[From my Webnote series]
Related:
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).2
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.”
See Rothbard:
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. For while it is true that the first discoverer benefits from the privilege, it is also true that competitors are excluded from production in the area of the patent for many years… Moreover, the patentee is himself discouraged from engaging in further research in this field, for the privilege permits him to rest on his laurels ….
Man, Economy, and State and Power and Market, p. 752.
See also quote from Patents Kill: Compulsory Licenses and Genzyme’s Life Saving Drug
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.
See
IP Watchdog: “Inventing with Intent: Where Engineering Rigor Meets Business Reality“, an interview with prolific inventor/patentee Fred Shelton, who has more than 3000 patents. Of course Shelton, like buffoon and patent shill Gene Quinn, are in favor of patents. Shocker! But Shelton inadvertently reveals how patents are distorting to inventive activity, as noted above. From the transcript:
[33:38] … maybe it’s just a corporate thing. I don’t that I’ve ever come across [some corporate client saying] “I don’t want to provide the patent person with what they need.” What I do think I’ve seen is an engineer on a team has an idea, the corporation and the the business leadership decides they want to do something with it. They don’t want the engineer distracted. They take whatever they’ve have, put it into a ball, and throw it over the fence and say, “File this.” I would agree that doesn’t end up being a very powerful thing because again the inventor came up with a single solution in their one little area.
They don’t realize multiple embodiments matter. They don’t realize their answer is a third of the total answer, not all of the total answer. And when you want to patent this for the ability to make a good successful moat, I need the other two thirds as well. And in that sense, that’s probably the one thing I personally do differently than practically everybody I’ve come across. I create almost the patent strategy in the invention portion. I even get to a point where these are the kind of the focal areas you would want maybe the claims to be.
I don’t want to write claims. I’m not an expert in that area, but this seems to be the unique piece. And what I see then is okay now let’s make sure I fully enable and give you your multiple options so that you can really articulate as the patent professional this is that part of that claim that is going to be a big deal …
and in the most recent version of like my new version of this now that I’m the customer and the inventor we went through and we created all of the claims for all of the embodiment up front. We actually ended up filing a patent that had I think 17 different independent sets with multiple dependents on each of them. And then what we did is then we revised it and only had them review the beginning one. So what I did is create the entire strategy and the entire continuation strategy but then only work in the patent office on the very first one while still maintaining the protection for all of them.
Now this is inside baseball to some degree. What he is talking about is how a company has an engineer, and they incentive them to file patents—pay them patent filing bonuses, and so on. (The “Productivity” of Patent Brainstorming.) To build up the corporation’s patent warchest: this his value on Wall Street, or with potential acquirers, or it can be used defensively, to ward off patent lawsuits, or as a revenue source by offensively and aggressively “asserting” the patent–in essence, extorting others and becoming a sort of patent troll (e.g. IBM makes a lot by “licensing” its patents).
The very existence of the patent system distorts where R&D dollars flow; they tend to flow more into patentable areas than pure research, math, physics, etc., the outcome of which is less patentable. And as can be seen here, it distorts the innovations produced since, as this guy notes, he has in mind the types of patents he can get–the type of “moat” he can build (sometimes also called a picket fence)—so he comes up with other embodiments to claim more than necessary, so as to make the patent more offensive, dangerous, broader, more valuable, more of an offensive extortion threat, and so on. His mistake is in thinking he is unique; he’s not special. This is how patent lawyers and businessmen and salesmen and engineers think, whether they are more or less conscious of it or not.
But basically this is an example of how invention strategies are influenced, distorted, skewed by the patent process. Consider what he is saying: if there were no patent system, he would just invent what he needs to for a given problem, and would not waste time trying to package the idea with as many related extensions to maximize his patent extortion threat.
- 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). [↩]
- In the end, he was pro-IP and weak and confused. See Classical Liberals, Libertarians, Anarchists and Others on Intellectual Property. [↩]
Jeffrey Tucker, author of the great 
Since last fall, we’ve been talking at length to various creators about their CC stories–the impact Creative Commons has had on their lives and in their respective fields, whether that’s in art, education, science, or industry. We are thrilled to announce that we have cultivated the most compelling of these stories and woven them together into a book called The Power of Open. The stories in The Power of Open demonstrate the breadth of CC uses across fields and the creativity of the individuals and organizations that have chosen to share their work via Creative Commons licenses and tools. The Power of Open is available for free downloadunder the CC Attribution license. It is available in several languages, with more translated versions to come. You can also order hard copies from Lulu. We hope that it inspires you to examine and embrace the practice of open licensing so that your contributions to the global intellectual commons can provide their greatest benefit to all people.”But that’s not all–The Power of Open is launching with events around the world! The official launch is June 29 at The New America Foundation in Washington D.C., featuring Global Voices Online and IntraHealth, with CC CEO Cathy Casserly representing for staff. Additionally, the first event already took place on June 16 in Tokyo, Japan, with Creative Commons Chairperson Joi Ito introducing the book to the Asia/Pacific region. For the full list of events taking place in Brussels, Rio de Janeiro, London, and Paris, head on over to the 
{ 27 comments… read them below or add one }
This effort reminds me of the effort of religious nutcases looking in their holy books trying to find answers to today’s questions.
How so, “anon”? I cannot even see the resemblance. Mises comments on the nature of copyrights and patents – and that without them authors and inventors would be “in the position of an entrepreneur.” And he continues to make the argument more explicitly, and discusses the economics of the issue. I find it quite insightful.
Granted, the application of Mises’s reasoning on modern digital media is mine. But I sincerely doubt Mises would consider such products different in principle from other products so that they would call for a different economic analysis (that would be Krugman-talk, not Mises-talk). The only one making pseudo-religious claims here would be you, anon, in that you somehow find Mises’s economic analysis of copyrights and patents inapplicable on certain types of products (you don’t provide an argument why or when this is so, however). Or could it be that your view is that Mises’s thinking is temporally bound and therefore it was applicable only on the market as it was when Mises was alive? So Misesian analysis would be applicable on Volvo 164 (produced 1968-1975) but not on Volvo 200 series (produced 1974-1993)?
I find Mises’s statement on the economic consequences of copyrights and patents quite enlightening and economically correct. And he makes the same claim in several places in Human Action; I suggest you read it if you wish to criticize its content.
You need to distinguish between finding an answer based merely on authority (as some are in old religious books) and one based on an argument which the listener can evaluate for himself. This is of the latter kind, and thus its age is irrelevant. This is why we can read wisdom from some philosophers of thousands of years ago and it is still as relevant and understandable today as it was then.
I agree the implications are obvious. In the digital age that profit opportunity window is rapidly closing, therefore the entrepreneurs have much less incentive to create those goods.
It may shrink in time but not necessarily in scope, e.g. with subscription models enabling a large customer base to be served instantly and simultaneously.
Yeah, that’s why we have even higher budgets for films and games today than 10 years ago.
No, that’s because of inflation.
Right, because as the ability to share information increases, there are less digital goods being created each day … DERP DERP DERP HURRRR HURRR HURRRR
Thanks to all for pointing out the current state of the entertainment market while the Mises quote starts with “If there are neither copyrights nor patents”.
But likewise, in this digital age the authors have many more opportunities for low-cost customization and constant changes to the material, based on feedback from their audience. It goes both ways.
Yes, say the right to own private property. I want to keep that. That is the nature of privilege, after all.
On the same page you quote from, Mises says this:
Sorry Wildberry, the second part of the von Mises quote did not fit the agenda.
Please, move along, nothing to see here!
Wildberry, those statements are very different. The one I quoted was Mises’s economic analysis, where he basically concludes that economically copyrights and patents are protecting monopoly privileges and that without them these monopoly-holders would be entrepreneurs (like everybody else). The second statement, the one you quote, is Mises’s guess of what might be the result of government not granting such privileges – this is a policy prediction.
My post was primarily on the economics of IP (which I tried to make more interesting through adding a kind of sweeping comment on the nature of privilege). This is, after all, the Mises Economics Blog. I let others make normative conclusions (including policy suggestions) based on the economic issue.
Remember, too, Mises and Hayek wrote in a pre-Internet age. The cases they point out as being difficult to imagine happening without copyright–laborious things like encyclopoedia–if they had known of Wikipedia who could imagine they would not revise their predictions here?
Hayek explicitly said:
http://blog.mises.org/9247/hayek-on-patents-and-copyrights/
In fact as Salerno notes, Hayek thought copyright stimulated the wrong kind of production – http://blog.mises.org/17228/hayek-contra-copyright-laws/
Mises also recognized that all creative work and invention is derivative http://blog.mises.org/13202/misesian-vs-marxian-vs-ip-views-of-innovation/
Mises also recognized that creators do not create b/c of articifical stimuli provided by IP: “The problem involved has nothing to do with the activities of the creative genius. These pioneers and originators of things unheard of do not produce and work in the sense in which these terms are employed in dealing with the affairs of other people. They do not let themselves be influenced by the response their work meets on the part of their contemporaries. They do not wait for encouragement.”
He thinks that some things that might go away without copyright, we should not bemoan: “We may disregard the problem of second-rate authors of poems, fiction, and plays and second-rate composers and need not inquire whether it would be a serious disadvantage for mankind to lack the products of their efforts”
He does think some laborious things like encyclopedia would be unlikely absent copyright, but as noted above, this was pre-Wikipedia.
He aslo explicitly notes IP is controversial: “Patents and copyrights are results of the legal evolution of the last centuries. Their place in the traditional body of property rights is still controversial.” And he explictily says he takes no stance: “It is beyond the scope of catallactics to enter into an examination of the arguments brought forward for and against the institution of copyrights and patents.”
@Stephan Kinsella June 29, 2011 at 9:27 pm
I’ve been meaning to get to this, but you and Peter have kept me busy on the servitude thread.
Are you saying that the emergence of technologies transforms what was once a legitimate right into a non-right?
So, if technology emerges which makes stealing a car easier, you are saying that this might be sufficient to revise the “wrongness” of car theft?
The “laborious things” you seem to be thinking of, is a capital investment in a product. It is the investment needed to produce the first instance of a given work, whether poem or encyclopedia. Clearly the producer is the rightful owner of that product. What property theory requires that that property right magically vanish the moment he lets anyone actually read it buy a copy to take home?
http://blog.mises.org/9247/hayek-on-patents-and-copyrights/
Hayek appears to be making a distinction between literary works of art, to which Mises refers to as the work of the “creative genius” [ Human Action, Scholar’s Edition; p. 657]
There is a bug in the edit function. It throws in extra blockquotes adn doesn’t let you edit.
Sorry.
Wildberry,
No, he’s saying that the emergence of technologies affects peoples’ imagination. But since you lack a brain in the first place, you’re unaffected.
There is no right not to have your property copied in the first place.
Make up some new lies, the old ones are boring.
While everyone here respects Mises, his conclusion was wrong, proved by the fact places like this exist, by open source software, etc. On the area of patents and science you need only look to Terence Kealey on that subject.
The most someone may be able to say is that some high budget movies and games might not be possible without IP, but even that’s unlikely.
@ Matthew Swaringen June 29, 2011 at 1:34 pm
First, is it an argument to claims that because IP does not protect every written word, it should not protect anything?
Second, these things you cite happen to co-exist with IP. If IP was such a freedom-buster, as you would claim, then how is it the things you reference manage to exist at all?
The section of Mises that Per quotes argues directly against what you just said. Mises is not wrong, and if I was going to have the gumption to dismiss his work for some reason, I would at least feel somewhat compelled to offer some kind of specific rebuttal.
@ Per L Bylund June 29, 2011 at 1:22 pm
If you want to quote Mises on economics, I suggest you quote him in some kind of context.
You missed his discussion on monopoly, and why monopoly is normal and all around us and not something that is contrary to the operation of a free market; all private property rights secure a monopoly to that property. This understanding is not the same connotation of monopoly as that of a theoretical market monopoly, and he warns against conflating those different connotations.
Second, you have to address his conclusion, which is that without secured property rights in IP, producers of intellectual products are producing for external economies.
And despite Mr. Kinsella’s praise to you here, he has never addressed this obvious contradiction between his position on IP and that of Mises.
And despite your admonition to me that this is an economic site based on the work of Mises, IP is at some level an economic question that intersects with the principles of private property, privately owned means of production, and free market operations. This is why, no doubt, Mises found it necessary and/or important to mention IP at all in his most famous treatise on economics.
You selectively quote him out of context, use his words to support a position that is contrary to the one he takes, and then deny the obvious validity of an objection.
Andras captured all of this in his one-line comment. You pulled something from Mises out of context and tried to make it support your party line. I object.
Mises’ theory on monopolies and monopoly prices was also systematically refuted in Rothbard’s Man, Economy and State.
Mayabe you’re right. I’d be interested in a reference.
see armentano for why rothbard was right and mises wrong on monopoly:
http://mises.org/etexts/armentanomonopoly.pdf
Newson;
I can’t get into this in detail right now, but for my purposes I fail to see the conflict.
Rothbard simply dismisses Mises’ first connotation of “Property monopolyas “absurd” but fails to acknowledge that he is really calling private property rights “absurd”.
Rothbard’s second definitin is one of the ways Mises said that resource monopoly can be attained, and is the just another basis for Rothbard to line up against the State.
That leave the concept of monopoly pricing, which both he and Mises agree cannot be maintained within a competitive market, since even resource monopoly results in substituting resources, i.e. wheat for corn.
As Armentano clearly states, Rothbard obviosuly prefers the “State” issue, and as such is merely a corollary of “We have IP because we have the State” argument.
Monopoly in the absence of State grant of privilege is not really much of a concern for free markets. To the extent the State intervenes, it is not free.
That leaves us exactly where I started; State granted “monopoly” in IP, specifically copyrights, is simply state-enforced private property monopoly, adn to make it into anythng else is at attempt to argue for Ancap by classifying IP as a monopoly of the state variety.
I argue that it is not necessary to pre-determine the method of coerscion employed to enforce private property rights, adn that IP is simply an example of private property monopoly.
The more I learn about Rothbard, the more it seems that he contributed very little original thought except, perhaps, in elaborating on Ancap. I don’t depend on that arguement to justify IP.
As far as I see it, property is a basic aspect of physics, not humans. If humans are using matter outside themselves in any way, then it’s not a question of whether they own it, just one of how they decide who gets to use it. They must do so, since matter has physical limitations; if it didn’t, everyone could use all matter freely and there would be no need even for the concept of property in the first place. Thus, the issues involved here are irrelevant for ideas, so you bringing up physical property is just a distraction, as far as I see it.
@Shay. You are trying to use the concept of ‘physical property’ as an abstract. I don’t feel comfortable with that construct.
Great post. I have other Mises quotes on IP in my post Mises on Intellectual Property.