In 1788, James Madison said, "If men were angels, no Government would be necessary" (Federalist, no. 51). But, the reality is that all men would have to be angels because all it takes is one non-angel to spoil the environment for everyone.

The first "greed is good" banker -- someone who over-leveraged his portfolio, speculated on swaps and derivatives, paid mortgage brokers to find questionable loans to be packaged for a fee and turned over to another unsuspecting investor -- was all we needed to begin the slide down that slippery slope to the "ruin of the commons:" the toxic mortgage and derivatives fiasco. In our world, resources are limited. When anyone over-grasps at his or her share, we all face the risk of incurring the long term costs or losses. When we think "things are free," we invite excessive use or consumption of that thing -– a scarce resource.

The "ruin of the commons" is what happens in the frat house when the occupants know that "someone else" will clean up their mess. In governance terms, it’s called "moral hazard." In contemporary finance, the equivalent concept is "bail out those who are too big to fail."

In 1832, William Forster Lloyd, a political economist at Oxford University, first wrote about the problem of "the commons." Cattle grazing on the common pasture area tended to over-consume the shared resource. Lloyd wondered, "Why?" And why were nearby "enclosed" areas under-utilized? The answer was that townspeople tended to keep adding their growing herd to the "free" commons area, avoiding the privatized "enclosed" areas which had some cost associated with their use. Unless there were a pricing mechanism or other coercive control over the actions of the townspeople, individuals were self-motivated to abuse the free resource.

In 1968, Garrett Hardin, professor emeritus of human ecology at the University of California at Santa Barbara, wrote an article (Science 13 December 1968: Vol. 162. no. 3859, pp. 1243 – 1248) based on his presidential address before the Pacific Division of the American Association for the Advancement of Science at Utah State University in Logan, Utah on 25 June 1968.

Professor Hardin described the "tragedy of freedom in a commons" as one of a class of human problems for which we know of no technical solution. A finite world can support only a finite population. Maximizing population does not maximize goods. Freedom in a commons brings ruin to all.

The dilemma is that many individuals, acting independently in their own self-interest, ultimately will destroy a shared limited resource even though they all know that it is not in anyone's long term interest for them to act in this manner. The division of costs and benefits is unequal: the advantages go to individuals, while the disadvantages are shared only slowly among all individuals over the longer term.

Professor Hardin pointed to a number of other examples of "commons" with which we should all be familiar: fish supplies, transportation and smog, air pollution, oceanic pollution, river pollution, national parks, advertising and bill boards, and "free holiday" parking meters.

Another example is the demise of Easter Island or Rapa Nui, known for its 1000 giant stone monoliths, called Moai, along its coastline. The island was abandoned an estimated 1200 years ago, and today is considered a metaphor of ecological disaster. It is the world’s most extreme example of deforestation that resulted from the creation of statues by the citizens largely for ancestral worship.

Another example is the environmental movement. Rachel Carson’s 1962 book Silent Spring, provided an argument to "internalize social costs" when she warned of the adverse long term impacts on ocean life from our unfettered use of pesticides to maximize agricultural production.

One possible constraint upon natural self-interest is enlightened self-restraint: if individuals could recognize the very high probability that their actions will destroy the shared resource, they might consciously limit their own free choice. Education can reveal to all parties the need to "give up" some freedoms in order to preserve resources over the long-term. But, while education might counteract the natural tendency to do the wrong thing in the short term, in the long term the dissemination of knowledge must constantly be renewed for each successive generation.

When the 1973 and 1979 gas crises hit, families constrained their demand by driving at 55 mph, carpooling, and telecommuting. When the crises passed, families went out and bought gas-guzzling SUVs en masse. The same thing happened in 1990 and 2000. Memories are short. And effective long term education entails additional personal and social costs that must be borne by someone.

Other, possibly more effective, solutions to the problem of the commons involve different forms of "management" or limiting access through privatization, polluter payment schemes, or outright regulation. Prof. Hardin described these as variations on the concept of "enclosure" of the commons: limiting unfettered demand on the scarce resource.

The ruin of the commons is not an esoteric economic concept. It is something with us here and now. Every time someone writes a book or an article lauding the wonders of "free", just ask them if they really would like their intellectual product to be e-published and available to all for "free", or if they would really like to forego their royalties in the interest of "free" access.

The challenge is how to make "hidden costs" become more apparent: how can we make individuals internalize long term, sometimes hidden externalities or social costs? How can we ensure everyone is an angel?