Intellectual property is inherently disruptive to the market mechanism, as the latter is understood by Austrian economics, and is thus prejudicial to human welfare. To understand why, one must first understand the social function of entrepreneurship in the market economy. Entrepreneurs arrange and deploy the factors of production in order to better satisfy consumers in the future than they otherwise would be. To spare words, let us term an entrepreneur’s way of arranging and deploying factor’s of production his “entrepreneurial recipe or plan”.
By definition, the better an entrepreneur anticipates the future state of consumer tastes and desires, the more efficaciously, from the consumer’s perspective, will he arrange and deploy the factors of production. In other words, the better will be his entrepreneurial recipe. If his plan for arranging and deploying factors of production serves the consumers better than his competing entrepreneurs, he will make profits. If it serves the consumers poorly, he will incur losses. Profits put yet more of the factors of production in the hands of the entrepreneur who formulates an effective entrepreneurial recipe. So much the better for the consumers for whom he has proved his worth. Losses remove factors of production from the hands of the entrepreneur who formulates an ineffective entrepreneurial recipe. So much the better for the consumers he failed to satisfy. Profits attract other entrepreneurs to emulate the already-successful one.To emulate a successful entrepreneur is to copy key parts of his entrepreneurial recipe. The competition brought on by this emulation eliminates profits, but only gradually so.
Early adopters of the key parts of the effective entrepreneurial recipe get high profits in direct correlation with how quick they were in arranging and deploying yet more factors of production according to the new and improved modus operandi. Consumer goods thus get cheaper, and entrepreneurs are thus impelled to formulate their next profit-lavishing, consumer-satisfying, and game-changing entrepreneurial recipe. This is the way the market works to continually transform the structure of production for the benefit of all (since we are all consumers). Now, would anyone who understands this market process advocate the granting of property rights over entrepreneurial recipes? For example consider the idea: “invest more in mineral water and less in soda pop, to adjust to the future demand of an increasingly health-conscious consumer base”. The upshot of acting on this idea may be transferring industrial carbon dioxide, certain skilled labor, and other factors of production from the soda pop industry to the mineral water industry.
Now would any adherent of Austrian Economics think it is a good idea to grant exclusive rights to that idea? Of course not. Entrepreneurship is present in almost every market event. The market mechanism would become completely stalled if every entrepreneurial recipe were exclusively owned. The chief catallactic feature of creative works is that they are entrepreneurial recipes. Remember, an entrepreneurial recipe is simply a way of arranging and deploying factors of production in anticipation of what will satisfy consumers better in the future. What is a vocal song? It is a way of arranging and deploying any human’s vocal chords (which are factors of production) in order to please consumers of music better than they would have been had they not heard the song. What is a book? It is a way of arranging and deploying any digital or physical printing technology (which are factors of production) in order to please consumers of information, arguments, or stories better than they would have been had they not read the book.
Copyright makes as little sense economically as does property rights over any other entrepreneurial recipe. Moreover, technical inventions are entrepreneurial recipes too. What makes a “more efficient” new machine valuable is not the bare fact that it uses up certain resources less (like time, space, energy, coal, aluminum etc.). It is the anticipation that consumers will consider themselves better served if the resources saved by the new design are used instead for other purposes, and that they will not be too concerned about certain other resources perhaps being used up by the machine more liberally. Thus, the efficient new design of a machine is also a way of arranging and deploying factors of production in anticipation of what will satisfy consumers better in the future; it is also an entrepreneurial recipe. Patents make as little sense economically as does property rights over any other entrepreneurial recipe. As Mises wrote in Human Action:
“If there are neither copyrights nor patents, the inventors and authors are in the position of an entrepreneur. They have a temporary advantage as against other people. As they start sooner in utilizing their invention or their manuscript themselves or in making it available for use to other people (manufacturers or publishers), they have the chance to earn profits in the time interval until everybody can likewise utilize it.”
Any adherents of Austrian economics trying to make an economic case for intellectual property can only do so if they can spell out and demonstrate exactly how inventors and authors have a catallactic function that is distinct from that of any other entrepreneur.
