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Hayek: Friend or Foe of Reason, Liberty and Capitalism?

I have been accused of taking the Austrian School of Economics out of context.  Rather than range all over the topic, I will address one Austrian economist, Friedrich Hayek, primarily with respect to his epistemology.  However, his sense of ethics follows directly from his epistemology so this will be discussed.  As well, his metaphysics will be touched on.

My criteria of whether Hayek is a friend or foe will primarily focus on whether he is an advocate for reason (logic and evidence) as best defined by Rand and Locke.  I focus primarily on Hayek’s Theory of Cultural Evolution, which lays out his ideas on epistemology.  There are dozens of papers on this subject and below I will provide quotes from a number of papers that analyze Hayek’s theory.

 

Austrian economist, political philosopher, and winner of the 1974 Nobel memorial prize –[Hayek] spent a good part of his career developing a theory of cultural evolution. According to this theory, rules, norms and practices evolve in a process of natural selection operating at the level of the group. Thus, groups that happen to have more efficient rules and practices tend to grow, multiply, and ultimately displace other groups. The theory, of which Hayek himself was proud, is on all accounts central to his economic, social, and political project. In the present paper, I explore the history of this theory of cultural evolution. (Emphasis Added)

http://institutoamagi.org/download/Angner-Erik-The-history-of-Hayeks-Theory-of-cultural-Evolution.pdf

The History of Hayek’s Theory of Cultural Evolution, Erik Angner

Dept. of History and Philosophy of Science

 

It is clear from the quote above that ethics is a group level, not at the individual level.  The ethics of a group are random and the dominate ethical rules are determined by some sort of evolutionary success.  According to the paper this is not a side issue or something Hayek scribbled out that is separate from the rest of his ideas.

It is hard to believe that Rand or Locke would have been impressed with the idea that ethics are determined by the success of groups.

 

According to Hayek, reason was not the driving force behind cultural evolution, but rather co-evolved in the course of this process.  (Emphasis Added)

http://www.bath.ac.uk/economics/staff/horst-feldmann/feldmann-2005-hayek-theory-of-cultural-evolution.pdf

Hayek’s Theory of Cultural Evolution a Critique of the Critiques, by Horst Feldmann

 

This paper suggests that reason is the result of cultural evolution just like ethics.  It is hard to see Rand or Locke agreeing with this.

 

 

Hayek argues, however, that the demand for rational, conscious (“political”) control of the concrete particulars of social life is based upon a misunderstanding of the process of cultural evolution and on a hubristic and dangerous overestimation of the capacity of the conscious reasoning intellect. As we have seen, Hayek contends that civilization is not the creation of the reasoning mind, but the unintended outcome of the spontaneous play of innumerable minds within a matrix of nonrational values, beliefs, and traditions. The desire of modern constructivists to “make everything subject to rational control” represents for Hayek an egregious “abuse of reason” based upon a failure to recognize the limits to reason’s sphere of competence.63 Such limits, again, stem from the fact that reason is confronted by an immovable epistemological barrier: its irremediable ignorance of most of the particular, concrete facts that determine the actions of individuals within society. The constructivist’s main error is the refusal to recognize that reason is only competent in the realm of the abstract. Hayek observes that the “rationalist . . . revolt against reason is . . . usually directed against the abstractness of thought [and] against the submission to abstract rules” and is marked by a passionate embrace of the concrete. He sums up the constructivist error in this way: “constructivist rationalism rejects the demand for the discipline of reason because it deceives itself that reason can directly master all particulars; and it is thereby led to a preference for the concrete over the abstract, the particular over the general, because its adherents do not realize how much they thereby limit the span of true control by reason.”64 (Emphasis Added)

http://www.firstprinciplesjournal.com/articles.aspx?article=1513&theme=home&page=3

Hayek on the Role of Reason in Human Affairs, Linda C. Raeder, Palm Beach Atlantic University

 

“Matrix of nonrational values, beliefs, and traditions” are responsible for civilization?  It is clear that Hayek does not think there is anything special about Natural Rights or the United States or any other country or their values.  The best we can say is that it is the best based on its success at this time.

“Rejects the demand for the disciple of reason”?  This sounds like it comes straight from an environmentalist or a modern socialist.  It is clear that Hayek is not just talking about the limits of the knowledge of a central planner, he is attacking reason itself.  The best possible spin is that Hayek is only attacking reason with respect to knowledge of human affairs, i.e., economics, social sciences, ethics, law, political structures, literature and the arts.

It is clear from Hayek’s rejection of reason that he does not agree with an Aristotelian or Objectivist idea of an objective reality that is knowable.  At best Hayek’s metaphysics is consistent with Plato’s theory of forms, where we can only get a vague glimpse of reality.

 

“The picture of man as a being who, thanks to his reason, can rise above the values of civilization, in order to judge it from the outside . . . is an illusion.”83 For Hayek, morals, values, and reason are entirely natural phenomena, evolutionary adaptations which have enabled man to survive and flourish in his particular kind of world.

 

http://www.firstprinciplesjournal.com/articles.aspx?article=1513&theme=home&page=3

Hayek on the Role of Reason in Human Affairs, Linda C. Raeder, Palm Beach Atlantic University

 

Does the first sentence above sound like Howard Roark or Ellsworth Toohey?  Hayek is pushing the worst sort of collectivism.  It is a collectivist attack on the mind itself, on the independence of the mind based on reason.  Hayek would have stood hand and hand with the Catholic Church in condemning Galileo to death.

 

For Hayek, the rules of morality and justice are the same as they were for David Hume: conventions that have emerged and endured because they smooth the coordination of human affairs and are indispensable, given the nature of reality and the circumstances of human existence, to the effective functioning of society.87 For Hayek as for Hume the rules of morality and justice are not the products of reason and they cannot be rationally justified in the way demanded by constructivist thinkers. And since our moral traditions cannot be rationally justified in accordance with the demands of reason or the canons of science, we must be content with the more modest effort of “rational reconstruction,” a “natural-historical” investigation of how our institutions came into being, which can enable us to understand the needs they serve.88

 

http://www.firstprinciplesjournal.com/articles.aspx?article=1513&theme=home&page=3

Hayek on the Role of Reason in Human Affairs, Linda C. Raeder, Palm Beach Atlantic University

 

Morality is not based on reason according to Hayek, it is based on convention.  David Hume was the philosopher that came up with the ‘is-ought” problem in ethics that is the basis for moral relativism.  Solving the “is-ought” problem was one of the major accomplishments Rand’s ethics.

Hume also attacked cause and effect and therefore reason, arguing that the best we can say about events is that they are closely related or probablistic.  I consider Hume worse than Kant, partly because he is more understandable than Kant and because he inspired Kant.  Here is what Rand had to say about Hume.

“If you observe that ever since Hume and Kant (mainly Kant, because Hume was merely the Bertrand Russell of his time) philosophy has been striving to prove that man’s mind is impotent, that there’s no such thing as reality and we wouldn’t be able to perceive it if there were—you will realize the magnitude of the treason involved.”

 

F.A. Hayek was the chief conduit through which Hume’s moral, political, and social theory entered the mainstream of modern libertarian thought. In his article “The Legal and Political Philosophy of David Hume” (originally presented as a lecture at the University of Freiburg on July 18, 1963), Hayek bemoaned the fact that Hume’s legal and political philosophy had been “curiously neglected.” In addition to being “one of the founders of economic theory” and the greatest British legal philosopher before Bentham, Hume “gives us probably the only comprehensive statement of the legal and political philosophy which later became known as [classical] liberalism.”

http://www.libertarianism.org/columns/self-interest-social-order-classical-liberalism-david-hume  Self-Interest and Social Order in Classical Liberalism: David Hume, by George Smith, formerly Senior Research Fellow for the Institute for Humane Studies, a lecturer on American History for Cato Summer Seminars, and Executive Editor of Knowledge Products. Smith’s fourth book, The System of Liberty, was recently published by Cambridge University Press.

 

This clearly shows that David Hume was a big part of Hayek’s philosophical background.  Bentham is Jeremy Bentham, who is considered the father of utilitarianism and is known for being an intellectual father of the utopian socialist movement in England.

 

Perhaps no other area of Burke’s and Hayek’s thought is as congruent as their understanding of the role of reason in human affairs; their views are so close as to suggest that Hayek’s thought on this issue is merely an elaboration, although quite an extensive one, of Burke’s theme. Hayek developed several of Burke’s most crucial insights: 1) the priority of social experience (or “tradition”) over reason; 2) the notion that inherited social institutions embody a “superindividual wisdom” 22 which transcends that available to the conscious reasoning mind; and 3) the impotence of reason to ‘design’ a viable social order. (Emphasis Added)

http://www.nhinet.org/raeder.htm

The Liberalism/Conservatism Of Edmund Burke and F. A. Hayek:A Critical Comparison, Linda C. Raeder is Associate Editor of HUMANITAS and a Research Associate at the National Humanities Institute

 

Here is another attack on reason, an appeal to collective reasoning and another statement that reason is impotent.

 

Burke and Hayek, then, shared a common enemy as well as a common understanding: Enlightenment rationalism. Perhaps the most characteristic attribute of Enlightenment thought was its cavalier dismissal of ‘irrational’ tradition as mere superstition and prejudice.

http://www.nhinet.org/raeder.htm

The Liberalism/Conservatism Of Edmund Burke and F. A. Hayek:A Critical Comparison, Linda C. Raeder is Associate Editor of HUMANITAS and a Research Associate at the National Humanities Institute

This statement makes it clear that Hayek was anti-reason and anti-enlightenment.

 

Hayek, by contrast, is a critic of what he calls ―constructive rationalism.‖2 His concept of rationalism is somewhat idiosyncratic, and is not equivalent to Rand‘s conception of reason. Nevertheless, it leads him to claim that ―no universally valid system of ethics can ever be known to us,‖3 which is obviously not consistent with her view. For Hayek, moral rules have a status lying ―between instinct and reason.‖4 (Emphasis Added)

 

http://www.reasonpapers.com/pdf/33/rp_33_1.pdf

Symposium: Rand and Hayek on Cognition and Trade

Rand versus Hayek on Abstraction

David Kelley The Atlas Society

 

This is another case discussing how Hayek did not think that ethics were based on reason or that reason could ever tell us anything about ethics.

This case for market freedom is essentially negative. Hayek seems to think that if socialist planning were possible, socialism might be the morally ideal system. But the inescapable ignorance of would-be planners excludes that possibility: ―If there were omniscient men, if we could know not only all that affects the attainment of our present wishes but also our future wants and desires, there would be little case for liberty.‖10

 

http://www.reasonpapers.com/pdf/33/rp_33_1.pdf

Symposium: Rand and Hayek on Cognition and Trade

Rand versus Hayek on Abstraction

David Kelley The Atlas Society

 

Hayek is not pro-liberty, at best he is pro-tradition, which is why it is not surprising to see so many religious people affiliated with the Austrian School of Economics.  He is anti-reason and specifically bases his justification for ‘free markets’ on the limitations of reason generally and on the inability of reason to create or understand morals.  His defense of the pricing mechanism of free markets is based not on liberty but on the idea of spontaneous order.  More fundamentally, Hayek bases his justification of the pricing mechanism on tradition and utilitarian grounds.

Hayek’s metaphysics appear to be Platonic, which is incompatible with Rand and Locke.  His epistemology is more consistent with Hume or Kant than Rand or Locke.  You might argue that Hayek was only discussing the limits of reason with regard to social sciences, however at the least he applies it to all areas of human interaction, which includes ethics, the law, and the political realm.  This means he is against Natural Rights and Locke, which means he is against capitalism.  Capitalism is the economic system that arises when the law protects people’s natural rights, particularly their property rights.  Hayek does not recognize property rights, at best he recognizes societies’ property conventions, which means he cannot understand capitalism.  This is more than enough for me to damn Hayek as an enemy of capitalism and a foe.

In my opinion, Hayek’s esteem of Hume, Bentham, and Burke point to a much deeper antipathy to reason.  His ethics is essentially majority rules with the modifier of natural selection.  He specifically thinks it is the most absurd folly to think any one person can use reason to judge a society.  This is consistent with his intellectual compatriots Hume and Burke.  Hayek’s ethics is perfectly consistent with the moral relativists that say we cannot judge and an ISIS or a USSR or christianity.  His ethics are antithetical to Rand’s and Locke’s.  Hayek is clear that he does not think Natural Rights can be justified by reason and that Natural Rights cannot claim any special place in the world.  Hayek is not a friend of reason, liberty, or capitalism.  Rand’s estimation of Hayek is similar to mine, although I think I have spent much more time analyzing the issue.

 

 

 

 

I am willing to entertain any serious evidence that I have mischaracterized Rand or how the sources I am citing mischaracterized his arguments.  I am not interested in unsubstantiated claims that I have misunderstood or mischaracterized Hayek.  Do not complain that my standard is Rand and Locke, I told you that upfront.  I am not interested in arguments that talk about other leading figures in the Austrian School of economics.  Stick to the subject and provide actual evidence.

 

March 4, 2015 Posted by | -Economics, -History | , , , , , , , , , , | Leave a comment

The Austrian Business Cycle Debunked

This video, The Austrian Theory of the Business Cycle | Roger W. Garrison, from the Von Mises University does a good job of explaining the Austrian Business Cycle Theory (ABCT).  The key point is that increasing the rate of savings (capital) results in increased economic growth in the future.  The theory was worked out by Von Mises and Hayek.  The foundation of the theory is very similar to classical economics, which held that economic growth was the result of increases in capital.  The video has a number of charts and graphs to make it look more scientific, however no empirical evidence is provided to support the theory.  Other work may provide empirical evidence, but I know of counter evidence as well.

This article will first discuss ABCT of recessions and some small errors in the theory.  Then I will show that ABCT is incorrect about what causes economic growth and its failure to explain economic history, particularly the Industrial Revolution.

Austrians are always focused on showing that Keynes economic theories are wrong, and they are certainly right about this.  Austrians argue that there is a trade between investment and consumption, which they call the sustainable Production Possibilities Frontier.  Keynesian theory would say there is no difference between consumption and investment.  Certainly there is a trade between investment and consumption.  The Keynesians somehow argue that by eating your seed corn you will be wealthier.  However, a minor problem with ABCT is that it equates savings with investment.  The two are not necessarily the same.

ABCT then states that recessions are caused by Central Banks (the Federal Reserve in the US) arbitrarily lowering interest rates below the market rate, which causes mal-investment and reduces the saving rate.  Unless we narrowly define saving as putting money in a bank, savers have a number of choices which are not directly affected by interest rates.  For instance, savers can put their money in stocks or corporate bonds.  The return on stocks and corporate bonds is more related to the success of the underlying company than the interest rate set by the Central Bank, so the disincentive to save is not a strong as suggested by the ABCT.  The second question is why does this cause mal-investment but increased saving does not.  In both cases the investment intermediary is a commercial bank.  Now if we were talking about direct government spending then the case is clear.  In that case the government is not subject to the market.  However, commercial banks are subject to the market.  If interest rates are lower because of additional savings or because the Central Bank set them lower does not change their loan approval process.  In addition, the ABCT completely ignores tax and regulatory policy.  Are Austrians really saying that recessions can only be caused by Central Banks setting interest rates too low?  Why not too high?  This is why Austrians are obsessed with what Central Banks are doing and seem somewhat oblivious to other issues.

These are not my real complaints with the ABCT however.  My real complaints are 1) recessions happened before there were Central Banks and 2) economic growth is not caused by increases in capital.  Central Banks are a fairly new creation and fractional reserve banks did not exist in the world until around 1650s.  The United States did not have a Central Bank until 1913, but there were recessions before that in the US.  There were certainly recessions in the world before there were banks, including one huge one called the Dark Ages.  ABCT fails to explain the source of all recessions, including the recession of 2001.

ABCT is also wrong on what causes economic growth.  Robert Solow did an econometric study of the US economy to determine how much of the growth was due to increases in labor, how much was due to increases in capital, and how much was due to increasing levels of technology.  According to Wikipedia

[This] technique has been applied to virtually every economy in the world and a common finding is that observed levels of economic growth cannot be explained simply by changes in the stock of capital in the economy or population and labor force growth rates. Hence, technological progress plays a key role in the economic growth of nations, or the lack of ithttp://en.wikipedia.org/wiki/Growth_accounting

Robert Solow won the Nobel Prize in economics for this work.  (This is not an endorsement of everything Solow says)

I would change the bolded part to state that the only way to obtain real per capita increases in wealth is through increasing levels of technology.  This becomes more apparent if you look over longer timeframes.  If we had the same technology as our ancestors in 1600, even with today’s total capital, would we be any wealthier than our ancestors?  We would not live longer, we would not be able to produce any faster, the only difference might be that we had more savings to fall back on or disseminate existing technologies.  However there was very little technological change at the time, so the increase in technological dissemination would have been small.  As a result, we would be essentially no wealthier than our ancestors.  Our standard of living is defined by our level of technology.  I discuss this in much more detail in my upcoming book, “Source of Economic Growth.”

Note that the ABCT does not account for technological change.  As a result, the theory should hold up in a technologically static world.  However, this is totally inconsistent with economic history.  The Industrial Revolution started in Great Britain and the United States.  There is no evidence that these countries had larger savings or capital stocks than say France or China or Holland or Japan.  The Industrial Revolution was really a perpetual invention machine, driven by inventions not by capital.  The source of all wealth is the human mind.  The application of the human mind to problems of survival is called inventing, which is how we increase our technological level.

Austrian Business Cycle Theory does not hold up under scrutiny.  Austrians have misidentified the source of economic growth and have a defective model for what causes recessions. Naturally they prescribe the wrong medicine.  Austrian Economics is not pro-capitalism, it is not consistent with the enlightenment, reason, and science, which I have described in other posts.

 

 

PS: I mentioned above that the Austrians misdiagnosed the recession of 2001.  They love to say that Greenspan created a bubble economy, which implies that in fact there was no real economic growth in the late 1990s.  The narrative that Greenspan created a credit bubble by holding interest rates too low does not fit the facts.  The economic growth of the late 1990s was built on new technologies that have made our life immeasurably better.  Real incomes and industrial production rose significantly in the late 1990s.  In addition, the effective Fed funds rate in the late 1990s was between 5.5 and 6.5%, which looks tight by today’s standards.  The Federal Reserve’s balance sheet was stable.  There was an inverted yield curve in 2000, which happened as Greenspan was increasing interest rates.  The commodities index was falling slightly in 1999 and rose slightly in 2000.  M1 was essentially flat in the late 1990s and M2 was growing slowly.  The evidence is overwhelming that the recession of 2001 was not caused by Federal Reserve “printing” too much money.  In fact the evidence points to the idea that Greenspan was too restrictive and caused an inverted yield curve in his desire to cause the stock market to cool off, which caused the recession.  It is true that the stock market had gotten ahead of earnings, but recent experiments in economics show this is a common with new investors and is not necessarily the result of easy credit.

 

 

February 15, 2015 Posted by | -Economics, -History, Innovation | , , , , | 6 Comments

The Irrational Foundations of Austrian Economics

The Austrians, such as those on the Von Mises website, like to tout that they are pro-freedom, capitalists, and arch enemies of the socialists and Keynesians.  Strangely enough this means that they have aligned themselves with socialists in opposing property rights for inventors and attacking Locke’s ideas on property.  Even more fundamentally the Austrians seem to share intellectual roots with the socialist or more broadly the post-modernist movement, which is a reactionary movement opposing the enlightenment, reason, and science.  I have written on Fredrick Hayek’s anti-reason, anti-natural rights, moral relativist positions in Hayek vs. Rand: Patents and Capitalism.

However, Hayek was not the only Austrian with post-modernists roots.  Von Mises was clear that values and prices are subjective.  By this the Austrians do not mean that they are personal or that each person puts a different value on things, they mean unconnected in anyway with reality.  Von Mises also said that economics is a value-free science.  This may sound high-minded, but science is not value free.  Science starts with an objective reality, demands logic and evidence, and morally requires that scientist report data accurately.  These positions of Von Mises place him firmly in agreement with the post-modernists (socialists, Keynesians).  Some people think I am misinterpreting the Austrian position so here is a video of a talk from the Mises University that demonstrates that the Mises people are serious about the subjective theory of value.  They are not saying it depends on your circumstances, they are saying there is no connection to reality between prices or values in economics.  The meat of the video starts at 7:35 in which the speaker states “value is just a state of mind.”  At 7:57 he is clear that value has no extensive property, which means it is not related to the real world.  8:16 the speaker states that all we have is a state of mind – that value exists only in the mind of the individual.  9:23 value is a state of mind.  9:54 there is no relation between the external world (reality) and the judgments of our minds – this is as clear as it will get that the Austrians are ignoring reality and believe economics is separate from reality.  11:14 The speaker describes profit as subjective.

Of course this position cannot logically be held to be true so you will find contradicting statements in the talk.  Just like people who deny reality, meaning they deny A is A, the position cannot be held without contradiction.  But since they deny reality matters in economics, they free themselves from the science of non-contradictory thinking – logic.  This makes the Austrians consistent with the post-modernist (socialist) movement.  I cannot say that every Austrian economist makes this mistake, but it is the accepted position of the modern Austrian school of economics and it got its start with Von Mises.

The speaker is trying to destroy the intrinsic theory of value.  Classical economists followed the labor theory of value which is an intrinsic theory of value.  According to this theory the value of an item is the sum total of the labor that went into the item.  The Austrians are correct that the classical economists’ position was incorrect, but their solution is no better.  They want to say value is determined without reference to the real world – that is it is all in the mind of the valuer, while the classical economists said value could be determined without reference to the valuer.  Both are nonsense.  Objective valuation has to take the position of the valuer and the item being valued into account.  Ayn Rand has a great explanation of this topic in Capitalism the Unknown Ideal starting on page 13 I believe.

Capitalism is based in reality, reason, and the ethics of natural rights.  Austrians are not capitalists.

February 12, 2015 Posted by | -Economics, -Philosophy, Patents | , , , | Leave a comment

Self-Ownership: A Conservative Conspiracy?

The Depclaration of Independence and Individual Rights are generally assumed to be based on the concept of self-ownership.  For instance, the article Who are the Real Liberals? in the American Thinker states “self-ownership entails an inviolable right to our lives, liberty, and property, which at the same time entails a prohibition from violating the rights of others.”  According to the Article Jefferson was even accused of plagiarizing John Locke in writing the Declaration of independence.  According to Nathaniel Branden in an article entitled Reflections on Self-Responsibility and Libertarianism argues that the United States stood “Freedom. Individualism. Private property. The right to the pursuit of happiness. Self-ownership.”  And Walter Williams, the conservative economist states “That Americans have joyfully given up self-ownership is both tragic and sad” in an article entitle AMERICANS HAVE GIVEN UP SELF-OWNERSHIP.  But now Leonard Peikoff, of the Ayn Rand Institute, says we got it all wrong and the idea of self-ownership is dangerous.  This issue goes to the source of all property rights.

Leonard Piekoff, the founder of the Ayn Rand Institute and a philosopher, in a podcast asks if there a difference between the principle of self-ownership and the principle of individual rights?  He first restates the questions as is there a difference between someone being the owner of their life and that he has a right to life?  His answer is yes there is definitely a difference. Peikoff argues that ownership is a relationship between you and some external object. As a result it makes no sense to say you own yourself. Next he suggests that ownership is about possession. Finally, he says this whole idea of self-ownership is some sort of Conservative conspiracy and a bad idea. Others have argued against self-ownership because if you can own yourself then it implies that you can be owned by others.

The conservative that Peikoff seems to be arguing with is John Locke, the 18th century philosopher responsible for the idea of Natural Rights that underpinned the US Declaration of Independence.  Locke stated “every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his.” (Second Treatise on Government, Ch. 2, Sect.27.)  Now some people have argued the preposition ‘in’ here does not imply self-ownership. This is based on a misunderstanding of property rights. A property right is a moral and/or legal claim to a right of action. Or as Ayn Rand, the philosopher and author of Atlas Shugged, states it “Bear in mind that the right to property is a right to action, like all the others: it is not the right to an object.[1]”  Self-ownership then is the right to action with respect to oneself. Peifoff has used the wrong definition of property and variously confused property with possession and only applying to external objects. Possession may be one right that comes with property rights, but you may own a house and then lease it to someone else. If you do that you have traded your right to possession. Property is often confused with the object itself or with possession of the object, but as Rand’s definition makes clear this is conflating different concepts.

Peikoff also provides no justification for his idea that property only relates to external objects. This inconsistent with Ayn Rand’s definition and is inconsistent with how we use ownership in normal language. For instance Rand variously states:

Money rests on the axiom that every man is the owner of his mind and his effort. (For the New Intellectual, p. 89.

 

“What greater wealth is there than to own your life and spend it on growing?”

–Ellis Wyatt, Atlas Shrugged, Pt. 3 of book.

 

“For centuries, the battle of morality was fought between those who claimed that your life belongs to God and those who claimed that it belongs to your neighbors — between those who preached that the good is self-sacrifice for the sake of ghosts in heaven and those who preached that the good is self-sacrifice for the sake of incompetents on earth. And no one came to say that your life belongs to you and that the good is to live it.”

–John Galt, Atlas Shrugged, http://aynrandlexicon.com/lexicon/good,_the.html

 

“There is only one fundamental right (all the others are its consequences or corollaries): a man’s right to his own life.”

Ayn Rand Lexicon, Man’s Rights, The Virtue of Selfishness, 93

 

Without property rights, no other rights are possible.

Ayn Rand Lexicon, Man’s Rights, The Virtue of Selfishness, 94

 

Now it is true that Rand also said that “The right to life is the source of all rights.”  (The Virtue of Selfishness, 93), but given all her other statements I think it is clear that she is talking about the right to one’s own life, not a disembodied right to life.

Neither Rand nor Locke argued that self-ownership was an axiom. Some people say Locke based self-ownership on god, but then why did he spend so much time explaining what rights we had a in a state of nature. As explained in Wikipedia, State of Nature:

For Locke, in the state of nature all men are free “to order their actions, and dispose of their possessions and persons, as they think fit, within the bounds of the law of nature.” (2nd Tr., §4). “The state of Nature has a law of Nature to govern it”, and that law is Reason. Locke believes that reason teaches that “no one ought to harm another in his life, liberty, and or property”

Clearly, Locke was not relying just on a deity for his support of self-ownership.

Rand’s genius in ethics was to show that self-ownership was the result of the unique nature of man, namely that he is a rational animal. His survival requires his ability to exercise his own reason and when others attempt to limit his ability to use his mind, they are acting in a way that is inconsistent with his survival.

Peikoff argues that being the owner of your life is different than the right to life and I agree. If you are the owner of your life you not only have the right to life, but you have the right to create property, the right to free association, the right to travel freely, and on and on. A naked right to life does not provide any of these things. Peikoff might argue that the right to life includes those things necessary to sustain that life. But if you are being provided food and shelter enough to be alive, your right to life is being observed even if you are a slave or in a prison.

Ownership of oneself is absolutely vital to Rand’s and Locke’s idea of the origin of property rights. If you own yourself then you own those things your produce, but if you do not own yourself then there is no reason why the things you produce would be your property. Image an unowned robot that produces furniture or cakes. Without self-ownership, there is no reason for the robot to own those things he produces.

Self-ownership is not the axiom on which individual rights are built, it is a derived intermediate concept. However, it is a common starting point in a conversation about individual rights because it is easy to comprehend and is familiar to people who grew up in the United States or most common law countries. The idea of self-ownership is incorporated into the Declaration of Independence and in common law. Sir William Blackstone’s Commentaries was the most important treatise on common law in the 19th century. Locke’s idea of self-ownership permeates Blackstone’s Commentaries. Starting with the idea of self-ownership one can build a logical system that is almost as exact as Euclidean geometry. That system explains why we have property rights, how they arise, and who is the rightful owner of the property.[2]  It also explains why murder is illegal, why slavery is illegal, why theft is illegal, in fact most of our common law criminal law. It also explains contract law, why we have a right to free association, right to self defense (including the right to bear arms), right to free speech and on and on. It is an extremely powerful tool.

Does self-ownership open up the possibility of you being owned by someone else?  If so this would be a powerful reason to avoid the concept of self-ownership. The default position is that you own yourself (morally) under self-ownership, so to be owned by someone else you would have to sell yourself. This means you would have to enter into a contract. But a contract requires two people who are able to enter into and fulfill it. Someone who does not own themself is not competent to enter into or fulfill a contract. The second you enter into a contract to sell yourself to someone else you no longer have the capacity to contract so the contract is invalid. In addition, for a contract to be valid it is necessary that both parties provide consideration. When you sell yourself into slavery you are not receiving any consideration, since you have no right to anything as a slave. Attempting to sell yourself into slavery is a logical contradiction. Self-ownership does not lead to the idea that you can be owned by others, but the exact opposite.

Some might complain that this argument is too legalistic. But we are talking about property rights and contracts and therefore the philosophy of law applies. Property rights and contracts have definitions and logical conclusions and one of those logical conclusions is that you cannot sell yourself into slavery because it is an invalid contract.

Self-ownership is not the axiom on which individual rights are built, but it is an intermediate concept that is consistent with individual rights. When starting from an intermediate conclusion it is always important to be aware of the underlying fundamentals to avoid making a mistake. Self-ownership means that you have a property right in your life and property rights are a right to action. This means that self-ownership encompasses the right to life, but it encompasses so much more.

 

 


[1] Ayn Rand Lexicon, Man’s Rights,” The Virtue of Selfishness, 93

[2] As opposed to the in vague idea that property rights are the result of scarcity.

December 10, 2014 Posted by | -History, -Legal | 2 Comments

Competition is for Losers

This statement is from a Peter Thiel interview.  Peter Thiel is a founder of Paypal, investor in Facebook and many other technology startups.  Mr. Thiel is talking about entrepreneurs and businesses and that you want to create a unique company and dominate your market space.  I have just finished a manuscript for a non-fiction book that makes this point from an economy wide point of view.  Wealth is not created by manufacturing undifferentiated, me-too products, it is created by new technologies.  There is no contradiction between what is good for the economy and what is good for an entrepreneur, despite the statement of economists on perfect competition.

One of Peter Thiel’s interview questions is tell me something you know to be true that no one else knows is true?  How would you answer that question?

My answer is that the source of real per capita growth is inventions and patents, property rights in inventions, are the key to stimulating people to invent, resulting in the Industrial Revolution and our present standard of living.

November 6, 2014 Posted by | -Economics, Innovation, News, Videos | , | Leave a comment

Charles Brush and Ice Dynamos

This is an excellent post on the inventor Charles Brush from the excellent blog Ice Dynamo.

Charles Francis Brush was born March 17, 1849 on his family’s farm – a farm not so different from those sprinkled across Bainbridge. You can imagine the bemusement of his parents – both farmers – when seemingly from infancy Charles showed an insatiable interest in electricity. He was a mere twelve when he built his first static electric machine.

He graduated college when he was twenty, and immediately went to work repaying his student loan, granted to him by his uncle. Charles spent his days selling iron ore and his nights devising a new dynamo – an early version of the electric generator. He was twenty-eight when his tireless efforts earned him his first patent.

As abundant and reliable as electricity is for us today, it’s hard to imagine what Brush’s dynamo meant for nineteenth century Americans. At the time, electricity was so inefficient and uneconomical that it little more than a novelty; what lighting existed was almost exclusively in the form of kerosene lamps.

The dynamo was a great achievement, but for Charles Brush, it was just a stepping stone. He envisioned a world lit by arc lights (a technology similar to light bulbs). That vision required not only economical electricity, but efficient and reliable arc lights. Once he’d completed his dynamo, he turned his focus to arc lights, and received his first of four patents in 1878.

Charles Brush loved his own life too much to relegate himself to thankless toil in an obscure lab. He was eager for the world to benefit from his genius, and wanted to be remunerated for his effort. Thus, in 1880 he established the Brush Electric Company. It was a herculean undertaking; he competed directly with Thomas Edison’s titan of a company, General Electric. Nevertheless, in a few short years Brush’s arc lights illuminated the streets of cities such as San Francisco, Montreal, Boston and New York. His hydroelectric power plant in Minneapolis was one of the first in the United States to generate electricity from water.

When Brush was 42, he merged his company with General Electric and retired to the mansion he’d built in Cleveland. His home included a private laboratory in the basement and the world’s first automatic wind turbine generator. Even in retirement, he never stopped investigating scientific phenomena.

Charles Brush’s inventions – such as his dynamo – were incredible machines, but they were so much more. Those inventions were the product of a child who was born with a singular purpose, and never let being an iconoclast stop him from pursuing that purpose. They are the result of a young man’s inexhaustible dedication to his work, and an industrialist’s fearless determination to bring light to the world.

Which brings us to the article’s title. My favorite author described machines as “the frozen form of a living intelligence.”

July 19, 2014 Posted by | -History | | Leave a comment

$120 Per Smartphone in Royalties – Outrageous!

An academic paper claims that the cost for royalties ($120 per phone) is about the same as the cost of the components in a smartphone.  This was accompanied by a number of articles suggesting this was outrageous and unsustainable.  For example see:

* High smartphone patent royalties undermine industry profitability: report 

* The $120 Smartphone Patent Tax: Patent Royalties Cost More Than The Actual Hardware In Your Phone:   This one from my favorite patent Luddite site, Techdirt.

* Smartphone royalties now equal manufacturing costs

The logical flaw underlying all these articles is that the value of products is determined by the amount of physical labor and/or the cost of the underlying materials.  On this basis, the actual material costs of a cell phone are probably less than $5 and the labor (unskilled labor in the US is worth perhaps $10/hr) involved in making the phone might be worth $5, let’s throw in $10 for distribution and the hard costs of a smartphone are about $20.[i]  The rest of the costs are the result of intellectual property, much of which is in the form of patents, but some is in the skilled labor, copyrights and trademarks.  The actual cost of the intellectual property in a smartphone is closer to $380.00.  Much of these costs are hidden.  For instance, when Intel sells a microprocessor they charge you $50, for example, but the labor cost and material cost of the microprocessor is pennies.  The reason they can charge $50 is because of the intellectual property, which means patents.  From an economic point of view you are paying a dollar or so for the manufacturing and $49 in patent royalties.

Another logical flaw in these articles is that this is an unsustainable business model.  First of all the underlying paper points out that sales of smartphones and tablets is now bigger than all the rest of the consumer electronics space, with over a billion smartphones sold in 2013.  Clearly the business model is not falling apart.  Second of all, the cost of Microsoft Office Home and Business 2013 is $219.00 and none of that is manufacturing cost.  The cost of Microsoft Office is essentially all IP (Patents, Copyrights, etc.).  Solidworks, which is 3D CAD software, cost $4000.00 and also has essentially no manufacturing costs, which means you are paying the equivalent of $4000 in royalties.  The argument that the model is unsustainable is absurd.

 

Actual Paper

The paper that started this economic stupidity is The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones.  The paper is clearly designed to sway public and Judicial opinion in a manner that will be beneficial for Intel.  Namely, Intel wants a patent system that emphasizes manufacturing, not inventing.  Another goal of the paper is to get courts to reduce the amount of royalties that inventors receive.

“In particular, there has been significant recent focus on “royalty stacking,” in which the cumulative demands of patent holders across the relevant technology or the device threaten to make it economically unviable to offer the product.”

This statement is absurd on its face, as the paper itself points out.

“The market for smartphones has exploded. Smartphones sales for 2013 topped one billion units globally for the first time ever.  In addition, global revenues for smartphone and tablet sales in 2013 are estimated to have surpassed for the first time revenues for the entire consumer electronics markets (e.g., televisions, audio equipment, cameras, and home appliances).”

Here is the real point that this paper is pushing:

“Further, the available data demonstrate a need for licensees to advocate and courts to rigorously apply methodologies for calculating royalties that focus on the actual value of a claimed invention put in context of the myriad other technologies in a smartphone and the components in which the technologies are implemented.”

I will admit that having courts set royalty rates is not ideal and the results can be squirrelly, which is why eBay  should be reversed.  The courts used to just prohibit the infringer from using the patented technology and then the parties had to work out a deal.  But the Supreme Court decided that enforcing the only right you get with your patent is an injunction – actually it is not an injunction it is an exclusion order requiring the infringer to not trespass on (use) the patent owner’s property.

The paper admits that its methodology is limited and the actual cash cost going to pay royalties could be higher or lower.  For instance, the paper does not track cross licensing, pass through, or patent exhaustion, all of which could significantly reduce the actual royalties paid.  They clearly made an error if they did not account for patent exhaustion.  If patent exhaustion was part of the royalty costs, then almost every high value component’s price is mainly due to patents.  Correctly accounting for patent exhaustion would show a royalty per smartphone closer to the $380.00 per phone as explained above.

The paper is just dishonest when discussing the growth in the number of patents issued and the number of patent lawsuits.  It shows in 20 years the number of patents issued in the US has increased from 100,000 per year to 250,000 per year.  The implication is that this is an absurd increase in the number of issued patents, but if you do the math this turns out to be a 4.75% annual increase, about the same as the increase in worldwide GDP over the same time period.  The paper also shows a graph depicting the number of patent lawsuits exploding around 2011.  This increase is due to the America Invents Act, which limited the joinder of defendants in patent lawsuits.  This has been well documented, as in the article  The America Invents Act at Work – The Major Cause for the Recent Rise in Patent Litigation.  The paper’s failure to point this out is just outright fraud.  The fraud is perpetrated again when the paper points to the increase in the number of NPE lawsuits.  These authors seem to have gotten their training from Al Gore and French economist Thomas Piketty.

 

 


[i] In fact you can buy cell phones for less $30.00 on the Internet.  The cost of materials in a smartphone and a $30 cell phone is essentially the same.  The material costs in a cell phone include the plastic which costs several cents, the metal for the conductors which might be worth a dollar, the silicon which in its raw form is worth almost nothing.

June 1, 2014 Posted by | -Law, -Legal, -Philosophy, News, Patents | , | 2 Comments

PATENT=MONOPOLY – A LEGAL FICTION

The authors (Sven Bostyn and Nicolas Petit) of this paper, PATENT=MONOPOLY – A LEGAL FICTION,  argue that patents are not a monopoly based on standard antitrust analysis.  It is very unusual for an academic paper to take such an unpopular position.  They must have not got the memo that the goal of all academics is to vilify inventors, patents, and property rights.  Below are some the lines I thought were interesting and my comments are below.

“No other IPR is so thoroughly examined and evaluated as a patent.”

No other property right is so expensive, time consuming and expensive to obtain title to.

“In 2011, approximately 1,000,000 patents were granted across the globe.  This would mean that 1,000,000 monopolies would have been created worldwide. This clearly, cannot be true.”

“Competition is very valuable, but innovation is probably equally, if not more, valuable.”

 

My main critique is that they did not explain how patents are a property right or the history of property rights and patents.  Under Locke’s theory of property rights, patents and copyrights are property rights – they are granted because of the creative effort (labor) of the inventor/author.  This was picked up by Sir William Blackstone in his Commentaries, where he affirms that patents and copyrights are property and therefore natural rights.  This was enshrined in the constitution as “securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

January 5, 2014 Posted by | -Economics, -History, -Legal, -Philosophy, Innovation, Patents | , , , , | Leave a comment

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