Property premium is the key concept in the system of property-based economics developed by

Gunnar Heinsohn Gunnar Heinsohn is a German author, sociologist and economist and professor emeritus at the University of Bremen. In 1984 he received a ''Lehrstuhl'', a tenured chair in social pedagogy at the University of Bremen. Heinsohn has published on a wid ...

, Otto Steiger, and Hans-Joachim Stadermann. It is an insight derived from the legal distinction between

property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...

and

possession Possession may refer to: Law * Dependent territory, an area of land over which another country exercises sovereignty, but which does not have the full right of participation in that country's governance * Drug possession, a crime * Ownership * ...

which is made by jurists, but not by economists.
The distinction between property and possession is used by Heinsohn and Steiger to classify forms of society. "Three distinctive systems of material reproduction are known to man: (i) custom or tribal societies, (ii) command or feudal societies and (iii) ownership- or property-based societies." The first two are based on possession, which is a physical, material concept. Property, on the other hand, is an abstract, intangible concept, and thus can only exist as a creation of law and within the realm established by the rule of law. Where such a regime of law is established, property arises; and it is accompanied by the phenomenon of property premium. "As soon as property is created it carries an unearned and immaterial premium, the property premium. This premium exists in addition to the physical use of goods or resources in their possessional state and consists of two powers: (i) its capacity of backing the issue of

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...

which can be created only in a

credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt), ...

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

and (ii) its eligibility to serve as

collateral Collateral may refer to: Business and finance * Collateral (finance), a borrower's pledge of specific property to a lender, to secure repayment of a loan * Marketing collateral, in marketing and sales Arts, entertainment, and media * ''Collate ...

for obtaining credit."
It is this property premium which explains the phenomenon of

interest In finance and economics, interest is payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct ...

. The owner gives up his property premium by using his property to back the issue of that money; what he gains in exchange is interest. The borrower likewise forgoes property premium in engaging a

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...

, because he must back his promise of repayment with collateral, pledging his property as security for repayment of the loan. What he receives in return is

liquidity premium In economics, a liquidity premium is the explanation for a difference between two types of financial securities (e.g. stocks), that have all the same qualities except liquidity. It is a segment of a three-part theory that works to explain the behavi ...

, which is the capacity to cancel indebtedness. "

Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in m ...

's idea that interest is the payment for forgoing liquidity premium, therefore, falls short. The debtor's payment of interest materializes the creditor's property premium, while the debtor's property premium gives rise to liquidity premium."''ibid.,'' pp. 471-472. This ingenious explanation for the existence of interest also demonstrates that interest is simply an aspect of property within the regime of

private law Private law is that part of a civil law legal system which is part of the ''jus commune'' that involves relationships between individuals, such as the law of contracts and torts (as it is called in the common law), and the law of obligations ( ...

. Within that regime it is inescapable; outside of it, in possession-oriented regimes whether tribal or communist, it is unobtainable.

Notes

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External links

Heinsohn and Steiger, "The Property Theory of Interest and Money"

Heinsohn and Steiger, "Collateral: The Missing Link in the Theory of the Rate of Interest"

Betz, "The Property Theories of Bethell, Pipes and de Soto: Similarities and Differences in Emphasis to the Approach of Heinsohn, Stadermann and Steiger"

Heinsohn and Steiger, "Interest and Money: The Property Explanation"

Läufer, "The Heinsohn-Steiger confusion on interest, money and property"
Property