Against Monopoly

defending the right to innovate

IP and Economics

Monopoly corrupts. Absolute monopoly corrupts absolutely.

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IP and Artificial Scarcity

Someone recently told me "I just ran across a few of your interviews and writings. I was particularly impressed with the point that IP creates scarcity where none existed before. Despite its obviousness, it is characteristic of IP that had not occurred to me before."

So I thought I would elaborate a bit on this. The "artificial scarcity" insight is indeed a good one, but it is not mine. From pp. 33-34 of Against Intellectual Property:

Ideas are not naturally scarce. However, by recognizing a right in an ideal object, one creates scarcity where none existed before. As Arnold Plant explains:
It is a peculiarity of property rights in patents (and copyrights) that they do not arise out of the scarcity of the objects which become appropriated. They are not a consequence of scarcity. They are the deliberate creation of statute law, and, whereas in general the institution of private property makes for the preservation of scarce goods, tending . . . to lead us "to make the most of them," property rights in patents and copyrights make possible the creation of a scarcity of the products appropriated which could not otherwise be maintained.[64]
Bouckaert also argues that natural scarcity is what gives rise to the need for property rules, and that IP laws create an artificial, unjustifiable scarcity. As he notes:
Natural scarcity is that which follows from the relationship between man and nature. Scarcity is natural when it is possible to conceive of it before any human, institutional, contractual arrangement. Artificial scarcity, on the other hand, is the outcome of such arrangements. Artificial scarcity can hardly serve as a justification for the legal framework that causes that scarcity. Such an argument would be completely circular. On the contrary, artificial scarcity itself needs a justification.[65]
Thus, Bouckaert maintains that "only naturally scarce entities over which physical control is possible are candidates for" protection by real property rights.[66] For ideal objects, the only protection possible is that achievable through personal rights, i.e., contract (more on this below).

[64] Arnold Plant, "The Economic Theory Concerning Patents for Inventions," p. 36. Also Mises, Human Action, p. 364: "Such recipes are, as a rule, free goods as their ability to produce definite effects is unlimited. They can become economic goods only if they are monopolized and their use is restricted. Any price paid for the services rendered by a recipe is always a monopoly price. It is immaterial whether the restriction of a recipe's use is made possible by institutional conditions such as patents and copyright laws or by the fact that a formula is kept secret and other people fail to guess it." [For more on Mises's view of IP, see Mises on Intellectual Property.]

[65] Boudewijn Bouckaert, What Is Property? (text version) in "Symposium: Intellectual Property," Harvard Journal of Law & Public Policy 13, no. 3 (Summer 1990), p. 793; see also pp. 797-99.

[66] Bouckaert, "What is Property?" pp. 799, 803.

Bouckaert's paper, What Is Property? (text version), is, by the way, superb and highly recommended.

Update: Jeff Tucker's article and recent speech had me thinking about something that ties into this post well. People want to impose artificial scarcity on non-scarce things because they think scarcity is good. But they have it backwards. If anything, we should want material things to be non-scarce.

In Tucker's talk, he was pointing out the difference between scarce resources and non-scarce, infinitely reproducible ones. Yes, they are different, but I think we also need to combat another fallacious view: people seem to implicitly think it's bad that ideas are infinitely reproducible. This is a "problem" we need to combat by making them artificially scarce. But it's a good thing. i.e., at least ideas are non-scarce; but unfortunately, material things are scarce. But it would be good if material things were more abundant. So imagine that some benevolent genius invents a matter-copying device that lets you just point it at some distant object, and instantly duplicate it for free for you. So I see a coat you are wearing, click a button, and now I have an identical copy. I see you having a nice steak, and duplicate it. Etc. This would make us all infinitely wealthy. It would be great. Of course people would fear the "unemploymetn" it would cause--hey, I want to be unemployed and rich! And the rich would hate it because they would now not be special. They couldn't lord their Rolls Royces and diamonds over the poor; the poor would have all that (it would be similar to how audiophiles were irked by the advent of the CD so tried to find granite turntables etc. to pretend they were still better). So imagine a rich guy suing a guy who "copied" his car.... imagine farmers suing people who copied their crops to keep from starving... how absurd! And what damages would they ask for? Not monetary damages--the defendant could just print up wealth to pay him off! So the only remedy he could want would be to punish or impoversih the defendant... for satisfation, to once again feel superior. How sick. As my friend Rob Wicks noted, you could imagine a short story based on this in which judge orders a famine as a remedy to crop-copying.


I strongly appreciate the focus that this post takes on the point of scarcity. At its heart, I can't help but feel that IP law in its current form makes little sense due to the way scarcity works. It seems almost as if we completely ignore the fact that information is infinitely reproducible so long as mediums exist. I also can't help but feel that this artificial scarcity is causing money to flow into pockets in which it doesn't belong. I'm certainly not an economist but my intuition is telling me that the economy is working less efficiently when money is flowing into the pockets of the undeserving. That is to say, in my head I create a distinction between "useful work" and "useless work". Anything that advances Humanity would be useful whereas anything that allows Humanity to further stagnate is useless. Most entertainment would be "useless work" and the reason I feel that this is so is because you don't have actual progress occurring when a transaction exists for a license to IP. While one could argue that IP laws help create culture and this is "useful work", I'd argue that culture did a good job of creating itself prior to IP law. And, assuming it's a good and well constructed argument, with the ease of reproducing data these days it's impossible to imagine that people aren't grossly overpaying for content.

Ultimately, what you're pointing to feels like it's damaging the global economy in its own little way. Though, I'd gladly pay an entertainer to entertain me as, at the very least, some work is being done by an individual as a result of my payment. But it seems absolutely absurd to further line the pockets of unrelated people because I decided to purchase a license to an album that's fifty years old.

Yeah, good stuff. Sometime ago I wrote a nice little article to explain to people why IP is so confusing, making a general conclusion that it is a very unnatural concept:

Why intellectual property is such a confusing concept

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