Introduction

Market mechanism and the private ownership of means of production are the two major instruments by which the working of a capitalistic society may be efficiently organized. On the one hand, markets stimulate information concerning demand and supply conditions that is relevant for an efficient allocation of scarce resources. The private ownership of means of production, on the other hand, creates a social environment in which individual members are motivated to seek their own profit or pleasure in accordance with the rules set by society.

Such an argument implicitly presupposes that all the scarce resources limitational to the economic activities engaged in by the members of the society may be privately appropriated, without involving significant costs either in the administration of such private ownership or in the resulting efficiency as for the productive organization of economic activities. However, in most contemporary capitalistic societies, a significant portion of scarce means of production is not necessarily privately appropriated, as typically illustrated by the existence of a large class of means of production usually termed social overhead capital.

Social overhead capital comprises all those scarce resources which are put in use for the members of the society, either free of charge or at a negligible price. They are either produced collectively by the society, as in the case of social capital such as highways or bridges, or simply endowed within the society, as in the case of natural capital such as air, water, and so forth.