Mr. IP Answer Man Time: On Steel and Swords

From V:

Dear Professor Kinsella,

I am an economics scholar in the Austrian economics tradition, I am an adherent of the libertarian outlook on life and have read many of your articles on intellectual property and decentralised law.

I was reading your book, Against Intellectual Property. The book is very clear and precise in pinning down the opposing ideas for intellectual property and showing their weakness further. The justification of property rights on the basis of scarcity is a more solid foundation than the idea of natural rights. Carl menger has the same line of thinking with regards to how it is only the scarcity of goods which makes them economic goods and leads people to economize on them, therefore That idea is also as solid as a rock but in the third chapter “IP AND PROPERTY RIGHTS” on page no 36 in the section Creation vs. Scarcity, I think you have made a remark which justifies patents as property rights…

KINSELLA:

Aside: Could you point me please to the exact section of Menger that you think is compatible with my arguments–? I’m generally aware of his work but would like to scrutinize anything IP-related more closely. And do you know if he ever said anything about patent & copyright specifically, pro or con? Then I could add him to Classical Liberals, Libertarians, Anarchists and Others on Intellectual Property.

V:

[quoting Kinsella in AIP:]

“The general rule, then, is that ownership of a given scarce resource can be identified by determining who first occupied it. There are various ways to possess or occupy resources, and different ways to demonstrate or prove such occupation, depending upon the nature of the resource and the use to which it is put. Thus, I can pluck an apple from the wild and thereby homestead it, or I can fence in a plot of land for a farm. It is sometimes said that one form of occupation is “forming” or “creating” the thing.72 For example, I can sculpt a statue from a block of marble, or forge a sword from raw metal, or even “create” a farm on a plot of land.We can see from these examples that creation is relevant to the question of ownership of a given “created”scarce resource, such as a statue, sword, or farm, only to the extent that the act of creation is an act of occupation, or is otherwise evidence of first occupation. However, “creation” itself does not justify ownership in things; it is neither necessary nor sufficient. One cannot create some possibly disputed scarce resource without first using the raw materials used to create the item. But these raw materials are scarce, and either I own them or I do not. If not, thenI do not own the resulting product. If I own the inputs, then, by virtue of such ownership, I own the resulting thing into which I transform them. Consider the forging of a sword. If I own some raw metal (because I mined it from ground I owned), then I own the same metal after I have shaped it into a sword. Ido not need to rely on the fact of creation to own the sword, but only on my ownership of the factors used to make the sword.”

If we are allowing a sword to be a creation on the basis of first occupation of ownership over scarce resources of the raw materials used in its production, one can similarly argue that all the expenditures which are incurred in the process of making an invention, lets say steel in the case of some new invention, it gains legitimacy of becoming a property. This also perhaps justifies why only materially useful ideas, i.e the practical application of theoretical abstractions are available to become patents.

KINSELLA:

I’d be happy to discuss with you, on Zoom or whatever, but I think this is not right, if I am understanding your argument/question correctly. When I say scarce resources I mean only the types of things–scarce, rivalrous, “conflictable” means of action–over which multiple actors can have physical conflict. See On Conflictability and Conflictable Resources.

So the steel is such a resource. But of course steel is not found in nature, so the iron ore is the resource that is first owned by occupation (original appropriation), and then its title can be transferred by contract. So we can always identify the owner of a lump of ore by asking: who found it first, and who got it by contract from someone else? If someone transforms the ore into a sword, with his labor and intellect, then he may, or may not, own the resulting sword. His labor or “creation” of the sword doesn’t answer the question. He doesn’t only come to own the ore after he makes it into a sword; he had to own the ore before hand, to own the sword that he transforms it into. That’s why creation is not necessary for ownership. I own the ore even if I never transform it into a sword. If the swordsmith is a worker at a sword company, the employer owns the ore and the employee who “creates” the sword does not own it. That’s why  creation is not sufficient for ownership. Ford owns the cars its workers make. (I reject the labor theory of value of course.)

You wrote: “one can similarly argue that all the expenditures which are incurred in the process of making an invention, lets say steel in the case of some new invention, it gains legitimacy of becoming a property. This also perhaps justifies why only materially useful ideas, i.e the practical application of theoretical abstractions are available to become patents.”

I am not quite sure what you mean here, but you seem to be implying that the expenditures–the input factors (?)–that go into the sword become owned when you make the sword. I.e., steel is one of the inputs into a sword, and so is labor and the practical ideas that guided the creation of the sword. If the steel becomes owned as “part of the sword” because it is one of those input factors, then so is the idea of making a sword from steel, since it is also an input factor. (By that reasoning, the “labor” you put into it is also owned by this process, since it is also an input factor. As is time, etc.)

If this is your argument, it seems to hinge on the assumption that the ownership of the steel somehow occurs when it becomes shaped into the sword. If so, this is the error. The materials that go into the sword are already owned by someone–either the swordmaker himself, or his employer. If he owns the ore, then he owns the new thing he rearranges or transforms it into. If someone else owns the ore, then the resulting sword is owned by that owner, or whatever the contract between the owner and the maker specifies. Maybe I give my gold nuggets to a mint and they make 100 gold coins for me and I “pay” them by giving them 10 of them, and i get the other 90. For more on this see Locke on IP; Mises, Rothbard, and Rand on Creation, Production, and ‘Rearranging’. Note that the act of producing–of transforming–creates wealth but not property rights. This is the mistake a lot of IP advocates make. See “Intellectual Freedom and Learning Versus Patent and Copyright,” the section “Creation of Wealth versus Creation of Property”.

Now let me take your second sentence: “This also perhaps justifies why only materially useful ideas, i.e the practical application of theoretical abstractions are available to become patents.”

As I just noted, I don’t think creating a sword implies any new acquisition of property rights at all. Creation is transformation, rearranging–of already-owned raw materials. So I don’t think it implies anything about ideas.
Remember, all human action requires two fundamental ingredients: the availability of scarce means (e.g., raw materials, input factors to production) and knowledge to guide the action. This is basic praxeology. Humans act, meaning the aim at some future goal or end–some new state of affairs in the future that would not happen without some causal intervention in the world; the act employs scarce means, but is guided by knowledge or ideas. If you know nothing, you cannot act; you would not have “felt uneasiness” at the prospect of some undesired future state of affairs; you would not be aware of laws of cause and effect and the availability of resources/means that could be employed to possibly achieve a preferable and different future state of affairs or end state. So action has to employ means, and be guided by ideas. The scarce means are things that are conflictable, and, in addition to having possession or access to them, preferably we also have juristic, normative ownership recognized in these things to make the use of them more efficient–that is, there is less violent conflict if enough people voluntarily adhere to the property rights assignments (but keep in mind that this juristic ownership right is not essential to economic analysis of action per se). But for the information or knowledge component of action, the ideas that guide the employment of the means, everyone can use the same techniques and knowledge of cause and effect at the same time with their own bodies and with the local means at their disposal, without conflict. So property rights in information literally makes no sense.

In I would go further: information cannot be owned. It is not just that I think it’s unjust to allow ideas to be owned. It’s not just that law “should not” allocate ownership in ideas. Rather, it is impossible. All ownership or property rights is an enforceable claim–note the physicalist term “force” here–to control or use a given resource. As I said, the two core principles that answer the question: “who is the owners of this contestable, conflictable, scarce, rivalrous resource” are: original appropriation (occupation), plus contractual title transfer.

When IP rights are granted, it is not actually a property right in an idea that is granted, since this is impossible. Rather, an IP right gives a third party a partial property right in scarce resources that are already owned by others: the property right is a negative servitude or easement that gives the IP holder a veto right over certain uses to which the owner can put the resource.

Now, such negative easements are legitimate when the owner grants them by contract—consensually. This is the basis of restrictive covenants used in homeowners associations.  These contract-based co-ownership arrangements are legitimate because the owner consents, just as sex between two people is unobjectionable if both parties consent to the others’ use of their body. But just as sex with a woman who does not consent is rape, so a negative servitude granted by the state, that the owner of the burdened property never contractually consented to, is a taking of property and a derogation from the two core principles. It is adding a third principle to determine ownership of a scarce resource: original appropriation; contract; and “did someone think of a way to use his property first”. This is one reason for the title of one of my early piece on IP: “In Defense of Napster and Against the Second Homesteading Rule,” from 2000. This “second” “homesteading” or property allocation rule is incompatible with and undercuts the core principles, for the same reason that you cannot grant people positive welfare rights without undercutting and invading their natural rights (if you have a right to food, someone has an obligation to provide you with it, which must be satisfied by taking some of your property), and just as inflating money does not create wealth but dilutes the purchasing power and value of existing money. You can’t get anything for free. Positive rights take away negative rights; printing money robs existing money holders. Likewise adding a third property allocation rule undercuts and undermines the first two. That is why IP rights are socialistic interferences with private property rights.

V:

I wanted to know your thoughts about it as all the criticisms you make against intellectual property in not allowing the market process to work efficiently is true. I have been inspired to be on the same mission as you are thus your response would immensely benefit me.

KINSELLA:

Please let me know what you think and if I have gotten your question right. I’d be happy to discuss further, either here in email or by zoom call. Let me know.

UPDATE:

V sent back some replied, see below, followed by my partial response.

V:

Thanks a lot professor for your consideration to what I had to say, I would like to point out a few more things which I think would solidify my objections.

As you correctly point out, human beings engage in purposeful action on the basis of their intensity of desire which causes discomfort to them, this leads the agents to identify means with which they can satisfy that desire. Let’s imagine two cases one where is a single well in village whose water is not enough to satisfy all the thirst (desire) of each of the member of that village, this would lead to them assigning them property rights over the amount of water each of the villagers can have, here water becomes a means to the end that they desire. Water in this case would gain property rights because it facilitates a more consensual society thereby minimizing costs associated with violence. While if we take another case where there is more than enough water such that each member of the village would be able to satisfy his wants to the highest, there water wouldn’t gain property rights as no individual usage of the means(water) hampers any other agent’s ability to satisfy their desire

Now keeping the above in mind knowledge and information are rivalrous in nature because they limit the satisfaction of the end(profit) for firms. The firms with knowledge and information will take away profits from other firms who don’t have that information or knowledge thereby hampering their ability to satisfy their desire for profits. This leads to them gaining property rights.

This doesn’t mean that we ought to consider patents as property rights but only that within the conception of property rights based on the rivalrous nature of competition they gain property rights. The answer in my mind to our problems lies in your own book professor in the passage before where you point out that when someone buys a harry potter novel any restriction on their ability to use the harry potter book by the owner of the book is a form of trespassing on another’s property. It is a potential fraud committed by the author as in an exchange, the person who gets the object in exchange has an inalienable right to do with it as he pleases.

The proper solution is once consensual exchange takes place, if I am limiting your ability to use an object which you have received through exchange, I am infringing upon your property rights, for example, we are communicating thoughts and ideas with each consensually whereby if I were to say you can’t use these ideas it would be a violation of your property because you exchanged your time and mind for what I had to say, therefore any ideas which come out as a byproduct of our communication can be used by either of us in anyway we desire.

Carl Menger in the second chapter ( book: Principles of economics) ECONOMY AND ECONOMIC GOODS in his section on the origin of human economy and economic goods talks about the need for property rights based on our shared conception of rivalrous competition for resources, it was actually his book where I take the argument for need for property rights from.

[quoting Kinsella] “Steel is such a resource. But of course steel is not found in nature, so the iron ore is the resource that is first owned by occupation (original appropriation), and then its title can be transferred by contract. So we can always identify the owner of a lump of ore by asking: who found it first, and who got it by contract from someone else? If someone transforms the ore into a sword, with his labor and intellect, then he may, or may not, own the resulting sword. His labor or “creation” of the sword doesn’t answer the question. He doesn’t only come to own the ore after he makes it into a sword; he has to own the ore beforehand, to own the sword that he transforms it into. That’s why creation is not necessary for ownership. I own the ore even if I never transform it into a sword. If the swordsmith is a worker at a sword company, the employer owns the ore and the employee who “creates” the sword does not own it. That’s why creation is not sufficient for ownership. Ford owns the cars its workers make. (I reject the labor theory of value of course.)”

Professor I would like to voice a claim dissent against this proposition because actually we cannot trace the ownership of steel because a lot of machinery would have been used to transform iron ore into steel, and if we argue for determining the ownership of steel, we have to pin down the ownership of iron coming from as back as the roman empire. This was one of the problems which was pointed to the average period of production concept of bohm bawerk another Austrian economist. Steel needs steel to be produced, therefore we would have to take the first ownership of steel to build a coherent property based argument for the same

As an example, if a group of people live in a jungle where bananas are very plentiful, they are not scarce in the informal sense, but they are still “scarce” in the economic and political theory sense, because if I pluck a banana then that banana is scarce—if someone takes it from me, I no longer have it. So then I have to explain to people that “ideas,” whether “good” or not, might be rare (scarce in the informal sense), they are not scarce (rivalrous) in the economic sense. And it is the latter sense which matters for political theory and property rights, since property rights are a response to, a proposed solution for, the problem of conflict, which arises only with genuinely rivalrous goods or things, but not with things that are merely uncommon or rare.

As an example, if a group of people live in a jungle where bananas are very plentiful, they are not scarce in the informal sense, but they are still “scarce” in the economic and political theory sense, because if I pluck a banana then that banana is scarce—if someone takes it from me, I no longer have it. So then I have to explain to people that “ideas,” whether “good” or not, might be rare (scarce in the informal sense), they are not scarce (rivalrous) in the economic sense. And it is the latter sense which matters for political theory and property rights, since property rights are a response to, a proposed solution for, the problem of conflict, which arises only with genuinely rivalrous goods or things, but not with things that are merely uncommon or rare.

The same conception of education and ideas are rivalvours here too because both are a means to an end, where the ownership of means creates a conflict for an end. I would also refrain from this line of reasoning as we might be playing into the game of old socialist anarchist thinkers like Phudon who says property by its very definition is theft because it curtails its availability to the rest. I believe your notion of infringement of rights upon another’s property is more adequate. Patents shouldn’t be there because when I buy a medicine I have the full rights of using it to conduct a research and develop the same drug which I can sell on the market or even give it out for free if I desire. I share your zeal for liberty and thus find the case for infringement to be better because this argument becomes a categorical imperative which is true regardless of any situation, even if it makes the society better or worse.

I wanted to develop these ideas further and was wondering if we could collaborate with you as my mentor

KINSELLA:

I think you have a large number of false assumptions in your reasoning here but it would take me 15 pages to unpack all this and I don’t have the time to do this. If you want to discuss this by zoom or something I’d be happy to. But ideas are simply not rivalrous at all; in fact I believe they are one of the classic examples given in economics for non-rivalrous goods or things. The entire purpose of IP law is to impose an artificial scarcity on things that are not naturally scarce. As for steel–you don’t have to trace title back to Adam to know who owns things. The standard way you make a sword is you buy the steel from a previous owner. How did he get it? He bought some raw materials (e.g. iron ore) from someone else. The point is to make a sword from steel, and to own the resulting sword, you have to own the steel. It’s not as if it’s unowned just sitting around and you magically come to own it as soon as you turn it into a sword. Of course the steel had to be owned before reshaping it into a sword. And the iron ore had to be owned before making steel with it. At some point the raw materials that go into it were unowned and taken from the state of nature by some first user or occupier.

In any case this is just an example of an error you are making and it contaminates all the rest. You have to rethink a lot. Again, if you want to chat, I’d be happy to, perhaps some time next week.

V:

I would love to have a chat with a professor next week, Although I still would hold that ideas are rivalrous, as rivalrous as water becomes in a village where there is not enough water to feed every villager.

KINSELLA:

Here is another way to think about it.

“Property is a word with high emotional overtones and so many meanings that it has defied attempts at accurate all-inclusive definition. The English word property derives from the Latin proprietas, a noun form of proprius, which means one’s own. In the United States, the word property is frequently used to denote indiscriminately either the objects of rights … or the rights that persons have with respect to things. Thus, lands, automobiles, and jewels are said to be property; and rights, such as ownership, servitudes, and leases, are likewise said to be property. This latent confusion between rights and their objects has its roots in texts of Roman law and is also encountered in other legal systems of the western world. Accurate analysis should reserve the use of the word property for the designation of rights that persons have with respect to things.” A.N. Yiannopoulos, Louisiana Civil Law Treatise, Property (West Group, 4th ed. 2001), §§ 1, 2

V:

This was a very beautiful exposition. I am in agreement with most of it and have learned something new which has prompted some more ideas and questions. I want to recollect my thoughts and will write back with those in a more articulated manner. Thanks a lot professor