by Stephan Kinsella on February 21, 2010
I confess that I hate self-promotion but I cannot resist reposting comments like the following from the single most important libertarian thinker and organizer of our generation:
Daily Bell: One of the hardest issues to resolve from a free-market point of view is ownership of intellectual property. Can you tell our readers where you come down on this difficult issue? In a free-market, would individuals be able to claim and enforce intellectual property rights with any prospect of success?
Rockwell: Rothbard condemned patents but not copyrights. Mises and Machlup saw patents as government grants of monopoly, but neither condemned them outright. Hayek was against copyrights and patents, but didn’t write about them much. It is digital media that have brought the issue into focus. The key thinker here is Stephan Kinsella. He and Jeffrey Tucker have done the heavy lifting and convinced most all of us that intellectual property is an artifice that has no place in a market economy. There are incredible implications to this insight. The infinite reproducibility of ideas means that we stand a great chance for success. The fact that ideas are not scarce goods means that they need not be controlled. This is a wonderful thing. There is much work left to do in this area. The whole history of invention needs revision, and our theory of markets needs to take better account of the central place of emulation in social progress.
Jeff Tucker: Life with Movable Type: “Most of all, I like the design of the management interface, which, hilariously, looks just like that last release of WordPress. In other words, Movabletype figured out when it is best to imitate its closest competition. That takes humility and business savvy to do that. Most of all, there is no law against learning from competition in this area. Emulation leads to increases in social welfare.”
Tucker: “you might be better off if you are copied: you gain exposure, fame, confirmation that you are doing something valuable, etc. At least that is the way all composers thought before the 20th century. They all hoped to write melodies that others would appropriate. It brought them a measure of immortality.”
Kinsella, Hayek, IP, and Knowledge:
I am hesitant to compliment Tucker’s A Book that Changes Everything, given that he generously over-praises me in it, but I can’t help it–it’s really a great piece–just perfect. And he has a tantalizing suggestion in it: “As I’ve thought more about their book, it seems that it might suggest a revision in classical-liberal theory. We have traditionally thought that cooperation and competition were the two pillars of social order; a third could be added: emulation. In addition, there is surely work to do here that integrates Hayek’s theory of knowledge with the problem of IP”
Now, I’ve long been critical of aspects of the Hayekian focus on “knowledge problems” (see my post Knowledge vs. Calculation). But Tucker has a good point. Property rights are rights in scarce resources. All actions employ means, including scarce resources in our bodies, and in appropriated scarce resources (property). All action employs these means to attain certain ends. But all action is based on information or knowledge: beliefs by the actor about what causal laws are operative, what ends are possible, and so on. People acquire knowledge as they develop and grow; some by introspection and experience, but so much more is acquired dissemination from others, by those in one’s community, and by the inherited body of knowledge passed down, and added to, over the centuries. Emulation and the acquisition of knowledge play a key role–are essential to–society, and economy.
So Tucker has hit the nail on the head: one problem with IP is that by monopolizing information, knowledge–patterns–it restricts and locks up the flow of knowledge. It thus impedes the operations of the free market and productivity, by reducting the scope of human action, impairing its efficiency by hampering the means at one’s disposal.
Kinsella: Intellectual Property and the Structure of Human Action (“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.)”).
Tucker, What is Your Attitude Toward IP?:
As I think more about “intellectual property” in the form of patents and copyrights, it seems that the implications for social theory are profound. The behavior targeted and slaughtered by IP is one that provides a fuel for all social and economic development: imitation or emulation.
… Imitation in economic affairs is essential for development, since nothing is ever perfect right out of the box, and society is constantly changing. You need that imitative dynamism in order for technology to keep up with changing market conditions. This is what IP shuts down in the name of rewarding creators. How can creators make a buck in a world of fluid imitation? The same way they always have: by having the best product at the right price to the market first. When other imitate them, they have to hustle again and innovate some more. This is how societies and economies grow….
Which attitude do you take toward emulation? Before you answer, consider that emulation is unavoidable. There is no such thing as absolute originality. Everything in a growing and health society is an elaboration on something else that already exists. This applies to technology, literature, music, art, language–everything. A world in which the ethics of IP applied would be backward and stagnant, headed nowhere but backward.
… As web editor of Mises.org, hardly a week goes by when I don’t see imitators of our successful web presence. It can be images, articles, design, feel, structure–everything. Some years back I had the view that this had to be stopped. Fortunately, no one here had time to bother with it. Thank goodness. The whole reason we exist is to influence the world. Evidence of that is glorious, and it keeps the fire under our staff to keep doing a better job and stay on the cutting edge.
B.K. Marcus, Mises.org on iTunes U
Doug French, “The Intellectual Revolution Is in Process”
Jeff Tucker, “A Theory of Open”
Apple’s products seem light years ahead of the competition. By the time the competition starts getting vaguely close to making a product that approximates its excellence and elegance, Apple announces the new thing that is more astonishing than ever, and the whole thing starts again.
This came home to me this last week when I once again tried the Sony Reader, only to realize (once again) that it is nowhere close to being as good a reader as the iPhone itself, which is a product miles and miles ahead of the hundreds of phones you see lined up at Wal-Mart or Verizon. The same is true in laptops.
Now of course we have the iPad, which not only bests every ebook reader on the market but seems like it could smash the laptop market too. Whatever the future is, it seems to belong to Apple.
How can one company be so consistently amazing and yet be so consistently alone in this regard? One part of the answer is obvious: it is a great and innovative company. It deserves all credit for being so.
However, in free enterprise, entrepreneurs make money by emulating successful producers and improving on them in a way that will threaten the market share of the dominant players. In this way, profitability can only be assured by constant innovation and cost cutting, all to the benefit of consumers.
We see this process at work in the design industry — whether fashion, architecture, or home products. The rich pay high dollar for unique products, only to have knockoffs appear at discount stores, at very low prices, a few years later.
Why doesn’t it work this way with Apple? Why is the competitive process of emulative rivalry not working as it might? Well, it’s the patent, the government-granted monopoly for this sector of innovation. Apple has a massive patent war chest that grows by the day, and is open about its desire to retain it. Apple’s Tim Cook said last year, “We like competition as long as they don’t rip off our IP. And if they do, we will go after anyone who does.”
Of course this blows away a central point of market theory, namely that successful firms teach and inspire other entrepreneurs to change their production plans, drifting away from less profitable paths toward more profitable paths, to adopt the new process that consumers have suggested is the most socially desirable path. This cannot happen if the winning company is working with the government to short-circuit the process.
And sure enough, the U.S. Patent Office granted Apple a number of patents on the eve of the launch of iPad. One covers a proximity detector in handled devices. PCMag further reports that Apple gained patents for “the management of wireless channel bandwidth, with applications in video conferencing; color management, so that colors are accurately represented across a range of devices; an image-rotation patent, that orients the image to the same orientation as to when the image was originally captured; and two other patents, covering switching IC ports to card slots, and timeline-based manipulation of audio and video tracks.”
There is something very wrong here. Innovations are supposed to advance the social order, not merely cause everyone to cling to a single company as the savior of mankind. I asked an Apple fan why it is that Microsoft gets such a bum rap for its patents but the same crowd rarely blasts Apple for the same activity. The answer: because Apple’s products are so good.
Yes, that’s right. It’s products are great, great enough to be profitable without the artificial subsidy. As Bastiat said, all innovation goes through three stages:
- one firm possesses unique knowledge and profits from it;
- others imitate and share in profits;
- the knowledge is widely shared and no longer profitable on its own, which thereby inspires new knowledge.
What Apple’s patents do is artificially prolong the first stage — to the detriment of all. But, one might say, Apple would not be so innovative were it not for the patent office. Actually, that line doesn’t make any sense. The patent office is open to all. Apple seems to be the company with all the greatest hardware innovations. In other words, what is unique about this company is not its patenting ability but its innovating ability — herein we find its value added to the world. Would that it could add that value without having recourse to the state to prevent others from emulating its success.
July 20, 2006 7:25 AM by Mises.org Updates (Archive)
Nicholas Snow explores Frédéric Bastiat’s theory that an invention goes through three stages: initial innovation that rewards the first to come up with the idea and implement it, an imitative stage, and a gratuitous stage where the new product or service is so common that people regard it as tantamount to a gift from nature. Patents, on the other hand, prolong the first stage with a grant of government privilege, and thereby interfere with the market process. FULL ARTICLE
- Stephan KinsellaGreat article. For further discussion of how patents distort the innovative process see n. 44 and accompanying text of my Against Intellectual Property. In particular, see Arnold Plant, The Economic Theory Concerning Patents for Inventions, sections 16, 19, 20, 24:
The patent system may, on the one hand, be expected to affect the making of inventions in two ways. The first is to divert inventive activity into those fields in which the monopoly grant will be expected to prove most remunerative. It may, secondly, affect the total amount of inventive activity.
… the utilitarians assumed that the patent system was responsible for the greater part of inventing activity. The question which they one and all failed to ask themselves, however, is what these people would otherwise be doing if the patent system were not diverting their attention by the offer of monopolistic profits to the task of inventing. By what system of economic calculus were they enabled to conclude so definitely that the gain of any inventions that they might make would not be offset by the loss of other output? By no stretch of the imagination can the inventing class be assumed to be otherwise unemployable. Other product which is foregone when scarce factors are diverted in this way completely escaped their attention.
… at the beginning of this century Professor J. B. Clark was still writing: “If the patented article is something which society without a patent system would not have secured at all – the inventor’s monopoly hurts nobody… His gains consist in something which no one loses, even while he enjoys them.?? No inkling here that the patent inducement to invent diverts scarce human effort from other production, and that the subsequent exploitation of patents again interferes with the disposition of scarce factors which would obtain under competitive conditions.
… It seems unquestionable not only that a very considerable volume of inventive activity must definitely be induced by price conditions, but also that that activity is diverted by price movements from other types of endeavour as well as from other fields of invention. Entrepreneurs faced with new difficulties or with new opportunities will divert not only their own attention, but that of every technician who can be spared, from the business of routine production to that of urgent innovation. They will not rely exclusively upon those types of professional inventors whose autonomous output pours out in a stream of unvarying size, and some of whom may be prepared, in return for the inducements which the entrepreneurs can offer, to transfer their spontaneous activity to their service. It cannot be assumed that all who are capable of innovation spend their whole lives in inventing. Many of them are also able administrators and production controllers; some in the past have been clergymen and barbers, and in our own time there is a steady flow of technicians from the research laboratories of pure science into those of industrial invention and out again. … The patent system … enables those who “have the monopoly of the right to use a patented invention to raise the price of using it … and in that way to derive a larger profit from the invention than they could otherwise obtain. The effect must surely be to induce a considerable volume of activity to be diverted from other spheres to the attempt to make inventions of a patentable type. [emphasis added]
See also Rothbard, Man, Economy, and State, ch. 10, sec. 7:
It is by no means self-evident that patents encourage an increased absolute quantity of research expenditures. But certainly patents distort the type of research expenditure being conducted. . . . Research expenditures are therefore overstimulated in the early stages before anyone has a patent, and they are unduly restricted in the period after the patent is received. In addition, some inventions are considered patentable, while others are not. The patent system then has the further effect of artificially stimulating research expenditures in the patentable areas, while artificially restricting research in the nonpatentable areas.
Published: July 20, 2006 9:37 AM
JEff’s term: “emulative rivalry”