defending the right to innovate
IP and Economics
Monopoly corrupts. Absolute monopoly corrupts absolutely.
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My latest piece on IP is "Intellectual Property Fosters Corporate Concentration."
A key quote from a fascinating article on photographer Annie Lebovitz and the artificially induced pricing within the world of photographic art found here:
There are various ways to explain what is wrong with IP. You can explain that IP requires a state, and legislation, which are both necessarily illegitimate. You can point out that there is no proof that IP increases innovation, much less adds "net value" to society. You can note that IP grants rights in non-scarce things, which rights are necessarily enforced by physical force, against physical, scarce things, thus supplanting already-existing rights in scarce resources. (See, e.g., my Against Intellectual Property, "The Case Against IP: A Concise Guide" and other material here.)
Another way, I think, to see the error in treating information, ideas, patterns as ownable property is to consider IP in the context of the structure of human action. Mises explains in his wonderful book Ultimate Foundations of Economic Science that "To act means: to strive after ends, that is, to choose a goal and to resort to means in order to attain the goal sought." Or, as Pat Tinsley and I noted in "Causation and Aggression," "Action is an individual's intentional intervention in the physical world, via certain selected means, with the purpose of attaining a state of affairs that is preferable to the conditions that would prevail in the absence of the action."
Obviously, the means selected must therefore be causally efficacious if the desired end is to be attained. Thus, as Mises observes, if there were no causality, men "could not contrive any means for the attainment of any ends". Knowledge and information play a key role in action as well: it guides action. The actor is guided by his knowledge, information, and values when he selects his ends and his means. Bad information--say, reliance on a flawed physics hypothesis--leads to the selection of unsuitable means that do not attain the end sought; it leads to unsuccessful action, to loss. Or, as Mises puts it,
Action is purposive conduct. It is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means.So. All action employs means; and all action is guided by knowledge and information. (See also Guido Hülsmann's "Knowledge, Judgment, and the Use of Property," p. 44.)
Causally efficacious means are real things in the world that help to change what would have been, to achieve the ends sought. Means are scarce resources. As Mises writes in Human Action, "Means are necessarily always limited, i.e., scarce with regard to the services for which man wants to use them."
To have successful action, then, one must have knowledge about causal laws to know which means to employ, and one must have the ability to employ the means suitable for the goal sought. The scarce resources employed as means need to be owned by the actor, because by their nature as scarce resources only one person may use them. Notice, however, that this is not true of the ideas, knowledge and information that guides the choice of means. The actor need not "own" such information, since he can use this information even if thousands of other people also use this information to guide their own actions. As Professor Hoppe has observed, " in order to have a thought you must have property rights over your body. That doesn't imply that you own your thoughts. The thoughts can be used by anybody who is capable of understanding them."
In other words, if some other person is using a given means, I am unable to use that means to accomplish my desired goal. But if some other person is also informed by the same ideas that I have, I am not hindered in acting. This is the reason why it makes no sense for there to be property rights in information.
Material progress is made over time in human society because information is not scarce and can be infinitely multiplied, learned, taught, and built on. The more patterns, recipes, causal laws that are known add to the stock of knowledge available to actors, and acts as a greater and greater wealth multiplier by allowing actors to engage in ever more efficient and productive action. (It is a good thing that ideas are infinitely reproducible, not a bad thing; there is no need to impose artificial scarcity on these things to make them more like scarce resources; see IP and Artificial Scarcity.) As I wrote in "Intellectual Property and Libertarianism":
This is not to deny the importance of knowledge, or creation and innovation. Action, in addition to employing scarce owned means, may also be informed by technical knowledge of causal laws or other practical information. To be sure, creation is an important means of increasing wealth. As Hoppe has observed, "One can acquire and increase wealth either through homesteading, production and contractual exchange, or by expropriating and exploiting homesteaders, producers, or contractual exchangers. There are no other ways." While production or creation may be a means of gaining "wealth," it is not an independent source of ownership or rights. Production is not the creation of new matter; it is the transformation of things from one form to another the transformation of things someone already owns, either the producer or someone else.Granting property rights in scarce resources, but not in ideas, is precisely what is needed to permit successful action as well as societal progress and prosperity.
This analysis is a good example of the necessity of Austrian economics--in particular, praxeology--in legal and libertarian theorizing (as Tinsley and I also attempt to do in "Causation and Aggression"). To move forward, libertarian and legal theory must rest on a sound economic footing. We must supplant the confused "Law and Economics" movement with Law and Austrian Economics.
Someone recently told me "I just ran across a few of your interviews and writings. I was particularly impressed with the point that IP creates scarcity where none existed before. Despite its obviousness, it is characteristic of IP that had not occurred to me before."
So I thought I would elaborate a bit on this. The "artificial scarcity" insight is indeed a good one, but it is not mine. From pp. 33-34 of Against Intellectual Property:
Ideas are not naturally scarce. However, by recognizing a right in an ideal object, one creates scarcity where none existed before. As Arnold Plant explains:It is a peculiarity of property rights in patents (and copyrights) that they do not arise out of the scarcity of the objects which become appropriated. They are not a consequence of scarcity. They are the deliberate creation of statute law, and, whereas in general the institution of private property makes for the preservation of scarce goods, tending . . . to lead us "to make the most of them," property rights in patents and copyrights make possible the creation of a scarcity of the products appropriated which could not otherwise be maintained.Bouckaert also argues that natural scarcity is what gives rise to the need for property rules, and that IP laws create an artificial, unjustifiable scarcity. As he notes:Natural scarcity is that which follows from the relationship between man and nature. Scarcity is natural when it is possible to conceive of it before any human, institutional, contractual arrangement. Artificial scarcity, on the other hand, is the outcome of such arrangements. Artificial scarcity can hardly serve as a justification for the legal framework that causes that scarcity. Such an argument would be completely circular. On the contrary, artificial scarcity itself needs a justification.Thus, Bouckaert maintains that "only naturally scarce entities over which physical control is possible are candidates for" protection by real property rights. For ideal objects, the only protection possible is that achievable through personal rights, i.e., contract (more on this below).
Update: Jeff Tucker's article and recent speech had me thinking about something that ties into this post well. People want to impose artificial scarcity on non-scarce things because they think scarcity is good. But they have it backwards. If anything, we should want material things to be non-scarce.
In Tucker's talk, he was pointing out the difference between scarce resources and non-scarce, infinitely reproducible ones. Yes, they are different, but I think we also need to combat another fallacious view: people seem to implicitly think it's bad that ideas are infinitely reproducible. This is a "problem" we need to combat by making them artificially scarce. But it's a good thing. i.e., at least ideas are non-scarce; but unfortunately, material things are scarce. But it would be good if material things were more abundant. So imagine that some benevolent genius invents a matter-copying device that lets you just point it at some distant object, and instantly duplicate it for free for you. So I see a coat you are wearing, click a button, and now I have an identical copy. I see you having a nice steak, and duplicate it. Etc. This would make us all infinitely wealthy. It would be great. Of course people would fear the "unemploymetn" it would cause--hey, I want to be unemployed and rich! And the rich would hate it because they would now not be special. They couldn't lord their Rolls Royces and diamonds over the poor; the poor would have all that (it would be similar to how audiophiles were irked by the advent of the CD so tried to find granite turntables etc. to pretend they were still better). So imagine a rich guy suing a guy who "copied" his car.... imagine farmers suing people who copied their crops to keep from starving... how absurd! And what damages would they ask for? Not monetary damages--the defendant could just print up wealth to pay him off! So the only remedy he could want would be to punish or impoversih the defendant... for satisfation, to once again feel superior. How sick. As my friend Rob Wicks noted, you could imagine a short story based on this in which judge orders a famine as a remedy to crop-copying.
This subject will appear off-topic initially but bear with me. The Economist magazine has a long article, "Japan's technology champions," about the mid-sized highly specialized companies which dominate several manufacturing fields link here. The prime example is the world's sole maker of the huge forged pressure vessels for nuclear power plants. But there are a host of others that number among the top two or three firms in their industry. All share a characteristic attention to rigorous quality standards.
While computers, for example, have become commodities, certain components are highly technical and hard to make, like the substrate in the fabrication of chips. The article notes that for these firms, the "technology is tacit, not formal. It cannot be transmitted by writing a manual or reading a patent application. Rather it accumulates by working with colleagues over many years. This poses a barrier to entry for rivals."
Other features of these firms result, including their avoiding mergers based on the fact that the strength of the company lies in its current employees, their heavy spending on r & d, on keeping the core technology secret, on owning their supply chain, and even on manufacturing their own specialized tools.
Here again, we see that technical progress is not the result of patents or copyrights, but from the tradition of innovation that put these firms at the top of their industries. This is particularly important as economies pass from the copying and catch-up phases that we see in the emerging industrial states. The next stage is developing the innovative technical skills on which rising incomes in leading economies like the US will depend.
"A Note on Intellectual Property and Externalities," by Hardy Bouillon, Mises Daily (Oct. 27, 2009), originally published in Property, Freedom and Society: Essays in Honor of Hans-Hermann Hoppe (2009).
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