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.

 

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.

Why did Rand Choose Inventor as Galt’s Profession?

Dale B. Halling, author of Pendulum of Justice (with his wife Kaila) and The Decline and Fall of the American Entrepreneur, will be speaking at the Atlas Summit 2014.  The topic of his talk will be “Why did Rand Choose Inventor as Galt’s Profession?”  The paper below roughly tracks the talk.

 

 

Rand stated that the goal of her writing was to portray an ideal man and Galt was her artistic embodiment of the ideal man.  In the famous Galt speech, he says “I was an inventor.  I was one of a profession that came last in human history and will be first to vanish on the way back to the sub-human?”  What is so important about inventors that Rand would make that the profession of her ideal man and indicate that the profession of inventing was the canary in the coal mine of human progress?

In order to answer these questions, we first have to define what an inventor is: it is a person who makes their living from creating and selling inventions, as opposed to manufacturing, marketing, distribution, etc.  We all think we know what an invention is, but actually courts have struggled with this question.  In the last couple of years the Supreme Court has heard a couple of cases on this exact question and has provided no clear answer.  Dictionary definitions tend to be circular or so vague as to not be helpful.  I am going to propose that an invention is a human creation that has an objective result, i.e, the effect of which is demonstrable repetitively, and measurable objectively, and  independent of the observer.  While art is a human creation that has a subjective result, i.e., whose effect is the reaction of the observer, which not only varies from observer to observer, but may also vary over time in the same observer.  Art and inventions together are the complete set of human creations.  For instance, the invention of an incandescent light bulb has the objective result of putting out light when the appropriate electrical signal is applied.  Note that inventions are always about a class of objects, not an individual object (instance).  Art does not have an objective result.  How I react upon seeing Atlas Shrugged III will be different than how you react.  This can become confusing, because movies are an invention.  A specific instance of a movie is a human creation with a subjective result, while the class of objects called movies is an invention, actually a modern movie is a combinations of many inventions.

Manufacturing is the process of recreating an object.  If I produce a hundred bikes, I have recreated the invention of a bicycle a hundred times.  Standard engineering involves repurposing an invention.  For instance, if I am making bikes for adults and I decide to make them for children; I know children are smaller so I will design a smaller frame, I might design the frame out of thinner steel because kids are lighter, I might change the gearing because kids are not as strong, but in the end it is still a bicycle and not a new invention.  Neither manufacturing nor standard engineering meet the definition of an invention.

Rand has a scene in Atlas Shrugged between Jim Taggart and his wife that gets to the essence of what an invention is and many of the debates about inventions.

’He didn’t invent smelting and chemistry and air compression.  He couldn’t have invented HIS metal but for thousands and thousands of other people. HIS Metal! Why does he think it’s his? Why does he think it’s his invention?  Everybody uses the work of everybody else.  Nobody ever invents anything.’ (Jim Taggart)

She (Cheryl) said, puzzled, ‘But the iron ore and all those other things were there all the time.  Why didn’t anybody else make that Metal, but Mr. Rearden did?”

This scene clearly illustrates that Rand understood that an invention is a combination of existing or known things and it is the combination that is unique.  We know this is true because you cannot create something out of nothing and this is James Taggart’s reason for saying Rearden did not invent anything.  Cheryl’s responses is also classic in pointing out that all the things necessary to create the invention were available to others, but only Rearden created the metal.

Rand stated, “I seem to be both a theoretical philosopher and a fiction writer.  But it is the last that interests me most; the first is only a means to the last.” [1]  She described Galt as, “He too, is a combination of an abstract philosopher and practical inventor.”[2]  She illustrates this point in the scene where Dagny goes to talk to Dr. Stadler about the motor.  Stadler states, “Why did he want to waste his mind on practical appliances?”  Dagny replies, “Perhaps because he likes living on this earth.”  For Galt philosophy and theoretical physics are a means to inventing, with inventing being the primary goal.  According to the definitions of art and invention above, all of human creation is divided between the two.  This makes Galt the mirror image of Rand and together they make a complete set, which is why I think Rand choose inventor as Galt’s profession.

Why are inventors important?  Rand stated “Nothing can raise a country’s productivity except technology”[3] and inventors are the ones who create technology.  In classical economics we are taught that the inputs to the economy are land, labor, and capital.  Robert Solow received the Nobel Prize in economics for an econometric study of whether labor, capital, or technological change had the biggest impact on economic growth.  He found that almost all economic growth is due to new technologies, i.e., inventions.  Follow up research has found that all real per-capita economic growth is due to inventions.  Imagine if we had the same technology as the people living in 1600.  Would we be any wealthier than the people at the time?

The cotton gin is an interesting example of the power of inventions.  In 1791, the entire output of cotton in the U.S. was 4,000 bales.  The cotton gin was invented in 1793 by Eli Whitney.  By 1801, the output of cotton in the U.S. was 100,000 bales, over a 25 fold increase.  This increase was only possible because of the cotton gin.[4]  Note that this is consistent with Rand, who stated “Man’s mind is his basic means of survival.”  The way man uses his mind to meet his needs is by creating things, i.e., inventions, and this has been confirmed by econometric research.

Despite the importance of inventing, there have been very few professional inventors throughout history.  One time period that we do remember for its professional inventors is the beginning of the Industrial Revolution through the late 1800s with Edison, Tesla, Westinghouse, and others.  Why did this time period have so many professional inventors?  An inventor is someone who makes his living by selling his inventions.  In order to be able to sell an invention, you need to have property rights in your invention.  Property rights for inventions are a relatively recent legal concept.  The first known patent statute (property rights for an invention) was enacted, in 1474, by Venice.  Note that Venice was one of the richest places in the world at the time and home to many great inventors including Leonardo da Vinci and Galileo.  England slowly developed an archaic patent system starting with the Statute of Monopolies of 1623.  Even this archaic patent system was enough to spur inventors to create the Industrial Revolution.  The United States and the Colonies had patent systems roughly modeled on England’s.  The (original) US Constitution only mentions one RIGHT and that is the rights of inventors and authors, i.e., patents and copyrights.  It was not until the Patent Statute of 1836 that the US created the first truly modern patent system.  A modern patent system is characterized by an examination system administered by an independent, technically competent examination core that is readily accessible to all inventors (as opposed to only wealthy or politically connected inventors, see England in 1800s), has a system for widely publishing patents, and provides a freely alienable property right.  This is why we do not see the profession of inventing until relatively recently.  Before a modern patent system an inventor had nothing to sell, which is why the Middle Ages are characterized by trade secrets passed along by guilds.

I do not find it surprising that property rights for inventors were one of the last to be created.  A nomadic society has no need for property rights in land and history shows that the concept of property rights in land is unfathomable to them.  For instances, here is a quote by an American Indian that illustrates my point.

“What is this you call property? It cannot be the earth, for the land is our mother, nourishing all her children, beasts, birds, fish and all men. The woods, the streams, everything on it belongs to everybody and is for the use of all. How can one man say it belongs only to him?” -Massasoit

Nomadic people gather, they do not cultivate.  As a result, a nomadic people cannot possible understand why they cannot pick an apple from your orchard.  Only with the agricultural revolution (and mining) did the concept of property in land make any sense.  It would be impossible to have an agricultural revolution in which people who planted and cultivated the crops were not given the rights to the harvest and the land which they turned into a productive asset.  Similarly the concept of property rights in inventions is difficult for people who see all wealth as coming from agriculture.  For an agricultural people wealth is the result of physical labor, not thought.  Sure labor saving devices are great, but they are meaningless until some puts the labor into using them, much like raw land in their minds.  Putting this in more modern language, you can own an instance of say a plow, but cannot possibly have an ownership right in an instance of a plow you have never seen and did not build.   Note the similarity to Marx’s labor theory of value.

This chart shows the income per capita from 1000 BC to approximately 2000 AD and is most representative of the US, England and the West.  It also illustrates the importance of property rights for inventions.  Until the Industrial Revolution around 1800, people were stuck in the Malthusian Trap, which means they lived on the edge of starvation.  With the advent of relatively effective property rights in inventions, per capita income started to grow exponentially.  Note this occurred with an exponentially growing population.  This is not surprising.  Economic growth is due to inventions and the advent of property rights in inventions spurred people to invent more.  The same pattern with real property has been well documented, for instance see the Peruvian economist Hernando de Soto.

Rand stated “Patents and copyrights are the legal implementation of the base of all property rights: a man’s right to the product of his mind.”[5]  “What the patent and copyright laws acknowledge is the paramount role of mental effort in the production of material values: these laws protect the mind’s contribution in its purest form: the origination of an idea.”[6]  The source of all property rights is creation.  It is the legal system’s recognition of the metaphysical fact that but for the creator, the creation would not exist.  Not surprisingly those that hate achievement and those who want to live off the efforts of others deny that creation exists or that it is result of individual effort.  As Barak Obama put it, “you didn’t build that.”  Similarly, one of the popular academic papers on patents today is entitled “The Myth of the Sole Inventor.”[7]

Rand wrote in 1967, “Today, patents are the special target of the collectivists’ attacks …”[8]  She was right then and she is right today.  In the 1970s the FTC (Federal Trade Commission) published their nine no-nos on patents.  These severely limited the patent rights of inventors in the 1970s.  Xerox was an example of this attack on patent rights and success.  In the early 1970s Xerox was sued by the FTC for monopolistic practices.  The inventor of xerography, Chester Carlson, was a patent attorney who started work on his invention in the late 1930s.  He pitched his idea to IBM, Kodak, and many others and was turned down until the forerunner of Xerox.  They spent years perfecting his idea and in the 1950s the Xerox started developing and deploying a commercial version of the copy machine.  By the 1960s Xerox was one of the most successful corporations of all time.  Xerox initially thought the FTC allegations baseless, but several years later with mounting private antitrust lawsuits Xerox decided to settle with the FTC.  In 1975 when Xerox agreed to the FTC consent decree, which required them to license their patents for next to nothing to all comers, they had almost a 100% market share in plain paper copiers.  Just four years later, their market share was down to 14% and most of the rest of the market was controlled by Japanese companies.[9]  While this was the most dramatic example of the FTC’s and Department of Justice’s (DOJ) abuse of U.S. companies’ property rights in technology, it was hardly an isolated incident.  The FTC/DOJ brought more than 100 of these cases and gave away the technology associated with over 50,000 patents.  The result was that the U.S. transferred its cutting edge technology to Japan and many U.S. companies found themselves unable to compete with the Japanese, because the Japanese did not have to spend the money on R&D or the large initial cost of marketing for a new product.  A MITI study substantiates that most Japanese companies took advantage of this traitorous policy by the U.S. government to catch up with U.S. companies technologically.[10]  Once again Rand proved herself prescient.

American companies’ response was to forego obtaining patents in the 1970s and this did not change until the 1980s.  In the late 1990s there was a renewed attack on inventors.  Instead of using antitrust law and going after large corporations, the new attack has been a crony capitalist scheme to create a playing field that only benefits large, politically connected companies.  Among the many changes to US patent laws since 2000 are the requirement that all patent applications be published, the change from a first to invent to a first to file patent system, the Supreme Court not allowing patent holders to enforce their rights through an injunction, and the introduction of three different systems to attack the validity of a patent administratively.  This is a more focused attack on the profession of inventing than the assault of the 1970s.  In the late 1800s 85% of all patents were licensed by their inventors in the US.  Late 19th century U.S. inventors increasingly operated as independent inventors who extracted returns from their discoveries by licensing or selling their patent rights.[11]  Among these inventors were Edison, Bell, Tesla, etc.  “An astonishing two thirds of all America’s great inventors in the nineteenth century were actually NPEs” (Non-Practicing Entities).  Today’s system makes the cost and uncertainty of inventing far too risky for all but the most wealthy inventors.  Most large companies practice a policy of purposeful ignorance of other people’s patent rights and rely on the fact that litigation is too expensive for independent inventors and small companies to prevail in court.  If you asked the success rate for independent inventors (People who just create and sell their inventions) to people in the industry, you would hear somewhere around 2%.

But as Rand pointed out the attack on patents is not limited to socialists.  There has been a concerted attack on patents by Libertarians and Austrian Economists.  One of the best known proponents of this point of view is Stephen Kinsella.  They argue that property rights are not about creation, not about owning yourself and the product of your labor, but about scarcity.  According to them, patents and copyrights create artificial scarcity.  Their argument fails even if you believe that property rights are based on scarcity, because it takes real resources to create inventions and real resources to distribute these new technologies.

The press has also joined in this all out attack on patents, labeling anyone who does not manufacture their invention a “patent troll.”  This attack includes so-called free market media outlets including Forbes and the Wall Street Journal.  These attacks ignore Adam Smith’s idea of the division of labor, ignore that many of our most revered inventors in history meet their definition of a patent troll, and ignore that many large manufacturing companies enforce or license inventions that they do not manufacture.  But the goal of these articles is not logic, but to create a narrative to eliminate the profession of inventing.

The legal attack on the profession of inventing is not limited to destroying the property rights of inventors, but also includes limiting inventors’ access to capital through laws like Sarbanes Oxley.  However, the people who hate human progress and hate humans are not content to just stop inventors, the engine of human progress, they want to roll back the technology of the last two hundred years.  For instance, they want to outlaw DDT, they want to outlaw fossil fuels, and they want to outlaw private vehicles.  Environmentalists have the stated goal of forcing humans back to the state of “sub-humans”, meaning people without technology.

This is why Galt said his profession, inventor, would be one of the first to disappear on the way back to the sub-human.  The first step in this process is to stop new technologies from developing and the second step is to roll back the technology that has already been developed.

All human creations can be divided into art and inventions, with one having a subjective result and the other having an objective result.  Rand was an artist and philosopher, while Galt was her mirror image of an inventor and philosopher.  Inventions are the result of man’s mind trying to fulfill his needs.  Property rights for inventions are a fairly recent development and correspond generally with the escape of mass numbers of people from the Malthusian Trap.  This has made patents a key target of those who hate human progress.  This presents and opportunity for the Atlas Society and Objectivist to differentiate themselves from other so-called free market organizations and to stand up for the Galt’s of the world.

 

 

Suggested Actions and Further Research

This talk is a small part of the work I have been researching in what economists call ‘New Growth Theory.’  This area of economics recognizes the central nature of man’s mind in producing wealth.  As a result, it presents the possibility of being able to define a school of economics that is consistent with Objectivism.

 


[1] Rand, Ayn, Atlas Shrugged, Introduction to the 35th Anniversary Edition.

[2] Rand, Ayn, Atlas Shrugged, Introduction to the 35th Anniversary Edition.

 

[3] “The Moratorium on Brains,” The Ayn Rand Letter, I, 3, 5

[4] Evans, Harold, They Made America, Little, Brown and Company, 2004, pp. 49-50.

[5] Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 130.

[6] Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 130.

[7] Lemly, Mark A., “The Myth of the Sole Inventor”, March 2012, Michigan Law Review, http://www.michiganlawreview.org/assets/pdfs/110/5/Lemley.pdf.

[8] Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 133

[9] Mark Blaxill, Ralph Eckardt, The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property.

[10] Mark Blaxill, Ralph Eckardt, The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property.

[11] Henry R. Nothhaft (Author), David Kline (Contributor), Great Again: Revitalizing America’s Entrepreneurial Leadership

 

Halling asked to Speak at Atlas Summit 2014

Dale B. Halling, author of Pendulum of Justice  (with his wife Kaila) and The Decline and Fall of the American Entrepreneur, has been asked to speak at the Atlas Summit 2014.  The topic of his talk will be “Why did Rand Choose Inventor as Galt’s Profession?”

Abstract

Why did John Galt say “I was an inventor.  I was one of a profession that came last in human history and will be first to vanish on the way back to the sub-human?”  Today, there is an all-out attack on inventors.  Effective property rights for inventors are relatively new, dating from the beginning of the Industrial Revolution.  Currently, patent rights are under assault from all ends of the political spectrum and almost everywhere around the world.  Was Rand wrong when she said, “Patents … are the legal implementation of the base of all property rights.”

George Reisman: Are Objectivist Economists Consistent with Rand?

It is my contention that classical economics is not completely consistent with Ayn Rand’s Objectivist philosophy and even economists who are Objectivists have failed to provide an economic theory that is consistent with her ideas.  For instance, George Reisman is one of the well known economists associated with Objectivism and Professor Emeritus of Economics at Pepperdine University.  In his book Capitalism on page 40 he states:

Patents … derive their market value from the fact that they make it possible for the intellectual creators of new and additional wealth to benefit from their contributions by temporarily limiting the increase in wealth that their intellectual contributions bring about.

Now how does Dr. Reisman square his ideas with Rand on this subject?  Dr. Reisman later states that patents increase the supply of goods, so he appears to be somewhat inconsistent.  But on page 449 he states:

Intangible assets (patents) no more constitute capital than they constitute wealth.

Dr. Reisman does define wealth in Chapter 2 as material goods made by man.  So it is consistent with his definition, but how does he square this with Rand who states in Galt’s speech:

He cannot obtain his food without knowledge of food and of the way to obtain it. He cannot dig a ditch––or build a cyclotron––without a knowledge of his aim and the means to achieve it. To remain alive, he must think.”  Rand 1992, p. 1012.

An example might be useful.  Joe is a builder and knows how to make concrete but is not presently making concrete.  Is he wealthier than Jim who is a builder, in essentially the same position as Joe, but Jim does not know how to make (or get) concrete?  Clearly Joe is wealthier.  I think Reisman’s definition of wealth is flawed.

I also think it is inconsistent with Ayn Rand, who in Capitalism the Unknown Ideal, states:

Patents and copyrights are the legal implementation of the base of all property rights: a man’s right to the product of his mind.[1]

Is the value of a building worth more in a country with property rights or one without property rights?  In the property rights country, the owner can collateralize his property, he can obtain income from his property without having to hire thugs to enforce his rights, he can justify investing in improvements in this building.  In both cases there is the same material good, but the value is totally different.  Property rights are wealth, their contribution to wealth is secondary to the underlying asset, i.e., the building or the invention.

My main problem with classical economics or Austrian economics is they have not built a system around the fact that man’s main tool of survival is his mind.  That is the source of his wealth and the only source of real per capita increases in income/wealth.


[1] Rand, Ayn, Capitalism: The Unknown Ideal, Signet, New York, 1967, p. 130.

Atlas Shrugged Movie Launches Kickstarter Campaign

Ayn Rand Fans To Participate in Making of Atlas Shrugged Movie

(Los Angeles, California) – September 23, 2013 – Atlas Distribution Company, LLC announced today that it will be launching an online crowd-funding effort through http://Kickstarter.com to support the final installment of the Atlas Shrugged movie trilogy: “Who is John Galt?”

“One of the things that’s made Atlas Shrugged withstand the test of time and continue to sell hundreds of thousands of books is just how relevant people find the message of the book to what they’re experiencing today,” said Producer Harmon Kaslow.

The trilogy follows the three-part structure of Ayn Rand’s epic 1957 novel, Atlas Shrugged. “Who is John Galt?” takes place in a dystopian United States with the nation on the verge of complete economic collapse. While an overreaching government continues to strangle the country’s economic engine, society’s most productive have mysteriously disappeared.

“For years, Atlas Shrugged fans from all walks of life have personally written to me wanting to be involved in supporting the production of the films. Kickstarter provides a clear pathway for fans to now be part of Atlas history,” stated Producer John Aglialoro.

The thirty day Atlas Shrugged Kickstarter campaign offers a wide range of rewards including the opportunity to be an extra in the movie.

“Kickstarter gives us a great opportunity to reach out to a whole new audience as well as afford fans of the book a chance to join us and participate in the making of Atlas Shrugged.” continued Kaslow.

Atlas Shrugged: “Who is John Galt?” is currently in pre-production with filming scheduled for Fall 2013 followed by a USA theatrical release in 2014.

Associate Producer, Scott DeSapio concluded, “Our primary goal is to spread the message of Atlas to as wide an audience as possible. Funds raised through Kickstarter will be going directly towards production and distribution.”

The prior two Atlas Shrugged movies are currently available on DVD & Blu-ray, iTunes, or streaming on Netflix.

Contribute to the Atlas Shrugged Kickstarter campaign: http://KickstartAtlas.com (Will be active tomorrow)
Official Trilogy Web Site: http://www.AtlasShruggedMovie.com
Official Atlas Shrugged Community Forum: http://www.GaltsGulchOnline.com

About Atlas Distribution Company, LLC and Atlas Productions, LLC
Atlas Distribution Company, LLC. and Atlas Productions, LLC. were formed by John Aglialoro to produce and distribute the trilogy adaptation of Ayn Rand’s epic novel, Atlas Shrugged. For more information, visit http://www.AtlasShruggedMovie.com.

Read more at http://www.galtsgulchonline.com/posts/be0c5f/kickstarter-press-release~btjjoyzu3fewjkcdmia7vrtotm#EmvMilKhIVZi7Mqa.99

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.

Google: ‘You Didn’t Invent That’

In a replay of President Obama’s famous “You didn’t build that”, speech Google is arguing that if the collective adopts a technology then it becomes part of the public domain.  Google’s present attack is against Apple who is asserting that Google’s Andriod phones have violated a number of Apple’s patents.  In a letter to the Senate Judiciary committee, Kent Walker, head legal council for Google explained their theory as

 While collaborative [Standards Setting Organizations (SSOs)] play an important part in the overall standard setting system, and are particularly prominent in industries such as telecommunications, they are not the only source of standards. Indeed, many of the same interoperability benefits that the FTC and others have touted in the SSO context also occur when one firm publishes information about an otherwise proprietary standard and other firms then independently decide (whether by choice or of necessity) to make complementary investments to support that standard in their products. … Because proprietary or de facto standards can have just as important effects on consumer welfare, the Committee’s concern regarding the abuse of SEPs should encompass them as well.

 The quick translation of what Google is arguing is that the patents of Apple (or whoever else gets in their way) are invalid if Google decides to adopt these technologies.  Of course, Google is not doing this for its own benefit, Nooo this is in the interest of “consumer welfare.”  Perhaps we should confiscate Google’s profits in the interest of consumer welfare – the consumer would be better off if Google’s profits were distributed to all its consumers.

Google’s argument comes straight out of Atlas Shrugged.  Rearden Metal was too valuable for one company to own, so for the welfare of the people every steel company was given the right to make Rearden Metal.

Ayn Rand said patents were the laws recognition of the source of man’s creative ability – his mind.  She also felt that patents or the debates surrounding them were like a Canary in a coal mine, they indicate the intellectual and moral direction of a country.  She complained that the so called defenders of the free market often did not even understand the nature of the debate, particularly when it came to patents.  We can see this in the Von Mises Institute’s, CATO Institute’s and Reason Magazine’s attack on patents.

 

Other terrifying indicators of where we are headed include:

Myriad Genetics Patent Case:  The ACLU has argued that breast cancer patients’ needs for Myriad’s technology trumps Myriad’s property rights in the technology.

America Invents Act:  This bill was riddled with special interest give aways to Wall Street, pharmaceutical companies, and foreign inventors over US inventors

Mayo v. Prometheus Supreme Court Decision:  Where Justice Beyer rules that only black magic is patent eligible .

News: Patent are portrayed as monopolies; Demanding that you get paid for someone using your inventions, gets you labeled a patent troll; the constant drumbeat that the Patent Office hands out bad patents – without any supporting evidence, by people who do not understand how to read the claims of a patent.

There is a moral decay going on in the United States and the World, but it has nothing to do with a lack of devotion to Christianity.  It is an attack on the reason, logic, and the mind and in the law that means attacking patents and intellectual property. 

Supreme Court ‘Only Black Magic Patent Eligible’

The Supreme Court ruling in Mayo Collaborative Services v. Prometheus Labs., Inc. (Supreme Court 2012) was released on March 20, 2012 and they held unanimously against Prometheus and invalidated two patents under 35 USC 101.  My title may be a bit salacious, since the holding in the case does not limit patents to just black magic, it limits them to magic.  The holding on p. 4 states:

 The steps in the claimed processes (apart from the natural laws themselves) involve well-understood, routine, conventional activity previously engaged in by researchers in the field. P. 4

And adds:

 The three steps (of the claim) as an ordered combination adds nothing to the laws of nature that is not already present when the steps are considered separately.  P. 10

Logically, the Supreme Court is saying that known steps or elements in combination with a law of nature is not patent eligible.  First every invention ever made involves steps (elements) that were known individually before the invention, and laws of nature.  You cannot create something out of nothing.  Section 112 means that you have to be able to describe your invention in terms known to those skilled in the art.  Thus the Supreme Court’s holding means that any invention that satisfies 112 is unpatentable under 101.  The only inventions that will satisfy 101 are those that violate laws of nature or involve creating something out of nothing – or magic.

Get out your cauldrons-

For the lawyers in the audience this case reintroduces the point of novelty test nonsense.

I have written extensively about this case in the following posts and will not reiterate my earlier points.

Justice Breyer: Patent Ignorance 

Mayo v. Prometheus: An Update

Mayo v. Prometheus – Supreme Court Grants Cert (Again) 

 

But for those not familiar with the case here is a little background

The patents (6,355,623 and 6,680,302) claim methods for determining the optimal dosage of thiopurine drugs used to treat gastrointestinal and non-gastrointestinal autoimmune diseases. Thus, the questions in this case are whether determining optimal dosages of thiopurine drugs to treat autoimmune diseases exists in nature separate from man and whether this solves an objective problem? Clearly, determining optimal dosages does not exist in nature for any drug and the patent solves the objective problem of determining the optimal dosages of thiopurine drugs for autoimmune diseases.

Ayn Rand discussed this exact issue in Atlas Shrugged.  James Taggart is discussing Rearden Metal with his wife:

”…’he didn’t invent smelting and chemistry and air compression.  He couldn’t have invented HIS metal but for thousands and thousands of other people. HIS Metal! Why does he think it’s his? Why does he think it’s his invention?  Everybody uses the work of everybody else. Nobody ever invents anything.’ (Jim Taggart)  She(Jim Taggart’s Wife) said, puzzled, ‘But the iron ore and all those other things were there all the time. Why didn’t anybody else make that Metal, but Mr. Rearden did?’”  Kindle Location 5796-5802

These exact questions could be asked of the Supreme Court.  All these other steps were available to other people, but no one else discovered how to use thiopurine to safely treat Crohn’s disease.  In fact, the Supreme Court admits as much.

 . . . and it has been difficult for doctors to determine whether for a particular patient a given dose is too high, risking harmful side effects, or too low, and so likely ineffective.  p. 4

The reality is that this Supreme Court is anti-patent and anti-property rights.  The opinion states patents are monopolies in three spots and mentions rent seeking in one spot, but it does not mention that the Constitution clearly states that inventors have a RIGHT to their invention and it does not state that patents are property rights.  This case is just another example that the anti-property rights and anti-Natural Rights crowd is in control of our government.  This case will have long term negative ramifications for the US economy.  The US is losing its technological advantage because it believes that inventors should work for free.  Note that Singapore is taking another path and trying to figure out how to strengthen their patent laws (see Singapore and the US Divergent Patent Policies)

Perfect Competition is Economic Equivalent of Altruism Morally & Why it Matters to Patents

Perfect competition is when no one producer or consumer has the ability to affect the market price and all producers and consumers compete for a homogenous product, driving down the cost of the product.  Under perfect competition, a producer’s profit is eliminated or at least reduced to a trivial return.  Why this matters to patents is that the theory of perfect competition is often used to attack the patents.  It is argued that patents allow producers a differentiating feature or product and therefore they have a greater margin than their competitors.  Economists argue this means that the patent holder is getting monopoly profits according to the “perfect competition” theory and they call this profit a “deadweight” loss.  This supposedly shows that resources are not being allocated efficiently.

So why do I say Perfect Competition is the equivalent of Altruism morally?  Altruism is the idea of self sacrifice as a moral value and perfect competition is the economic idea of sacrificing a producer profits and a consumer’s right to choice.  The goal of perfect competition is that no one, producer or consumer, is treated as an individual and everyone needs to be sacrificed to the altar of perfect competition collective.  There is never any discussion of property rights with respect to “perfect competition” or individual rights.

Ayn Rand often stated that so called defenders of capitalism are often worse than its detractors.  Perfect competition is another example of this.  The Chicago School of economics, which included Milton Friedman, pushed the idea of “perfect competition.”  The book of A Random Walk Down Wall Street was the application of perfect competition to Wall Street by a Chicago School of Economics professor.  Perfect competition is the enemy of capitalism, individual rights, and economic growth.

Real per capita growth is the result of increases in one’s level of technology.  Under perfect competition, there is no reason to invest in creating new technologies and in fact there is no reason to invest at all.  Under perfect competition every investment yields the same low rate of return or no rate of return.  Perfect competition is used to justify antitrust laws that destroy property rights and most importantly property rights in inventions.  Perfect competition results in the same sort of idea of self sacrifice as altruism and is totally incompatible with capitalism, property rights, natural rights, and human happiness.