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GAZETTE
SEPTEMBER 1976
economy. Thus if there are no legal restrictions on the
discharge of smoke, effluent or other by-products of
production then the pattern of output will be different
than that which prevails when the process of manu-
facture is hedged in by laws governing such discharges
or the creation of nuisance for neighbouring persons.
There are many interesting cases adjudicating on this
issue of who has the right to do what. One which
illustrates some of the points and helps to distinguish
the economic from the legal aspects is that of
Bryant v.
Lefever
(4 Common Pleas Divn. 1878). The plaintiff
and defendants were occupiers of adjoining houses which
were of about the same height.
"Before 1876 the plaintiff was able to light a fire
in any room of his house without the chimneys smok-
ing; the two houses had remained in the same condi-
tion some thirty or forty years. In 1876 the defendants
took down their house and began to rebuild it. They
carried up a wall by the side of the plaintiff's
chimneys much beyond its original height and stacked
timber on the roof of their house and thereby caused
the plaintiff's chimneys to smoke whenever he lighted
fires" (because the wall and timber prevented the free
circulation of air). In a jury trial the plaintiff was
awarded £40 damages. On appeal the decision was
reversed. Bramwell L.J. argued :
"It is said and the jury have found that the defen-
dants have done that which caused a nuisance to the
plaintiff's house. We think there is no evidence of this.
No doubt there is a nuisance but it is not of the
defendant's causing. They have done nothing in
causing the nuisance. Their house and their timber
are harmless enough. It is the plaintiff who causes
the nuisance by lighting a coal fire in a place, the
chimney of which is placed so near the defendant's
wall that the smoke does not escape but comes into
the house. Let the plaintiff cease to light his fire, let
him move his chimney, let him carry it higher and
there would be no nuisance."
The second appeal judge argued in similar vein. The
novelty of this case is that the smoke nuisance is
suffered by the man who lit the fire and not by some
third person. However to answer the question of who
caused the smoke nuisance it would seem to the econo-
mist that both parties were involved. Given the fires,
there would have been no smoke nuisance without the
wall; given the wall, no nuisance without the fires.
Eliminate either and the nuisance goes. On the mar-
ginal principle so beloved of economists it seems that
both are responsible and both should take it into
account as a cost when deciding whether or not to
provide walls or smoke.
Lest you think that by saying both should take it
into account, economists would end up double count-
ing, let me hasten to explain how the economic system
should in theory settle the matter. Let us take the
smoke damage as £40, and first suppose the value of the
wall to be £50. Now if the wall owner has a right to
build walls, his neighbour will approach him and offers
say £40 (the value of the smoke damage). This is
declined since the wall is worth £50 - but nonetheless
the wallowner is now conscious that his net gain is
£10. Conversely, if the smoke-owner had a right to the
free flow of air the wall builder would offer him £41
(say) to gain his permission to build the wall. This is
accepted since it makes the smoke owner better off, and
still leaves a net profit on the wall. In contrast if the
value of the wall were only say £30, it would not be
built, under the legal system, since either the smoke
owner could offer more than £30 (if the wallbuilder had
the right to build) or the wallbuilder could not offer
enough compensation (if the smoke owner had the right
to the free flow of air). Thus the free bargaining
based on the economic facts of the matter would decide
whether chimneys smoke or no wall is built. What the
legal system does in this case in determining who has
the right to what action, is to decide the pattern of
income distribution; i.e., whether the smoke owner ends
up financially better off (if entitled to damages) or as
happened worse off.
The precise basis on which the Courts decide who
has the right to do what is not always clear to the
layman, but it does seem that economic considerations
do enter into the process. Thus one American writer on
Torts states:
"A person may 'make use of his own property or
conduct his own affairs at the expense of some harm to
his neighbours. He may operate a factory whose noise
and smoke cause some discomfort to others. . . . It is
only when his conduct is unreasonable in the light of its
utility and the harm which results that it becomes a
nuisance. The world must have factories, smelters, oil
refineries, noisy machinery and blasting even at the
expense of some inconvenience to those in the vicinity".
Thus legal decisions as to whether certain actions
may or may not take place, whether their operations
may be restricted to certain hours-all of these are
decisions about the ownership and exercise of property
rights and these property rights have all the charac-
teristics of factors of production in that they affect the
quantities of goods and services produced and the costs
of this production.
Conclusion — Danger of too much State intervention
The detailed study of legal activities is a comparatively
recent development for economists. Nonetheless the work
Valuation for compensation
is our business
Osborne King & Megran
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