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Monopoly/Rent Seeking vs. Property Rights/Intellectual Property


Monopoly/Rent Seeking vs. Property Rights/Intellectual Property
Unfortunately%2C+Libertarians%2C+Socialists%2C+and+and+many+Economists+do+not+know+the+difference+between+a+monopoly+and+a+property+right.++Here+are+three+easy+questions+for+Libertarians%2C+Socialists%2C+and+Economists+to+determine+if+a+right+is+a+monopoly+or+a+property+right.+

Here are three easy questions for Libertarians, Socialists, and Economists to determine if a right is a monopoly or a property right.

 

1) Does the right arise because the person created something?

Creation is the basis of all property rights.  The law is just recognizing the reality that the person is the creator and without that person the creation would not exist.  This is consistent with Locke’s Natural Rights and Ayn Rand’s Objectivism.

 

2) If someone else was the creator would they have received the right in the creation?

This ensures that the right does not arise from political favoritism.

 

3) Is the right freely alienable?

Freely alienable means that right can be sold, transferred, divided, leased, etc.  This is a key feature of property rights.

 

Let’s see how this applies to some common property rights, some monopolies, and rent seeking systems.

 

Land: 1-yes, 2-yes, 3-yes.

Some people may be confused about why question 1 is a yes with respect to land.  Clearly no one created land.  That is true, but the reason that the person owns the land is because they improved it.  This was the major criteria for receiving land under the Homestead Act.

Now some people may complain that most of us do not obtain title to land because we improved it.  This is true, but we had to create something and trade this for money.  This money was then used to buy the land.  Because property rights are freely alienable, they can be transferred for other property.  As a result, creation is still the reason we own the land.

Thus a right in land is a property right.

Note in the modern world land is usually not completely alienable because of various regulations.  However, this is an encroachment on property rights but does not change the underlying fact that rights in land are property rights.

 

Utility Grants: 1-yes, 2-no, 3-no

Utility grants includes electric utilities, water utilities, cable television, etc.  In all cases, the company that receives the right has to build something (electrical power system, water purification and distribution system, or cable system.  As a result, the answer to question one is yes.  However, if someone else created a utility system in the same geographic area they would not receive the same right.  Utilities receive their legal rights not because they created something, but because a political entity selected the particular organization.  The grant is generally not alienable.  If the present holder of the utility right wants to sell, lease or subdivide their utilities rights, they have to get permission from a political entity.

Thus utility grants are monopolies not property rights.

 

Patents: 1-yes, 2-yes, 3-yes

You obtain a patent because you created an invention.  If someone else had created the invention, they would have received the patent to the invention.  Patent rights can be sold, leased and subdivided.

Patents are property rights.

Note that you have to apply for a patent in order to obtain it.  The same was true for land under the Homestead Act.

 

Mineral Rights: 1-yes, 2-yes, 3-yes

You obtain mineral rights because you discovered minerals at a particular location.  Much like land in the modern world most mineral rights are purchased, but this is still the result of creation.  If someone else had discovered the minerals they would have received the right.  Mineral rights can be sold, leased, subdivided etc.

Mineral rights are property rights.

 

Professional licenses: 1-no, 2-yes, 3-no

Professional licenses include medical licenses, legal licenses, cosmetology licenses, etc.  You obtain a profession license because you proved a mastery of certain knowledge and fulfilled other bureaucratic requirements.  You do not obtain a professional license because you have created something.  If someone else proved mastery of the subject matter and fulfilled the other bureaucratic requirements they could also receive a license.  Professional licenses are not alienable at all – they cannot be transferred, sold, subdivided, etc.

Professional licenses are pseudo monopolies or rent seeking devices.  They clearly do not limit the market to one provider, but they do limit the number of providers in a market.

 

 

Antitrust Law

Modern antitrust law turned the law against monopolies on it head.  The Statute of Monopolies limited the power of the Crown (government) to interfere with private property rights.  The Statute of Monopolies excluded patents for inventions because they result from the creative act of the inventor and therefore are property rights.

On the other hand modern antitrust law increases the power of government to interfere with private property rights.  The underlying theory of antitrust law is the efficient market hypothesis.  The hypothesis postulates that wealth is created by falling prices for existing goods and services and this is result of competition to sell existing goods and services.  However, this is not true.  Increases in per capita income are the result of increases in technology – inventions.  Antitrust law undermines the incentive to create and invest in new technologies and therefore hurts our economic health.

 




2 Comments

  1. DBH,

    What is the cause of these recent rants against “monopoly”?

    There is nothing inherently wrong with a monopoly per se.

    Our antitrust laws are directed at the “unreasonable abuse” of monopoly power in a given market and not at monopoly itself.

    A monopoly can develop for a number of reasons, one of them being that the monopolist provided goods and services of such superior quality and such low prices that no one could beat him in the free market place.

  2. Stepback, government granted monopolies, which are the only real monopolies, violate property rights. They are an abuse of government power. Government’s job is to protect property rights.

    US antitrust law is not law, it is politics. It allows the government to arbitrarily interfere with property rights. Quite often those property rights were patents – thus the source of my rants. See the FTC/DOJ in the 1970s which used antitrust law to force US companies to give away the technology associated with over 50,000 patents – this benefited foreign companies at the expense of our economy. This was a major reason the US economy was so poor in the 1970s.

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