State of Innovation

Patents and Innovation Economics

What is Regulation?

This is part of a series of articles exploring what the law would look like under an Objectivist government, one in which natural or individual rights were protected as the Declaration of Independence promised.  Remember the only right that the people give up to the government is delayed retaliatory self-defense.

Generally under Natural Rights we would consider all regulations as inconsistent with a proper government.  But what is regulation?  It seems like a dumb question, we all know what regulations are.  However, when you dig deeper the question becomes more complex.  Are contracts regulation?  What about tort laws?  What about laws on recording deeds for land?  Are these different than laws requiring registration of cars?  Some people have even argued that patents and copyrights are regulations.[1]  Unfortunately, the dictionary definition of regulation is not very helpful in resolving what a regulation is and what a law is.  Here is a standard dictionary definition of a regulation:

“a law, rule, or other order prescribed by authority, especially to regulate conduct.”

According to this definition, laws and regulations are the same thing.  However, I do not think that is what people mean by regulations at least in a legal/political sense.  In the United States the regulatory state is usually dated from the passage of the Interstate Commerce Act of 1887.  Most of us associate regulations with some sort of alphabet agency that employs large numbers of bureaucrats.  The Interstate Commerce Act of 1887 created the ICC (Interstate Commerce Commission), whose initial job was to set railroad rates and later to completely oversee all operations of all common carriers in the United States.  These rules that the ICC imposed on all common carriers are commonly considered regulations. 


Procedural Definition of Regulation

One definition of a regulation is a governmental rule that is not passed by the normal procedures required for laws.  In the United States this means it is a rule that was not passed by the House and Senate and then signed by the President (at the federal level).  This is the standard legal definition.  It is a useful definition as it points out that these rules are inconsistent with the Constitution and Parliamentary Governments also.

Regulatory agencies act as the rule maker (legislature), the enforcer of their rules (executive), and the judge (Judiciary).  This makes them extremely dangerous and unconstitutional.  The first sentence of the United States Constitution is:

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.

Regulatory agencies also pull a slight of hand and characterize their rules as civil law (as opposed to criminal law), which means that the Bill of Rights does not apply.  The EPA (Environment Protection Agency) has even argued that the Bill of Rights, including the 4th and 5th amendment does not apply to the EPA ever (criminal or civil) and won in court.  This was in a case in which the EPA had applied a $32,500 fine per day on a middle class family, the Sacketts.[2]  The Supreme Court reviewed this case and did not throw out the EPA’s contention that the Bill of Rights does not apply to the EPA.  Instead the Supreme Court ruled that the EPA’s action was a final action and therefore subject to review by Article 3 courts (the only federal judicial branch allowed by the US Constitution).

The combining of all three branches of government into a single entity was the very definition of tyranny according to James Madison.[3]  It was also part of what the United States Revolutionary War was about.  For instance, the Declaration of Independence states “He (King George III) has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.”

Congress has proposed some very weak measures to rein in regulatory agencies, specifically the RIENs Act.  This Act allows for congressional oversight of regulations that would cost $100 million to the economy (see Regulatory Reform: REINS Legislation).  This does not solve the Constitutional problems with regulatory agencies and provides no direct relief to people attacked by regulatory agencies, such as the Sacketts.

I have proposed a more broad reaching legislation that would provide direct relief to people like the Sacketts, entitled Regulatory Bill of Rights.  It requires agencies prove that the regulation achieves its purpose and that it is the least expensive way of doing so, as defense to any regulatory action.  There are numerous stories of regulatory rules that do not even achieve their goals.  Here is an EPA ruling so absurd that its only purpose is to prove that environmentalists value everything above human life.

One of the most amazing rulings to come out of Browner’s EPA was a letter sent to the city of San Diego, ordering them to stop treating the sewage pouring into the Tijuana River Valley on the grounds that human actions were disturbing the “sewage-based ecology” of the affected estuary—ignoring the fact that the sewage posed a health threat to human beings (whose “ecology” obviously wasn’t considered as important by the EPA).[4]

It is also a defense to any regulatory rule that it is inconsistent with any other regulatory rule, in my proposed Regulatory Bill of Rights.  For instance, OSHA required backup alarms in commercial vehicles that conflicted with the EPA’s noise pollution requirements.

The proposed Regulatory Bill of Rights provides economic incentives for people (average citizens) to find less expensive regulations that achieve the same goal as the regulations proposed by Agencies.


Objective Definition of Regulation

I do not think this procedural definition of regulation is what most people mean by regulation.  If Congress and the President pass a law that every car owner has to report the tire pressure on all their cars by 8AM in the morning every day, I think most people would think this is a regulation.  The essence of what is a regulation is whether it requires preemptive action to prevent some potential harm.

Under standard common law a person was not required to take action to prevent a potential future harm.  A company could be charged with negligence if their poor design resulted in the injury, but only after the injury (or other harm) had occurred.  A car manufacturer, for example, could not be required to put in certain types of brakes or required to undertake certain types of testing under the position that it might prevent future accidents.  Probably the best example of this idea under common law is the Good Samaritan rule, which states that you do not have a duty to offer assistance to people in distress.  For instance, you do not have a duty to help pull people out of a burning vehicle and you cannot be charged with a crime for not helping them.

This is related to the common law principle that you are innocent until proven guilty.  All regulatory laws assume that you are guilty until proven innocent.  They assume a builder will commit negligent fraud endangering the buildings occupants, unless there are building codes and building inspectors.  They assume the bicycle manufacturer will endanger lives by not putting retro-reflectors on the pedals.  A regulation that makes no sense as the first thing any serious bicyclist does is replaced the pedals with clip in pedals that do not and cannot have retro-reflectors.

This idea that the law can require people to take action who have not committed a crime[5] is antithetical to freedom and the very basis of the regulatory state.  Based on this, I propose that the proper definition of a regulation is a government rule that requires people to take action who have not committed a crime (or as the end result of a civil suit).  Using this definition we can look at the questions posed in the second paragraph.

Are contracts regulation?  No.  Contracts are an agreement between two private parties, so they cannot be regulations.

Are tort laws regulation?  In general no, tort laws do not require private parties to take preemptive action.

Are laws on recording deeds for land regulation?  No (generally).  At least under common law you are not required to record your deed for your land.  However, failure to do so will undermine your evidentiary standing if you are involved in a fraudulent sale lawsuit.  Note if the fees are higher than necessary to perform the recording function or if the process is more complex than necessary to perform its function, then this might be considered a regulation.

Are laws requiring registration of cars regulation?  Yes.  Unlike recording of deeds for land, you are required to register your car.  The original excuse for these laws was the same as recording deeds; to more securely establish ownership in case of theft or a fraudulent sale.  Second the purpose has shifted.  Registration is about increasing government revenue, not ownership issues.  It is also about aiding the police in crimes having nothing to do with the ownership (transfer) of the car.  In other words it is big brother or part of the bad Nazi movies where they ask the person “show me your papers?”

It would make sense then that you would never hear Objectivists or Libertarians making these sorts of arguments.  However, many Objectivists and Libertarians do use this reasoning to support their positions on gun control, immigration/travel, and drunk driving laws.

Gun Control:  It is embarrassing when Objectivists support gun control laws.  One of their standard arguments is that guns are instruments of violence and this is a guns only purpose so they can be regulated as part of the state’s proper purpose to stop violence or because the government has a monopoly on the use of force.  This regulation can include registration of guns, limitations on what weapons can be owned, and restrictions on who can own guns.  Note that this argument assumes that gun owners have to take an action when they have not been convicted or even charged with a crime.  All of these are clearly regulations because they require preemptive actions by people who have not committed a crime and the purpose of these government rules is to prevent some potential harm.  This is not consistent with Objectivism.

A more sophisticated argument is that the right to own a gun is part of your right to self-defense (not your right to property).  Therefore the government can limit what weapons you can own and perhaps also require registration, because this does not interfer with your right to self-defense.  The argument is that no one needs a Howitzer or nuclear bomb or a machine gun for self-protection.

There are numerous problems with this line of reasoning.  One is that a proper government cannot have rights that the people do not have themselves, except the right to delayed retaliatory self-defense.  This means that if people cannot own Howitzers or nuclear bombs or machine guns for self-defense then the government cannot have that right either.  Certainly a proper government could and should have these weapons and they should only be used in self-defense.

Second, people do have the right to revolution if the government fails to protect their rights.  This was established by John Locke and was the very basis of the American Revolution.  It is also the justification for the actions of Ragnar Danneskjold in Atlas Shrugged.


“Whenever the legislators endeavor to take away and destroy the property of the people, or to reduce them to slavery under arbitrary power, they put themselves into a state of war with the people.”

—John Locke


The goal of a revolution is to overthrow tyranny.

The overthrow of a political system by force is justified only when it is directed against tyranny: it is an act of self-defense against those who rule by force. For example, the American Revolution.

Ayn Rand, “From a Symposium,”Return of the Primitive: The Anti-Industrial Revolution, 173


Arguing that guns are only justified under self-defense is a slight of hand.  It is an attempt to impose regulations that are justified on the worry about some potential harm.  This is inconsistent with Objectivism and common law (classical).

There is no justification why your right to property is limited by your right to self-defense.  Your right to self-defense is a derivative of your right to yourself and your life, meaning your right to property not the other way around.

Gun Control is not Consistent with Objectivism


Immigration/Travel Controls: In peace time your right to travel is part of your right to your own life.  If a person is not a criminal, stopping that person or demanding they show papers or asking them questions is the government initiating force against private people.  When you scratch the justifications for immigration controls most people suggest that immigrants will corrupt our cultural, political, or legal system.  These are inherently collectivist arguments.  The people who make this argument believe that an individual can be judged by where they grew up or their religion or their genetic heritage.  These are all collectivist.  They are antithetical to natural rights (individual rights) and Objectivism.  Note the justification is based on some potential future harm which makes immigration/travel restrictions necessary, which makes them regulations.

Another nonsensical justification is that we have some sort of collective property right and therefore we can band together to stop people from crossing a border.  There is no such thing as collective property rights and property rights cannot be used to significantly interfere with the right to travel.  I have written on this extensively in my post Property Rights: The Foundation of Freedom.  Ultimately, this is another rationalization to prevent some potential harm.

An absurd argument used by some so-called Objectivists to impose immigration/travel restrictions is the right of association.  The right to association, like all rights is personal and you are not forced to associate with immigrants and the immigrants/travelers also have the right of association.  In addition, the people who make this argument are using the right of association to limit everyone else’s right to association.  I cannot associate with a foreigner, because you do not want to associate with a foreigner.  This is just embarrassing when people make this argument.

Immigration/travel controls can be justified in times of war if the war is properly declared and there is a military purpose and that these controls are narrowly tailored and that it is the most efficient way to achieve an objective related to the war.  These circumstances are almost never meet except in the case of narrow corridors near the actual war zone.  For instance, there would have been no justification for such rules in the Spanish American War, the Revolutionary War, the Civil War, the Korean War, the Vietnam War and certainly not in the “War on Drugs” or the “War on Terrorism”.

The other justification for immigration/travel restrictions is to prevent the spread of disease.  Quarantines have a long history, even in common law countries.  The idea is that a person who knowingly has a disease or knows they are likely to have a disease is essential violating other peoples’ right to self-defense much like assault.  Quarantines are very problematic.  For instance, can you quarantine a person with a cold?  If not how do you decide when a disease is serious enough that a quarantine is justified?

In modern times, we do not impose quarantines internally in advanced nations.  Unless a country imposes quarantines internally, then there is no justification for quarantines for immigration/travel.  In addition, immigration/travel restrictions are very unlikely to have meaningful impact on the spread of diseases.  Ultimately, this justification for immigration/travel restrictions is an attempt to prevent future harm, which makes them regulations.

Your natural rights do not include the right to safety.  Life includes risk and that includes the risk of getting sick.  Everyone get sick.  If you do not want to get sick then stay at home.  There is no justification for immigration/travel restrictions based on the risk of spreading diseases.

In Peace Time there is no Justification for immigration/Travel Restrictions


Drunk Driving Laws: We have all been convinced that you are a Neanderthal if you do not think that there should be laws against drunk driving.  Unfortunately, this is all based on a very clever public relations campaign by MADD (Mother’ Against Drunk Driving).  MADD has substituted the nonsense of “alcohol related” for “alcohol caused” accidents.  MADD and the NHTSA (National Highway Transportation Safety Administration) have used this gross dishonesty to claim 16,000 people in the United States are killed in “alcohol related” accidents each year, when an honest definition is used only about 500 innocent people in the United States are killed.[6]  There were 35,000 traffic fatalities in the United States in 2015 up slightly from earlier years.  This means about 1.4% of traffic fatalities in the United States are caused by alcohol “impaired” drivers.

Scientifically a 0.08 blood alcohol level (BAC) does not statistically increase that persons’ chance of being in a car accident.  Many things, including a lack of sleep, increase the statistically likelihood of accident much more than a 0.08 BAC.  We can therefore dispense with the moral outrage, which is used to avoid logic.

The purpose of drunk driver laws is to prevent some future harm, which means it is a regulation.  Drunk driving laws are not consistent with Objectivism and Natural Rights.



A logical definition of a regulation is a government rule that requires people to take action who have not committed a crime (or as the end result of a civil suit).  All regulations are inconsistent with Objectivism, Natural Rights and Common Law (classical).  Regulations are always justified on the goal of preventing some future harm and violate the common law principle that people are innocent until proven guilty.


[1] KAROL ŚLEDZIK, PATENT TROLLS AND SCHUMPETER’S CREATIVE DESTRUCTION, file:///C:/Users/Dale/Downloads/Patent_Trolls_and_Schumpeters_creative_d.pdf accessed 5/27/17;


[2] Damien Schiff, Sackett v. Environmental Protection Agency: Compliance Orders and the Right of Judicial Review, accessed June 17, 2017.

[3] Joseph Postell, , From Administrative State to Constitutional Government, accessed June 17, 2017.

[4] Mark Hendrickson, The EPA: The Worst Of Many Rogue Federal Agencies,, accessed June 25, 2017.

[5] Rational criminal laws, where you have to have mens rea and caused harm or at least made substantial plans to do so.

[6] MADD (Mothers Against Drunk Driving) has had one hell of a run, , accessed June 25, 2017.

June 28, 2017 Posted by | Legal Philosophy | , , , | Leave a comment

The Greatest Mistake in Economics: We Are Wealthier Because Profit Margins Are Small

Economists often argue that the West is wealthier because profit margins are driven down by competition.  For instance, here is a quote from an article in Forbes by a researcher at the Adam Smith Institute

What this means is that prices to us, the consumers, keep coming down as a result of that competition. And yes, if the prices we have to pay for things decline then we are becoming richer. Our real incomes are rising as a result.[1]

Economists have two scientific sounding theories for this idea, perfect and pure competition or the zero profit tendency.

Pure and Perfect Competition

According to Investopedia under perfect “Companies earn just enough profit to stay in business and no more, because if they were to earn excess profits, other companies would enter the market and drive profits back down to the bare minimum.”[2]  Economist hold up perfect completion up as the ideal market situation and any other situation result is “excess profits”.  In fact, perfect competition is the theoretical underpinning of anti-trust law.

There are a number of problems with this theory of perfect competition and I discuss them in depth in my book Source of Economic Growth, so this will just be a brief overview.  First of all we do not create wealth by consuming, we create wealth by producing and we can only produce more efficiently by inventing.  Our standard of living is defined by our technology.  Second the wealthiest countries are those that have producers (companies and workers) whose profit margins have not been squeezed to the bare minimum.  How wealthy are the owners of a company making the bare minimum of profits?  How much can they pay their employees, when their margins are at the bare minimum?

We get wealthier by inventing new technologies that provide large profit margins.  Railroads had (have) much larger profit margins than human mules (Sherpa’s), or canal owners, or wagon drivers.  They still deliver goods for much less cost despite their higher profit margins.  In the future railroads may be obsolete as UAVs take over the job of transporting goods as Amazon is experimenting with.


Zero Total Profit Tendency

                Austrian Economics supposedly rejects the perfect competition theory, however they replace it with their own version, the tendency that total profits will be zero when an economy is in equilibrium.[3]  Like perfect competition they assume that competition will drive profits down or toward zero.



Competition is not the source of wealth.  In fact in a perfect world economically, we would all produce unique items of extremely high value.  This is not to say that government inhibition of competition is good or makes us wealthier either.  However, every property right (that is enforced) results in less competition and we would not be wealthier without property rights.  Competition is a result of capitalism, it is not the definition of capitalism or what makes us wealthy.  It is this sort of confusion about cause and effect that has so-called free market economists either arguing for anti-trust laws or arguing for anarchy (the absence of property rights).

The source of all real per capita increases in wealth is due to increasing levels of technology, not competition.  The only way we increase our level of technology is by inventing.  Property rights for inventors are the most important property right economically and the fundamental basis of all property rights.

[1] Tim Worstall, Amazon Vs Walmart On Free Shipping – It’s Not Capitalism That Makes Us Rich But Market Competition, accessed June 7, 2017.

[2] Perfect Competition accessed June 7, 2017.


[3]Driving the Market Process: “Alertness” Versus Innovation and “Creative Destruction” accessed June 7, 2017

June 8, 2017 Posted by | -Economics, Innovation, Patents, philosophy, Regulation | , , , | 2 Comments