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Cordato and Kirzner on Intellectual Property

April 21, 2011

I’ve noted before the views of Austrians such as Mises, Hayek, and Rothbard on IP.1  They would be placed in phase 3 of The Four Historical Phases of IP Abolitionism.

In my post Mossoff: Why Should Business Leaders Care About Intellectual Property (Objectivism), I noted Sheldon Richman had relayed to me an interesting exchange between Roy Cordato and the pro-IP Adam Mossoff:

Mossoff recently appeared on an IP panel at the recent APEE annual meeting, along with several anti-IP libertarians, including Sheldon Richman (I believe Roderick Long was present too but I am not sure if he was on that panel). The panel also had Ed Lopez who offered efficiency arguments against IP but was not much part of the debate. Richman related to me that at one point, Roy Cordato asked Mossoff if IP would protect a Kirznerian entrepreneur who has a novel insight about the gap between the cost of inputs and the price of an output. At first Mossoff said he didn’t know what a Kirznerian entrepreneur was (Cordato explained), then he didn’t get the point (thinking Cordato meant the actual product rather than the idea about the gap between costs and price), then ended up saying that the idea would be patentable–which means the law would stop market equilibration, since others could not jump in and imitate the entrepreneur.

This got me curious about Cordato. Sure enough, in his 1992 book Welfare Economics and Externalities in an Open Ended Universe, he has several passages indicating a skepticism of IP. On pp. 21-22, he discusses the difference between Mises and Rothbard on patent and copyright; see also p. 36 (“If an external benefit “problem” arises that is the result of ambiguously defined entitlements, then some form of public policy which focuses on establishing those rights may be advocated. The sole example of this in the literature is Mises’ discussion patent and copyright laws”). On p. 80:

Mises has suggested, though, that an external benefit “problem” might arise where intellectual property rights are not clearly defined; this is the issue of patents and copyrights (see chapter 1). Mises clearly focuses on an issue of property rights that may have normative implications for catallactic efficiency. Ambiguities with respect to entitlements in the area of inventions and the generation of ideas can lead to interpersonal conflicts in the plan-formulation and goal-seeking process. As noted, to efficiently make plans, individuals need to know that their rights to use the relevant property will be upheld at pertinent points in the future. The issue of patents and copyrights may be an application of this principle.


On the other hand, this is clearly an area where the limitations of economic analysis are exposed and a theory of justice may need to be invoked. Consistent with O’Driscoll and Rizzo’s point, this is a case where certain ethical questions need to be resolved before economic analysis can be applied. The question of whether property rights can legitimately be applied to ideas, particularly given that ideas and inventions can be and often are independently discovered, has both practical and ethical implications. In such cases, the granting of property rights to a discovery itself denies the rights of others who have made or will make the same discovery independently (Rothbard 1970, p. 71). This denial of rights would clearly interfere with plans that were made by the independent discoverer and may consequently have a negative impact on the accuracy of some market prices. This suggests that the granting of property rights to ideas would likely lead to its own problems with respect to catallactic efficiency.6 Mises’s brief analysis, providing neither a theory of justice nor efficiency, does not give us a satisfactory approach to this issue.

As discussed in Chapter 1, Rothbard rejects the notion of intellectual property rights, noting the conflicts that arise with respect to the rights of independent discoverers. He also points out that, if reproduction is the concern, the inventor of a product or the writer of a book can, through contract, limit the rights of others with respect to the use of these products. Furthermore he rejects the standard external benefits argument for intellectual property rights which claims that the lack of such rights results in the underproduction of research and innovation. Invoking the standard Austrian criticism of orthodox externalities analysis, Rothbard asks, “By what standard do you judge that research expenditures are ‘too much,’ ‘too little,’ or just about enough?” (1970, p. 72).

If it is concluded that discoveries and ideas are not the appropriate target of property rights then these kinds of externalities would be moved to quadrant B in the upper half of our matrix. In other words they would not constitute a violation of the lIS ["ideal institutional setting" -- SK]. That may be the appropriate positioning for such externalities in any case, since it is not clear that catallactic efficiency is unambiguously improved by establishing such entitlements, particularly given the problem of independent discovery. …

As an aside, it should be pointed out that the absence of clearly defined property rights in ideas and inventions has not proven to be a market-paralyzing problem. There are many areas where patent and copyright protections do not exist and production flourishes. These include fashions, management and marketing strategies, scientific principles and mathematical formulae, and artistic endeavors such as comedy, magic, and jazz improvisation.

In addition, some of Cordato’s discussion of Kirzner’s views (see p. 66) got me looking through his writings for any hint of a view about IP. Here is what I found. In his 1963 work Market Theory and the Price System, he writes:

In a market system each member of the society is free to act, within very wide limits, as he sees fit. Moreover, the system operates within a framework of law which recognizes individual rights to private property. This means that each individual is free at each moment to employ the means available to him for the purpose of furthering his own ends, providing only that this should not invade the property rights of others. [p. 13]

Note that this echoes Mises’s own view of means and ends: that humans, in acting, employe scarce means to achieve certain ends. As I argue in Intellectual Freedom and Learning Versus Patent and Copyright and Goods, Scarce and Nonscarce, the role of scarce means is to be employed in action causally to achieve a desired end; knowledge is used to guide the agent’s choice of ends and selection of means causally suited to help achieve the end chosen. Note the examples given by Kirzner on pp. 46-47 imply that the scarce means chosen are causally efficacious in bringing about the desired end:

In the actuality of the everyday world, human beings are able to satisfy their wants only through directing their efforts toward appropriate means for such satisfaction. A man who wishes to eat may purchase food, cook food, or simply put on a hat and coat and go to a restaurant. His actions have been intermediary to the goal of eating. “Eating” is the end of his present endeavors; the means that he adopts for the attainment of his end can be an act of purchase, cooking, or walking to the restaurant.

This view of human action implies that there ought to be property rights in scarce means, but not in information, knowledge ideas. This is hinted by Kirzner when he implies patents are monopoly that derogate from the normal free market process: “hindrance of the market process may consist of artificial obstacles to resource mobility (for example, immigration laws). Or there may be institutional grants of monopoly power (for example, patent laws).” (p. 308).

In a 1973 paper, Producer, Entrepreneur, and the Right to Property, Kirzner has further insights that support the view that he is anti-IP or at least that his thought is consistent with the anti-IP view. Note first that Kirzner observes: “until a product or technique has in fact been introduced, possession of all necessary means of production (including relevant knowledge) guarantees nothing without the presence of entrepreneurial initiative”. Here he recognizes knowledge is an important factor in being able to produce: ideas guide action, which itself employs scarce means to causally achieve a desired end. 2

He also recognizes “Precision in applying the term ‘what a man has produced’ seems to be of considerable importance.” Indeed. It is lack of precission in the idea that man owns “what he has produced” that leads Randians and other libertarian “creationists” (as I call them) astray, as I noted in Mossoff: Why Should Business Leaders Care About Intellectual Property (Objectivism). In talking loosely about values, wealth, and “production” they lose the distinction between the role of human action (and labor, creativity, the intellect) in creating value (by using labor to transform or rearrange one’s already existing property (factors) into a more (subjectively) valuable configuration–to “create wealth”), and in acquiring property rights (which one does by either homesteading a previously unowned scarce resource or by contract from a previous owner–but not through “production” which is only a way of transforming already owned things into a more-valuable arrangement).

Note also, in a recent post, Hume on Intellectual Property and the Problematic “Labor” Metaphor, I observed that the “labor” metaphor employed by Locke is misleading and even unnecessary; and that Hume saw this back in 1740, when he criticized the overly metaphorical (“figurative”) Lockean idea of “labor” being “joined to” or mixed with objects, and he disagrees that this assumption is necessary to justify Lockean homesteading. He thinks a simpler version of Locke’s argument still works, one that drops the assumption that labor has to be “joined” to the object. I have long argued that it’s confusing to say we own labor, since labor is just a type of action, and we do not own our actions. It was refreshing to find Hume saying much the same in 1740.

And to my delight, I see Kirzner quoting with approval J.P. Day:

Day is sharply critical of Locke, denying that one can talk significantly of owning labor (in the sense of “working”). Laboring, Day contends, is an activity, “and although activities can be engaged in, performed or done, they cannot be owned.”

This is much the same point made by Hume earlier.

I find here, in the writing of Kirzner, and Day, and Hume, support for my view that the “labor” stuff in Locke’s homesteading is confusing and can be omitted; and, it is this this “labor” view that is used by IP advocates, the IP “creationists,” who say that we own the “products” created by our labor (whether physical or, in the Mossoffian-Randian case, “mental” labor).

One final point: Kirzner notes a connection between Locke’s labor theory of property and “the labor theory of value of the later classical economist[s],” in note 29, where he observes:

On the question of the impact of Locke’s labor theory of property on the later classical labor theory of value, there has been controversy. Myrdal (The Political Element in the Development of Economic Theory, pp. 71f), Halevy (The Growth of Philosophic Radicalism, p. 44), and W. A. Weiskopf (The Psychology of Economics, University of Chicago Press, 1955, pp. 22ff, p. 14j) all assert a direct influence. See however J. A. Schumpeter, History of Economic Analysis (Oxford University Press, 1954) pp. 120, 310-311; see also I. M. Kirzner, The Economic Point of View, (Van Nostrand, 1960), p. 25, and p. 190, notes 8, 9.

This is a point I’ve been trying to make for some time–that the labor theory of property has led to mistakes in political theory (such as IP and “creationism) just as the labor theory of value has corrupted economics.3

So we have both Cordato and Kirzner strongly leaning against IP, in Phase 3, along with other Austrians.

If anyone knows of any more explicit comment by Kirzner on IP please post in the comments.

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