State of Innovation

Patents and Innovation Economics

Austrian Economics: Not Just Wrong

Numerous Objectivists and well-meaning advocates of freedom are surprised when I show them that Austrian Economics is not a pro-reason, pro-freedom, intellectual movement.  When I show them what the Austrians are saying, they make all sorts of excuses for the Austrians, including that the Austrians do not mean what they are saying, that these errors do not affect the excellent economic work the Austrians have done, and that these problems are limited to a small minority group of Austrians.  It is time that we take a good look at what Austrian Economics says and examine whether we want to lend our good name to this movement.  Below I discuss some of the common talking points.

 

1) Patents

The Austrians have been at the center of the anti-patent movement.  They argue that patents hurt the economy and slow down technological progress.  The wealthiest countries in the world have the strongest patent systems; almost all new technologies are developed by the countries with the strongest patent systems, the Industrial Revolution started in countries with the first and strongest patent systems and those countries with the strongest patents systems correlate well with their economic freedom index.  If a socialist ignored this amount of overwhelming macroeconomic evidence, we would vilify them.

humeHowever it is worse than just ignoring the evidence  Matt Ridley, author of the Rational Optimist and darling of the Austrians, is an example of how the Austrians are willing to lie to win their points on patents.  Ridley makes the claim that technological progress does not require patents and then cites a number of technologies that were never patented.  The book (Rational Optimist) states that a number of inventions were never patented, p. 264, such as automatic transmission, Bakelite, ballpoint pens, cellophane, cyclotrons, gyrocompasses, jet engines, magnetic recording, power steering, safety razors and zippers.  Five minutes of competent research shows that all these technologies are subject to numerous patents.  The case of Bakelite shows that Ridley is not just incompetent, but a liar.  A simple internet search shows that chemist Leo Hendrik Baekeland (1863-1944) invented and first patented the synthetic resin that we know as Bakelite in 1907.[1]  I have made this point publicly and I have heard no apologies or retractions from Ridley or the Austrians.  The Austrians do not even appear bothered by this blatant lie, they continue to repeat the essence of the lie whenever they get a chance.

If Al Gore did this we would ridicule him.  But when it comes to the Austrians, we stand aside and make excuses for them.  It is worse than that, because the Austrians are part of a machine to manufacture lies about patents faster than they can be refuted.  See Adam Mossoff’s paper on point http://www.ipwatchdog.com/2015/11/19/repetition-of-make-them-true/id=63302/.  Note, that this is exactly the technique AGW environmental Nazis use.

Liars should not be trusted at all and it turns out the Matt Ridley has doubled down on his lies.  In an article in the Wall Street Journal he states:

                “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.” http://www.wsj.com/articles/the-myth-of-basic-science-1445613954

What Ridley is saying is that Nobel Prize winners and inventors are frauds.  He states that “technological evolution has a momentum of its own.”  Ridley is saying that scientists and inventors do not create anything, society does.  Ridley is not just a liar- he is EVIL.  Where did Ridley get these ideas?  They are straight from F.A. Hayek’s “Cultural Evolution.”  Ridley is not alone or anomalous among the Austrians.  Reason Magazine, the Cato Institute, Foundation fo Economic Education, and the Wall Street Journal have all joined in to propagate the Austrian lies to promote their anti-patent agenda.

Diedre McCloskey is another Austrian Economist that denigrates the work of inventors, engineers and scientists, suggesting that technological progress is on auto-pilot.  These attacks are exactly the same anti-achievement, anti-reason attacks you get from the left.  They sound like James Taggart from Atlas Shrugged:

’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 Austrian position is a repackaging of Hayek’s Cultural Evolution.  This vicious attack on human greatness is not a minor flaw or error.

 

2) The Austrians use reason and evidence to support their positions?

Mises: The Austrians are clear that praxeology and their economic theories are not based on empirical evidence.

                “[Praxeology’s] cognition is purely formal and general without reference to the material content and particular features of the actual case. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori.”  Mises, Human Action, p. 32

“All theorems of economics are necessarily valid in every instance in which all the assumptions presupposed are given.” Mises, Human Action, p. 66

“Apart from the fact that these conclusions cannot be “tested” by historical or statistical means, there is no need to test them since their truth has already been established. Historical fact enters into these conclusions only by determining which branch of the theory is applicable in any particular case.”  Murray N. Rothbard https://mises.org/library/praxeology-methodology-austrian-economics.

You can find Austrians (Mises) saying this all over and supporting it.  If the Austrians (Mises branch) are using evidence to reach their conclusions, then they have to admit praxeology is wrong.  If praxeology is right, then you have to admit that they are not using empirical evidence.  There is no middle ground here.

 

Hayek: These Austrians are clear that reason is impotent.

                “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.” (Emphasis Added) http://institutoamagi.org/download/Angner-Erik-The-history-of-Hayeks-Theory-of-cultural-Evolution.pdf

“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.” (Emphasis added) http://www.nhinet.org/raeder.htm

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 tells us that that rationality (he does not explicitly distinguish between either “”reason”” and “”rationality”” or “”reasonable”” and “”rational””) is “”no more than some degree of coherence and consistency in a person’s actions, some lasting influence of knowledge or insight which, once acquired, will affect his action at a later date and in different circumstances.”” Hayek also maintains that behavior guided by habit, custom, and tradition is rational in the sense that such behavior is not contrary to intelligent action.”  https://home.isi.org/hayek-role-reason-human-affairs#sthash.1zV4WFR9.dpuf

“Hayek’s argument is primarily directed against certain epistemological views that he associates with the philosophy of Rene Descartes and the Enlightenment, views he labels “”constructivist rationalism.”” For Hayek, the constructivist mentality is characterized by 1) belief in a socially autonomous human reason capable of designing civilization and culture; 2) a radical rejection of tradition and conventional behavior; 3) a tendency toward animistic or anthropomorphic thinking; and 4) the demand for rational justification of values.”  https://home.isi.org/hayek-role-reason-human-affairs#sthash.1zV4WFR9.dpuf

“This tradition is characterized, moreover, by an evolutionary perspective that conceives social institutions and practices—law, morals, money, the market mechanism, habits, language—not as products of conscious construction or enlightened invention but of a suprarational trial-and-error process of cultural evolution.”  https://home.isi.org/hayek-role-reason-human-affairs#sthash.1zV4WFR9.dpuf

“However, Hayek seemingly came to doubt there could be any such thing as properly constructed rule of law.” http://plato.stanford.edu/entries/friedrich-hayek/#LawEcoNic

“In his philosophy, Hayek relegates reason to a minor role. He argues for a modest perspective of people’s reasoning capabilities. He contends that reason is passive and that it is a social product.” http://www.rationalargumentator.com/index/blog/2015/08/rand-hayek-comparison/

Hayek’s writings on cultural evolution are long winded and therefore do not make for clear quotes.  This is not surprising when people are arguing against reason they are often long winded, such as Kant. When the Supreme Court writes a long opinion you can be sure that they are not using reason and attempting to bury the irrationalism of their argument in lots of words.

It is clear from the quotes above and related papers (most by Hayek supporters) that Hayek thinks that reason cannot be used (is impotent) to understand any social institutions.  At best Hayek is saying that reason is useful in the limited sphere of hard sciences.  If so this is just a variation on Kant.

If the Austrians (Hayek) are using reason as the Austrian apologists argue, then they have to abandon the whole idea of cultural evolution.  If CE is right, then the Austrians are rejecting reason.  Hayek was clear that Cultural Evolution (CE) underlies all his ideas in economics.  If CE is wrong then Hayek’s whole case for freedom falls as does his ideas on spontaneous order.  His ideas on spontaneous order require Natural Rights, which Hayek rejects.

We have to take people’s ideas seriously.  The Austrian fans are always making excuses for why Hayek, Mises, Menger, etc. don’t mean what they are saying.  When we are reviewing socialist ideas, such as Keynes, we hold Keynes not only responsible for what he said, but the logical conclusions of what he said.

It is a logical contradiction to use words to be against reason and therefore most people are polite or generous and assume that the Austrians do not mean what they are saying.  This is fine in casual conversation, but when people are writing about their ideas you have to take them at their word.

Mises and Hayek are both rejecting reason from different points of view.  This is not surprising because the intellectual tradition of Austrians is David Hume.  Hume is perhaps the worst anti-reason philosopher in the last 300 years.  Hume and Adam Smith were great friends.  Hayek is a straightforward extension of the Hume- Smith line of irrationalism.  Menger and Mises follow a slightly different path of Hume to Franz Brentano, who elevates emotions to the level of epistemological absolutes.  Hume and Smith did the same thing.

Apologists for the Austrians always suggest that I am making huge leaps without evidence.  If I said that Keynes is the product of the Kant-Marx line no one would suggest that I am making outrageous leaps.  Intellectuals are responsible for not only exactly what they say, but also the logical conclusions of what they say.  Just because Austrians spout that they were for free markets does not mean that we can hold them to a different standard than the socialists.

 

3) Are the Austrians Really for Free Markets?

Menger pushed the following ideas: (1) public works constructed by the state such as roads, railways and canals. (2) government established agricultural and vocational training institutions (Menger 1994: 123). (3) government subsidies to certain sectors. (4) state intervention to stop clearing of forests on private property in the mountains of Austria when this clearing had serious and bad effects on agriculture. (5) government intervention to stop child labour (Menger 1994: 129), according to this article http://socialdemocracy21stcentury.blogspot.mx/2012/08/rescuing-menger-from-austrians.html.

Hayek was willing to make all sorts of compromises with the idea of free markets, because he was committed to Cultural Evolution, not reason and not Natural Rights.  For instance, he was for the government providing everyone with a “Basic Income” according to this article http://www.libertarianism.org/columns/why-did-hayek-support-basic-income.

In this quote Hayek argues for mandatory insurance.  “Once it becomes the recognized duty of the public to provide for the extreme needs of old age, unemployment, sickness, etc., irrespective of whether the individuals could and ought to have made provision themselves, and particularly once health is assured to such an extent that it is apt to reduce individuals efforts, it seems an obvious corollary to compel them to ensure or otherwise provide against those common hazards of life.”  The Constitution of Liberty (1960)

Mises supports fire regulations according to this article http://socialdemocracy21stcentury.blogspot.mx/2010/10/was-mises-socialist-why-mises-refutes.html.

The claim of Austrians that their founders are for a pure free market is absolute nonsense.

 

4) What Are the Supposed Great Achievements of the Austrians?

I am constantly told that the Austrian Economists made great contributions to economics, whatever their other faults.  Other than Menger’s Marginal Utility, Hayek’s flawed ideas on Spontaneous Order, and perhaps Mises’ insight that War does not create prosperity, I am unaware of any other great economic contributions by the Austrians to economics.  I have asked numerous Austrians to name the great economic contributions of the Austrians and they are never able to actually name any.

What the Austrians were good at was criticizing socialism and Marxism.  The ability to criticize is not the same thing as the ability to put forward good economic theories.

Here are a number of errors that Austrians make in economics.  They claim that fractional reserve banking creates money out of thin air.  This position is absurd and makes Austrians look like flat Earthers.  Here is an article on point https://hallingblog.com/2012/11/13/understanding-the-coming-financial-collapse-central-banking-fraction-reserve-banking-and-legal-tender-laws/.  The Austrian Business Cycle Theory does not fit the empirical facts and even some Austrians have admitted so in academic papers.  Of course this does not matter because empirical evidence is irrelevant (Mises) or we cannot use reason to analyze our own world (Hayek).  The Austrians obsession with the Fed (Central Banks) as the cause of all recessions results in them ignoring other important facts in the economy and creates a mystical obsession with Central Banks.  The Austrians position on Property Rights is not only wrong, it undermines capitalism and the law.

 

5) Ayn Rand on the Austrians.

Rothbard: Rothbard is the father of the anarcho-capitalism movement.  Rand described it as “a naive floating abstraction”.

Hayek: Ayn Rand in her marginalia launched a nasty attack on Friedrich von Hayek calling him, among other things, a “God damn fool” and a “vicious bastard.” (Mayhew, ed., Ayn Rand’s Marginalia, pp. 149 and 151.)

 Mises:  Rand called him the greatest living economist.  However, Branden appeared to speak for himself and Ayn Rand says:

“We must take the gravest exception, for example, to the general doctrine of praxeology; to the assertion that all value-judgments are outside the province of reason, that a scientific ethics is impossible; to the disavowal of the concept of inalienable rights; and to many of the psychological view expressed.”  (Branden 1963b, 34) The Journal of Ayn Rand Sutidies Vol. 6 No. 2.

According to Branden, Rand’s comments in the margin of Human Action were highly critical of Mises works.  Branden, The Passion of Ayn Rand.

What Rand admired about Mises were his criticisms of socialism and Marxism.

Rand’s overall evaluation of the Austrians is damning.  Rand was initially attracted to some of the Austrians.  This only proves she was human.  Thus, it is not surprising that many Objectivists are initially attracted to the Austrians, as was I.   .

What is interesting is that most Austrians understand that Objectivism is incompatible with Austrian Economics, but many Objectivists have not figured this out.

 

 

6) Conclusion

 

Austrian Economics is not just wrong, it is actively working against Freedom, Capitalism, Science, and Reason.  The case against Austrian Economics is overwhelming.

  • -Austrian Economics rejects and denigrates the intellectual achievements of inventors, engineers, and scientist.
  • -Austrian Economics rejects and actively undermines reason and science.  (The modern Austrians are happy to lie to promote their positions.)
  • -Austrians are not defenders of the United States Constitution.
  • -Austrians undermine property rights, the law, and Natural Rights.
  • -Austrian Economics actively undermines the idea of a rational Ethics.
  • -The great Austrian Economists were not defenders of free markets and capitalism.  They were quite willing to allow government interference in the market, if it fit their goals.
  • -Austrian Economics pushes a number of economics theories that are laughably wrong.

 

If we hold the Austrians to the same standards we do for the socialists, we see that they are essentially the same.

[1] http://bakelitecollector.com/bakelite-history

Advertisements

September 12, 2016 Posted by | -Economics, Patents | , , | 1 Comment

Milton Friedman: Advocate for Freedom?

I have been criticized for pointing out that Austrian Economics, particularly Menger, Mises, and Hayek, is not consistent with reason, science, or Natural Rights and therefore not consistent with Capitalism.  In this article I am going to apply the same standards to Milton Friedman, who is also often cited as a great advocate of freedom and capitalism.

Milton Friedman won the Nobel Prize in economics and is not part of the Austrian School of Economics.  He is often classified as a monetarist or part of the Chicago School of Economics, I think the latter is more accurate.  Ayn Rand was no fan of Friedman.  She criticized his belief that economics must be morally neutral.   In this video, Rand states that Friedman is not an advocate for Capitalism and an enemy of Objectivism.Friedman

 

Epistemology

Milton Friedman laid out his ideas on epistemology in the essay “The Methodology of Positive Economics” (1953).  Some experts claim that the essay was a big influence on the Chicago School of Economics.  In this article he essentially argues for a pragmatic approach to epistemology, which boils down to if a model (theory) is predictive it is correct.

Friedman’s methodology, which appears to justify the eclectic and pragmatic view that economists should use any model that appears to “work” regardless of how absurd or unreasonable its assumptions might appear, has been deployed in service of a rigid theoretical orthodoxy.

Philosophy of Economics

Friedman argues that economic models are generally judged by the reasonableness of the underlying assumptions/propositions, however he thinks this is incorrect.

In so far as a theory can be said to have “assumptions” at all, and in so far as their “realism” can be judged independently of the validity of predictions, the relation between the significance of a theory and the “realism” of its “assumptions” is almost the opposite of that suggested by the view under criticism. Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense).

The Methodology of Positive Economics (1953)

It is easy to show Friedman’s pragmatism is mistaken.  Copernican Heliocentrism with its epicycles of the planets was highly predictive, but it was not science.  In science/engineering this is known as a heuristic model.  Heuristic models are often created by curve fitting the observed data.  They predict how a system will work within very narrow circumstance, but do not explain the underlying physics (causes).  As a result, heuristic models cannot be extended or built upon, when people attempt to do so they lead to false conclusions.

Friedman’s epistemology boils down to pragmatic “pure empiricism”, which means he accepts the evidence of his senses, but denies logic and concepts.  Friedman disconnects assumptions/propositions from the results of the model, which is an attack on logic.  An analogy would be that it might make no sense that doing a rain dance causes it to rain, but our empirical evidence says that it is predictive of whether it rains in the next couple of days so it is a good theory.  As a result, we are supposed to ignore that there is no causal relationship between the rain and the rain dance.

Friedman’s epistemology is anti-reason.  In one case Friedman argued that we need freedom because of this epistemological uncertainty.  “I have no right to coerce someone else, because I cannot be sure that I am right and he is wrong.”[1]  This is common position of libertarians and Austrians – lack of knowledge requires freedom.  This position not only undercuts all of science, it removes reason as the foundation of ethics, political philosophy, and law.  It is also unadulterated nonsense.

 

Science

Friedman is not proposing to do science, he is proposing to collect data that never leads to knowledge.  Science is based both on reality and reason/logic.  Friedman wants to ignore the reason/logic side of science.  While Friedman has different reasons for not proposing to do science, he is otherwise consistent with the Menger, Mises, and Hayek in rejecting science in economics.  Ultimately, Friedman’s ideas on science are just a rehash of Karl Popper’s misguided concept of science.

 

Ethics

Friedman is consistent with the Austrians in suggesting that economics must be value free – that is devoid of ethics.  Friedman argues in his paper The Methodology of Positive Economics, that for a discipline to be a science it must be free of moral judgments.  However, Friedman appears to making a finer distinction of where ethics fits in science and particularly in economics.

Positive economics is in principle independent of any particular ethical position or normative judgments. As Keynes says, it deals with “what is,” not with “what ought to be.”

The Methodology of Positive Economics

First, science requires a profound set of ethics that are unique in history.  This ethics requires reporting the data accurately,[2] follow the data to its logical conclusion, and never ascribing non-natural causes to the observations.

Second, imagine taking Friedman’s point of view in the science of medicine.  Medical doctors are not there to deal with ought to be, just to observe what is.  Are doctors biased in their observations, because they bring ethics into their science?

The question of ethics in economics disappears if the correct fundamental questions of economics iare defined and therefore the definition of economics is properly defined.  The most fundamental question of economics is: What is the source of real per capita increase in wealth?  This leads to the correct definition of economics which is the study of how man obtains the things he needs to live.  This puts the focus on human well-being, just like medicine.

Economists who pretend that they are not injecting ethics into economics are really pushing utilitarianism, often summed up as ‘the greatest good for the greatest number’.  This always leads to disaster.  In the short term the greatest good for the greatest number always weighs in favor of taking the property of those who create and giving it to those who do not, for instance.  In fact, many philosophers who push utilitarianism also push socialism.  The counter is usually that stealing people’s property is not good in the long run, but this argument rarely wins over most people.

I searched if Friedman ever mentions Natural Rights or Locke and never found anything.  This is not surprising as he explicitly rejects ethics, at least in economics, and implicitly accepts utilitarianism.

Friedman is inconsistent with the founding principles of the United States, inconsistent with Objectivism, and not an advocate of Capitalism, which is the economic system that occurs when a country protects people’s Natural Rights.

Friedman, in my opinion, is highly influence by the philosophers of the Scottish Enlightenment, which would not be surprising as Adam Smith is in this group and also Jeremy Bentham, one of the big proponents of utilitarianism. [3] The Scottish Enlightenment philosophers were also highly skeptical of the efficacy of reason.

 

Source of Economic Growth

Friedman did not write much about what causes real per capita increases in wealth.  I assume he accepted the standard neo-classical idea that increases in capital were the cause of economic growth.  This does not fit the empirical evidence.  Friedman’s lack of interest in the question is damning.  Although, he did focus his attention on what inhibits economic growth.

Friedman spends almost no time discussing inventions or inventors.  Inventions are the only way to increase real per capita incomes and define the upper bound on the standard of living in any given period of time.  The fact that Friedman ignores them shows incredibly poor judgment.

 

Industrial Revolution

The Industrial Revolution was the first time in history that real per capita incomes started to grow consistently.  Friedman’s only comments about the most important event in the history of economics was that the idea of robber barons was a myth.  This is not what I would expect of a scientist, however Friedman was clear that he was not doing science.

 

Conclusion

Milton Friedman hardly fares any better than the Austrian Economists.  Personally, I think his writing is much better than the Austrians and he is more likeable, which seemed to be part of his success in spreading his ideas.

Friedman’s ideas are inconsistent with reason, science, or Natural Rights and therefore not consistent with Capitalism.  He is not proposing to do science and undermines reason with his pragmatism.  However, unlike the Austrians, Milton Friedman’s supporters are not actively undermining property rights in his name.

 

 

 

[1] https://mises.org/library/friedman-intolerance-critique

[2] Something the so-called scientists studying Anthropomorphic Global Warming ignore.

[3] http://www.forbes.com/sites/realspin/2014/07/31/milton-friedmans-property-rights-legacy/#264b72e06663

August 27, 2016 Posted by | -Economics, Innovation | , , , | 1 Comment

Austrian Economics and Objectivism Panel Session

Will Thomas and I gave a talk at Atlas Summit 2016 on Austrian Economics.  The talk focused on epistemological and ethical positions of Carl Menger, Ludwig Von Mises, and F.A. Hayek.  A number of people asked for the slides and related materials.  Below I provide links to nine posts on blog that investigate some of the issues discussed in the talk in more detail.  Below that are the slides from the talk.

 

Articles

Is Carl Menger a Socialist?  https://hallingblog.com/2016/06/25/is-carl-menger-a-socialist/

 

Why Austrian Economics Subjectivity is Wrong and Condemns Economics to Being a Pseudo-Science   https://hallingblog.com/2016/06/13/why-austrian-economics-subjectivity-is-wrong-and-condemns-economics-to-being-a-pseudo-science/

 

Can “Dignity” Explain the Industrial Revolution: A Review of Deirdre McCloskey’s Economic Ideas  https://hallingblog.com/2016/05/22/can-dignity-explain-the-industrial-revolution-a-review-of-deirdre-mccloskeys-economic-ideas/

 

Carl Menger: Austrian Economics vs. Objectivism  https://hallingblog.com/2016/03/21/carl-menger-austrian-economics-vs-objectivism/

 

Carl Menger: Principles of Economics  https://hallingblog.com/2015/11/16/carl-menger-principles-of-economics/

 

Capital in Disequilibrium: The Austrians’ Answer to New Growth Theory  https://hallingblog.com/2015/09/09/capital-in-disequilibrium-the-austrians-answer-to-new-growth-theory/

 

Praxeology: An Intellectual Train Wreck  https://hallingblog.com/2015/09/08/praxeology-an-intellectual-train-wreck/

 

Hayek: Friend or Foe of Reason, Liberty and Capitalism?  https://hallingblog.com/2015/03/04/hayek-friend-or-foe-of-reason-liberty-and-capitalism/

 

The Austrian Business Cycle Debunked  https://hallingblog.com/2015/02/15/the-austrian-business-cycle-debunked/

 

The Irrational Foundations of Austrian Economics  https://hallingblog.com/2015/02/12/the-irrational-foundations-of-austrian-economics/

 

 

Slides

Slide1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide11

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide33

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide34

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Slide36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

end

 

 

 

July 21, 2016 Posted by | -Economics, philosophy, Uncategorized | , , , , , | Leave a comment

Why Austrian Economics Subjectivity is Wrong and Condemns Economics to Being a Pseudo-Science

I was having a discussion with Objectivist colleague about the Austrian Economic idea of subjective value.  In economics the subjective theory of values (STV) was developed in response to the classical economic ‘labor theory of value’.  The labor theory of value states that the value of an item is equal to the sum total of the labor that went into making it.  Thus the value of your computer is equal to the total amount of labor used to produce it, including all its components.

The Austrians, particularly Carl Menger, explained that this was clearly incorrect.  In response he said the value of a thing is determined by each person’s own mind.  Most economists today adhere to some sort of subjectivist theory of value.

Ayn Rand, in Capitalism for the Unknown Ideal, discussed the differences between intrinsic, subjective, and objective theories of value.  In my opinion it was her way of making it clear that she disagreed with her friend Ludwig Von Mises.

 

The subjectivist theory holds that the good bears no relation to the facts of reality.

The intrinsic theory holds that the good resides in some sort of reality, independent of man’s consciousness.

The objective theory holds that the good is … an evaluation of the facts of reality … according to a rational standard of value.

(Ayn Rand Lexicon “What Is Capitalism?” Capitalism: The Unknown Ideal, 21)

 

The Subjective Theory of Value (STV) in economics results in economics being a subjective social ‘science’, instead of an objective, true science.  It is important that we define what Austrians’ mean by the STV.  They mean that people’s economic choices are not connected to reality.  People have subjective values that they attempt to fulfill and we cannot say whether a person’s economic choice is correct or rational.[1]

econgrowth.smallAccording to the STV we could not say that if Robinson Crusoe’s choice to trade his canteen of water for a gold doubloon to the only other survivor of a shipwreck, when there is no potable water on the island and no foreseeable chance of rescue before Crusoe dies of dehydration and no foreseeable chance of rain before Crusoe dies of dehydration, is irrational.  We cannot even make this decision if we know that Crusoe’s goal is to stay alive and he has no connection to the other survivor.

If we take the STV seriously, then I can be rich if I just subjectively believe that my slum house in a decaying part of Detroit is worth $200 million.  Value is all subjective, so as long as I firmly hold to this belief then I will suddenly be wealthy.  Pointing out to me that the market value of my house is only $15,000 is founding your opinion “upon an arbitrary judgment of value.”

Unfortunately, the Austrian STV turns economics into a popularity game.  As a result the only reason John Galt’s motor has any economic value is that other people value it.  This is obvious nonsense.  Galt’s motor has economic value even if no one else subjectively values it.  The motor produces almost unlimited electrical power for almost zero marginal cost.  Thus it has economic value to Galt, even if no one else is smart enough to see its value or take advantage of its value.

You will often hear Austrian economists describe why someone became wealthy in terms of a popularity contest.  They rarely discuss the value that the wealthy person created, instead they talk about how the wealthy person made so many people happy.  If wealth creation is just the result of an arbitrary popularity contest, then there is no logical reason that we should not redistribute wealth.

 

The macroeconomic evidence does not support the idea that people make arbitrary economic decisions.  The wealthier people are the longer they live on average.  If peoples’ decisions were truly subjective (disconnected from reality) then we would expect that there would be no correlation between wealth and longevity at least for those people living above the subsistence level.  But in fact, there is a strong correlation.  There is also a strong correlation between wealth and a number of factors related to the quality of life.  This shows that people are not spending their money arbitrarily (subjective valuation), but spending it on things that enhance their longevity and their life.[2]

wealth.v.longevity

 

Some people suggest that once people are above the subsistence level of living then economic decisions become subjective.  The evidence does not support this point of view either.  People who are wealthier tend to drive safer cars, have better built houses that can withstand natural disasters better, have better access to high quality health care and so on.  Very few people are wealthy enough to afford the highest quality goods and services for the rest of their lives.  Clearly, the wealthier people are the more they can afford to indulge some of their whimsies, however if they make enough irrational economic decisions they will not only go bankrupt, they will die – see Venezuela.

Wealthier people are also happier.  There are some old studies that attempted to show that additional wealth/income above a subsistence level did not increase people’s happiness (The Easterlin Paradox).  However, more recent studies have shown that increasing levels of wealth do correlate with increasing levels of happiness.[3]  The original studies were clearly biased and trying to make a political point.

 

Several of the ideas of Austrian economics are actually inconsistent with the STV[4]  For instance, how Austrians explain marginal utility implicitly shows that they understand peoples’ economic decisions (values) are not arbitrary.  The most common way Austrians explain marginal utility is to explain that if they have one unit of water per day they will use if for drinking.  If they suddenly have two units of water per day they will use the second unit for watering their garden, which they value lower than drinking.  If they then find they have three units of water per day, then they will use the third unit for washing.

Why do Austrians always select drinking for water as having the highest priority?  Clearly they inherently understand that people have to drink to stay alive (an objective – reality based decision) and that drinking water is more important than washing if the person wants to live.

Another example is the Austrian Business Cycle (ABCT).  ABCT argues that we grow wealthier when we invest in (purchase) “higher order goods”, which is just a fancy way of saying increasing our capital.  Thus they are arguing that purchasing capital goods has a higher value (economic and moral) than purchasing consumer goods.  Some Austrians recognize the contradiction and try to dance around it by saying that economics can tell you what the result of certain policy actions will be, however economics cannot tell you which choice you should make.  This is like a doctor telling you that a poison will kill you, but the physician cannot tell you that you should not ingest it.

Economic and moral values are not separate and cannot be isolated.  Both are based on the objective nature of man.  Austrians by choosing a STV for economics are logically compelled to the conclusion that ethics is subjective.[5]  The STV also condemns economics to the category of a social ‘science.’  Only by rejecting the STV and replacing it with an objective theory of value can economics be an objective science.

[1] If human action always aims at a purpose, which by definition it does, then human action must be rational, that is, consistent with reason or guided by one’s will and intellect. It can never be termed irrational.

 

In making this point, Mises in Human Action (p. 19) writes “Human action is necessarily always rational. The term ‘rational action’ is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man.”

 

Seemingly irrational action is rational, that is, has an aim. To appraise it as irrational, the appraiser merely imposes some other external source of value. Mises writes (p. 104): “However one twists things, one will never succeed in formulating the notion of ‘irrational’ action whose ‘irrationality’ is not founded upon an arbitrary judgment of value.

https://mises.org/library/what-do-austrians-mean-rational,  What Do Austrians Mean by “Rational”?, MISES DAILY ARTICLES, Accessed 6/9/16.

[2] Of course it is entirely possible that Von Mises (see footnote 1) believe trying to stay alive is an arbitrary choice.

[3] http://www.forbes.com/sites/susanadams/2013/05/10/money-does-buy-happiness-says-new-study/#29669cf440b5 (accessed 6/10/16) and http://www.nber.org/papers/w14282.pdf?new_window=1 (Accessed 6/10/16) Betsey Stevenson Justin Wolfers, ECONOMIC GROWTH AND SUBJECTIVE WELL-BEING: REASSESSING THE EASTERLIN PARADOX, NBER WORKING PAPER SERIES.

[4] Austrians tend to have a very fluid definition what they mean by the STV.  They shift the definition based on the discussion they are involved in and use the one they believe will make their argument most effectively.

[5] Murray Rothbard tried to span this contradiction.  A likely result was the non-sense of anarcho-capitalism.

June 13, 2016 Posted by | -Economics | , , , | 3 Comments

Aristotle and Rand vs Hume: Causation and Induction

Ayn Rand and many scholars blame Kant for killing the Enlightenment.  Kant is the founder of what I call the Germany anti-Enlightenment movement.  It seems to me that David Hume may be as responsible for killing the Enlightenment or more so than Kant partly because his arguments are more understandable.  Hume is part of what I call the Scottish anti-Enlightenment.  Francis Hutcheson is usually considered the father of the Scottish anti-Enlightenment, but Hume is its most powerful advocate.

Hume provides three arguments that attack the core of the Enlightenment:

1) His skepticism of causation

2) His skepticism of induction

3) His “is-ought” attack on ethics.

Rand concentrated her attention on the third problem.  She explained, “The fact that a living entity is, determines what it ought to do.”

The first two arguments are actually interrelated for Hume.  He was grappling with the problem that for deductive syllogisms to be true the premise statements must be true, but how do we arrive at the premise concepts?  The classical example is:

 

All men are mortal.

Socrates is a man.

Therefore, Socrates is mortal.

 

For Hume this syllogism raises the issue of how do we know that all men are mortal?  We have not met all men and all men who have lived have not died and how do we know that the future will be like the past?  Hume realized that all abstract statements, indeed all concepts must be start with humeindividual perceptions or instances, unless god or someone gives us a tablet with all the abstractions.  But how do we go from particular instances to an abstraction?  For example, all the people I know are mortal, to “all men are mortal”?  This is a question of induction and Hume realized for induction to be true, we must assume that cause and effect exists and is knowable.  However Hume did not see any justification for our confidence that cause and effect exists or is knowable.  Hume saw cause and effect as a physiological pattern recognition that at best has a probabilistic certainty.  Thus to Hume his skepticism about induction and causal relationships are intimately interconnected.

Hume ignores the law of identity in his arguments, which is at least in part how I think Rand and Aristotle would respond to Hume.  A thing is what it is and therefore it has certain properties.  If a thing changes then we know that something caused it to change.  Otherwise it would violate the law of identity.  Perhaps Hume’s response would be to attack the law of identity, however this would be an extraordinary claim and therefore require extraordinary evidence.[1]

Hume illustrates his ideas on the lack of causality with billiard balls.  This is how Wikipedia explains it:

For example, when one thinks of “a billiard ball moving in a straight line toward another”, one can conceive that the first ball bounces back with the second ball remaining at rest, the first ball stops and the second ball moves, or the first ball jumps over the second, etc. There is no reason to conclude any of these possibilities over the others.

This example shows that Hume is ignoring the law of identity.[2]  For instance, the first ball cannot jump over the second ball without violating the law of identity.[3]  Billiard balls do not jump for no reason.  The same is true of the first ball bouncing back and the second ball staying in place.  A billiard ball when struck moves.

A famous example to illustrate Hume’s attack on induction is the black swan scenario.  In this scenario you observe one hundred swans and they are all white.  Thus you infer (induction) that all swans are white.  The next day you see a black swan.  This is essentially what Hume thinks scientists are doing.  Hume is making this argument about 50 years after Isaac Newton’s Principia.  I think this shows that Hume had an agenda to attack the Enlightenment.  Newton’s laws of mechanics and gravity had overwhelming shown the power of science and reason and therefore induction, but Hume chose to reject them.  Hume did not even come close to meeting his burden of proof in this argument.

The swan example shows another flaw in Hume’s argument.  Hume has made an inference based on an accidental cause.  I consider this and intellectual dishonest argument.  Eggs are white, clouds are white, paper is white, some flowers are white, and so are some other birds.  Drawing the conclusion that all swans are white is to focus on an accidental cause of relations, Aristotle would point out.  Most humans are within a certain height range, but that would be no reason to define humans as being above 4.5 feet or below 6.5 feet.  Hume in this example ignores what is an important or causal feature of swans for a trivial feature.  This is worthy of a side show magician not serious philosophy or science.  His excuse would be that there is no causation.

 

Perfect knowledge.

This is another error that people who argue along the lines of Hume make.  An example of this argument was used to attack Newton’s ideas on gravity.  People argued that Newton had failed to explain why masses have gravity or how gravity works at a distance and therefore they rejected all of Newton’s ideas on gravity.  The criticism is fair, but the conclusion is not.  In fact, Newton acknowledged this was a problem, but that did not mean that he had not contributed enormously to the understanding of gravity.

 

The perfect knowledge argument is that if you do not know everything with perfect precision, then you do not anything.  The only way to you can meet this definition of knowledge is to be omniscient, which is metaphysically impossible.  Thus they setup a false argument by setting a standard for knowledge that can never be met.

Rand’s response would be that perfect knowledge proponents are using the wrong definition of knowledge.

“Knowledge” is . . . a mental grasp of a fact(s) of reality, reached either by perceptual observation or by a process of reason based on perceptual observation.[4]

A related attack on knowledge is to ignore its context and then show it does not work outside of that context.

Knowledge is contextual . . . By “context” we mean the sum of cognitive elements conditioning the acquisition, validity or application of any item of human knowledge.[5]

In the case of Newton his mechanics are correct within the context in which the knowledge was developed.  There are areas (context) where Newtonian mechanics is not correct.  All this proves is that Newton was not omniscient, not that “he got it all wrong.”

 

Probabilistic knowledge

One of the proposed solutions to Hume and suggested by Hume himself is that knowledge is probabilistic.[6]  Karl Popper is probably the best known advocate of this idea.  This idea as applied to the black swan case above would be that the more swans we see the more certain we are that all swans are white, however we never know for sure.  Thus we never know anything and scientific theories are never true, they have just not been proven incorrect yet.

This idea has become quite popular in the scientific community.  However, probabilistic knowledge ignores the law of identity.  Probability is built on the law of identity.[7]  Probability theory was developed to understand the odds in games of chance.  For instance, what is the probability that a die when rolled will land on a six.  If we rolled a die and the position of the numbers could change without cause {that is the die could violate the law of identity) then probability theory would not work.  In order to determine the probability of the die being six when rolled we determine all the possible outcomes (law of identity) and then we determined how many of these are a six.  Probability also does not defy causation, it assumes that we do not know the initial conditions and the initial conditions are random.  If we know the initial conditions then we can use Newtonian mechanics to determine exactly which number will appear on the die when we roll it.

Now some people will counter that is not true since we don’t know if a fly will land on the die or an asteroid will land on us just as the die is thrown.  This is context dropping of knowledge and this was discussed above.

The probabilistic hypothesis of knowledge shows a lack of understanding of the law of identity.

 

Conclusion: Why Does This Matter?

David Hume is still highly influential today.  For instance, his “is-ought” argument underpins the moral and cultural relativism arguments of today.  His attack on causality shows up in Karl Popper’s ideas that knowledge is probabilistic and we can never know anything.  This leads to today’s modern cynicism.  It also is the basis of the environmentalists so called “precautionary principle.”  Hume’s attack on causation allows Keynesians to maintain that consumption is more important than production, modern economics to maintain that production is more important than invention. or that capital causes inventions ,or Obama’s “you didn’t build that”

Confusing cause and effect is the source of numerous errors that lead to real problems in the real world.  For instance, are increasing levels of CO2 in the atmosphere the cause of increasing temperatures on Earth or is it the result of increasing temperatures.

What is amazing to me is that Hume wrote these ideas after Locke, Bacon, Newton, Galileo, Robert Boyle, etc.  In my opinion, Hume and his non-continental followers have not been given the scrutiny they deserve.

Hume deserves equal billing with Kant for the ignominy of killing the Enlightenment and the resulting human suffering.

 

[1] Thomas Paine

[2] To some extent Hume’s “is-ought” argument also ignores the law of identity.

[3] This is true not withstanding the nonsense of the Copenhagen interpretation of quantum mechanics.

[4] Ayn Rand Lexicon, Introduction to Objectivist Epistemology “Concepts of Consciousness,” Introduction to Objectivist Epistemology, 35

[5] Ayn Rand Lexicon, Leonard Peikoff, The Philosophy of Objectivism lecture series, Lecture 5

[6] This is an easy trap to fall into and one that the author has made.

[7] This is true notwithstanding the nonsense of the Copenhagen interpretation of quantum mechanics.

February 6, 2016 Posted by | philosophy | , , , , | Leave a comment

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

Can Patents be a True Property Right When They Expire?

Opponents of patents often like to refer to them as a monopoly, which is a thoroughly discredited idea (see here, here, here, here, and here).  Another argument they often raise is that “real” property rights do not expire, they go on in perpetuity.  Since patents and trademarks expire after a certain econgrowth.smallperiod of time, they cannot be true property rights.

To answer this question, it is necessary that examine the nature of property rights more carefully.  You obtain property rights in something because you made it productive or created it.  Of course you can also trade your rights in something you created for currency and then contract to buy something else, thus obtaining property rights in the item.  Your rights in say land are limited by the activity you undertook to obtain those rights.  For instance, if you farmed the land and say put a house on it, then you have a right to continue those activities and ones reasonably related to them.  However, this does not mean that your property rights extend to the center of the earth or up infinitely into space.  It also does not mean you can put a huge pigsty on the edge your land next to your neighbor’s house.  Note this was/is true under common law, no need for regulatory law or home owners’ associations.

Property rights are part of the system of natural rights, which are based on the foundation of self-ownership or self-sovereignty.

Is man a sovereign individual who owns his person, his mind, his life and its products – or is he the property of the tribe …[1]

Capitalism: The Unknown Ideal, What is Capitalism, p 10.

Locke also based natural rights on self-ownership or self-sovereignty.  These ideas are not axioms but derived from observation and logic.[2]  You obtain property rights in something because you created it or made it productive.  Since you own yourself, you own those things you create, however the limits of your property rights are determined by what you created (made productive) and some practical legal implications.

When it comes to land, most people obtain property rights in the land because they farmed it or made it useful for habitation or both.  These property rights do not go on forever as commonly conceived.  Dead people cannot own something, only living people can have property rights.  When a person dies their property rights expire including their property rights in land.  The heirs do not acquire the property rights in the land (assuming they were not an active part of making the land productive), they just receive the first right to acquire the property rights in the land, by making it productive.  If they are unable to make the land productive or they are otherwise not a productive people they will quickly have to sell the land to someone who can make it productive.

You might argue that the law does not precisely follow the philosophical basis of the law and that would be correct.  However, the law has to consider factors that the pure philosopher does not, for instance, efficiency, evidentiary issues, and certainty of title.  If the ownership of land and other property were not passed to the heirs in the form of first right to acquire, then every time someone died there would be a free for all to acquire the land, etc.  This would lead to fights, both legal and physical.  This would defeat the legal goals of efficiency, evidentiary clarity, and title clarity.  However that is not to suggest that the system we have “inherited” for the disposition of estates is perfect or the best.

In the case of patents/copyrights the most philosophically correct position for the length of a patent/copyright (from this point forward I will just discuss patents) would be the inventor’s life.  However, this would cause all sorts of practical patents.  The patent for a first inventor could issue and one day later the inventor could die, while another inventor could live for another seventy years.  This would be unjust.  More importantly it would make it very difficult to verify if a patent was still active.  Last it would make it very risky to invest in company built around an invention that was patented.  Imagine that you are asked to invest in company whose main asset is an invention that could be worth hundreds of millions of dollars, however if the inventor dies tomorrow the company would lose its most important asset.  These practical realities of the law mean that patents should have a certain set period of time.  The patent cannot go on in perpetuity because the inventor’s heirs cannot make the asset productive as in the case of land, so they cannot reacquire the patent rights.  The US has tried out a number of different term lengths for patents.  Presently, it is 20 years from the date of filing and that makes it essentially uniform with the rest of the world.  My suggestion would be to make the term of a patent closer to half a person’s life, since most people do not invent things as a child and there is absolutely no macroeconomic evidence that stronger patents have ever inhibited the economy.

[1] Rand in other places states that Rights are based on the right to life.  She necessarily had to mean the right your own life, to be consistent with inalienable rights.  It is clear that she was not opposed to the idea of self-ownership and did not see this inconsistent with the idea of natural rights.  It is also easier to understand natural rights from a self-ownership point of view than a right to (your own) life.

[2] It is beyond the scope of this paper to explain the derivation of natural rights by Locke and Rand.

October 6, 2015 Posted by | -Economics, -Law, -Philosophy, Innovation, Patents | , , , | 3 Comments

Source of Economic Growth: The talk and the Book

Dale B. Halling’s new book Source of Economic Growth is now available.  This book examines the two most important questions in economics: 1) What is the source of real per capita economic growth, and 2) What caused the industrial revolution? The industrial revolution is important, because it is the first time any large group of people escape subsistence living (Malthusian Trap) and their incomes start to grow. By examining these econgrowth.smallquestions, the book devises a science of economics that is consistent with natural rights, the founding of the United States, and is tied to the biological reality of life.

Mr. Halling gave a related talk at Atlas Summit 2015 entitled The Source of Economic Growth.  No school of economic thought is consistent with Objectivism, which is why Ayn Rand, in the very first sentences of “Capitalism: The Unknown Ideal”, said “This book is not a treatise on economics. It is a collection of essays on the moral aspects of capitalism.” Patent attorney and novelist Dale Halling proposes a science of economics that is consistent with Rand’s philosophy. The path to that understanding of economics results from examining the source of real per capita increases in wealth, which puts man’s mind at the center of economics. No other school of economics puts emphasis on man’s mind, which is one reason why Rand had a tenuous relationship with even free market economists.

September 1, 2015 Posted by | -Economics, -Philosophy, News | , , , , | Leave a comment