State of Innovation

Patents and Innovation Economics

Hayek vs. Rand: Patents and Capitalism

David Kelley gave a talk on Ayn Rand vs. Friedrich Hayek On Abstraction.  (If you want to read Mr. Kelly’s paper on point click here)  This is a very important talk and explains the difference between Austrian economists and free market (objectivists).  It also helps explain why Austrian economists who say they are for free markets are against patents, which are property rights in one’s invention.

Ultimately, Hayek is a warmed over Platonist.  According to Hayek our perception and reason are limited (Plato).  It is this limit to reason that is Hayek’s justification for a free market.  Basically, Hayek argues that because our reason is limited it is sheer folly to suggest that central planning can ever work.  Rand on the other hand sees no limit to reason and notes that reason is man’s basic tool of survival.  But each man must reason for them self.  To force (central planning) someone to do something against their reason is immoral and eliminates the creativity and ingeniousness of everyone subject to the central planning decree.  This means we have a small group of people attempting to “solve” problems instead of many people and the people making the decision are not the ones that feel it’s effects.  As a result, central planning is an open loop process, which as any engineer knows is a very inaccurate process.  In addition, central planning does not take all the variables into account, since only each individual can know exactly what their circumstances and needs are.

I believe Austrians gravitate to Hayek’s ideas because it saves religion (Christianity) from reason and the free market.  Hayek’s ideas on the limits of reason puts him in the company of Kant, Hume and Plato.  Hayek in that sense is both anti-reason and anti-science, which leaves plenty of room for religion.

It also explains why Austrians do not understand patents.  Property rights to Austrians are based on social convention or utilitarianism but not based on reason.  According to the Austrians we have property rights (privileges, arbitrary grants) because of tradition or because they believe (not know – reason is limited) it results in the best use of resources.  As Hakek states:

[M]orals, including, especially, our institutions of property, freedom and justice, are not a creation of man‘s reason but a distinct second endowment conferred on him by cultural evolution.

Patents were once characterized as monopolies (see English history), so Austrians cannot reason out the difference between what were called patents before the Statute of Monopolies and what are patents today.  For Rand, creation is the basis of property rights and all human creations start with one man’s mind.  Because of this Rand made it clear patents/copyright (Intellectual property) are the basis of all property rights.

For more see Defending Capitalism: Ayn Rand vs. Hayek


More specifically on Hayek’s concept of Abstraction:

If Hayek’s ideas had any validity, then a person whose eyesight was restored after being blind from birth could immediately (visually) identify an apple or red, which we know is not true.  If Hayek’s ideas were true then we would have to have some inherent understanding of the double slit experiment in quantum mechanics or the idea that time slows down as we approach the speed of light, but this is clearly nonsense.


May 2, 2013 - Posted by | -Economics, -Philosophy, Patents | , , ,


  1. I do follow your logic in the last paragraph. Natural law or cultural evolution are basically saying the same thing, that being societies over time have developed traditions and ideas that preclude reason by substituting experience. To equate that with innate knowledge akin to instinctively knowing the color of an apple is a leap of logic to my mind.

    I like Ayn and consider Atlas Shrugged required reading but some of her ideas are a bridge to far, a leap beyond logic if you will. Reason is limited and with human’s inherently faulty. One can use reason to justify just about anything with equally reasonable people coming up with opposite conclusions. Reason without experience is both blind and dangerous. Just one of many reasons a standard by which one can judge ethical and moral issues is so important, one based on experience not cold reason. Put another way, “the source of all knowledge is experience,” (Einstein), reason is a tool but experience is the guide. Natural law is in essence the ultimate guide for a reasonable society.

    That said, intellectual property rights are not necessarily negated by natural law, just not fundamental to it. If the two are reconciled it is in property rights in the general sense, the right to sustained oneself by the fruit of one’s labor. If ones labor is intellectual is it less valuable than the products made with hands? Friedman saw both dangers and benefits and ultimately supported intellectual property just not unlimited time frames. Just one of the reasons I gravitate more to the Chicago School than the Austrian in most areas.

    Comment by Luke | May 5, 2013 | Reply

  2. Luke,

    I could not disagree more. All of science is based on reason – reason is not infallible, which is why we test and retest ideas both experimentally and logically. All of mathematics is based on (reason) logic, in fact all mathematics is just a logic puzzle. By the way, Einstein was famous for not drawing on experimental data but just extending concepts logically – he was the most anti-experience physicist of the 20th century. People have no problem understanding that Geometry, Algebra, Physics are true or whether propositions in these areas are correct, even if people do make mistakes. The problem in ethics is twofold and is not solved by Natural Law or Tradition. One is that people have different basis for their ethical systems and most people are either not aware of their basis or are inconsistent. For instance, the ethical system of an environmentalist is based on the idea that the world is perfect but for man. Therefore, anything man does is evil. They are not going to agree on what is ethical with someone whose ethical system is based on Natural Rights, where the basis of all ethical decisions is that man owns himself. A Natural Rights person is going to say oil and other hydrocarbons are an unparalleled good. An environmentalist is going to see them as unparalleled evil, both for the same reason – namely that mans’ life is greatly enhanced by hydrocarbon energy sources and the internal combustion engine.

    People whose ethics is based on Natural Rights or Objectivism are going to agree on almost all ethical points. Those which they do not agree, they have a standard for determining who is right. Tradition is a bad yard stick for ethics. If we used tradition, we should still have slaves, we would still flog people for adultery, we would still drown witches.

    Comment by dbhalling | May 6, 2013 | Reply

  3. All of science is based on reason? Some has and much to the world’s dismay. The sciences of eugenics and the folly of Darwinism were reason based and so was Global cooling. The history of Physics on the other hand is one of years of floundering to explain the observed with a few Eureka moments. Those moments were all based in experience giving rise to knowledge. Newton would not of discovered gravity by the application of reason alone nor Einstein relativity. Newton used reason to explain what he experienced and Einstein applied his daily experiences (like riding a train) to expand the understanding of a world he could not see.

    The fact is there are those for whom logic and reason were their only guide. They filled the streets of France with blood and created the foundations of socialism. In fact much of what the left has espoused is based on reason devoid of experience. It is also they that disregard all that they cannot readily explain. On the other hand the English and Americans developed capitalism based on experience not reason. The ideas of freedom as they knew it had been baked in the oven of religious tenants like free will and individual worth (at least Judeo-Christian tenants). It had been tempered by English traditions and expanded on by the discovery of natural law.

    Religion properly understood, a set of shared beliefs that form the basis for life, is ubiquitous. Radical environmentalism is one whose god is nature and reason its sole guide. The most basic tenant is life is life and all is of equal value, a thought born of pure reason. The sieve of experience is needed to remove those things that are harmful to man, not reason alone.

    Natural Law is the understanding that certain concepts are nearly universal. Things that contribute to stable societies across the globe no matter how remote. The foundations for their ethical systems is irrelevant to their application of Natural Law, that is what makes Natural Law what it is. Tradition on the other hand is society specific, it binds the peoples of the past with the present and lays the foundations for the future ones. Not all traditions are good ones but if they do not break Natural Law and individual rights they have value.

    I would submit your values are based more on experience, tradition and religious tenants than you realize. The reason is simple, they are tempered by ideas that lay beyond reason and intellect. Men are not integers within an algebraic equation, what touches their souls is what defines who they are.

    Comment by Luke | July 22, 2013 | Reply

  4. Luke,

    We disagree.

    1) Science is based on reason.
    a) Eugenics is not science. We know this because it was not based on reason, logic and observation.
    b) The evidence for evolution is overwhelming. It is almost as well established Newtonian physics. Evolution is based on two simple concepts: 1) a trait mixing system, and 2) a selection system. Not even the most anti-evolution person denies that there is trait mixing in animals (we don’t look exactly like either of our parents). Even the most anti-evolution person does not try to plant a cactus in swamp or a palm tree in the arctic. The anti-evolution bandwagon is based on its implications, which religious people don’t like. This is part of the sad history of religion attacking science and reason. Another sad example is the Catholic Church threatening to kill Galileo because he said the Earth orbited the Sun – they were wrong then and they are wrong now. We know this because of reason, logic and observation.
    c) You observation of physics is without any merit. If what you said was true then the witchdoctors of Africa would have discovered Newtonian physics or Maxwell’s equations. Science is profoundly based on reason.
    d) Global Warming. The reason we know this is not science is because it is not based on reason, logic and observation.
    e) You seem to believe that reason has to infallible to be useful. In other words reason is only valid if it makes you omniscient. Under this interpretation Newtonian physic is useless because Einstein proved him wrong. But you know that Newtonian physics is useful and Einstein did not prove Newton was wrong, what he showed was that Newtonian physics was exactly correct within certain bounds (low speeds and low gravity). In fact part of how we know Relativity is right is that it agrees with Newtonian physics in these realms. This is how reason works. It is not about having the exact or perfect answer, it is about determining how nature works within the bounds of our observation or the bounds that matter for our problem. For instance, all construction is based on the incorrect assumption that the Earth is flat, but this is irrelevant over the distances involved. This is not a sign of irrationalism, it is a sign of profound reason. Understanding the precision needed for your goal – building a house or a barn.

    2) French Revolution and Communism. Just because a political movement claims it is pro-reason and science does not make it so. How do we know this? Because they take actions which they know or should know are not consistent with science, reason, logic, and observation. In the case of communism it was clear from the beginning that Marx’s so called “scientific” history was not based on observation, reason or logic. It eschewed reason and logic and ignored data inconsistent with its theory.
    As for the French revolution, they adopted a set of rules which claimed to support the rights of man, but these rights were always subject to the will of the majority/society. This is not reason and science. Human beings like all animals have certain conditions necessary to their survival. Like all animals human beings have certain characteristics that make them able to survive in this world. Those characteristics in humans are not how strong we are, or how fast, or our prolific birth rate, it is our ability to reason. Reason is by definition is volitional, humans can choose to not reason and when they do so you end up with the Inquisition, Nazi Germany, Galileo and the Catholic church, the Salem witch trial, North Korea, etc. Reasoning is an individual process, you cannot reason/think for another person. The ability to reason is meaningless unless each individual can act on their reason (thought without action cannot sustain one’s life). Thus any ethical/political system that subjects people’s actions and thoughts to the rule of the majority or society is not based on reason, which is why the French Revolution was such a disaster.

    3) Tradition and Natural Law: First of all the suggestion that natural law is based on tradition is inconsistent with the basis of natural law, which is suppose to be based on nature (reality) not tradition, just like science, which was called natural philosophy. If we want tradition as our guide then the Catholic Church was right to threaten to kill Galileo and we should all believe that the Sun revolves around the Earth. We should believe the Earth is flat, that witches exist and that a force of gravity depends on the weight of the object.

    4) Natural Rights, which the USA was based on, is a logical system that is based on one simple concept that each individual owns themselves. Slavery by definition is inconsistent with this system. Murder is clearly inconsistent with this. If you own yourself, then you own those things you create, which is the basis of property rights. If you own yourself, then you clearly have the right to enter into a legally binding agreement, i.e., a contract. Not only was the Declaration of Independence specifically grounded in Natural Rights, which is grounded in logic, reason, and observation, but so is common law. William Blackstone’s Commentaries is the basis for all common law in the US and it is specifically based on and informed by Natural Rights.

    Any anti-reason philosophy is anti-man.

    Comment by dbhalling | July 22, 2013 | Reply

  5. Science is based on reason, reason is based on induction. What can be posited deductively must first be observed inductively. Induction is fallable. As such, is science. The difference being that induction knows it’s own limits. Science does not. Why? Because science deals in pragmatism: it works until x. At point x, the new word of god. And that word is absolute.

    Science’s chosen methodology is correlation:causation, which is deeply flawed in it’s own right. It will never get over the conceit that it can only measure relative to the questions it’s asking. This is why meta-physics is essential to science, and why science is essential to meta-physics. They should have never been separated. Although Hayek chose different words to describe these terms(instinct/reason), he meant the same thing and expresses with candor this conundrum of ‘picking one over the other’ that has plagued civilization for so long. Even Aristotle understood this, through his system of the four causes.

    Comment by Daniel D | March 31, 2014 | Reply

  6. Daniel,

    You do not understand science or reason. Science is based on logic and evidence/observation. Reason can be inductive or deductive Science does know its own limits and they are found by experiments. Science is not about pragmatism, not about correlation, and is not deeply flawed. The only reason you can write these words and have them appear is because of the philosophy of science, which has created devices to allow us to see individual atoms, devices to see to the edge of the visible universe, devices to peer inside your body, pills to kill diseases, genetic testing for conditions and on and on and on. The evidence is pretty overwhelming science is not flawed, but your reasoning is.

    I think you should learn something about science before you comment on it. This post would be a good place to start

    Comment by dbhalling | March 31, 2014 | Reply

  7. Reason is inductive before it’s deductive. You cannot know something before you’ve observed it, and you can only know it as far as correlation:causality dictates. Your understanding of logic and math are inductive. Without the means to perceive dimensions of quantity and consistency, they mean nothing. Without the knowledge passed down through tradition and written word to perceive these dimensions, they do not exist.

    Morals are also not the product of our reason, as Hayek quoted Hume in writing. We’re navigating a complex framework deductively of things known and charted out inductively. Things outside of that sphere can be understood as phenomena, but that is like saying that we understand football because we understand boxing.

    Science is very much about pragmatism. Someone finds a solution that solves a problem. Is it a complete understanding? Probably not, only so much as it relates to the problem. It works ‘to a point’. Quantum physics is having this difficulty – things only work up to a point, and logical predictability breaks. They have found particles for example, that are connected in ways that can not be explained by any known science. If you destroy one, no matter how much distance between them – the other is also destroyed. These contradict not only the laws of thermodynamics, but even our most distant perceptions regarding the state of matter.

    Again, you’re stuck in this conceited view that because science DOES STUFF that’s productive, that it’s explaining truth. It’s not. You missed the entire point of my post from head to toe. Re-read it, my point was that philosophy and metaphyics have just as much to do with the truth of the universe as science does. These two fields should never have been separated because they are two halves of the same coin.

    Comment by Daniel D | April 1, 2014 | Reply

  8. Daniel,

    You clearly epistomologically fall into the Kant – emotions are the path to knowledge, or christian – god is the path to knowledge, or the Nietzsche will is what matters not knowledge. What this has brought the world is war, famine and starvation. But science has brought you the computer you are using to type this, understand of gravity, disease, electricity, and on and on. But you reject the evidence before you. Since you do not understand reason and logic it is clear that your words are just meaningless combinations of symbols. Grow up.

    Science is based on logic and evidence. Logic is the art of non-contradictory thinking. That is the opposite of pragmatism. Your lack of basic knowledge is appalling. Logic is incredibly powerful. All computers, the internet, digital circuits work explicitly on Logic. It matters not if the path to the answer is inductive or deductive in math or science. In math you have to provide a proof. You may make a mistake, but the math is never in error. In science you have to do experiments to prove you assertions. This check and balance is incredibly powerful. You clearly hate mankind and reason. And yes correct morality is based on reason.

    Comment by dbhalling | April 1, 2014 | Reply

  9. Stop ignoring and dismissing my points. Evidence is subjective and often contradictory. Furthermore, evidence is limited to our ability to perceive actuality. Logic does not correct all contradictions in evidence because evidence is relative to what is being asserted as requiring proof. Hayek made a good point of this in his observation of feral children, that it ‘could be wondered if they even have a mind?’. They come out of tradition. We(as in no on in particular) have inductively crafted rules of morality and cooperation to best facilitate peaceful exchange between individuals co-existing in society. This is not immediately apparent for several reasons, one of which being that most people have not lived in a society where these traditions do not exist. On the subject of tradition, I would be willing to wager that if an entire generation grew up without exposure to tradition, humanity as a whole would be set back hundreds, maybe even thousands of years.

    And contrary to your ridiculous assertions, I am not rejecting reason outright. I stated that I don’t think it should have split with philosophy. Philosophy opens the doors to new ways of structuring information – measurement. Science is chiefly concerned with pragmatism and what can be proven. Proven according to who, with what tools of measurement? This is why I believe the two are inseparable. I believe that if science took metaphysics seriously, it would be able to ask better questions and obtain greater truth in it’s answers. It has nothing to do with gods or religion and everything to do with finding out WHY things exist.

    Good example of this distinction. It’s worth noting that the Chinese have one of the highest life spans in the world and are one of the healthiest cultures in the world.

    Comment by Daniel D | April 7, 2014 | Reply

    • You clearly are platonist. Reality exists and it is not subjective. A is A. Evidence is not contradictory, your interpretation may be. The evidence of science and technology is overwhelming. You appear to be confusing the idea that knowledge has to be “perfect” to be knowledge. This is clearly not true. I do not have to understand Maxwell’s equations to understand how a light bulb works.

      Comment by dbhalling | April 14, 2014 | Reply

  10. I don’t fall into any system of thought you’ve mentioned – your generalizations are ridiculous. And yes, reason is infallible to you – your assertion that it’s ‘pure reason or we’re back in the dark ages’ is proof of your belief in it’s absolute certainty. I doubt you’ve even read Hayek with these sort of blind accusations you’re throwing around. ‘Second-hand dealer in ideas’ indeed.

    Comment by Daniel D | April 7, 2014 | Reply

  11. Are you religious?

    Comment by dbhalling | April 7, 2014 | Reply

  12. No. Agnostic.

    Comment by Daniel D | April 10, 2014 | Reply

    • Daniel,

      Theist and Atheist encompass the whole universe of choices. You can be an agnostic theist or agnostic atheist. You can choose to not make a decision, but there are no other choices.

      Comment by dbhalling | April 10, 2014 | Reply

  13. lawl… You just asked me if I was RELIGIOUS.

    I said NO. That makes me an ATHEIST.


    Comment by Daniel D | April 13, 2014 | Reply

  14. Is you metaphysics Aristotelian or Platonist?

    Comment by dbhalling | April 13, 2014 | Reply

  15. Nor how to turn one on and off. Most of Daniel’s comments consist of floating abstractions. I’m not sure how to decipher them.

    Comment by IndianaGary | December 6, 2014 | Reply

    • Hear hear

      Comment by dbhalling | December 7, 2014 | Reply

  16. […] 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. […]

    Pingback by The Irrational Foundations of Austrian Economics | Blog of Dale B. Halling, LLC - Intellectual Property & Patent Innovation, Attorney - Powered by Clvr.Tv | February 12, 2015 | Reply

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