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Cato, Lessig, and Intellectual Property

Cato, Lessig, and Intellectual Property

Now this is kind of interesting. In the Winter 2004-2005 issue of Cato’s Regulation, Thomas M. Lenard of the Progress & Freedom Foundation responded to a previous article in the same publication by Lawrence Lessig, Coase’s First Question, which apparently suggests, using purportedly Coasean reasoning (see below for more on this), that we should create a market for international trading rights. Lenard’s critique is sound, it seems to me:

Creating international trade rights creates an artificial scarcity where no real scarcity exists. That, by definition, is inefficient. In fact, such rights — quotas — have been used to protect domestic industries, with adverse effects on efficiency that are familiar to most economics undergraduates. Spectrum and broadband, on the other hand, really are scarce, which is why they need to be subject to a property-rights regime to be allocated efficiently.

Lenard’s reasoning would also apply to intellectual property rights, the point of which is exactly to artificially create scarcity (see my article Against IP, p. 24, for discussion of how IP creates artificial scarcity). Therefore, to the extent Lessig wants to reduce IP protection, he would actually be supported by the reasoning above. Interestingly, the libertarian Reason magazine once commented, “Lawrence Lessig is on the right side of this little spat with Cato’s Adam Thierer—and arguably the more libertarian side to boot.” (More on Thierer’s IP views in his article When Rights Collide: Principles to Guide the Intellectual Property Debate.)

So Lenard and Lessig seem to be on the right side of the IP issue, as opposed to Cato’s Thierer--and also Cato’s Michael Krauss, whose support for the artificial scarcity of IP led him to support measures that undermine genuine property rights (2, 3), such as the right to trade. (See also this comment about other unlibertarian positions of Thierer, such as opposing tax cuts.)

Aside: Lessig’s argument in favor of creating a market to sell, trade, and auction “the right to international trade” is, according to Lenard, based on a misreading of Coase. Lenard writes:

Citing Coase’s famous 1959 Journal of Law and Economics article on the Federal Communications Commission, Lessig argues that “proper-Coaseans” first ask the question of whether the resource in question should be the subject of property at all, before asking where the property right should reside. That is in contrast to “property-Coaseans” [...], who go straight to the second question. Clever language aside, Lessig’s “proper-Coasian” concept is based on quoting Coase out of context. As Lessig indicates, Coase did write, “All property rights interfere with the ability to use resources. What has to be insured is that the gain from interference more than offsets the harm it produces.”
But the point he was making was that once property rights are defined, the market can bring about an optimum utilization of those rights. Coase was not suggesting the need to subject every property rights decision to an ex ante cost-benefit analysis to determine “whether the resource should be the subject of property at all.” That would be a pretty radical notion, indeed.

Well, Lenard is no doubt correct that if this is how Lessig argues, he is incorrect. However, if Lessig has been mislead by Coase, I’m not so sure it’s because Lessig is misconstruing Coase: as Walter Block, e.g., has argued (see, e.g., the various articles by Block under the heading “Ronald Coase and Social Cost” on his Publications page),

We see, therefore, that the justification of a particular set of rights at any given time for Coase is that they maximize wealth. When they stop attaining this goal, they must be altered and abolished, and a new ownership pattern set up in their place. This is, of course, the reverse of the traditional theory based on the Lockean homesteading principle. There, property rights are the basic bedrock of the system, and wealth maximization is predicated on them.

So can Lessig really be blamed if he is led astray by Coase? For further critiques of Coase along related lines, see Hoppe, Chicago Diversions, and Gary North, Undermining Property Rights: Coase and Becker.

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