Originally published here.
By Dan Sanchez
Property must be distinguished from monopoly. They are often conflated because they both involve exclusive rights. But they are importantly different. Property is an exclusive right to use a particular means. Monopoly is the exclusive right to use any means in a certain way.
Property is the exclusive right to use this boat, this paper, this trap, these speakers, this computer, this plastic, or this aluminum.
Monopoly is the exclusive right to use any boat to trade with India, to use any paper to make playing cards in 17th century England, to use any trap to catch beavers in North America, to use any speakers to play “Happy Birthday,” to use any computer to deliver a podcast or download “Happy Birthday,” to use any plastic and aluminum to build a certain kind of washing machine.
Since it is an exclusive right to use any means in a certain way, intellectual “property” is not property at all, but monopoly. Intellectual “property” is therefore a misnomer, euphemistically used by state-privileged monopolists to drape their monopolies in the mantle of property.
The Innovation Argument
But doesn’t IP stimulate innovation by rewarding it? One hint that something is fundamentally wrong with the “rewarding innovation” argument for IP is that it could be used by any other monopolist. The prospect of a royal monopoly in trade with India may be said to stimulate a merchant company to open up trade with that country. Why do some economists favor IP monopolies, yet oppose mercantilist monopolies? Why stop with artistic, literary, and engineering innovators and their intellectual innovations?
Indeed, why, in the modern era, do we not offer monopolies in business models and strategies to innovators? Why shouldn’t monopolies have been granted for just-in-time manufacturing or big box retailing? Sure, it would have impeded emulation, obstructed widespread adoption of these efficacious innovations, and kept them from benefiting consumers as much as possible. But, as monopolists might argue using the same line of reasoning as IP defenders, they might have been developed a little sooner if people thought that by developing such innovations, they could get a legal lock on them, and enjoy a long stream of monopoly profits.
Also, keep in mind that the “rewarding innovation” argument has been used by the biggest monopolist of them all, which itself begets all other monopolies: the State. It is often along this line of reasoning: “I was the first to clear this land of bandits and this sea of pirates. I am the first to fully provide defense with force to this land, and therefore I should henceforth have a monopoly of force.” Read, for example, Plutarch. Didn’t Theseus, by clearing the roads of highwaymen and monsters, demonstrate why he and his heirs deserve to rule Athens?
It is true that any prospective monopoly, including IP, might stimulate or accelerate the development of a certain innovation. But for every innovation a monopoly artificially boosts, it precludes, deters, and delays several more innovations: including (1) further innovations that the monopolist would have developed if he hadn’t been able to rest on his laurels, passively collecting his royalties or patent fees; (2) innovations that other creative people would have developed if they had been free to adopt and build off of the monopolized innovation; (3) any innovations that might have built off of innovations in categories (1) and (2); (4) any innovations that might have built off of innovations in categories (1), (2), and (3); and so on. Any institution that eliminates several good things for every one good thing it induces is a bad institution.
True Property Vs. Intellectual Monopoly
Property and monopoly (including IP) are not only distinct; they are antithetical to each other. To the extent that a proprietor has the exclusive right to use his particular means any way he chooses, a would-be monopolist cannot claim ownership of such “ways” and therefore cannot have the power to veto such uses. And to the extent a monopolist has “ownership” over ways of using any means whatsoever, a would-be proprietor can never truly own a particular means. The proprietor must ever be at odds with the monopolist.
The virtue of property is that it facilitates economization (the allocation of means to competing ends, when the quantity of the means is not sufficient to pursue all potential ends) by assigning in an ideal way exclusive control over those things which must be economized. As demonstrated earlier, monopoly (which includes IP) is antithetical to property. Therefore, monopoly necessarily hinders economization. This clear fault is not offset by monopoly’s alleged stimulus to innovation, because, as demonstrated above, monopoly (which includes IP) necessarily precludes, deters, and delays far more innovations than it boosts. Therefore, IP (and any other form of monopoly) is a wholly vicious institution and should be totally abolished.
How does IP’s hindrance of economization manifest in a market economy? The characteristic workings of a free market economy are determined by the institution that defines it: private property. Violations of that root institution will manifest in the characteristics of the hampered market economy that results.
According to sound economic theory, private property results in market exchange, which results in market prices, which result in market profits and losses, which guide and select entrepreneurs in such a way that production is ever-adjusted toward ever-better economization of resources in light of consumer preferences. An essential part of this process is as follows.
Anywhere this side of the Garden of Eden, there are imperfections in the way resources (means) are being economized in light of humanity’s ultimate (that is, “consumptive”) needs and desires. An innovating entrepreneur, using his superior judgment, changes the use of his own resources in a way that mitigates one of these imperfections. He jumps into a breach in consumer satisfaction, and begins to fill it.
Through his consumer-pleasing innovation (adopting a better way of using his means in production), this successful entrepreneur earn profits. These profits signal other entrepreneurs to emulate the innovator. In following the innovator into the breach, they bring along with them their own resources, which are then used to contribute to the filling of it. So much the better for humanity’s ultimate needs and desires.
The emulating entrepreneurs and their resources constitute competition both for each other and for the innovator. This competition impels the entrepreneurs to strive to outdo each other in more efficiently filling the breach, whittling down profits, and resulting in an even better economization of resources (manifested in lower real consumer prices), which frees up resources to be dedicated to filling other breaches instead.
Eventually the breach is filled as profits drop toward zero. The entrepreneurs then look to the next breach in consumer satisfaction, in their career-long quest to improve their own condition by way of making the world a better place (that is, by serving the ultimate needs and desires of humanity). “Profit earned, and problem solved. Onto the next profit/problem.”
Thus we see that emulative competition is, to use the language of computer programming, an essential feature of the market, and not a bug to be stomped on by the boot of IP or any other form of monopoly. The more freedom entrepreneurs have to emulate and the less artificial protection is given to first-mover profits, the faster will resources be wheeled in to fill the breach in consumer satisfaction, and the faster will competition induce gains in efficiency. Both results mean a better-satisfied consumer and a more prosperous populace.
Profits are supposed to be ephemeral. Profits are indeed a sign that a hole in human happiness is being filled, but they are also a sign that the hole is not yet filled to the top. The faster the sign disappears, the better.
IP and other forms of monopoly are a stick in the spokes of the would-be emulators who want nothing more than the chance to improve their lot by wheeling in their resources to participate in the filling of a breach in consumer satisfaction. It provides first-movers (or first-filers at the patent office) a sheltered, artificially prolonged stream of propped-up profits at the expense of everyone else, competitor and consumer alike. The breach in consumer satisfaction is then only leisurely filled by the sheltered monopolist at the pace of a government road construction worker, and other entrepreneurs are forced to go find an inferior, second-best way of serving consumers.
With respect to the market, granting an innovator in literature, art, or engineering “ownership” over his innovation (the way he used his resources: his paper, ink, computer, paint, plastic, aluminum, etc) is functionally no different from granting such a claim to any other innovator. It is a monopoly privilege, and as demonstrated above, monopoly privileges, even when held by innovators, only hamper the workings of the market and harm human welfare.
Now, does all this matter very much? Would society be tremendously more prosperous if IP were abolished? As established above, IP is economically harmful. It is an empirical fact that IP deeply pervades the market, covering every order of production, from home entertainment, to household appliances, to the software and hardware that underlie the digital sector, to medicine, to food, to heavy manufacturing, and even to the essential spread of sound ideologies through web sites and other media. An institution that is both harmful and deeply pervasive is deeply and pervasively harmful. Undoing a deep, pervasive economic harm is the same thing as providing a great, pervasive economic benefit. Therefore, yes, society would be tremendously more prosperous if IP were abolished.