All Commentary
Tuesday, February 23, 2010

Capital Letters, March 2010

Is Intellectual Property Real Property?

I feel I must respond to Kevin Carson’s article “How ‘Intellectual Property’ Impedes Competition” (The Freeman, October 2009). In his article Mr. Carson suggests that intellectual property is different than real property in that real property comes into existence in limited supply. I do not believe this to be true in that property can be defined and owned even when there is no demand for it. An example is the early west when there was ample land, yet settlers claimed what they needed for their farms. His further idea that someone could better use “intellectual property” that was not fully utilized by its owner is like someone going on someone else’s land and better using it for themselves. The concept of property is to preserve the entity for the use of the owner. If we were to let anyone use any property because they thought they could be more productive with it we would have utter chaos. If “intellectual property” did not exist in the form of patents and copyright, why would anyone invest in developing a new product when, at the completion of their efforts, someone else could come in and make the product without the initial capital investment in R&D? An example is the tens of millions of dollars that pharmaceutical companies invest in developing new drugs. Why would they invest that money, if when the drug was approved, anyone could sell a generic version? To reject the concept of “intellectual property” so one can copy a song or movie without having to pay for it is nothing more than “justified theft.” The concept of property, real, intellectual, or otherwise, is a basic cornerstone to our philosophy of individual freedom and justice.

—Henry Woodruff
Golden, Co.


Kevin Carson replies:

I strongly disagree with Mr. Woodruff that the “concept of property,” as such, is a cornerstone of freedom. Property, as such, with no other qualifications, is meaningless. It was an uncritical reverence for “property,” without regard to questions of legitimacy, that caused Huck Finn so many sleepless nights, before he finally resolved to “go to hell” rather than betray his friend back into slavery.

I believe the expression “justifiable theft” more aptly describes Mr. Woodruff’s own utilitarian justification for “intellectual property.” The proprietary content owner’s right to a guaranteed profit, or to an incentive to innovate, in Mr. Woodruff’s scheme, justifies violating my right to use my real, tangible property as I see fit.

Limited supply was not the only distinction I made between real property and “intellectual property.” The exclusive nature of real property is just as important. “Intellectual property” is not property at all, in the sense of protecting the owner’s right to something in his possession. Supposed violations of “intellectual property” do not deprive the “owner” of any information or artifact in his possession. “Intellectual property,” rather, prohibits other people from replicating information or copying a pattern with their own property because of the “owner’s” exclusive right to arrange information or raw materials into that pattern.

Finally, I believe my original article addressed, in some detail, the question of incentives. It describes a number of possible business models, most of them relying on first-mover advantages or the offering of service and support for free content, for making money from innovation without reliance on “intellectual property.”

On Saving and Hoarding

I regret that Steve Horwitz, in “Saving is Killing the Economy? It Just Ain’t So!” (The Freeman, September 2009), concedes some points to the misguided claim that savings retard economic growth or its recovery in a recession. First is the acceptance that some savings are hoarded in cash. As I have quoted T. R. Malthus to have pointed out a long time ago, “No political economist of the present day can by saving mean mere hoarding.” To the classical economists, saving is the opposite of hoarding. Second, not all savings need to be transformed into physical capital or producers’ goods to assist in increased production. Some are used to hire workers, the classical “wages fund.” It also doesn’t help, in contradicting the erroneous claims of the likes of Chris Isidore, to focus so much on savings being helpful in the long run. Increased savings help in the short run, too. Conceding that savings (may) help in the long run merely plays into the associated Keynes erroneous argument that “In the long run, were are all dead.” In the monetary long run, there are more people alive in the economy than before. It is important to connect increased savings with lowering interest rates both in the short run and long run.

—James Ahiakpor
Economics Department, California State University, East Bay

Steven Horwitz replies:

Professor Ahiakpor raises two good points in his letter. I think the first point is more a matter of terminology than substance. If individuals increase their holdings of base money (cash today or gold under a fractional-reserve gold standard) they do indeed refrain from consumption without increasing the supply of loanable funds. My intention was to emphasize the “refrain from consumption” point as justifying calling that a form of “saving.” Ahiakpor is emphasizing the “not increasing the supply of loanable funds” point in order to say that holding base money is not a form of saving. Given the misguided focus on increasing consumption held by the media, it seemed reasonable for me to take any action that didn’t increase consumption as an act of saving and then to explain the consequences thereof. I don’t dispute Ahiakpor’s underlying point, especially if one wants to view holding base money as consuming the services of money. However, given the argument I was responding to, treating base-money holding as a form of saving seemed to help clarify under what conditions refraining from buying goods and services did or did not translate into an increased supply of loanable funds.

His second point is more subtle. Ahiakpor and I differ on important issues in capital theory that need not concern us here. I would just note that while it’s certainly true that savings supplies not only funds for physical capital but labor as well, my point was to show how savings does not just shuffle who receives income but actually generates more over time. If savings just goes to pay current labor, then it could have just as easily gone to pay the wages of employees at firms that received consumption spending. Ahiakpor is right to point out that savings, in that case, makes us no worse off, but I also wanted to argue why it makes us better off, which requires a focus on capital.