KOL126 | Intellectual Property and Economic Development (Mises University 2011)

Kinsella on Liberty Podcast, Episode 126. This is my Mises University 2011 lecture, Intellectual Property and Economic Development (July 27, 2011), perhaps one of my better talks on IP and liberty. The original PowerPoint slides are here. Streanming audio, video, and a googledocs version of the slides are below. An unedited, raw transcript is also appended below (it may be cleaned up in due course). Transcript Mark Thornton:  Our first speaker this morning is Stephan Kinsella.  He is a patent attorney from Houston and the editor of Libertarian Papers.  His lecture this morning is going to be on Intellectual Property and Economic Development. Stephan… Stephan Kinsella:  Thanks Mark.  I’m very glad to be here at the Mises University.  I was here a couple of years ago.  It is always a great thing.  So let me get started.  I have a lot to cover so I will try to go as quickly as possible without going too fast. Most of you should already be familiar with the basic idea of praxeology.  There is a reason I’m going to start with this and it will become clearer in a moment.  Praxeology is the formal study of the implications of the fact that men use means to attain various ends. What we do is we start with incontestable or a priori propositions that are related to human action and its categories.  Primarily, for the purposes of our lecture today, humans employ scarce means to pursue ends.  There are, of course, other categories applied in action such as causality, choice, cost, profit, and loss. Now another aspect of economic analysis is contingent facts.  After we recognize and establish what the a priori categories of action are, we explicitly introduce certain contingent facts to make the analysis interesting. As Hoppe explains: “Mises explains the entire body of economic theory as implied in and deducible from a conceptual understanding of the meaning of action plus a few general, explicitly introduced assumptions about the empirical reality in which action has taken place”. So, in other words, we make some assumptions to make the analysis more interesting and more relevant to our lives.  Mises, of course, talks explicitly about this. The branches of praxeology would include both catalytics and Crusoe economics for example. So, for example, we would assume private property rights and a market to make the analysis interesting.  We would assume there is a money society, for example, instead of just barter.  Economic analysis presupposes some legal system as well and a property rights framework.  In a market economy, this include at least private property and scarce resources and related rights like contract and negotiable instruments, promissory notes and debts, service contracts, and so on.  When you see economists reason about a banking system or an economy, they are taking for granted, or they are assuming, that there is in place a certain legal system, a certain respect for private property rights.  These are not a priori assumptions.  These are explicitly introduced background assumptions about the nature of legal rights that are possessed by actors. Economics is just a branch of praxeology, according to Mises.  It is the most developed branch so far.  What other branches of praxeology could there be?  Of course, economics can include Crusoe economics and catallactics.  Mieses said that other branches could include the study of war, game theory, and things like this. Roderick Long has a comment that the way we sometimes use economics is so broad that it is basically the same thing as praxeology so it is not clear what types of fields would not be included in economics that would be praxeology.  In any case, you will see Austrians explicity use praxeological analysis and economic analysis to analyze the effects of aggression as well as private property and the free market. For example, Mises analyzes the Hamburg Market economy and State Interventionism.  Rothbard analyzes the effects of violent intervention in the market.  So, in this case, the explicitly introduced assumptions is the existence of a state and certain interventions in the economy that contravene some type of baseline private property rights that we would analyze in a free market economy situation. Now I bring this up because we want to talk about intellectual property.  We need to understand what we mean by the term and how it plays a role in economic analysis.  Over the last couple of centuries, in the Western legal systems, the Western legal systems have protected, along with property rights and scarce resources, so called intellectual property or IP rights.  It is called industrial property in Europe, primarily. As a general matter, you can think of IP, in the legal sense, as legal rights related to creation of the intellect or the mind.  That is why the word intellect is used.  It traditionally includes four main types: Patent Copyright Patents are basically a monopoly privilege granted by the state covering the exclusive right to make or use or sell an invention.  Think of a mousetrap. A copyright is a similar monopoly privilege to be the exclusive person who can copy or distribute or perform publicly certain original works of expressions like novels or paintings or movies. Trademark Trade Secret Trademark identifies the source of goods.  Like the Coca-cola mark tells you you’re getting the Coca-cola from a certain manufacturer. Trade secrets describe useful knowledge that you keep it secret that helps you gain a competitive advantage and that the state provides certain protections for. We’re going to focus primarily on patent and copyright. These aren’t the only rights.  These rights arose roughly 200 years ago in the West in a systematic modern form, but, over the years, there have been others added such as boat hold designs, the semiconductor  mask work protection, the trademark law was amended in ’95 to add an anti-dilution right.  Most of you may be familiar with the Digital Millennium Copyright Act of 1998 which has resulted in a lot of these take down notices on YouTube.  There is a No Electronic Theft Act in 1997.  Even the Economic Espionage Act of 1996 have some IP aspects to it.  Of course, there is pending legislation in world wide treaties.  There is the Anti Counterfeiting Trade Agreement [ACTA] which is pending; the Protect IP Act in the U.S.  There is current clamoring for fashion rights.  The fashion industry is not currently protected very much by IP and even database rights. Think of the term intellectual property in two different ways.  It is used in the legal way that I have been describing to describe state granted rights.  It is important here to recognize that patent and copyrights were not originally called property.  Fritz Machlup and Edith Penrose did a famous study in 1950 that explained that those who started using the word property in conjunction with inventions had a very definite purpose in mind.  They wanted to substitute a word with a respectable connotation, property, for a word that had an unpleasant ring, privilege.  So, basically, it was a concerted propaganda campaign to sell these ideas.  There was some opposition among free market economists and other people to the idea of the government granting these privileges in a systematic way in a modern free market economy to certain people that applied. Now, if you talk to businessmen and investors, they will often use the term IP, or intellectual property, just to refer to the knowledge that their company has or a given target company has.  They don’t really mean patent and copyright.  They’ll talk about “my IP” and they mean their secret sauce or the knowledge that the employees have, the way they have of doing things, what makes them unique. This usage is not incompatible with the free market and it has little to do with the state.  In this meaning, the investor or the businessman would think of patent or copyright as just one legal way of protecting your knowledge, but it is the same thing as it.  For purposes of today’s lecture and for purposes of economic analysis, we need to analyze each type of IP differently.  We need to analyze state interventions that protect knowledge differently than the way we analyze the use of knowledge by actors and by entrepreneurs. Let’s think of what the role of scarce resources and knowledge are in action.  Both scarce resources and knowledge are essential categories of action.  This is why I started with praxeology.  The structure of human action is essential to understand for purposes of seeing the role of knowledge and scarce resources.  So the role of scarce resources in action, of course, is to be a means.  Human action employs scarce means.  A scarce means is that which is causally efficacious at achieving your end.  So when you act, whether as an entrepreneur or any individual even doing a non-commercial activity, you have some end in mind, some goal you want to achieve.  You have to select a means that will help you achieve that.  Your action employs that means. These means, as Mises explained, are necessarily scarce.  A scarce means is something that can only be used by one actor at a time.  If two or more actors attempt to use this means, then there is necessarily conflict. What is the role of knowledge in action?  You can think of knowledge as information, recipes as Rothbard called it, ideas.  They are a guide to action. As Mises wrote:  “Action is purpose of conduct.  It is not simply behavior, but behavior begot by  judgments of value, aiming at a definite end and guided by ideas concerning the suitability or the unsuitability of definite means”. -  from Ultimate Foundation of Economic Science Guido Hulsmann also has some good stuff on this as do a lot of other Austrian writers, including Rothbard. I’ll elaborate on this further on in the lecture,