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[Against Intellectual Monopoly • By Michele Boldrin and David K. Levine • Cambridge University Press, 2010 • 306 pages]

"This book helped me see the world more clearly and understand so much that had previously remained cloudy."

Introduction

The topic of intellectual property is hugely important in the world today, especially with the growing digitization of so many of the goods and services we use every day. For something to be digitized mean to take some portion of that good and transfer it from the realm of scarcity to the realm of infinite reproducibility. Under these conditions, the notion of "intellectual property" — that only one government-privileged monopolist may use a certain idea for a certain period of time — becomes rather preposterous. It is unenforceable apart from despotic impositions on consumers and producers, and the attempt alone shuts down the learning process that is inherent in the development of the market-based social order.

The topic rather snuck up on Austrians, however. It has always been in the background. Carl Menger wrote of the definition of goods and how their scarcity is a precondition for ownership and rationing. Böhm-Bawerk wrote a long reflection on whether things like justice, love, and other such values could ever be considered goods in the normal sense in which we think of that term, and he concluded that they cannot because there was no inherent need for economizing them. Hayek wrote extensively on the social benefit that comes from the free flow of knowing and information. Mises and Rothbard were more explicit on the matter of patents: both saw them as unneeded government monopolies. Machlup joined them in this view. Rothbard rejected copyright as it exists in law in favor of common-law standards of manuscript ownership.

That's pretty much where matters stood until 1996 when Stephan Kinsella shocked everyone with a journal article calling for the complete repeal of intellectual-property law. The article stunned me, and I instinctively rejected the idea. I figured that the idea could be ranked among the far-flung notions one bumps into within the world of libertarianism: true, perhaps, in some trivial, abstract sense but with no serious application for the here and now. Years went by but I kept thinking of the topic and its meaning, mainly because the headlines were constantly bringing the topic back up. Kids were being fined millions for illegal downloads. Corporations were being looted in patent suits. Drug prices were soaring due to patents. And so on. I had come to the point of actually embracing Kinsella's position but without fiery conviction.

Then I read Against Intellectual Monopoly by Michele Boldrin and David Levine. It was a mind-blowing experience, and I ended up documenting the journey chapter by chapter on the Mises blog. I recall how I could hardly sleep at night as I thought about the thousands of examples they gave that demonstrated that this topic is not just intellectual play. The topic gets to the heart of the meaning of free competition itself. How could I have neglected it so long? The authors are not Austrian adherents, and certainly Kinsella's own treatment is more theoretically robust. But they know the field so well and their endless stream of real-life examples provide just what the consistent advocate of freedom needs to hear about this topic.

It has been suggested that I put these "liveblogs" of the book in a monograph form. I enjoyed reading the proofs because they really do chronicle an exciting intellectual journey. It was a long haul — six years from the time I first started thinking about the topic — but the payoff has been enormous for me. This book helped me see the world more clearly and understand so much that had previously remained cloudy. This is just about the best thing that can ever be said of a book. I hope this chronicle is of some help to you on the same journey.

Jeffrey Tucker

January 18, 2011

A Book That Changes Everything

At a taped video interview in my office, before the crew would start the camera, a man had to remove my Picasso prints from the wall. The prints are probably under copyright, they said.

But the guy who drew them died thirty years ago. Besides, they are mine.

Doesn't matter. They have to go.

What about the poor fellow who painted the wall behind the prints? Why doesn't he have a copyright? If I scrape off the paint, there is the drywall and its creator. Behind the drywall are the boards, which are surely proprietary too. To avoid the "intellectual-property" thicket, maybe we have to sit in an open field; but there is the problem of the guy who last mowed the grass. Then there is the inventor of the grass to consider.

Is there something wrong with this picture?

The worldly-wise say no. This is just the way things are. It is for us not to question but to obey. So it is with all despotisms in human history. They become so woven into the fabric of daily life that absurdities are no longer questioned. Only a handful of daring people are capable of thinking along completely different lines. But when they do, the earth beneath our feet moves.

Such is the case with Against Intellectual Monopoly by Michele Boldrin and David Levine, two daring professors of economics at Washington University in St. Louis. They have written a book that is likely to rock your world, as it has mine. (It is also posted on their site with the permission of the publisher.)

With piracy and struggles over intellectual property in the news daily, it is time to wonder about this issue and its relationship to freedom, property rights, and efficiency. You have to think seriously about where you stand.

This is not one of those no-brainer issues for libertarians, like the minimum wage or price controls. The problem is complicated, and solving it requires careful thought. But it is essential that every person do the thinking, and there is no better tool for breaking the intellectual gridlock than this book.

The issue is impossible to escape, from the grave warnings you get from the FBI at the beginning of "your" DVD, to the posters warning kids never to download a song, to the outrageous settlements transferring billions from firm to firm. It even affects the outrageous prices you pay for medicine at the drug store. The issue of "intellectual property" is a ubiquitous part of modern life.

Some of the police-state tactics used to enforce IP have to make anyone with a conscience squeamish. You have surely wondered about the right and wrong of all this, but, if you are like most people, you figure that copyrights and patents are consistent with the justice that comes from giving the innovator his due. In principle they seem fine, even if the law might be in need of reform.

The first I'd ever thought critically about issues of intellectual property was in reading about it in the abstract many years ago. The Austrian position has traditionally favored copyrights on the same grounds it has favored property rights in general, but it has tended to oppose patents on grounds that they are government grants of monopolistic privilege. Machlup, Mises, and Rothbard — as well as Stigler, Plant, and Penrose — have discussed the issue, but not at great length and with varying levels of cautious skepticism.

That changed in 2001 with the publication of Stephan Kinsella's article (and now monograph) "Against Intellectual Property." He made a strongly theoretical argument that ideas are not scarce, do not require rationing, are not diminished by their dissemination, and so cannot really be called property. All IP is unjust, he wrote. It is inconsistent with libertarian ethics and contrary to a free market. He favors the complete repeal of all intellectual-property laws.

The argument initially struck me as crazy on its face. As I considered it further, my own view gradually changed: it's not crazy, I thought, but it is still pie-in-the-sky theorizing that has nothing to do with reality. Kinsella's article appeared just before the explosive public interest in this subject. The patent regime has in the meantime gone completely wild, with nearly two hundred thousand patents issued every year in the United States, and half a million more in other countries — with 6.1 million patents in effect worldwide — and large firms collecting stockpiles of them.

And the copyright issue has led to a massive struggle between generations: young people live by "pirating" music, movies, software, whereas the old consider this practice to presage the end of the capitalist system as we know it. The music industry has spent billions trying to contain the problem and only ended up engendering consumer embitterment and terrible public relations.

Kinsella's article continued to haunt me personally. It took about six years or so, but I finally worked through all the theoretical problems and came to embrace his view, so you might say that I was predisposed to hear what these authors have to say. What I hadn't realized until encountering the Boldrin/Levine book was just how far-reaching and radical the implications of a detailed look at IP really is.

It is not just a matter of deciding what you believe from a theoretical or political perspective. It is not just a matter of thinking that "pirates" are not really violating moral law. To fully absorb what these authors say changes the way you look at technology, at history, at the ebbs and flows of economic development, and even who the good guys and bad guys are in the history of civilization.

Kinsella deals expertly with the theoretical aspects, while Against Intellectual Monopoly doesn't really go into the theory at great length. What this amazing book deals with is the real-world practice of intellectual-property regulation now and in history. I can make a personal guarantee that not a single objection you think you have to their thesis goes unaddressed in these pages. Their case is like the sun that melts all snow for many miles in all directions.

The implications are utterly shattering, and every day I turned the pages in the Boldrin/Levine book I felt that sense of intellectual stimulation that comes along rarely in life — that sense that makes you want to grab anyone off the street and tell that person what this book says. It helps you understand many things that had previously been confusing. The emergent clarity that comes from having absorbed this work is akin to what it must feel like to hear or see for the first time. If they are right, the implications are astonishing.

"I can make a personal guarantee that not a single objection you think you have to their thesis goes unaddressed in these pages."

Their main thesis is a seemingly simple one. Copyright and patents are not part of the natural competitive order. They are products of positive law and legislation, imposed at the behest of market winners as a means of excluding competition. They are government grants of monopolies, and, as neoclassical economists with a promarket disposition, the authors are against monopoly because it raises prices, generates economic stagnation, inhibits innovation, robs consumers, and rewards special interests.

What they have done is apply this conventional model of monopoly to one of the most long-lasting, old-world forms of mercantilist/monopolistic institutional privilege, a surviving form of mercantilist privilege of the 16th century. IP is like a dam in the river of development, or perhaps very large boulders that impede the flow.

They too favor its total repeal but their case goes far beyond the theoretical. They convince you that radical, far-reaching, uncompromising, revolutionary reform is essential to our social well-being now and in the future. The results are dazzling and utterly persuasive. I personally dare anyone who thinks that he believes in patent or copyright to read this book and deal with it.

I'm not sure what aspect of their case is the most powerful. Here are just a few examples:

They show that people like James Watt, Eli Whitney, and the Wright Brothers are not heroes of innovation, as legend has it, but rent-seeking mercantilists who dramatically set back the cause of technological development. These people spent vast resources prohibiting third parties from improving "their" product and making it available at a cheaper price. Instead of promoting innovation and profitability, they actually stopped it, even at the cost of their own business dreams.

The authors show that every great period of innovation in human history has taken place in the absence of intellectual property, and that every thicket of IP has ended up stagnating the industries to which they apply. Think of the early years of the web, in which open-source technology inspired breakneck development, until patents and copyright were imposed with the resulting cartelization of operating systems. Even today, the greatest innovations in digital communications come from the highly profitable open-source movement.

It is impossible to develop software without running into IP problems, and the largest players are living off IP and not innovation. Meanwhile, the most profitable and most innovative sector of the web, the porn sector, has no access to courts and IP enforcement because of the stigma associated with it. It is not an accident that absence of IP coincides with growth and innovation. The connection is causal.

And look at the industries that do not have IP access, such as clothing design and architecture and perfume. They are huge and fast-moving and fabulous. First movers still make the big bucks, without coercing competition. Boldrin and Levine further speculate that IP is behind one of the great puzzles of the last millennium: stagnation in classical music. The sector is seriously burdened and tethered by IP.

Other mysteries are answered. Why no musical composition of note in England after 1750? England had the world's most strict copyright laws. Why was English literature so popular in the United States in the 19th-century schoolrooms? It could be imported without copyright restriction — and therefore sold cheaply — whereas American authors used IP and limited their market. And consider the irony that Disney, which relies heavily on IP, got its start and makes it largest profits by retelling public-domain stories!

Examples like this abound. One wonders whether the modern history of literature and art needs to be completely rewritten. Examples will occur to you that are not discussed in the book, such as fan fiction. It is technically illegal, so far as anyone can tell, to take a copyrighted character and tell a story about him even if the story is original. And yet Harry Potter fan-fiction sites enjoy tens of millions of hits per month. One hosts five thousand pieces of fan fiction, some as long as one thousand pages. Enforcement has been spotty and unpredictable.

And yes, the book covers the poster child of the IP world: pharmaceuticals. They muster plenty of evidence that IP here does nothing to promote innovation and widespread availability and is largely responsible for the egregiously high prices of drugs that are driving the system toward socialization.

The authors explore the very strange tendency of capitalists to misdiagnose the source of their profits in a world of IP, spending far more on beating up pirates than they would have earned in a free market. They further demonstrate that IP is a form of exploitation and expropriation that is gravely dangerous for civilization itself.

In short, they have taken what might seem to be merely a geeky concern and moved it to the center of discussion over economic development itself.

What about the far-flung conclusion that IP should be repealed? The authors take away your fears. The development of IP came about in the 16th century as a mechanism for governments to enforce political control and punish dissenters. The cause of this "property right" was then taken over by individuals in the 18th and 19th centuries as part of the liberal revolution for individual rights. In the 20th century it was transferred again, to corporations who become the effective owners through copyright. The creators no longer own anything, and let themselves be beaten and abused by their own publishers and production companies.

Boldrin and Levine's thesis really steps up this issue. It makes you wonder how long authors and creators will put up with the nonsense that some company has a state-enforced exclusive to use the work of others for longer than 100 years. Fortunately, the digital age is forcing the issue, and alternatives like Creative Commons (roughly akin to what would exist in a free market) are becoming increasingly popular. As the tyranny has grown more obvious, the free market is responding.

No, the authors are not really Austrian, and I'm not even sure that they can be called libertarians, but they understand the competitive process in ways that would make Hayek and Mises proud. As I've thought more about their book, it seems that it might suggest a revision in classical-liberal theory. We have traditionally thought that cooperation and competition were the two pillars of social order; a third could be added: emulation. In addition, there is surely work to do here that integrates Hayek's theory of knowledge with the problem of IP.

If the book lacks for anything, it is precisely what Kinsella provides: a robust theory behind the practical analytics. But since Kinsella has already provided this, the value added of real-world application is enormous. I have a minor nit to pick with them on their passing comment on trademarks, which strikes me as wrong. Otherwise, this book moves mountains.

A book like this comes along very rarely. Against Intellectual Monopoly is a relatively small manifesto on economics that absolutely must be understood and absorbed by every thinking person without exception.

Authors: Beware of Copyright

When an author signs a publication contract, insofar as it contains strict and traditional copyright notices, he is pretty much signing his life away. It used to be that the publisher would maintain control only so long as the book was in print. Today, with digital printing, this means forever: your lifetime plus 70 years.

During this time, you can't even quote significant portions of your own writing without permission from the publisher, and you could find yourself paying the publisher for the rights. You can't read your own book aloud and sell the results. You certainly can't give a journal a chapter.

You could try to be sneaky and change the text a bit, right? Wrong. They've thought of that. You will own and control new matter but the old matter is still the private possession of The Man.

What if the publisher isn't marketing your book? You can yell and scream but they don't have to answer. In fact, most publishers have a system for dealings with authors. It's called voice mail. E-mails go unanswered.

You are done for. You sold your soul and you can't get it back. Not within your lifetime. Your creation, which copyright is designed to protect, is now the possession of someone else.

As Michele Boldrin and David Levine explain, this racket began in the 17th century when government instituted the idea of ownership of ideas, precisely so that the government could crush ideas it didn't like. Only approved authors got the stamp of approval. Same with art. But then the authors and creators rose up and demanded their rights in the 18th century, and the copyright idea was transferred from government to private parties, who were then in a position to crush competitors. In the 20th century, this changed again, when the right was transferred from individuals to corporations.

In the digital age, which exists simultaneous to the most tyrannical copyright laws ever, this is creating an intolerable situation that amounts to a form of involuntary servitude. Creators write and paint and watch corporate interlopers doom their work to obscurity. The creator hoped to make a dent in the universe but only sees his material land in the recycle bin of history.

Yes, it is done by contract — contract backed by the power of the state. So why do authors put up with it? Mostly because it is a convention, and they haven't known about alternatives. Also, they are bribed by the ego-exploiting promise of royalties that never arrive.

The practical effects can be devastating. There is, for example, a book on Austrian business cycles that was published some years ago, and it is in print from an academic house, but "in print" only in the most technical sense. It is essentially unaffordable for anyone but a state-funded library with an inelastic demand curve.

The Mises Institute wants to bring it back in paperback and make it affordable. Nope, can't happen. The publisher says that it will do it for us, at a very high price with virtually no discount. They are within their legal rights to do this.

Of course, it makes the whole project completely unviable. No deal. The authors are cornered. There is nothing they can do. There is nothing we can do. A great Austrian book, written over the course of ten years, is consigned to the dusty shelves of a handful of libraries, for at least another 70 years.

This is only one case of a hundred that I've seen. It is even worse when the author is dead. The publisher may or may not have handed back the rights to the manuscript. Those rights may or may not have been transferred. They may or may not have been handed on in the will, or perhaps they are part of probate.

Yes, a potential new publisher can hunt this down to find out who among six billion potential owners actually controls rights to this manuscript. A lawyer is always glad to spend vast amounts of your money doing research. He may or may not come up with an answer you can trust. Meanwhile, you have spent the equivalent of a first-print run.

Most potential publishers will say: to heck with it. Again, you have failed to be immortalized by your work. This goes for artists and musical compositions and even recordings of your band or voice. Thanks to federal law since the 1980s, all this material is bound up in a thicket of law, and this thicket will not evaporate for more than 100 years.

This is what the "intellectual property" of copyright has wrought.

So I say to all authors: Please look at your contracts. Don't sign your life away. Publish on the condition of Creative Commons. Claim your rights back as a creator and an author.

How does this work? You have to copyright your work if only to prevent others from claiming copyright and thereby binding all other living persons, including you, from publishing it. Once you claim copyright, add that it is published under the Creative Common License 3.0. This rids your manuscript or song or painting of copyright's provision of doom: the requirement that only one institution can control it.

In other words, it makes your creation part of the free market. It can be posted, recorded, shown, photograph, celebrated by one and all forever. Isn't this why you create in the first place? Isn't this what drove you to write, paint, photograph, sing, or whatever? You want to make a difference. You want credit for your work. This permits this.

Old-fashioned copyright is nothing but a form of modern tyranny in the digital age. It has no future. Bail out of this wicked institution and make sure that your work has a future, too.

What is Your Attitude Toward IP?

As I think more about intellectual property in the form of patents and copyrights, it seems that the implications for social theory are profound. The behavior targeted and slaughtered by IP is one that provides a fuel for all social and economic development: imitation or emulation.

In the German-speaking world of art in the 18th and 19th centuries, imitation by composers was considered to be the greatest tribute. When Bach would write an elaboration of Buxtehude, it was seen as a wonderful gift to Buxtehude's legacy and memory. When Mahler would turn a phrase by Brahms, or reorchestrate a Beethoven symphony, it was the tribute of one master to another. So it is in literature and economics.

Imitation in economic affairs is essential for development, since nothing is ever perfect right out of the box, and society is constantly changing. You need that imitative dynamism in order for technology to keep up with changing market conditions. This is what IP shuts down in the name of rewarding creators. How can creators make a buck in a world of fluid imitation? The same way they always have: by having the best product at the right price to the market first. When others imitate them, they have to hustle again and innovate some more. This is how societies and economies grow.

Think of the fashion world, where IP isn't in force. It is fast-moving, innovative, and remarkably profitable. Designers have their ideas imitated nearly as soon as they are seen on the runway. This imitative behavior is widely regarded as a ratification of a good idea. It is something that people are socialized to look for as an indication of marketability. It is the same with generic drugs, fonts, perfume, and other sectors in which there is no IP.

Sadly, in sectors in which IP does apply, the opposite attitude applies. Authors, artists, and inventors sit and brood about the need to keep their wares to themselves and hunt down anyone who would dare "steal" their ideas. In the successful cases, they can end up rewarding themselves but at the expense of social development.

In the far more prevalent unsuccessful cases, the obsession with being ripped off leads to brooding, resentment, and disgruntlement that the world has failed to provide them a living. A sector consisting of nothing but people like this — with an attitude encouraged in law — is stagnant. By way of illustration, compare the imitation-oriented jazz and rock sectors with the IP-obsessed area of serious classical music!

Other sectors like advertising fall somewhere in between. Several years ago, Apple ran a commercial for the iPod that looked incredibly similar to one produced by Lugz shoes. Now, one might laugh and appreciate this — surely it will benefit both companies — or one can regard it as theft. Instead of celebrating a success, Lugz regarded it as a rip-off, which Apple denied. Words flew between the companies, along with threats of litigation and cease-and-desist orders.

This is really just pathetic and completely unnecessary.

It really all comes down to the attitude one takes toward one's influence on others. The absence of IP creates a broad-mindedness that seeks to make a difference in the world and looks for imitators as a sign that it is working. The presence of IP subsidizes a kind of inwardness and bitterness that sees the whole world as being populated by potential thieves to keep at bay.

You see the two ways of looking at the world in the way kids interact with each other. I'm speaking of preteens and the way they deal with their emergent societies. Let's say one kid has developed a certain phrase or gesture that is new to the social group. Another kid picks up on it and employs it.

Now, there are two ways to respond to this imitation. The innovator child can see others doing and saying what he did and said and realize that he has made a difference in the world, put a dent in this little universe. He has become a force for changing the world as he knows it. He has made his mark, and the evidence is how others are doing the same thing. He feels a sense of pride and joy and works at coming up with other unique ways of dressing, speaking, or behaving that others similarly imitate.

"Copyright is a subject replete with mythology. People imagine that copyright is important for protecting rights, even though the practical reality is that it is a killer of ideas and a rights violator on a massive scale."

Or the child can have another response. He can accuse his imitators of stealing his words, ripping off his gestures, pilfering his personality, and plundering his special way. He sees others who imitate as threats, forces that are reducing the value of his unique personality. He treats it as the equivalent of cheating on a test. It is taking what is his. It is the first stages of a very destructive, IP-style mentality.

Parents: Be alert to signs of this among kids. Explain to children that it is a good thing when others are influenced by you. It means that you have made a difference in the world. It is not something to complain about at all. It is something to celebrate. It means that you are an entrepreneur on the cutting edge, someone who does things that succeed in society. That also comes with responsibilities to do good things and improve the look and feel of the world around them.

Which attitude do you take toward emulation? Before you answer, consider that emulation is unavoidable. There is no such thing as absolute originality. Everything in a growing and health society is an elaboration on something else that already exists. This applies to technology, literature, music, art, language — everything. A world in which the ethics of IP applied would be backward and stagnant, headed nowhere but backward.

Children's movies cut both ways. The movie called Ratatouille strikes me as the ultimate IP-supporting propaganda. A rat with a gift for taste and smell is rescued from the gutter and put in a position to cook food at a fine restaurant. All his food is great. He has imitators all over the place but he alone remains the best. But then he begins to seethe with resentment that he alone is not given credit and accolades. Oddly, some people fear that customers will not like the idea that a rat is cooking all the food! The movie ends with his being discovered — he feels great pride, and we are supposed to be happy about this. The restaurant is destroyed, but the audience is supposed to figure that it is worth it.

A much better case is Horton Hears a Who. Throughout the film, we see competitive pressure between the various animals to see which one will have the dominant influence over others. The Kangaroo tries to prevent Horton from influencing people, but he does anyway, and eventually everyone comes around. We see it too in the lovely operation of Whoville, a place where emulation is king, and it is a vibrant and lovely society in which everyone is happy.

As web editor of Mises.org, hardly a week goes by when I don't see imitators of our successful web presence. It can be images, articles, design, feel, structure — everything. Some years back I had the view that this had to be stopped. Fortunately, no one here had time to bother with it. Thank goodness. The whole reason we exist is to influence the world. Evidence of that is glorious, and it keeps the fire under our staff to keep doing a better job and stay on the cutting edge.

The Universals of IP Theorizing

Against Intellectual Monopoly might have begun with a story about the failed attempts to stop illegal downloads or the wicked crackdowns on teens for file sharing. Instead, the authors take us back to the Industrial Revolution to explode the myth of the supposedly great innovator James Watt and his steam engine.

Why? Because, as the introduction points out, this is a book of economics. If you have something to add to the science, it can't just apply to now, or last year, in this place, or just that place. Economics is a universal science. Its laws and lessons apply to all times and places. For this reason, a theoretical breakthrough is a massive event. It means work for generations of scholars: revising history, fine-tuning other aspects of theory, and applying it to different fields.

This is one reason why this book is so important. And sensing that they are taking on more than just the problem of digital downloads, they put this ancient history up front. They take the first crack at revisionist history with regard to a famous patent.

They show that most of Watt's energies were spent lobbying for and defending a government patent on a technology that was quickly surpassed and could not come to market thanks to his rent-seeking behavior. Nor was this patent somehow necessary for his economically useful behavior. It wasn't until after the patent expired that steam-engine technology really took off, but by that time the Industrial Revolution had given up ten to 15 years of what might have otherwise been economic progress.

There we have it: we are put on notice that this book is not merely about the digital age or life after the Internet, written by a couple of geeks. No, this is a revisionist treatment of the whole subject that applies not only now but to the whole modern history of intellectual property, which they insist on calling "intellectual monopoly."

Next they stake out their unique position, which is neither that patent and copyright law has gone too far nor that it hasn't gone far enough. They take a third position that only a few dare take: the stuff needs to be abolished altogether. Their grounds for saying so aren't nearly as complicated as one might at first think.

First, grant that "everyone wants a monopoly. No one wants to compete against his own customers, or against imitators. Currently patents and copyrights grant producers of certain ideas a monopoly."

Next, concede a point that everyone brings up first: "Certainly few people do something in exchange for nothing. Creators of new goods are not different from producers of old ones: they want to be compensated for their effort."

Now the core of the argument:

it is a long and dangerous jump from the assertion that innovators deserve compensation for their efforts to the conclusion that patents and copyrights, that is monopoly, are the best or the only way of providing that reward…. Creators' property rights can be well protected in the absence of intellectual property, and that the latter does not increase either innovation or creation. They are an unnecessary evil.

They continue to spell out precisely what they mean. They favor the property rights of producers. The property rights of innovators should be protected, and so should the property rights of those who have a copy of the idea of the creator. The first property right encourages innovation. The second property right encourages diffusion, adoption, and improvement of innovation.

The question is whether creators should have a right to dictate how purchasers use a creation. To say they should amounts to a claim not of property rights but of intellectual property. It confers a privilege and restricts third parties in what they can do with property. It is a grant of monopoly privilege. Monopolies are not friends of innovation in any area of life. They don't go into detail here, but we know this by looking at the Postal Service or the public schools or the utility companies. All of the sectors controlled by monopolists are characterized by high prices, low innovation, and stagnation generally.

How odd it is that we believe otherwise — this one kind of monopoly is something we can't live without! — with intellectual property!

The authors point out that the supposed incentive to create is a double-edged sword. Someone pays the bill. It's not as if the creator benefits and nothing else happens. For example, they cite the case of a movie that cost $218 to make but that cost $400,000 in music rights. This is a serious social cost. It is largely an unseen cost, too. Think of the movies that are not made, the profits in publishing that are never seen, the inventions that are delayed or never come to market, the alternative use of the billions and billions that are spent by consumers on patented drugs.

The introduction also deals with the US Constitution's endorsement of copyright and trademark. They say that it is outmoded but no more than that. For my own part, I'm somewhat curious about this. Many parts of the Constitution are fundamentally antimonarchical (only republican governments permitted in the states, e.g.). The history of patent legislation in England prompts me to wonder if the purpose of this clause is to say that government will not own and dispense mercantilist privileges; rather individuals alone will possess such rights. It was supposed to be a point against kingly privilege; still misguided, to be sure, but one can make a bit more sense of it in this case.

The first chapter is highly provocative and puts the reader on notice that a wild ride is coming. The authors don't disappoint.

People sometimes ask me about ideas for research projects. What the authors have done with the Watt case could be done for a thousand other cases. There is so much work to do, and so much rethinking to do.

Does Monopoly Create Wealth?

How strange this intellectual-property issue is. In normal life, we tend to (or should) credit enterprise and markets for most innovations that surround us. I'm typing on a system that includes products for several dozens of different creative companies, with hardware and software and applications of all sorts stitched together through some miracle we call the coordinating power of the market. No news in that, I suppose. Ho hum.

But let the subject of IP come up, and most people will say that we only have this stuff thanks to IP. Think of the shift here. On the one hand, we credit markets. On the other hand, we credit monopoly. Both can't be true. Or if both are true, we have a serious theoretical tangle to unravel. So which is true?

This is the topic addressed in the second chapter of Boldrin and Levine's book. They begin by observing that "virtually none of the innovations" in the digital industry of computers "took place with the protection of intellectual monopoly."

Before 1981 it was not possible to patent or copyright software. The craze to patent every mouse click began only following a 1994 court ruling (In re Alappat). Meanwhile, the underlying guts of all that you see began long before. As with all genuine, economic revolutions, the foundation of end-user consumption was decades in its preparation. Compilers, assemblers, linked listed, databases, search algorithms, displays, languages, word processing: they all began long before the age of software patents or copyrights.

Let's see how this works. Property rights are protected. Trade is free. People made useful stuff. People bought stuff and used it. They imitated and emulated each other and improved things step by step through investment, profit, and reinvestment. That's all. All development since this great age of innovation that preceded software IP has built on this foundation of open-source material. Said Bill Gates, "If people had understood how patents would be granted when most of today's ideas were invented, and had taken out patents, the industry would be at a complete standstill today."

The authors comment on the post hoc ergo propter hoc fallacy: "Intellectual monopoly is not a cause of innovation, but rather an unwelcome consequence of it." How so? Young industries do amazing things and get a foothold in the market. Then even better folks come along with better ideas. The old guys panic, and turn to government for protection. The industry freezes in place. It is the oldest pattern. Thus did Microsoft make no effort to protect its IP in the early days; it begged for attention and encouraged widespread use and copying. When it saw a threat from newcomers, matters changed.

There hasn't been that much innovation in operating systems since 1994. There has been innovation in web browsing, but where did the web browser come from? It was purchased from a creative company in 1993, before there were software patents. Imagine how a patent in web browsing would have set back the entire industry! The losses would have been incalculable.

We can see here that the authors are holding up the computer industry as a model for how things work in a free market. And a superstrong case for their position is the open-source software movement, which is a main fuel behind the development we see today. Firms relinquish monopoly to assure longevity in the industry: others can pick up their designs and develop them. This helps build their market. In any case, we all depend on open-source software every day if we use Google: it runs Linux, an open-source operating system. There are many others. Indeed, open-source dominates the web completely. Some 70 percent of servers online today run Apache.

But how can they make money? The authors tell the story of Red Hat. It is open source. It has plenty of competitors who offer the exact same product. But because of brand name, Red Hat is still marketable and has more staying power. As Boldrin and Levine say, "If you had a problem with software you bought, and had to call the seller for advice — who would you prefer to call — the people who wrote the program, or the people who copied it?" Thus does Red Hat profit and their many competitors come and go, come again and go again.

The authors effortlessly segue from software to books, and here is the part that especially interests me. They provide an alternative explanation for why British literature was so widely circulated in the United States in the 19th century. American publishers could publish without copyright — there were no international copyright agreements — and there was massive competition. It was so intense that American firms would pay authors directly for sending chapters even before they appeared in Britain. The amounts they would receive even exceed their British royalties over a period of years.

As a result, there was huge dissemination of knowledge. And the prices were low: Dickens's A Christmas Carol sold for six cents in the United States and $2.50 in England. Printing technology improved. Literacy improved. Ideas spread. Children and schools could have books, which in turn increased the demand for books, and spurred on new investment and technological improvements. It was a dynamic and wild world of publishing, comparable to what we see with the web today.

But could it work in modern times? Look at government documents, which are always and everywhere in the public domain (unless they are secret). The 9/11 report of 2004 was a huge best seller, comparable to the first Harry Potter in sales volume. Norton even negotiated a deal with the government to release a paperback on the day of release, and it was also available for free download. Why would they do this? The same reason all entrepreneurs do what they do: to be the first to market. Meanwhile, anyone on the planet could publish it a day later. Still, Norton turned a massive profit.

Another fascinating section concerns the newspaper industry. It began without patent protection. Benjamin Day started the New York Sun and his technology was open source: he collected advertising to pay the costs and recruited young boys to sell it. Anyone could do it. But the point is that he did it first and made lots of money. He was first and he was innovative. That's the key to success. It was a massively costly undertaking!

Why wasn't he driven out of business by piracy? The RIAA claims constantly that a free market can't work because pirates will go straight to the most profitable production ends and steal them. But the authors of Against Intellectual Monopoly ask us to think about this carefully. How do we know what is profitable? We have to let the market work. You can't know in advance. And once a line of production is profitable, it is too late: the player has market dominance, and all of the advantages that come with that. They ask us to try this yourself: try ruining a pop star by pirating songs only once you are certain they are big hits.

Back up and consider the history of IP. It is a modern invention, whereas music and literature appeared at the dawn of civilization. Music and literature and art thrived for many centuries before IP. The authors don't go into it, but just imagine if the invention of the musical staff had been copyrighted and patented by the monk Guido d'Arezzo who invented it. Progress would have been set back by a century!

The first signs of IP appeared after the invention of the printing press. Governments used it to suppress political dissent (I suspect that the Wars of Religion had something to do with this). It was a royal mercantilist privilege conferred on printers — the same as it was conferred on tea, tin, cotton, banking, or any other good. In the day, it seemed reasonable. The ruler wanted to control goods and producers wanted guarantees. Everyone wins, right? Except that there was no competition, no market process, and hence there was stasis. Mercantilism was refuted by economists and the free market emerged and history was changed.

What happened to IP in the age when mercantilism was being repealed? It was not abolished but transferred from kings to producers: the exclusive right to produce was granted to private owners who became responsible for enforcement under the cover of law. This was a huge mistake in the liberal revolution of the 18th century, an inconsistency that continues to haunt us.

Boldrin and Levine's section on IP history should be mandatory reading!

Next in the second chapter: a short section on the history of sheet music. Did you know that the industry leader in sheet music — Francis, Day & Hunter — got its start through mass piracy? Fascinating. The war on cheap sheet music is comparable to the war on pirates today. It didn't work, thank goodness.

The chapter concludes with a long and interesting section on the dynamic, hugely profitable industry of porn. You wince. Of course. So does the state. Copyright protection is nearly unavailable here for reasons that are obvious. It is a legitimate subject for investigation from an economic perspective. This open-source industry is massive and growing, orderly and profitable and technologically innovative. How tragic that IP has created a situation in which we have to look to the seedier side of life to see how truly free markets work.

Does Innovation Require Property in Ideas?

Against Intellectual Monopoly dares step out front, on a topic very dear to our hearts, to prove that "the great role of patents in giving us modern software is unadulterated fantasy." And they show this by reviewing the history of software innovation and its present workings. Neither Google nor YouTube nor any other driving force is using patents to retain competitive advantage, and those who do collect patents mostly do it in order to avoid patent trolls, e.g., those who would patent a technology already in use in order to possess and restrict its use.

The lesson, however, applies far more broadly. Wealth in the Western world has been rising for a thousand years, and innovation along with it, and patents have played virtually no role whatsoever. The authors, in chapter three, go more fully into the history of the patent to show that they originated out of kingly privilege associated with mercantilism and that the legislation of the 17th and 18th centuries were forms of liberalization, despite first appearances. It wasn't until the 19th century that the laws tightened again.

Comprehensive intellectual-property laws as they exist today didn't make an appearance until the end of the 19th century and the beginning of the 20th century. Taking the long view, we can see even with a superficial look that economic growth throughout the world has been in process for one thousand years, while patents are new and were mostly very narrow until quite recently.

Why did patents enter the picture? The rise of modern IP is due to the lobbying of incumbent firms threatened with competition. It is a complete myth that patents give rise to innovation; the reverse has been true: innovation gives rise to patents. The authors offer this incredible challenge: "Can anyone mention even one single case of a new industry emerging as a result of the protection of exiting patent laws? We cannot…. Strange coincidence, is it not?"

Examples. Services in the United States were not covered by patent until the 1990s. In Italy, pharmaceutical products and processes were not covered until 1978. In Switzerland, it was 1954. Agricultural seeds and plans were not effectively patented until 1977 — but the greatest progress here occurred over the previous 100 years. Basic sciences like math and physics cannot be patented. The tendency in the biological and life sciences toward patents is a very grave sign for the future of these sectors.

Boldrin and Levine

The authors cite George Stigler in pointing out that patents did not assist "automobiles, frozen foods, various electrical appliances and equipment, petroleum refining, incandescent lamps, radio, and uranium mining." Stigler further cites the mail-order business, which revolutionized retail, as a case of patent-free development.

Shall we go on? It helps to have the specifics that the authors provide:

Ray Kroc's fast-food franchise (better known as McDonalds), the 24-hour convenience store, home delivery of precooked food, the suburban shopping mall, franchise-everything (from coffee to hairdressing), the various steps that make up the delivery business of UPS, Federal Express, and DHL, and, obviously, online commerce. That is, pretty much each and every innovation which, during the last half century, has had any lasting impact in the retail and distribution sector was not spurred or protected by patents.

How did the inventor of the cotton gin — Eli Whitney — become rich? Not through the cotton gin! He and his business partner took out a patent and spent their energies crushing competition. They were trying to charge farmers two-fifths of their profits, paid in the form of cotton. Farmers hated it, and started to pirate the machine, and many competitive companies sprung up. Litigation followed and lasted from 1794 to 1807. Nothing came of it but an expenditure of time and energy, not to mention lawyer fees. The growth of cotton ginning in the South ended up owing more to the pirates than Whitney.

So where did Whitney get his money? How did he die rich? In 1798, he invented a process to manufacture muskets by machine. This time he was smart: he sought no patent. He encouraged "piracy," that is, imitation. The industry took off, and he remained the leader through innovation. What a blessed life to be rid of the stupid waste of using legal means to crush the competition and instead devote yourself to doing good for others and making money at the same time!

Here is the section in which the authors tell the story of agriculture. Before 1930, there was no patent protection — the very period in which the United States became so productive in agriculture that the entire population shifted in its main industrial focus. After 1930, law granted only patents for a narrow range of plants. It wasn't until 1970 that the Plant Variety Protection Act extended protection to sexually produced plants, and not until the 1980s when protection was extended to biotechnology. So we have a test case, and the authors measure innovation using total-factor productivity. They find no increase after patents, and even some disturbing data oscillations. In corn in particular, the astounding increase in yields occurred before patents and have nearly leveled off since patents.

Two splashing examples of amazing innovation are now introduced in the book. The area of Almeria, Spain, was an unusable desert from the beginning of time until 1963, when an unpatented greenhouse was introduced into the area. The greenhouse was copied and copied and spread all over the region. The results can be seen from space with color photos reproduced in the book. The entire region was transformed from desolate to rich in the course of two decades. The same process took place in Treviso, Italy, where the "ready-to-color" sweater was introduced by the Benetton family, and the process was imitated and spread to change an entire region in the absence of patent.

Other examples: financial services (no patents), fashion (no patents), and advertising (no patents, and copyrights are ineffective). These are the leading examples of innovation in the modern age. This section is so compelling that so far as I am concerned, the book could end here.

But if patents really are that irrelevant, why don't the captains of industry realize it? It turns out that they do. Two surveys in modern times asked R&D heads what techniques are most effective in realizing gains from innovation. It turns out that they regard the patent as the least effective means. The authors conclude this mind-blowing chapter with a long discussion of patent pools: these are cases in which companies relinquish patents in order to establish sharing agreements. It is a way of stepping sideways toward what the market would give us anyway.

Companies live and breathe by innovation. Innovation and monopoly are not compatible. We are back to an old lesson that remains true: it is the market and all that comes with it — not laws granting exclusive privileges to produce — that gives rise to innovation.

I end with a statement from Mises himself:

The great monopoly problem mankind has to face today is not an outgrowth of the operation of the market economy. It is a product of purposive action on the part of governments. It is not one of the evils inherent in capitalism as the demagogues trumpet. It is, on the contrary, the fruit of policies hostile to capitalism and intent upon sabotaging and destroying its operation.

Sometimes those most hostile to capitalism are the capitalists themselves!

Seen and Unseen Cost of Patents

Drug patents took it on the chin a few years ago when major drug companies refused to sell cheap AIDS drugs in Africa. Presuming the drugs work, countless lives might have been saved. But the desire to protect the high price on the patented drug — despite the low marginal cost for producing additional units — trumped the humanitarian impulse to save lives. The large drug companies refused to budge, despite protests from all over the world.

Defenders of the drug companies say: Well, sure, it is cheap to produce mass quantities of drugs after they have been developed. But the costs of getting there are sky high. If companies can't charge high prices, they won't develop the drugs in the first place.

Boldrin and Levine, in chapter four, offer an interesting response to this claim, but it requires a bit of thought. They point out that the drugs can still be sold profitably at vastly lower prices, in the same way that many other products can be sold profitably at low prices. Items of superhigh cost — think of passenger airlines or cruise ships — recoup those costs through volume sales over time. It is the same with drugs, or could be.

So why wouldn't the pharmaceutical companies budge in the African case? It is due to the fear of reimportation, that is, that the drugs would make their way back to the United States and Canada and be sold at cheap prices, thereby undercutting the monopolistic price. Why not just price discriminate? It's not so easy to price discriminate in a global economy. Rather than take that risk, companies settled for not selling at all. This reflects a general principle articulated by Boldrin and Levine: "Intellectual monopolists often fail to price discriminate because doing so would generate competition from their own consumers."

Think about this principle. It helps explain why large software manufacturers routinely degrade their products available to individual consumers while reserving their better products for the more lucrative corporate market. This is why the versions of operating systems and end-user software are dumbed down on the consumer market. The companies don't want to permit cross-selling between markets, even though the costs of selling better products across markets are virtually identical. Only IP allows them to get away with this sort of behavior.

So, yes, there are some benefits to patents in the same way there are benefits to all monopolists. The Post Office benefits from the prohibition against private delivery on letters. Public schools benefit from regulations on private education and mandatory funding. The electric company benefits from its statutory guarantee against competitive intrusion.

But that is not the same as saying that all groups benefit. Boldrin and Levine examine data from total factor productivity in crossnational studies and show that the astounding increase in patents in the 1990s — rising more than three-fold from a stable rate in previous decades — has had no effect on increases in prosperity and innovation.

Meanwhile, there are huge costs, even for those who acquire and own the patents. Oracle Corporation, for example, spends vast resources on what can be called "defensive patents." They must get them before someone else does, or else risk having to pay huge fees to someone else. Cross-licensing is the only way to develop software now, so the patent route has been forced on everyone. The word "thicket" is the one everyone uses.

What it really amounts to is a cold war between patent holders — a patent race that is very much like an arms race. This is why Nokia owns 12,000 patents and Microsoft is adding 1,000 patents a month to its arsenal. Intel's CEO spoke for many when he said he would be glad to cut the number of Intel's patents to a tenth of its current rate provided that others did the same.

Conventional patent theory says they are necessary for generating revenue to fund research and development, and to inspire innovation. This is supposedly the economically valuable contribution of patents. Then there is the real world. A Carnegie Endowment survey of firms shows that businesses themselves report that this function of patents is mentioned as important only six percent of the time. The main reason businesses say that they want patents is enforce monopoly — preventing people from developing similar but better and cheaper products — and to prevent lawsuits.

They authors describe the result of patents as not a competitive market for innovation but an oligopolistic market structure around patent-pool mechanisms. This affects every industry, as patent battles hinder economic development. A good example is the ongoing battle over who and what can lay claim to the title "basmati" rice. A Texas company called RiceTec won a patent in 1997, infuriating Indian and Pakistani companies that have been making basmati for hundreds of years. These companies have been fighting back with their own attempts to register patents on the rice. What this has to do with the consumer and the dinner table and the need for cheap and delicious food being made widely available is the unanswered question.

A peculiar form of patent abuse comes in the form of the submarine patent. This is a patent taken out early while the production of the product itself is delayed as long as possible. When someone else finally goes to market with a product, the patent emerges from the deep as a method of blackmailing the company that has gone to market.

Boldrin and Levine explain that this tactic dates to George Seldon's patent on the "road engine" in 1895. It commanded 1.25 percent on the sale of every car in the United States. He sold his patent for $10,000 and 20 percent of royalties to a syndicate in 1899. As the car actually started to make it to market, the Association of Licensed Automobile Manufacturers formed a cartel around the patent. The authors comment, "if you were wondering why the U.S. automobile industry developed so quickly into the oligopoly we know and hate, a fair share of the roots lie in bad 'intellectual property' legislation and the intellectual monopoly it created."

Personally, I find that revelation remarkable. More than a hundred years later, we are still paying the price for this car-cartel-creating patent. Something similar happened to airplanes, when the Wright Brothers managed to get a patent on anything resembling an airplane, despite their own contribution to the technology being so meager. They were so aggressive in blasting all competitors that all serious innovation in airline technology ended up taking place overseas in France.

The authors make a statement that I wish could be made more prominent, since it comports with everything I know about businesspeople and patents. It is the most common thing in the world for a businessperson who uses every market-oriented skill to get a product to market: a good product at a good price that becomes the market leader. At this point, and for some odd reason, the businessperson gets confused. He thinks that it his IP that is the key to his success and ends up fighting for it with all his might, even at his own expense.

Here is the statement by Boldrin and Levine:

"Being a monopolist" is, apparently, akin to going on drugs or joining some strange religious sect. It seems to lead to complete loss of any sense of what profitable opportunities are and of how free markets function. Monopolists, apparently, can conceive of only one way of making money, that is bullying consumers and competitors to put up or shut up. Furthermore, it also appears to mean that past mistakes have to be repeated at a larger, and ever more ridiculous, scale.

A clear case in point concerns the Recording Industry Association of America, which managed to make itself appear as the devil incarnate in the eyes of an entire generation of music downloaders. Another example concerns Google Print. This work of genius would have brought all the world's libraries to one central location so that users could search the books and purchase them. Wonderful! But the Authors Guild sued, and the suit has gutted Google Print as a useful tool. The dream of all educated people from the ancient world to the present — a single accessible repository of all the world's wisdom — was stopped for no good reason.

The authors conclude chapter four with a restatement of the theme: the benefits of patents are small and narrow, while the costs are large and broad. The biggest costs are the unseen ones that Bastiat speaks of. These are innovations we don't see, the products that don't come to market, the efficiencies that we never experience, the companies that don't come into existence, and the investment that would have taken place with the resources that are expended on patent acquisition and enforcement. Here are the real costs of patents, and they are incalculable.

The Book and Music Killers

One theory of copyright is that it promotes the production and distribution of literary works. Well, that myth is completely shattered in chapter five of Against Intellectual Monopoly. The chapter is pithy, thorough, dead-on in its practical analysis, and deeply radical. It is the perfect illustration of why I think this is one of the most original and compelling books on economics in a generation.

Copyright is a subject replete with mythology. People toss around junk legalisms that they pick up on the street while knowing nothing about the facts or the law. They imagine that copyright is important for protecting rights, even though the practical reality is that it is a killer of ideas and a rights violator on a massive scale. Indeed, something must be done to crush this institution before it brings the creative and literary arts to a grinding halt.

We must remember that the copyright law is a just another bogus modern institution we can do without, just like the income tax and central banking. International copyright only came to exist in 1891 — it was the result of lobbying not by authors but by publishers! — and has steadily increased over the century to the point of maniacal absurdity today: thanks to the US Congress, an article you write today is under copyright protection until 70 years after your death.

As was mentioned earlier, copyright originated as a kingly permission to publish what was politically correct. The privilege passed to individual writers in the 19th century but didn't stay there long: the publishers inherited the right through contracts, and they now use that right to rob writers, musicians, artists, and consumers of what Jefferson considered to be inalienable.

Did the internationalization and institutionalization of copyright actually achieve its stated aim of promoting literary work? There was no increase in copyright registrations as a percentage of the population between 1900 and 1950, despite the double lengthening of the copyright term. So much for the great outpouring of creativity in literature and music. In 1998, the Sonny Bono/Mickey Mouse Copyright Term Extension Act ("the biggest land grab in history") boosted copyright by 40 percent — but with what effect on incentives to produce? None, so far as anyone knows. But the publishers and moguls who pushed for this nonsense are surely happy that they don't have to work harder and can continue to live off the royalties of their long-dead predecessors.

Boldrin and Levine find that the countries with no copyright legislation (German territories in particular) had more composers per capita than countries like England, where copyright had the effect of bringing the entire composition industry to a grinding halt.

Actually, what that 1998 legislation did was provide a massive boost for authors to find ways out of the chains of copyright. The development of Creative Commons, and other tools, followed because it is ever more obvious that copyright is at war with the digital age. And thank goodness for that. But in the meantime, copyright in the 20th century has accomplished horrible evil.

Large swaths of the literary output of the last 50 years, for example, now lies buried in the vaults of large publishers who neither print them nor permit them to be printed absent some huge fee. Nor will they return rights to the author. Nor will the publishers allow them to be posted. Getting them back in print is a very expensive and time-consuming operation.

In my own work at the Mises Institute, I've encountered a dozen such cases myself, and while most individual cases offer some possibility of a fiduciary workaround, economic considerations on the margin effectively drive these works off the market. Meanwhile, the greatest thing that could ever happen to an author is for his or her works to enter the public domain, but that only happens if you wrote your book before 1963 and the copyright was mercifully not renewed.

Here is a test case brilliantly conceived of by Boldrin and Levine. The works of Edgar Rice Burroughs are right on the fence of the copyright law. Some are out of copyright. Some are in. They compared the circulation between them. The books out of copyright in the Mars series are A Princess of Mars, The Gods of Mars, The Warlord of Mars, Thuvia, Maid of Mars, and The Chessmen of Mars. All of these are available on Amazon, in illustrated HTML versions, as electronic versions to buy and see for free, and in innumerable editions in stores.

Meanwhile, other books in the Mars series are under copyright, including Master of Mars, A Fighting Man of Mars, Swords of Mars, Synthetic Men of Mars, and Llana of Gathol. Every single one of the books under copyright is out of print! This is not an accident. In this way, copyright serves as a tax on production, so of course it results in less, not more.

The same is true of innumerable authors, including many classically liberal authors. The world is highly fortunate that they published with marginal firms that failed to renew their copyrights after they expired. Otherwise, their works would be unavailable. It is in fact tragic that Hayek himself had major publishers who renewed many copyrights, because that fact alone has caused them to be tethered to the point of limiting Hayek's own influence.

What the 1998 act did was put tens of thousands of titles under copyright that would otherwise have been open to the world. All this was done to protect the work of one company — Disney — which ironically made its fortune by making movies based on public-domain stories! The authors here further point out that large companies have no incentive to bring back into print the titles for which they own copyright, because they don't want them to compete with their new hardback titles. It really is a form of legal suppression of literary work going on here, made possible only by the state's law, and it is an outrage. A vast swath of the literary output of the West of the last 50 years has been kidnapped by private parties with the legal approval by the state.

Again, the beneficiaries of the law are not authors and not musicians and artists. Musicians themselves typically earn far more from concerts than royalties. So the conventional theory is wrong: copyright doesn't inspire creativity. These musicians would work and create without it; in fact, no one has a greater incentive for abolishing the current system than creators.

For 2,000 years, the core of musical creativity was the emulation and elaboration on existing musical forms, with composers both competing with each other and cooperating in a communal way toward advancement. They depend most heavily on sharing information. If this is stopped, culturally significant creativity is seriously impeded. Copyright shut the cooperative process down at the turn of the 19th century.

Today, serious "classical" composers have to keep returning to public-domain material like folk songs to make variations on themes. The music of the 20th century is largely off limits. Meanwhile, the search for originality has created bizarre forms of music within the conservatory culture, none of which has sticking power in the culture at large because it is illegal to imitate it.

This whole scenario represents a radical attack on the very essence of cultural advancement. The repeal of copyright would result in a huge outpouring of great music that uses popular music in a variety of different forms. Composers would be unleashed to write, ensembles could perform and record, and musicians of all sorts would produce with glorious new creativity. As it is, they live in a caged world in which lawyers determine what they can write, play, and record. If you understand this, you can see why musical forms have taken such a huge tumble in the last 100 years, while creativity has taken place only in sectors that eschew copyright, such as jazz and independent rock.

As for recording, the whole effort to prevent file sharing has been a disaster for artists. Again, this resulted from special-interest legislation. The tethers are so tight now that many bands are reduced to refusing any recording contracts at all, merely so that they can distribute their own music the way they want to. This has been proven again and again to be compatible with huge sales. The best-selling CDs of last year were also the ones available for free download.

Whenever this subject comes up, people unthinkingly toss around crazy bromides. "You mean you want to allow anyone to just steal anyone's work? Why would anyone bother to write a book or write a song?"

These kinds of questions reflect what happens to our thinking in a time of statism; we can't imagine how freedom would work. We do not, for example, ask similar questions about other sectors.

"If you allow the private growing of vegetables, why would anyone bother to start commercial farms or open grocery stores? If you allow people to cook at home, why would anyone open a restaurant? If you allow people to just share recipes, why would anyone become a master chef? You would allow just anyone to steal the idea of a tomato or a sauce or a fancy dish that took years in culinary school to create?"

These questions only sound stupid to us because we don't have existing laws covering these topics. Somehow everything works out. Because we have copyright, we can't even imagine how we could get along without it. And yet we see many examples around us. Public-domain works are hugely popular and firms profit from selling them, and they are more prevalent than copyrighted works.

What I find striking is that copyright operates today by state-authorized theft of creativity by large firms. Writers and composers and bands permit themselves to be looted of their own right to distribute their own work. Composers work years on a piece and then give up the results to some business corporation in exchange for their right to publicly hum the tune they wrote. It is astounding, and wholly nonviable.

Fortunately, the free market is finding a workaround to evil copyright laws in the form of Creative Commons and other institutions. In this way, at least there is a path to freedom for us, whereas the same can't be said of patent laws.

One last note: Do not write me with some smarty-pants remark about how, if we are serious, the Mises Institute should allow anyone to publish our books. All our new works, insofar as it is possible, will be published with a Creative Commons license as a matter of signed contract with authors. As for this book, please "steal" it. That goes for anything I write. If you can sell it and make a buck, good for you. If you become a millionaire, shame on me for not thinking of it first.

Back to Basics on Property and Competition

Zeroing in on a topic like intellectual property offers a chance to clarify fundamental notions in economics generally. You think you understand something like property rights or the nature of competition — you have studied the ideas for years! — and then a challenge comes along that blows everything up. It's an opportunity. Time to think and think again.

Is there really property in ideas, and if so, what rules should govern it? Is it really necessary that such property be protected in order that competition be kept fair and just and efficient?

The authors of Against Intellectual Monopoly state at the outset of chapter six that property is a great and indispensable thing. It allows people to own, develop, be creative, profit, and build a prosperous society. Societies without private property stagnate and die.

Property rights are necessary too when there is a limit on the number of things in question. But owning a thing doesn't prevent others from owning other things too. For example,- cars. They must be allocated through property rights because there is a potential for conflict if they are collectively owned. But my owning a car doesn't prevent you from owning a car. There is no coercion involved in the institution of ownership.

The authors make a very important point with regard to ideas. If you have an idea, it is yours. You can do with it what you want. If you share it (sing, speak, broadcast, let others see the products of your ideas), others then have copies of it. They are entitled to do with their copies of the idea precisely what you can do with your idea. They can use it how they want provided they don't prevent others from doing with it what they want. This is a simple application of the nonaggression principle that governs a free society. Whether it is fashion, language, know-how, or whatever, people are free to copy.

Ideas, then, are what Mises calls "free goods": copies are potentially limitless. They "do not need to be economized."

Intellectual property is the completely wrongheaded idea that, in the words of the authors, someone has the right "to monopolize an idea by telling other people how they may, or more often may not, use the copies they own." This strikes at the heart of progress, because it means not improving what exists but rather prohibiting others from using and improving it.

In the same way that property is good, competition is also good. It inspires people to strive for excellence, and to measure their progress against what others are doing. It allows people to try and fail or try and succeed. It permits people to learn from each other, looking at what others do that is successful and emulating them. This is how society leaps forward from stage to stage: how we went from horses to engines, how plumbing came indoors, how industry took over from agriculture, how the digital came to be.

Competition is predicated on the ability to learn and copy. If you think about it, this is the essence of daily life. We watch how people do things and learn from them. We get on the subway and hold the stabilizing strap a certain way. We follow fashion sense. We watch the Food Network. We listen to our professors and talk to other students. We read and absorb the ideas of articles on the Internet. The newly taught person becomes a competitor: the student becomes a professor, for example. The protégé is always a threat to the monopoly previously held by the mentor.

What can you copy? Anything and everything. This is not "taking" anything from anyone. The owner of the original idea still has his. Other people now have their copies, and are free to improve them.

Commerce is part of this stream of life, and, in fact, learning through imitation and improvement is even more crucially important if we want to sustain a rising population with ever better health and well-being at their disposal.

Let's say I write a book and publish 1,000 copies. They are all mine. When I sell one, I now have 999 remaining, and the new owner of the one book, in a free society, is free to do with his copy what he wants: use it as a placemat, throw it away, deface it, photocopy, and even republish it. You can even rerepublish it under your own name, though that would amount to the socially repudiated vice of plagiarism (vice, not crime). The new copies, which always involve some cost, compete with old copies.

What are the advantages of living under intellectual freedom as described above? The authors list three main ones: (1) The number of copies is more plentiful and their price is thereby lower, which helps consumers. I like this point because it underscores that IP is really what the old classical liberals denounced as a "producers' policy," like protectionism or industrial subsidies. It beefs up the bottom line of specific firms at consumers' expense. (2) The initial innovator still earns money, as in the perfume or fashion or recipe industry. (3) "The market functions whether there is one innovator or many — and socially beneficial simultaneous innovation is possible."

The authors give the example of Mozart and Beethoven, who published without IP but did very well by being the first to market. This is the source of profits. It's the same today with products such as the iPhone. It was the first-time market, and Apple made a killing, enough of one to have inspired and ratified the initial innovation. Now they are attempting to prolong their period of monopoly profits by considering patent suits against imitators. Society is certainly not better off under these conditions. As the authors say, "the goal of economic efficiency is not that of making monopolists as rich as possible, in fact: it is almost the opposite. The goal of economic efficiency is that of making us all as well off as possible."

It's interesting how people immediately object that no one would create things under free-market competition. Look around! A tiny fraction of what we use and experience every day is subjected to intellectual monopoly. And look at your own life. Do you trim the bushes in front of your house only because you then have copyright to your new design? Do you take a casserole to a potluck lunch only on the belief that no one is permitted to copy your dish? Do you wear a navy jacket with a yellow tie only on the condition that no coworker is permitted to do the same? There was no IP at all for many centuries during the greatest period of modern economic growth from the 15th century onward.

Others generate all kinds of arguments to show that competition doesn't work. For example, we are told that very high costs are associated with some investments, and so monopoly is required in order for investors to make a profit and thereby have incentive to invest and innovate. The authors cite the cases of shoes and gasoline. Building a shoe factory or an oil-refinery plant is a very expensive undertaking, and competition is everywhere. But somehow no one suggests that these must thereby be produced under monopoly conditions. I suggest that that reason is that we experience competitive conditions in these industries; it is so difficult for people to even imagine freedom where it doesn't exist.

I recall a story told to me by an economist who was serving as an adviser to a former Soviet satellite state. He advised free labor markets and privatization. Officials objected that this wouldn't work because people might build plants where there are no workers. He said that people would just move to the places where capital is most profitable for labor. The officials objected that they couldn't possibly allow the freedom for people to live wherever they wanted; this would amount to an intolerable kind of anarchy. They just couldn't imagine how such a system could work!

There are advantages to being the first mover in markets, and here is the main source of the innovator's profits. But there is no reason to freeze the market process right there. In many ways IP represents the same fallacy that antitrust does: it takes a snapshot of the economy in one stage and evaluates it and manufacturers a policy response. Antitrust tries to break up what only temporarily appear to be monopolies; IP attempts to create and sustain monopolies over time. Competition, by contrast, lets the market work as an undirected and uncontrolled and rivalrous process of discovery, emulation, and creativity.

Will some firms suffer under competition? Of course. "Competition is not a gala dinner," write Boldrin and Levine, "and getting rid of inefficient firms while allowing efficient ones to blossom is exactly what competition is supposed to accomplish."

The chapter ends with a hymn to imitation as a social force. These few paragraphs are so important, and what they imply is something that I believe has been overlooked by classical liberals. It is a foundation of social order. And that gives us three talked about this chapter: property (which gives rise to exchange), competition (a species of cooperation), and imitation (learning through emulation).

Fallacy Run Amok

Fed up with the patent craze, The Economist magazine wrote the following in a main editorial:

The granting of patents "inflames cupidity," excites fraud, stimulates men to run after schemes that may enable them to levy a tax on the public, begets disputes and quarrels betwixt inventors, provokes endless lawsuits. … The principle of the law from which such consequences flow cannot be just.

It's not in a current issue. That was published in 1851, but every word of it remains true today. It was once conventional wisdom among economists that state-granted monopolies were as bad as mercantilism. But in the meantime, sometime after the middle of the 20th century, the conventional wisdom became confused.

The source of the problem was a mechanistic view of the market embodied in the idea of general equilibrium theory. It is a theoretical picture of what the macroeconomy looks like when all the dust is settled.

Demand and supply perfectly match. The prices of all things have been competitively bid down to their cost, so there are no profits. All prices are a given and all markets are cleared. There is perfect information, perfect rationality, no uncertainty and no transaction costs or any other costs. Indeed, there is no activity at all. All the world is made of perfectly satisfied robots.

It's a mathematical notion only, but once it is embedded in your head as a picture of a perfect economic world, it is not a small step toward using it as a benchmark for the whole of economic theorizing. It turns out that the case for patents and copyright is bound up with this theoretical notion, and Boldrin and Levine's seventh chapter of Against Intellectual Monopoly has the authors grappling with this idea's problems.

Joseph Schumpeter was an advocate of patents precisely because he couldn't shake the general equilibrium idea out of his head. He sought to account for how change happens under general equilibrium, and settled on a theory of entrepreneurship that imagines an innovation that shakes up the dust before it settles into a new pattern (Rothbard called this "breaking out of the Walrasian box").

With his benchmark, imitation would be as a costless as any other activity, so it seemed necessary for the innovator to have an exclusive for a period, during which profits could be earned. Otherwise, the creative destruction necessary for social and economic advance can't take place.

Well, the core problem here is that general equilibrium has nothing at all to do with the way an economy works, as the Austrians have pointed out for half a century. There are costs to every action, pervasive uncertainties in all aspects of life, entrepreneurship is inherent in all action, and the clearing of markets takes place over time and through a process of ceaseless trial, error, and change.

It is a fascinating idea that the core reason why economists have only recently begun to look critically at the problem of IP is due to the triumph of the general equilibrium construct and the associated mathematization of the profession that excludes the possibility of modeling central features of real-world markets. We can chalk this up as yet another cost associated with the refusal of the profession to fully absorb the ideas of Menger, Mises, and Hayek.

This is the core theoretical problem with those who believe that innovation cannot occur in the absence of IP law: they assume a world in which all the hard stuff of life is a snap. In fact, imitation is costly and takes time. It requires effort. Even if a process or product is perfectly imitated, getting the product to market is a far more serious hurdle than simply copying something. It took a hundred years for the process of silk making to be imitated successfully. Even to this day, most of the world cannot figure out how to make a decent cup of espresso.

And even the possibility of quick and easy imitation doesn't strip away the profits associated with being first to market. I'm pretty good at making ice cream, and I could probably replicate the Moosetracks recipe over the course of a weekend of experimenting. But it isn't the Moosetracks trademarks, copyrights, and patents that prevent me from doing it. It is because I have better things to do, and bringing anything to market has huge opportunity costs.

Even if competitive but nearly identical products make it to market, that doesn't necessarily mean that the first mover cannot maintain a profit stream. The authors cite the case of TravelPro, the suitcase with the handle that has thousands of imitators. Yet even now, TravelPro does a booming business through ceaseless innovation, marketing, brand recognition, and competitive pricing.

If you take the arguments of the IP advocates seriously, you would never be able to figure out how there could be a thriving market for pizzas. There are high start-up costs (buildings, employees, ovens, drivers, technique) and yet there is a very low marginal profit associated with selling each one, a product that can be imitated by anyone. Surely there must be a recipe copyright, a patent on the pizza, a monopoly of providers, in order to make sure that someone is willing to undertake this task. And yet look around: there are a dozen places you can call to bring a pizza to your desk in 20 minutes.

Another argument concerns the idea of overgrazing. If you put ideas into the commons, they will be overused and degraded the same as regular property. This is true with real property. Public schools, public roads, public lands, and the like are all overutilized and fall into disrepair for lack of any economizing mechanism that allows rational allocation.

What about intellectual property? The Walt Disney Company says that its IP in Mickey Mouse is designed to prevent overgrazing, that if he went into the public domain, he would be drawn as cat food or placed in unseemly settings. Its currency would be debased.

Of course you can make the same argument about anything, such as pizzas or all food, but there is no question that, while an imaginary pizza and food monopolist would be worse off under competitive conditions, society is most certainly better off because anyone can make a pizza or make food. The authors make a further telling point in passing: when some good or service today is labeled as "Mickey Mouse," it is certainly not intended as a compliment. So despite the monopoly, the cartoon figure has certainly been degraded.

Many pro-IP arguments boil down to beliefs that something is either going to be undersupplied or oversupplied on a competitive market. In other words, this is the same argument used for all forms of claims about "market failures."

I can recall that there was great controversy when the first books about medical information and pharmaceutical drugs came on the market. Shouldn't doctors and pharmacies hold the monopoly? Somehow, however, everything worked out. We buy books, look up medical information online, and still go to see the doctor.

All providers are annoyed by competition. College professors are not entirely thrilled about Idiots and Dummies guides, but sometimes a colleague breaks ranks and writes one. This is just part of the rough and tumble of life in the absence of a general equilibrium.

The Hoax of Invention History

All popular business histories are replete with lies. Or, to be more charitable, they are filled with untruths based on a stupid version of cause and effect: inventions happen because people take out a patent on them. This assumption is hardly ever questioned in the mainline literature. Writers look through patent records and assume that they are a record of technological advance.

The truth is far messier. The patent records are a snapshot of those who filed a patent, and nothing more.

It is because of patent-based historiography that people believe that the Wright Brothers invented the airplane, when in fact they made only a tiny contribution of combining wing warping with a rudder. It was Sir George Cayley in Britain and Otto Lilienthal of Germany who did the bulk of the work of inventing the airplane. But it was the Wright Brothers who applied for the patent and quickly used it against Glenn Curtiss, who improved wing warping with movable control surfaces.

So it was with the radio, which is conventionally attributed to Guglielmo Marconi, the Nobel Prize winner in 1909. What about the contribution of Oliver Lodge in the UK or the forgotten genius Nikola Tesla or the Russian Aleksander Popov or the British Naval engineer Henry B. Jackson?

All Marconi did was ground the antenna, and also manage to win the patent wars thanks to the deep pockets of fellow aristocrat and partner Andrew Carnegie. Fifty years after the patent was granted, the Supreme Court conceded that it was unjustly given, but by then the other claimants were dead! (Marconi was consistent at least: he was a big supporter of fascism in Italy.)

Then there is the famous myth about Alexander Bell that displaced knowledge of the real inventor of the telephone, Antonio Meucci. But Meucci couldn't afford the fee to file the patent. This oversight was fixed in a 2002 declaration by the US Congress but just a bit too late.

There is an unlimited number of such cases that lead to fundamental questioning of the relationship between patents and innovation. It turns out that there are very few great leaps forward in history that are the result of a single, Prometheus-style figure. Most advances are the cooperative work of many factors alive in society, with individuals improving things a bit at a time until all those improvements come together in a marketable form.

The patent has essentially nothing to do with it. And Boldrin and Levine are hardly the first to point this out. You might be surprised to know that many academic economists have done empirical studies on the relationship between patents and economic advance. Of all those studies they reviewed, 23 in total, they found none that could establish a strong relationship, and many that found negative relationships between patents and development: that is, that patents actually impede progress.

What they found further is that the main contribution of patents is to increase the production of patents. But that is not the same as increasing invention, for the main use of the patent is to put a stop to any similar innovation that builds upon and improves the patented thing. The patent holder rides high for a time, but history is actually frozen in place. The process of imitation and sharing that led to the innovation becomes formalized, centralized, fixed, and stagnant.

They examine the case of databases, which are patented in Europe but not in the United States. The United States wins the competition easily. The American dominance of database production runs 2.5:1 compared with Europe. To me, this helps explain what many have noticed, namely that Europe is seriously behind in its digitalization and organization of information, with most Europeans possessing oddly antiquated intellectual capital concerning even the most basic databasing skills. Now we know: it's not their fault; it's the fault of their IP regimes.

Thus does chapter eight of Against Intellectual Monopoly discuss all the existing literature that makes the case — on purpose or inadvertently — against patents. It is packed with empirical detail, but in particular I'm intrigued at their review of the history of musical composition in England and Europe during the 18th and 19th centuries.

They find that the countries with no copyright legislation (German territories in particular) had more composers per capita than countries like England. And in England in particular, the 1750 copyright law, extended to music in 1777, had the effect of bringing the entire composition industry to a grinding halt. And later, when copyright was imposed on Italy and France, it led to a diminution of composer effort.

This demonstration is intriguing beyond what most music historians can possibly imagine. It solves a long-running mystery concerning how it came to be that the most musically educated population in the world, one with a massive history of compositional genius, would suddenly fail to participate in the progress that defined the age of Mozart and Beethoven. These historians just haven't known where to look for clues.

This chapter makes me sad for all the great innovators whose names are not in the history books, and even sadder for all of us who have been denied great innovations because some fool managed to make it to the patent office first only to use that privilege to kill his competition the next day. Far from encouraging innovation, patent and copyright have managed to kill off so many wonderful works of art and technologies that it boggles the mind. In order to understand this, you have to look beyond the patent records. You have to train yourself to look at the unseen costs of government regulation.

Do Patents Save Our Lives?

How essential are drug patents as a piece of the machinery of the modern pharmaceutical industry? Incredibly so. Repealing them with no other changes would likely lead to a dismantling of a massive and lucrative industry that saves lives every day.

To elaborate, without patents, compensation for the hundreds of millions of dollars necessary for jumping through FDA hoops would not be forthcoming. Without patents, the huge manufacturers, who face mandatory disclosure requirements, would have their formulas taken by others, and knockoffs would immediately drive the price to marginal cost.

The vast costs of redundant testing and retesting could not be absorbed by future revenue streams. And these streams are themselves uncertain due to the arbitrariness of the FDA's process. And thanks to wicked antitrust laws, companies face a legal minefield in combining efforts, cooperating on research, maintaining prices, and sharing markets.

But notice that all the reasons why patents in pharmaceuticals seem necessary are themselves due to some other form of government intervention: drug regulation, antitrust, government funding, and government mandates of all sorts. Regulation has begotten regulation, with each step seemingly dependent on every other regulation.

The result is a massive rat's nest of laws that is buried deep within a much larger hairball of the medical industry itself, which has been dominated by increasingly tight state controls for nearly a century. Then there is a further problem of liability confusion and court precedent that is woven through the system like a tapeworm in a deeply diseased body.

How can anyone begin to discuss only one aspect of the marketplace without thoroughly discussing all the other aspects? How can the authors of Against Intellectual Monopoly possibly sort through this thicket to make a case for repealing patents on pharmaceuticals?

Because of the above complications, I dreaded this chapter most. I was wrong to do so. What they have produced is a masterpiece of exposition. They have both the big picture and the small picture, with fascinating details in paragraph after paragraph. They take the reader through the logic and evidence at just the right pace, and manage the seemingly impossible: the reader is wholly convinced that drug patents are not necessary and in fact are doing great evil in the world today. It is the hardest case to make, and they knew this going in. Theirs is a virtuoso performance, worthy of separate publication.

Some people love the pharms and other people hate them. The authors take a middle-ground position. They do great good for the world. But they are embedded deep within in a regulatory regime that is stultifying the industry, and drug patents play a big role in this.

Can we imagine a world without drug patents? No need to dream. In the sweep of history, patents like we have today are essentially a postwar phenomenon, and prior to that, the industry developed faster in countries without patents than those with them. One way to show that is to examine 19th-century chemical production. They tell the story of the French patent on coloring dyes granted to the La Fuchsine company, a patent that pretty well destroyed all development in France, while the absence of patent in Germany, Switzerland, and Britain led to massive innovation and the beginnings of the modern industry. The United States was very behind here due to its strong patents, and even in the First World War the United States had to import dyes from Germany in violation of the British blockade. This was how DuPont got its start.

In recent decades, there have been pockets of pharm-patent freedom. Before 1978, it was Italy where a thriving industry existed for a century in the absence of patents. The patent accounted for the discovery of ten percent of the new compounds between 1961 and 1980. Foreign companies poured into Italy to imitate and develop. But this shut down after 1978, when Italy introduced patents under pressure from foreign multinationals. India then took the position of the free-market country, and its industry became a huge player in the generic-drug production market, until India too was forced into the WTO agreement and shut down its dynamic market.

The whole world of pharmaceuticals is now engulfed in an incredible patent thicket, and people praise all the innovation