Someone recently told me “I just ran across a few of your interviews and writings. I was particularly impressed with the point that IP creates scarcity where none existed before. Despite its obviousness, it is characteristic of IP that had not occurred to me before.”
So I thought I would elaborate a bit on this. The “artificial scarcity” insight is indeed a good one, but it is not mine. From pp. 33-34 of Against Intellectual Property:
Ideas are not naturally scarce. However, by recognizing a right in an ideal object, one creates scarcity where none existed before. As Arnold Plant explains [“The Economic Theory Concerning Patents for Inventions,”Economica, New Series, 1, no. 1 (Feb., 1934)]:
It is a peculiarity of property rights in patents (and copyrights) that they do not arise out of the scarcity of the objects which become appropriated. They are not a consequence of scarcity. They are the deliberate creation of statute law; and, whereas in general the institution of private property makes for the preservation of scarce goods, tending (as we might somewhat loosely say) to lead us “to make the most of them,” property rights in patents and copyright make possible the creation of a scarcity of the products appropriated which could not otherwise be maintained. Whereas we might expect that public action concerning private property would normally be directed at the prevention of the raising of prices, in these cases the object of the legislation is to confer the power of raising prices by enabling the creation of scarcity. The beneficiary is made the owner of the entire supply of a product for which there may be no easily obtainable substitute. It is the intention of the legislators that he shall be placed in a position to secure an income from the monopoly conferred upon him by restricting the supply in order to raise the price.[64]
Bouckaert also argues that natural scarcity is what gives rise to the need for property rules, and that IP laws create an artificial, unjustifiable scarcity. As he notes:
Natural scarcity is that which follows from the relationship between man and nature. Scarcity is natural when it is possible to conceive of it before any human, institutional, contractual arrangement. Artificial scarcity, on the other hand, is the outcome of such arrangements. Artificial scarcity can hardly serve as a justification for the legal framework that causes that scarcity. Such an argument would be completely circular. On the contrary, artificial scarcity itself needs a justification.[65]
Thus, Bouckaert maintains that “only naturally scarce entities over which physical control is possible are candidates for” protection by real property rights.[66] For ideal objects, the only protection possible is that achievable through personal rights, i.e., contract (more on this below).
[64] Arnold Plant, “The Economic Theory Concerning Patents for Inventions,” p. 36. Also Mises, Human Action, p. 364: “Such recipes are, as a rule, free goods as their ability to produce definite effects is unlimited. They can become economic goods only if they are monopolized and their use is restricted. Any price paid for the services rendered by a recipe is always a monopoly price. It is immaterial whether the restriction of a recipe’s use is made possible by institutional conditions—such as patents and copyright laws—or by the fact that a formula is kept secret and other people fail to guess it.” [For more on Mises’s view of IP, see Mises on Intellectual Property.]
[65] Boudewijn Bouckaert, What Is Property? (text version) in “Symposium: Intellectual Property,” Harvard Journal of Law & Public Policy 13, no. 3 (Summer 1990), p. 793; see also pp. 797–99.
[66] Bouckaert, “What is Property?” pp. 799, 803.
Bouckaert’s paper, What Is Property? (text version), is, by the way, superb and highly recommended.
Update: Jeff Tucker’s article and recent speech had me thinking about something that ties into this post well. People want to impose artificial scarcity on non-scarce things because they think scarcity is good. But they have it backwards. If anything, we should want material things to be non-scarce.
In Tucker’s talk, he was pointing out the difference between scarce resources and non-scarce, infinitely reproducible ones. Yes, they are different, but I think we also need to combat another fallacious view: people seem to implicitly think it’s bad that ideas are infinitely reproducible. This is a “problem” we need to combat by making them artificially scarce. But it’s a good thing.
i.e., at least ideas are non-scarce; but unfortunately, material things are scarce. But it would be good if material things were more abundant. So imagine that some benevolent genius invents a matter-copying device that lets you just point it at some distant object, and instantly duplicate it for free for you. So I see a coat you are wearing, click a button, and now I have an identical copy. I see you having a nice steak, and duplicate it. Etc. This would make us all infinitely wealthy. It would be great. Of course people would fear the “unemploymetn” it would cause–hey, I want to be unemployed and rich! And the rich would hate it because they would now not be special. They couldn’t lord their Rolls Royces and diamonds over the poor; the poor would have all that (it would be similar to how audiophiles were irked by the advent of the CD so tried to find granite turntables etc. to pretend they were still better). So imagine a rich guy suing a guy who “copied” his car…. imagine farmers suing people who copied their crops to keep from starving… how absurd! And what damages would they ask for? Not monetary damages–the defendant could just print up wealth to pay him off! So the only remedy he could want would be to punish or impoversih the defendant… for satisfation, to once again feel superior. How sick.
As my friend Rob Wicks noted, you could imagine a short story based on this in which judge orders a famine as a remedy to crop-copying.
[Mises cross-post; Am crosspost]
Update: See also May & Sell, Intellectual Property Rights: A Critical History (2006), pp. 22–23:
One of the purposes of IPRs [intellectual property rights] therefore is to construct a scarcity (or rivalrousness) that allows a price to be taken and knowledge to be exchanged in market mechanisms to further social efficiency. In a clear statement of this requirement (utilizing the labor desert argument), Kenneth Arrow noted that if “information is not property, the incentives to create it will be lacking. Patents and copyrights are social innovations designed to create artificial scarcities where none exist naturally. … These scarcities are intended to create the needed incentives for acquiring information” (Arrow 1996, 125 [“The Economics of Information: An Exposition,” Empirica 23, no. 2: 119–128.]).
And Kirzner:
“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).”
