose in Texas in the 1930s to harmonize personal and public concerns, a chance to promote competition in oil and gas while avoiding both the Scylla of tyrannical state regulation (planning) and the Charybdis of a tragedy of the commons (anarchy). The Railroad Commission of Texas (RRC) intervened to set minimum distances between wells and to regulate or “prorate” production. Commissioners thereby revived oil prices and preserved the wealth of many players. Disaster was averted by implementing a pragmatic mode of commercial federalism, that is, an agreed-upon framework for competition as the lesser evil.

The English government in the medieval and early modern periods shared features with the RRC. It came to life due to a need for decisions atop a system that already functioned well on its own. By the eighteenth century, the monarchy was constitutionally restricted. Underwriting this limitation was always the idea that government can’t take the property of citizens. Moreover, there could be no taxation without representation, and property extended an owner’s rights to infinity above and below the surface. In this context government serves those with property.

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Similar thinking gives the RRC its quasi-governmental status. Law schools and major universities are in the mix. The more reputations at risk, the better. This keeps the RRC focused on its task of getting technical information to drillers, i.e., mapping fields, pressures, and markets in order to favor efficiency and profit and police the theft of sideways drilling. Since businesses in the Texas energy sector pay lots of taxes and employ lots of taxpayers, it makes sense for the RRC to maximize resource recovery while protecting the viability of the industry behind it all. Enough independent drillers drive honesty and sunshine where corruption and secrecy might encroach. Making for a more honorable outcome are many different interests in conjunction with the general value of the sector.

Now, there are probably exceptions to the rule of reducing political risk by way of commercial federalism. Norway and Alaska, for example, are more centralized than Texas. But I still imagine that the House of Saud is so extensive precisely because it knows from experience that multiple factions are more likely to keep players honest and committed to the rules.

The RRC is narrowly charged with protecting the interests of competing oil and gas concerns. Latin America has less experience with common law and mineral rights, making it easier for “The People” to trump the interests of businesses and individuals. When “The People” become analogous to a unified concept like “The State,” it behaves more like Napoleon to the degree that it wants everybody’s wealth. When the state represents multiple market participants, however, it’s more like Parliament to the degree that it wants competing interests to succeed.

Once—while writing a constitution—I had a vision that private property is critical to the kind of freedom that induces councils and commissions in lieu of solitary authorities. On the one hand, this is an argument for the advantages of allowing other parties and remote provinces to create and control wealth and power. On the other hand, it’s a pedagogical exercise focused on freedom and rights. Property and radical individualism reinforce each other, but an important precondition is that they require competition to be sustained. If mechanisms can be created to guarantee competition, then property and individualism become a virtuous pair.

Not all the gyrations of property and individualism are pretty. The aristocrats and demagogues of ancient Greece (see Thucydides); the petty, tyrannical dukes of Renaissance Italy (see Burckhardt); and the parasitic slavers of the American South (see Tocqueville), these were competitors who turned diabolical in the short run.

In the long run, however, competition allows optionality to outpace centralized, fragile systems (see Smith, Hayek, or Taleb). This is such an economic truism that if standards of living are important to you, then all your hand-wringing over past brutalities is pointless. Here, I like Mark Twain’s defense of the Spanish–American War: “Do not be ashamed; there is no occasion for it.” Rather, figure out how to promote competition and freedom right now. The benefits will be far greater for many more people.

So, how does the Italian Renaissance model individualism? Simple—no single pope, emperor, or prince can control Italy around 1500. In late-Renaissance Spain, humanists and novelists pushed back against the authoritarian claims of the Habsburgs, although it would not be enough to keep the Germanic princes from claiming the minerals beneath the feet of all those lawyers and creative writers. By contrast, after the progressive era, There Will Be Blood and Oil! portray not central authority but individualism as the main problem. To this day they contribute to an illusion and an ideological agenda (no individual has come close to owning all the oil since the 1880s).

Miguel de Cervantes’s Don Quijote de la Mancha (1605/15) shows us that state ownership of the subsoil is always a clumsy fabrication, a mirage foisted on us by political interests in search of revenues. In a comically literal way, the Cave of Montesinos episode interrogates the notion that chivalric devotion inhabits and justifies Habsburg claims to the subsoil. In this basic political sense, Cervantes unveils a sixteenth-century version of the same lies and theft in modern Argentina that Guillermo Yeatts criticized in his brilliant manual Theft of the Subsoil (1996).

In part two, chapter twenty-two of Don Quijote, the knight enters the Cave of Montesinos. The nonsense he sees there in the subsequent chapter projects the extreme absurdity of his chivalric fantasy. Historian José Antonio Maravall famously argued in Utopía y contrautopía en el Quijote (1976) that Cervantes savages Habsburg ideology in this episode. For the Crown had adopted, projected, and financed a chivalric vision of itself, which included everything from novels about knights-errant to the elaborate claim that the Habsburgs were the last descendants of Aeneas. In sum, the Cave of Montesinos episode mocks the idea of epic continuity between Charlamagne and the Habsburgs in defense of Western Europe. In part two, chapter twenty-three, Cervantes’s satire literally depicts chivalry itself as but the plate and tinsel of a bankrupt Spanish Empire.

Considering Maravall’s famous reading of the Cave of Montesinos as a deconstruction of Habsburg ideology, we might note that, in Plato’s Republic, the very locus classicus of political science climaxes in the Allegory of the Cave (7.514a–20a). But according to the reading I’m advancing here, escaping that subterranean illusion by rejecting a puppet show means more than philosophical enlightenment. It’s a lesson about one of the oldest and most obvious targets of any powerful social caste’s quest for wealth. It’s a lesson about the site of some of the prince’s earliest ideological exertions. Any ruler’s claim to the subsoil displays epic projections of national glory. And it has long been the task of great literature to expose such ideological trickery as cover for states and princes interested in mines and metals (e.g., see Daniel 5.25–28, The Golden Ass 10.1–12, Tocqueville, DA 2.4.5n5, and Cervantes DQ 2.17 and DQ 2.22–23).

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The greatest wealth the Spanish Crown ever knew was at Potosí in Bolivia. Potosí produced more than half the silver mined worldwide between 1550 and 1600. We must expect a monarchy to use smoke and mirrors as part of a campaign to secure that scale of wealth. In DQ 2.23 the mad hidalgo signals that smoke and mirrors when he emerges from the ground spewing wildly chivalric claims about what’s going on down there. Most critics think don Quijote is a hapless victim of the Duke and Duchess, but the joke’s on them to the degree that he reinforces the Crown’s claim to their subsoil. The aristocracy can hunt all day long; it is quite welcome to the top half of the law of capture (see DQ 2.34). Meanwhile, much of the mineral wealth in the Spanish Empire goes to the Crown situated at the apex of history’s greatest chivalric fantasy.

Imagine today an Argentine rancher north of Córdoba who enters a cave on his land and discovers gold, oil, or lithium. The government can now claim his cave and the use of his ranch for the purposes of extracting it. Does the rancher accept the elaborate fiction that “The People” or “The State” own the subsoil? Rather, he might wish to keep secret what he has discovered. Why? He can avoid a state-run company setting up operations on his property from now to eternity. Don Quijote does the opposite. He spins an intricate yarn about what he has seen underground. When describing the Cave of Montesinos, the mad hidalgo is the quintessential Habsburg apologist.

Sancho rejects don Quijote’s report on the Cave of Montesinos. Moviegoers should reject the overwrought nature of There Will Be Blood. Readers should reject Upton Sinclair’s distortion of the novel form in Oil! The false view in the first modern novel is not the one projected by the individual but by an early form of “The State” cloaked by the chivalry of the late-medieval elite who populated the court of Charles V. Daniel Plainview isn’t the problem; the problem is “The People.”

Dulcinea’s bankruptcy at the end of the Cave of Montesinos episode signals that “The State” not only invents the rules about subsurface wealth—it then often proceeds to waste that wealth. Regarding Latin America, has the age of oil and gas passed before businesses could outwit governments and make individuals truly wealthy? Perhaps, but it still makes sense to establish best practices going forward. The current price of lithium signals another boom. Chileans and Argentines should create the world’s best self-regulating market for that and other critical metals.

In 1840, while fretting over the sudden power of industrialized nations, Alexis de Tocqueville thought it was an ominous sign that states were now targeting mineral rights. Tocqueville echoed the fictions of Plato’s Allegory of the Cave and Cervantes’s Cave of Montesinos while also anticipating the government takeovers of mineral rights in nations such as Venezuela, México, and Argentina:

The mines are the natural sources of industrial wealth. … most governments have claimed the right to possess the ground which contains the mines and to supervise the work; this has never been the case with any other kind of property. Mines, which were private property … have thus fallen into the public domain. It is the state which works them or leases them out; the owners are transformed into tenants, obtaining their rights from the state and furthermore the state claims practically everywhere the power to direct them; it lays down rules, imposes methods, subjects them to constant inspection, and, if they resist, an administrative court will dispossess them and the public administration transfers their rights to others. … Each day, the sovereign governments expand their domain beneath our feet and people them with their agents. (DA 2.4.5n5)

When Latin Americans ask me what political changes might generate more long-term wealth, I always recommend two: (1) read my book on Cervantes and read Yeatts’s book on the loss of subsoil rights in Argentina, and (2) privatize the subsoil as soon as possible in order to create tradable mineral rights. As an author with a book for sale and a shareholder of TSLA, I make these recommendations in the interest of getting wealthy myself, but also because they are a rational way to enrich Latin Americans. Both outcomes are possible and good.

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