Milton Friedman (and Rothbard) on the Distorting and Skewing Effect of Patents

Friedman wrote, in Capitalism and Freedom:

there are many “inventions” that are not patentable. The “inventor” of the supermarket, for example, conferred great benefits on his fellowmen for which he could not charge them. Insofar as the same kind of ability is required for the one kind of invention as for the other, the existence of patents tends to divert activity to patentable inventions.

As I noted in The Forgotten Costs of the Patent System, the patent system “skews resources away from theoretical R&D and toward practical gizmos and applications, which surely has some cost as well”. Friedman recognized this, but still, bizarrely, supported patents (though he wanted shorter terms). Rothbard also recognized this,¹ but, unlike Friedman, opposed patents (sort of; he supported “common law” or “contractual” copyright which includes inventions like mousetraps).

Update:

See on this also Arnold Plant, “The Economic Theory Concerning Patents for Inventions,” p. 43. As Rothbard writes (Man, Economy, and State, pp. 658–59): “It is by no means self-evident that patents encourage an increased absolute quantity of research expenditures. But certainly patents distort the type of research expenditure being conducted. . . . Research expenditures are therefore overstimulated in the early stages before anyone has a patent, and they are unduly restricted in the period after the patent is received. In addition, some inventions are considered patentable, while others are not. The patent system then has the further effect of artificially stimulating research expenditures in the patentable areas, while artificially restricting research in the nonpatentable areas.” See also Milton Friedman on the Distorting Effect of Patents.

See also Petra Moser, Patents and Innovation in Economic History (Feb. 2016): “when patent rights have been too broad or strong, they have actually discouraged innovation”. “Moser looks at the products exhibited at the World Exhibitions of the late nineteenth century and asks whether the presence or absence of patent systems across countries affected the types of industries that emerged. She finds that countries that either lacked patent systems entirely or that had weakly enforced patents tended to focus on a small set of industries that depended on technologies that could not be backward engineered, such as the manufacture of scientific instruments.”.

See also See p. 21 of Machlup & Penrose, “The Patent Controversy in the Nineteenth Century” (1950), pointing out that in the late 1800s debate over patents, “Some writers held that patents may promote technological innovation in earlier stages of industrial development while at more advanced stages they become retarding influences.”

Update: See also

Julio H. Cole, “Patents and Copyrights: Do the Benefits Exceed the Costs?”, J. Libertarian Stud. 15, no. 4 (Fall 2001): 79–105, the section “Distorted Incentives,” p. 93.

1. See Murray N. Rothbard, Man, Economy, and State, scholar’s ed’n (Auburn: Mises Institute, 2004) , ch. 10, sec. 7: “It is by no means self-evident that patents encourage an increased absolute quantity of research expenditures. But certainly patents distort the type of research expenditure being conducted. . . . Research expenditures are therefore overstimulated in the early stages before anyone has a patent, and they are unduly restricted in the period after the patent is received. In addition, some inventions are considered patentable, while others are not. The patent system then has the further effect of artificially stimulating research expenditures in the patentable areas, while artificially restricting research in the nonpatentable areas.” See also Arnold Plant, “The Economic Theory Concerning Patents for Inventions,” in Selected Economic Essays and Addresses (London: Routledge & Kegan Paul, 1974), p. 43 (originally published in Economica, New Series, vol. 1, no. 1, Feb., 1934, 30-51).   [↩]