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Patents and Innovation Economics

Adam Mossoff on Property Rights: A Must Read for Capitalists and Patent Attorneys

Why Intellectual Property Rights? A Lockean Justification, by Professor Adam Mossoff, is probably one of the most important papers written on property rights in over a century.  The point of the paper is to show Locke’s labor (physical and especially mental) theory of property rights provides the moral justification for intellectual property (copyrights and patents).

One of the strengths of the Lockean property theory is that it recognizes that IP rights are fundamentally the same as all property rights in all types of assets—from personal goods to water to land to air to inventions to books.

The paper clearly shows that Locke understood that it takes both mental and physical effort to obtain those things man needs to live.  Anything that man makes valuable through his efforts, he obtains a property right in.

Locke himself expressly justifies copyright as “property” and approvingly refers to “Inventions and arts” in his summation of his theory that property arises from value-creating, productive labor that supports the “conveniences of life” in § 44 of the Second Treatise. In 1690, the legal concept of patents (property rights in inventions) did not exist yet,[10] and so this is an explicit indication of Locke’s willingness to include what would later become the legal concept of patents within his property theory.

Locke explains that the world exists for “the use of the Industrious and Rational.”

Interestingly Locke distinguishes between copyrights (and patents by extension) and monopolies something that many modern critics of patents are unable to do.

In an essay on the statutory printing monopoly granted to the Stationers Company by Parliament, Locke condemns such monopolies as violating the “property” in creative works that “authors” rightly claim for themselves. In what might be a further surprising claim for many today who think copyright terms are too long, Locke writes in this 1695 essay that authors should have their property rights secured to them for their lifetimes or after first publication plus “50 or 70 years.”

I have argued that the term of a patent should be 35-40 years for the same reason.  As I have explained here, no property right is eternally.  Dead people do not have property rights.

Another misconception about property rights is that they are the same for every object or value created by man.  As Mossoff explains Locke did not make this mistake.

As Locke first explained, property is fundamentally justified and defined by the nature of the value created and secured to its owner … To wit, different types of property rights are defined and secured differently under the law.

This naturally leads to a final observation: Given differences in produced values in the world, such as a water well, domesticated animals, a fecund farm, the desert sand used to make silicon for computer chips, air, broadcast spectrum, corporations, stock, credit, future interests, inventions, business plans, books, paintings, songs, and the myriad others, the specific legal doctrines that protect these values will vary.

It is amazing how many people miss this point, which leads to all sorts of erroneous ideas about what property rights are.  This is perhaps the most important point in the whole article.

Property rights are highly misunderstood in today’s world by both lay people and academics.  They are even misunderstood by many supporter of capitalism, particularly libertarians and supporters of Austrian Economics, but also by Objectivists and supporters of Ayn Rand.

Libertarians and the economics profession in general have accepted the utilitarian justification for property rights, which is a misnomer and turns property “rights” into arbitrary government grants.  In addition, it fails to explain how property rights are acquired, who they belong to and why, among other problems.

Ayn Rand appears to be in basic agreement with Locke.  She states:

Any material element or resource which, in order to become of use or value to men, requires the application of human knowledge and effort, should be private property—by the right of those who apply the knowledge and effort.

Capitalism: The Unknown Ideal “The Property Status of the Airwaves,” Capitalism: The Unknown Ideal, 122

Rand also discusses property rights in the chapter Patents and Copyrights in Capitalism: The Unknown Ideal.  While she has some keen insights, she never developed a fully articulated theory of property rights.

mossoffIn my limited research into the history of property rights theory there was excellent research and work starting around Locke and the Enlightenment.  Before that property rights were derived from the King (government).  In many ways the economics profession, particularly the Austrians have gone backwards to the idea that property “rights” are whatever the government says they are.  Scholarship continued on property rights particularly in the United States at least until the first Homestead Act, which showed a clear understanding of property rights.  However, that research had died by the time the FCC was created in 1934.

Locke, the Founders, and Ayn Rand understood that property rights are the cornerstone of freedom.  Modern libertarians often think property rights can be replaced with contracts.  This is confusing cause with effect.  Contracts rely on property rights not the other way around.  Some Objectivists undermine property rights by rejecting Locke, the Founders, and Rand’s understanding that each individual has a property right in themselves (Self Ownership or Self Sovereignty).  This is also based on a misunderstanding of what property rights are and how they are derived.

Let’s hope that Adam Mossoff will continue his excellent work in this important area.

December 18, 2015 Posted by | -Philosophy, Patents, philosophy | , , , | Leave a comment

Is Capitalism a game of the Survival of the Fittest?

It is quite common to be in a discussion about economics and proposing a capitalist solution when someone pipes-in “that’s just survival of the fittest.” What they are talking about is “Social Darwinism” and the image they mean to conjure up is that capitalism is like a bunch of gladiators fighting it out to the death until there is just one winner. Unfortunately, this tends to trip many of us because we often say that capitalism is about competition and that competition is what makes America great. In fact some economists (e.g. University of Chicago– see Pure and Perfection Competition: By What Standard?) have gone so far as to say the very definition of capitalism is ‘perfect competition.’ George Reisman has shown that perfect competition is really collectivism in the article Platonic Competition. The idea of unrestrained competition also is used by Libertarians and others to attack the property rights of inventor (patents).

econgrowth.smallSocial Darwinism refers to a group of ideas that relate to sociology, economics, and eugenics that are supposedly extensions of Charles Darwin’s ideas on evolution. Herbert Spencer is considered the father of Social Darwinism and he was the one, not Darwin, who coined the term ‘survival of the fittest.’ Spencer defended capitalism based on Social Darwinism. However, plenty of socialists including the National Socialist Party in Germany also used the ideas of Social Darwinism to support their version of eugenics.

Is Social Darwinism, especially as portrayed by the image of gladiators slugging it out, good biology or good economics? If evolution were a process in which the ‘goal’ was to destroy other species and then destroy all competitors within the species, life would have burned out long ago. The ‘goal’ of life and evolution is to convert as much energy into life as possible. By ‘goal’ here I mean the logical end result of the natural process of evolution, not that there is a conscious objective of individuals. Evolution is an optimizing system that selects those life forms that are best at converting energy in life in a variety of different environments. This results in a variety of different life forms. Even within a relatively uniform environment, the way to optimize the total amount of life is to have a variety of organisms that can exploit different sources of energy.

In economics the goal is not to have 500 firms creating model Ts, it is to have 500 firms all creating unique high value items (If everyone produced the same thing, what would be the point of trade?).  Human life, and then wealth, as we escape the Malthusian Trap, increases as we create more inventions that allow us to live in different climates for instance, or exploit new resources, just as different species maximize the amount of life. I do not want to make the same thing as my neighbor. I want him to make something that is of incredibly high value to me and I want to make something that is of incredibly high value to him.  We want competition to flourish because we don’t want to allow someone to become lazy (rent seeking), and freeride on the efforts of others. But competition is not what makes us wealthy.  We also need property rights to ensure that people do not free ride on the work of inventors.

I think the 100 meter dash is a good example of what competition (pure competition or competition for the same product) can accomplish. In 1891 the world record was 10.8 seconds. Today it is 9.57 or about a 13% gain. This kind of gain would not support the quadrupling of human population over the same period of time.

The goal of an economy is to increase the total wealth. A person’s wealth is not increased by destroying other people’s productive capacity. In fact, the wealthiest countries are those in which people are engaged in a wide variety of high-value activities and the poorest countries are those in which people are competing in a small number of industries. The way these high-value positions are created is by inventions that create whole new industries and can only exist in a legal environment in which inventor’s rights to their creations are protected by property rights (patents).

Interestingly, AvidGamerRants has shown that a number of games that appear to be setup with a ‘winner take all’ goal can often be ‘won’ most successfully, by rational cooperation rather than by eliminating other players  Game theory seems to support this  as this article, New take on game theory offers clues on why we cooperate, explains. For instance, in both Minecraft and Monopoly your chances of being successful increase, if instead of trying to kill off your fellow players, you collaborate with other players.

Social Darwinism as encapsulated in the statement ‘survival of the fittest’ is bad biology and bad economics; it’s even a poor gaming strategy in competitive games.

December 8, 2015 Posted by | -Economics, Patents, philosophy | , , , | Leave a comment

Libertarians vs Classical Liberals on Patents and Inventors

The libertarian crowd has been at the forefront of the anti-patent crusade.  It is important to understand that libertarians are not consistent with classical liberals, such as the founding fathers and Locke.  I have been looking for a way to illustrate this.  Then I ran across a Wall Street Journal article by Matt Ridley, a darling of the libertarian crowd, which illustrated the differences perfectly. The article ostensibly was about government funding of science. I am sympathetic to the thrust of the article, however, in the second paragraph he states:

“Suppose Thomas Edison had died of an electric shock before thinking up the light bulb. Would history have been radically different? Of course not. No fewer than 23 people deserve the credit for inventing some version of the incandescent bulb before Edison, according to a history of the invention written by Robert Friedel, Paul Israel and Bernard Finn.”

This struck me as a very odd paragraph in an article on government funding of science. Edison was not funded by the government. Mr. Ridley and the people he cites may have never worked in fundamental research or with inventors. This may result in a misunderstanding of the differences between various inventions that lay people group together, which is the case with the paper cited in the article.

mostpowerfulideaRidley’s sole argument about Edison rests on the idea that other people were working on the problem. Thousands of people have tried to solve Fermat’s last theorem since 1637. Does that mean Andrew Wiles proof in 1994 was inevitable? Alternatively, only Edwin Armstrong worked on and invented FM (frequency modulation). Does that mean FM was not inevitable?

The article does stop there however, it goes on to denigrate the work of almost every great inventor and scientist since the Enlightenment, concluding with the statement:

“Simultaneous discovery and invention mean that both patents and Nobel Prizes are fundamentally unfair things. And indeed, it is rare for a Nobel Prize not to leave in its wake a train of bitterly disappointed individuals with very good cause to be bitterly disappointed.”

Ridley is not just attacking government funding of science, he is contending that discoveries and inventions are equally likely, given a range of researchers. If you take the statement above literally, it means that everyone working in technology and science are robots.

However, Ridley provides no evidence for his position and ignores the large variations in the rate of science advancement and inventions in both time and geography. This is not surprising, as Mr. Ridley did the same thing in his book The Rational Optimist, where he claims that most inventions were never patented, however a simple fact check showed that every invention he mentions is the subject of numerous patents.

The excellent book, The Most Powerful Idea in the World by William Rosen, shows that the Industrial Revolution, which was really an explosion in new inventions, was the result of property rights for inventions, i.e., patents, as does my book Source of Economic Growth.

One of the differences between classical liberals and libertarians is that classical liberalism celebrates great people, particularly those who used reason in the areas of science and technology. The Enlightenment was about celebrating the power of reason and rejecting faith and determinism. Thomas Jefferson said the two of the greatest people in the history of the world were Isaac Newton and John Locke.

Perhaps Ridley’s position is not shared by most libertarians. Yet, a recent panel discussion on Reason TV, part of the libertarian magazine Reason, shows Ridley’s position is widely shared. One panelist compared patents to slavery and taxi medallions. Another panelist made Ridley’s point that most inventions were never patented. But, if you eliminated everything in your house that was subject to a patent or made by a process that was once patented, your house would not exist. Most people will quickly understand that all the electronics would be gone, but so would the refrigerator, the electrical power, and even the glass in your windows was subject to patents extending back to Venice.

It would be easy to brand such an anti-intellectual property as arising from jealousy or self-aggrandizement, however, I think that would be a mistake. These libertarians are pushing a version of F. A. Hayek’s cultural evolution. Hayek’s ideas on cultural evolution are based on the impotence of reason. Hayek argues, 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.”[1]

Ridley is just applying Hayek’s ideas on cultural evolution to science and technology. He is not the only one; the libertarian/Austrian economist Peter Lewin from University of Texas at Dallas, sadly my alma mater, makes a similar point. He emphasizes that most technical knowledge is tacit knowledge which is something we know but cannot prove or of which we are not conscious. In other places Lewin discusses “social knowledge” which appears to be tacit knowledge we hold collectively. Both Lewin and Hayek are fans of David Hume, who said causation does not exist (or cannot be proved) and induction is invalid or could not be proven valid. For many libertarians the anti-induction, anti-reason David Hume, is a hero.

Classical liberals know that causation exists, that Induction as a methodology, is not only valid, but the source of all knowledge. The most important value to a classical liberal is Reason. They understand that there is no such thing as social knowledge or knowledge of which we are not conscious. Classical liberals understand each person’s mind functions independently and therefore they celebrate great inventors and scientists. They know that without these great people, it is entirely possible that we would still be living in the Dark Ages. One only need look at North Korea, Cuba, or the Middle East to understand that technological progress is not inevitable and is not the result of some determinist spontaneous order.

What is interesting if you look closely at the arguments of Ridley, Hayek, and Lewin is that they are collectivist at an epistemological or cultural level. Their argument against a centralized government appears to be that it distorts this collectivist acquisition of knowledge.

Classical liberals and libertarians both appear to support free markets or capitalism. Beyond this they diverge, especially for the modern beltway libertarians. Classical liberals base their support of capitalism in reason and natural rights, which are discovered by reason. Libertarians base their arguments for free markets based on collective acquisition of knowledge that is disrupted by government interference.

Libertarians often align themselves with Ayn Rand, and claim her as one of their own, however, their ideas are incompatible with Rand’s. Rand herself was highly critical of the creed of Libertarianism, calling them “hippies of the Right.” If Matt Ridley had written Atlas Shrugged, the economy would have hummed along based on spontaneous order and John Galt would not be a genius inventor.

 

 

 

 

[1] 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

December 1, 2015 Posted by | -Philosophy, News, Patents | , , , | 5 Comments