Wednesday, October 21, 2020

Essay That Got Me in the 3rd-Place Category in the Ayn Rand Institute’s 2009 Essay Contest: ‘Making Money Versus Having Money’

Stuart K. Hayashi

Stuart at the Ayn Rand Institute headquarters in July 2018; photo taken by Jonathan Hoenig

Below is the essay for which I received one of the five third-place slots in the Ayn Rand Institute’s 2009 Atlas Shrugged essay contest. That year there were 4,000 entrants — more than double the previous record.

In this essay, I explain that money, as a commodity, is a complement. This means that its value hinges upon the value of some other product. For instance, the value in my having a can opener — qua can opener — is contingent upon my having sealed tin or aluminum cans to open. Likewise, the value of money is contingent upon there already being goods and services, such as food and shelter, for which that money can be traded. Therefore, it is such wealth — these goods and services created by entrepreneurs — that confer value upon cash and credit.

The quantity of goods and services that can be produced in a society is directly commensurate with the amount of freedom — freedom from force and fraud — existing in that society. A totalitarian society can have trillions of monetary units in circulation in the form of cash and credit, but as the lack of incentive will discourage entrepreneurial production, that society will remain poor.

Grammatically, what you see below is not exactly the same as the version I submitted. Years later, I noticed that the draft I submitted split some infinitives. I have decided to change that for the version below.



Topic 2: Making Money Versus Having Money

In Atlas Shrugged, the heroes want to “make” money while the villains want, on the surface at least, to “have” money. What is the difference between these two views of money? Explain your answer by reference to actual events in the novel.


The conflict in attitudes that the heroes and villains have about money comes from their differing views on the nature of wealth. First, “wealth” must be defined properly. The measure of a person’s wealth is the usefulness that he finds in the products and services in his possession; “wealth” does not merely refer to cash and credit. The usefulness of any unit of currency comes from the fact that it can be exchanged for the goods and services that comprise wealth. As Francisco d’Anconia explains at James Taggart’s wedding: “Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them” (Ayn Rand, Atlas Shrugged, 1957, [New York, New York: Signet, 1985 mass market paperback edition], 387).

John Galt notices that the villains do not consider the source of the world’s wealth (968); they are only aware that it exists, and they fuss over how they would like for it to be distributed (132). By contrast, the heroes understand that wealth is not something that automatically emerges into existence, independent of human initiative. The heroes recognize that all the wealth that exists, and has ever existed, was created by individuals who applied their volitional capabilities, first to discover the laws of nature, and then to utilize their understanding of such laws to convert natural materials into useful products.

The mere existence of crude oil, for instance, cannot be of immediate use to anyone while that oil remains stuck miles beneath the earth’s surface. It takes a capable entrepreneur to coordinate the activities of men and machines in an effort to bring this oil aboveground. That is precisely what Ellis Wyatt does, keeping other industrial concerns alive by reliably supplying them with oil (17). After Wyatt vanishes from public life, and after the government responds by placing further controls on the oil industry, there are no entrepreneurial individuals left who can competently organize oil-drilling endeavors. Resultantly, the country experiences a petroleum shortage (325). This demonstrates that wealth is conditional, that no one may have it unless there is someone willing and able and free to use his mind to create it.

When a man invents a new product that provides advantages that older products cannot, the new invention brings about an increase in wealth. Before Hank Rearden invented Rearden Metal, Dagny Taggart purchased steel for the reason that there was no better substance available for casting the rails for Taggart Transcontinental’s lines. Once Rearden brings his Metal into existence, it opens up previously untapped opportunities. Dagny observes that Rearden’s alloy is “tougher than steel, cheaper than steel, and will outlast any hunk of metal in existence” (28). Accordingly, a dollar that Dagny spends on Rearden Metal today will bring her greater benefit than did a dollar that she spent on steel in the past. This net benefit — this improvement in the quality of Taggart Transcontinental’s tracks — is new wealth that Rearden’s Promethean initiative has brought into reality.

Furthermore, two independently creative individuals can take advantage of one another’s creativity by making voluntary trades with each other, giving “value for value” (387). Rearden provides Dagny his Metal for her rails, and she provides him the service of shipping his Metal to his other customers (86). This trade is not executed through barter; Dagny and Rearden each pay one another with money, as money makes trading simpler in a society in which businesses perform specialized tasks. Dagny purchases cigarettes from a newsstand (64-65), but if all she had to trade for cigarettes was her railroad’s transportation services, then the newsstand owner would not agree to the trade if he had no desire to transport anything via rail. Money makes trading easier because it is a tool used specifically as a common medium of commercial exchange. Dagny can offer rail transportation to her customers in exchange for their money, and she can then offer some of that money to the newsstand owner in exchange for cigarettes.

Money is therefore the material representation of the product of one’s own effort, which one can then “exchange for the product of the effort of others” (387). To “make money” is to earn money in a two-step process: first create useful goods or services, and then trade them to willing customers in exchange for their money. Ergo, to “make money,” one must be a wealth-creator. A moneymaker is a producer.

Though wealth is created, the villains obtain it by means other than production and trade. Another way to acquire wealth is to receive it as a gift. The persons that primarily obtain their wealth not from working, but through alms, are those whom Francisco identifies as “moochers” who gain the product of your work “by tears” (387). Philip Rearden lives off of his brother Hank in such a manner (441). An even worse tactic of acquiring wealth is to engage in extortion or other forms of robbery. Those who employ this method are “looters,” who seize your wealth “by force” (387). As a case in point, in his unwillingness to try to persuade individuals to finance his scientific research consensually, Dr. Robert Stadler asks the government to confiscate money from citizens forcibly and have it redistributed to his State Science Institute (178, 183). Such moochers and looters often take money and have it, but they do not make any new wealth and therefore do not make money.

When an extortionist steals from his victim, most of society evaluates the extortionist as strong and the victim as weak. However, if strength is the ability to live as a rationally proud human being, then the productive victim is stronger. The victim survives by his own effort. By contrast, the extortionist is a parasite that lives off of its victims and will perish in the absence of victims.

Following Wyatt’s disappearance, for example, the government gives the State Science Institute full access to Wyatt’s oil fields. However, lacking the acumen to produce the same results that Wyatt did, the Institute fails to put the fields back into production and therefore fails to mitigate the petroleum shortage. To keep its building adequately heated, the Institute relies upon the oil that the government rations to it, but this quantity proves to be insufficient for satisfying Stadler’s needs (325-26). Rather than take any constructive action, Stadler simply laments that the temperature in his Institute’s building recently dropped so low that he “nearly froze to death” (325). Producers like Wyatt can survive without looters like Stadler, but looters like Stadler suffer when they no longer have producers like Wyatt around to produce for them.

If everyone in the USA lived as a productive individual, creating wealth and trading it with other wealth-creators, then the nation would flourish just as Galt’s Gulch does (652-756). Conversely, a society in which everyone was a moocher or a looter would inevitably destroy itself. The moochers and looters would find that the quantity of wealth available for consumption constantly shrinks when there are no moneymakers present to create new wealth. There would be no competent entrepreneurial efforts to generate electricity (1075), as there would be no one left to mine the coal that could supply it. The world would descend back into poverty (273), technological primitivism (1080), famine (869-870), and civil war (1029). Society would vanish “in a spread of ruin and slaughter” (390).

A particularly important principle is revealed when, just as the American economy falls into deprivation and chaos, Mr. Thompson — the nation’s Head of State — tries to coax John Galt into becoming the country’s economic dictator by offering him cash: “Want a billion dollars — a cool, neat billion dollars? . . . ...I mean straight out of the public treasury, in fresh, new bills . . . or . . . or even in gold, if you prefer.”

In reply, Galt asks rhetorically, “What will it buy me?” (1023). When there are so few quality goods and services being produced, a billion dollars will fetch very little value for its owner. To quote once again a statement of Francisco’s that was quoted in this essay’s beginning, the value of any sum of cash is predicated upon the fact that there are still “goods” being “produced and men able to produce them” (387). As the productivity of these men ceases to exist, so does the usefulness of any currency, and so it is the productive men “who give value to money” (387). The producers’ economic power comes not from merely possessing cash, but from making the wealth that gives cash its meaning.

Galt rightfully appraises Mr. Thompson’s bribe as pitiful, for having money is meaningless in a world in which there are no longer any men around to produce the goods and services that the money is supposed to purchase. That is the idea behind Francisco saying, “Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money” (387). In the final analysis, the money that one has can only retain its value as long as — and to the extent that — men still make their money freely.

Saturday, October 10, 2020

Jean-Baptiste Say in Favor of Liberalized Immigration

Stuart K. Hayashi


Jean-Baptiste Say was a pioneering Enlightenment-era economist to whom I have previously referred on this blog and elsewhere. He articulated an important principle in political economy.


What Makes Him Special 
Prior to the Enlightenment, most people believed that private property rights are nothing more than a tentative method for the State to suspend disputes over who gets to control which scarce resource. Most people, at least on a subconscious level, hold that attitude still.

Portrait of Jean-Baptiste Say
But as I have written before, Say provided a much more sophisticated understanding of private ownership. John Locke and Adam Smith explored this idea earlier, but Say delved deeper and explained it better. Say showed that, for the most part, most economic value is not a given provided by the wilderness as some default. Instead, most economic value is created by inventive, entrepreneurial, human choices.

And, to that point, the institution of private ownership is about more than resolving fights over scarce resources. Those scarce resources gained their value mostly as a consequence of invention and entrepreneurship. For that reason, private ownership over such economic value is about the inventor and entrepreneur retaining control over the value she created. The institution of private ownership is vehicle for enabling individuals to enjoy the consequences of their creative choices.

And one such form of creativity involves the choice of impoverished dark-skinned people to migrate to new lands where they have more opportunity to employ their skills in the building of wealth. Appreciation for the right to immigrate is the logical extension and implementation of the free enterprise that Say studied and championed. Sadly, this insight is often lost on people who claim to venerate this man. Thomas Sowell wrote an appreciative book about Say, but on this topic takes the retrogressive position of Say’s opponent Rev. T. Robert Malthus.


Anti-Immigrationism in the Name of Say 
 There is also a Twitter account going by Say’s name and using the man’s portrait as a profile picture. The Twitter account’s opinions, at first glance, seem similar to the real Say’s in that it gives lip service to commerce and deregulation. Yet the Twitter account, for the most part, just repeats the same old talking points of “anti-SJW” Twitter accounts and YouTube channels like those of Carl Benjamin/Sargon of Akkad. At least the Twitter account’s owner is honest in admitting, “I contain platitudes.” Unfortunately, the account’s owner not only holds those platitudes internally, but provides the rest of Twitter the disservice of divulging them.

Among the rightwing clichés this account spouts is that the State is right to take action against dark-skinned immigrants. The rationalization is that the Twitter account’s owner presumes Third-World immigrants or at least their children all vote for Democrats and the welfare state. For the Twitter account’s owner, that is justification enough for the armed federal agents to obstruct dark-skinned immigrants from entering the West peaceably. 

 Ayn Rand Institute chair Yaron Brook institute notes on Twitter, “Most illegal immigrants work. Most immigrants don’t take welfare, because at the federal level and in most states it's denied for illegal immigrants.” 

 To this, the Twitter “Jean-Baptiste Say” snaps, “That’s irrelevant. What’s relevant is that most immigrants vote for welfare. Stop defending the importation of statism.”

Dr. Brook implores people to consider the immigrant’s situation.
Think of a mother who struggles to get to America because she wants her child to be free. In any other context, you would admire that woman. 

 What could be more heroic than that?
Dr. Brook challenges his readers to consider why they scorn immigrants “instead of admiring them.”

To that, Jean-Baptiste Say’s imposter cracks,
Because statistically she’s a Socialist who didn’t come here for freedom, she came for a job. And statistically most of her children will be as indifferent to freedom as their mother and vote the way she does.


I have already disspelled these bigoted clichés. Therefore, I want to address something else. There is a sad irony in someone expressing this hostility to immigration freedom while using Say’s name and likeness to do so. And it is an irony that I doubt will be spotted by left-wing people like Vadim Newkwist who, lumping together all their political opponents, conflate anti-immigrationists with “Koch-funded libertarians” as if those two categories are in agreement rather than at odds. This is something about which I learned from the financial writer John Tamny. The irony is this: the real Jean-Baptiste Say approved of liberalized migration policy.


Letting the Real Jean-Baptiste Have His Say 
 In his Treatise on Political Economy, Jean-Baptiste Say writes
One nation cannot take from another the revenues of its industry. A German tailor, establishing himself in France, there makes a profit, in which Germany had no participation. . . .

A nation, receiving a stray child into its bosom again, acquires a real treasure...
Interestingly, in an endnote to the English translation of his work, one does find some fretting over the prospect of immigrants coming to a country to go on welfare. 
...defective human institutions may convert a benefit [such as immigration] into a curse; as where a poor-law system gives gratuitous subsistence to a part of the population, capable of labour, but not incited by want. In such case, every additional human being may be a burthen instead of a prize; for he may be one more on the list of idle pensioners.
However, that endnote came not from Say himself but from the English translator Charles Robert Prinsep.

The line of Say’s beginning “A nation, receiving a stray child into its bosom again,” might be interpreted as not a strong endorsement of immigration for several reasons. Although this section of the work is largely in defense of the right to migration, the sentence is preceded by a discussion of expatriates returning to their country of origin. Therefore, the “receiving a stray child into its bosom again” could be interpreted as saying that it is only a “treasure” when a native-born citizen repatriates to his country of origin, not so much when a non-native comes to the country. 

 Adding to that interpretation is this implied condescension toward non-natives: “...I reckon that a native Frenchman in quitting his country, robs it of an affectionate attachment, and a spirit of exclusive nationality, which it can never look for in a stranger born [resident alien in France].”

Yet there is another passage of this work that is unambiguous in its approval for immigration: “A stranger [immigrant], that comes into a country to settle there, and brings his fortune [productiveness] along with him, is a substantial acquisition to the nation.”

The real Jean-Baptiste Say does not delve into tirades about how would-be immigrants holding opinions on public policy contrary to his own is sufficient reason for armed government agents to bar their entry into the country.

Using Say’s face to spout the old canards against free immigration is an embarrassing attempt to co-opt the image of a great man who delivered the opposite message.

Thursday, October 08, 2020

All ‘Economic Migration’ As Financial Arbitrage

Stuart K. Hayashi

Screen shot from the motion picture Born in East L.A.,
prod. Peter Macgregor-Scott, dir. Cheech Marin (Universal Pictures, 1987).

There is an important term in finance and investing: arbitrage. This means that you notice a resource fetches a very low price in Market A and fetches a high price in Market B. Therefore, you start by removing the resource from Market A, usually by purchasing units of the resource in Market A. You conclude by moving that resource to Market B, where you are paid much more for it. That difference in prices is your profit margin.


Case Studies
Here is a basic example. You notice that in Country A, oil fetches 37 U.S. dollars per barrel. Yet you notice in Country B, parties are willing to pay 100 U.S. dollars per barrel. Therefore, you purchase barrels in Country A and then resell them in Country B. You make a profit of $63 per barrel. This business method is called arbitrage, and the one who practices it is an arbitrageur.

Here is another example. Maybe I want to find an old collectible or toy, maybe one Godzilla-related. But I only know of the big online vendors, such as Amazon and eBay. Perhaps an arbitrageur is more familiar with many smaller, lesser-known online vendors. The arbitrageur spends hours scouring the websites of the various online vendors. That is how she finds the collectible for sale for 40 US dollars. The arbitrageur purchases it for that price and then asks $55 for it on a bigger website with which I am more familiar. If I purchase it from the arbitrageur, that is a $15 profit before the bigger website takes a commission.

Arbitrageurs such as those described above have long been reviled as parasites. The implication is that the arbitrageur should have simply told me about the sale on the obscure website. Then I could have purchased the item at the lower price. What goes overlooked in that the arbitrageur did perform a valuable service for me. The arbitrageur was willing to spend time and effort keeping tabs on the various lesser-known vendors. By contrast, I was not. The additional $15 I pay to the arbitrageur is for the service of doing this legwork I was not willing to do myself.

The same applies to the arbitrageur who buys oil from Country A and resells it in Country B. The arbitrageur is performing the service of taking oil from where it is wanted less and redirecting it to where it is wanted more. Absent of the arbitrageur, parties in Country B who desperately wanted oil barrels at the lower price would have to do the hard work the arbitrageur did for them. They would have to travel to Country A themselves to make those purchases.

The principle of arbitrage is always as follows. Because there is relatively small demand for a resource in Market A, it fetches a low price there. Because there is greater demand for that same resource in Market B, that is where it goes for a higher price. The arbitrageur profits from the difference by removing the resource from the smaller-demand market and repositioning it in the greater-demand market.


Bible-Age Arbitrage
Ignorant hatred for this practice goes back at least as far as the Bronze Age. Merchants would purchase items in City-State A and travel many miles across the Middle East to resell those items in City-State B. These merchants would were said to be cheating the citizens of City-State B. Overlooked was the fact that those merchants performed a valuable service to citizens of City-State B by making those items more accessible to City-State B than they otherwise would be. If not for those merchants, the citizens of City-State B would only be able to access those items by themselves making the long trek to City-State A.

Fortunately, Jean-Baptiste Say understood the nature of such transactions.
The carrying trade, as Smith calls it, consists in the purchase of goods in one foreign market for re-sale in another foreign market. This branch of industry is beneficial not only to the merchant that practises it, but also to the two nations between whom it is practised; and that for reasons which have been explained while treating of external commerce.
Moneylending is another form of arbitrage. That, too, has been reviled since the Bronze Age, this time being condemned in the Bible and Koran. At this very moment, I am in urgent need of 100 U.S. dollars. My demand for that $100 is so great that, in order to access it by tonight, and I am willing to pay you $115 for it in one month’s time. By contrast, you have much lower demand for your own $100 — you are not willing to pay any more than $100 for it. Hence, we make an agreement. You hand me the $100 this moment. In turn, a month from today I pay you $115.

For most of recorded history, many people have condemned that $15 profit as something you stole from me. It is actually a payment to you, once again, for a valuable service. It is valuable on two counts. First, you make 100 dollars’ worth of resources accessible to me much sooner than they otherwise would be. Second, you yourself have to go a whole month without that $100. The equivalent quantity of resources will not be so accessible to you for that month. Instead, for that month you have turned over your control of that quantity of resources to me.

This is how you, as a moneylender, are an arbitrageur. The resource in question is the $100 at this very moment in time. My custody at the very moment is the market where the resource is in greater demand. Your own custody is the market where there resource is in smaller demand. At this moment, you need the $100 less than I do. A month from today, though, you might need that $100 more than I do. By handing me the $100 today, you remove the resource from the market that has smaller demand for the resource. By selling $100-at-the-moment to me for the price of $115-a-month-from-today, you relocate the resource to where it is in greater demand.


“Economic Migration” As Arbitrage
Any time a person changes countries for the purpose of making more money than she otherwise would, that is a form of arbitrage. That principle applies even in the unlikely instance of someone actually immigrating to a new country to go on welfare.

Suppose an impoverished woman makes zero dollars in her country of origin. It’s seldom the case that such a person has zero marketable abilities. She does have marketable abilities. The reason why she is not being paid is that, in the village where she lives, there is not sufficient infrastructure where her abilities could be put to a lot of use. She could be very productive in a factory. But, in her village, there are no factories.

Suppose this woman illegally enters a rich country and gets a job. Now she is making more money. She is an arbitrageur, and her laboring ability is the resource she has relocated. In her country of origin, there was small demand for her abilities. Hence, she moved her abilities to a new country — a new market — where there is larger demand for her abilities. Hence, her abilities fetch her more income in the new country than the old.

I have previously disputed the old accusation that impoverished dark-skinned immigrants come to the USA and the West just to go on welfare. As a theoretical exercise, though, I will explain how even such an act would be arbitrage in practice.

In my country of origin, no one pays me anything for my presence. Hence, there is very small demand for my presence. Then I move to a rich country where I collect welfare. In this instance, I make more money than before because there is much greater demand for my presence in the new country than in the old — even if the consumer demand comes from the State officials claiming to act in the interest of the public.

Rage Toward Tax-Funded “Economic Migrants” As Misdirected
Even aside from the fact that this phenomenon is less common than presumed, there is another reason why it’s unfair to single out Third-World immigrants as if they were the only group to profit this kind of arbitrage. If I find any type of item for a low price and then resell it to the government a profit, it is a form of arbitrage where the choices of the buyer (government officials) are likely at odds with those of the taxpayers who funded the purchase. As Christopher Cerf noted in the 1980s, arbitrageurs often take advantage of defense spending in this manner. Defense contractors purchase tools that would be priced at a few cents at a hardware store and resell them for $80 or more to the Pentagon.

Insofar as the reader disapproves of any immigrants or their children collecting welfare, the proper solution is to agitate for reductions in welfare in particular and, more importantly, reductions in government spending in general. The act of immigrating, by itself, is not a violation of anyone’s rights. It is especially not a violation when someone whose services are less-valued in her country of origin then moves to the USA where her services are more sought-after and therefore better-compensated.

On Saturday, October 10, 2020, I added the quotation from Jean-Baptiste Say.

Sunday, October 04, 2020

‘Circumstance Does Not Make the Man; It Reveals Him to Himself’

Stuart K. Hayashi 

“Private schools are for weaklings,” an older relative of mine liked to say. She continued, “When I gave my presentation to kids at Iolani School, I noticed they leave their backpacks and laptops out unattended. Any schoolmate could swipe their stuff. Remember the public schools we went to? We and everyone else there knew better. If I have kids, that’s why I’m sending them to public school. That’ll toughen them up.” 

 The implication of this rant greatly offended me. I wanted to say, “Would you also get drunk and beat them up? By your logic, that’ll really make ‘em tough!” 

 Sadly, while very few people would choose government schools over private schools for the reason my relative gave, many people do agree with a particular pernicious philosophic premise of hers. Most people believe that your personality as an adult — including how tenacious you are — is determined by circumstances entirely external to your conscious choices. 

 That is the premise behind the very term “Nature vs. Nurture debate” — what gave you your personality were either environmental circumstances in which you grew up, which were beyond your choosing, or some inborn biology that was beyond your choosing. With “Nature” (meaning inborn biology) and “Nurture” (meaning environmental circumstances) presented as the only two possibilities, your own choices are not even countenanced as a possible factor in making you who you are. Incidentally, it is not an accident that the very expression “Nature vs. Nature” was coined by Francis Galton, the biological determinist founder of eugenics. 

 My older relative’s rant was a manifestation of the “nurture” side of that false dichotomy. The implication is that the degree to which you are tough as an adult was mainly a consequence of unpleasant circumstances being imposed on you. The assumption is that if you were in pleasant surroundings as a child, it would make you soft and weak. By contrast, the assumption goes, if some unpleasantness is imposed on you, it will make you strong. In this interpretation, you are a passive receptacle. Further in this interpretation, it is your environmental circumstances that are active, actively molding you.

The reality is far different. The very same difficulty can be thrust on two different people who grew up in the same sort of environment. They might even be blood relatives. Despite these similarities in genetics and environment, one of these people may rise to the challenge while the other may not. The reason is simple. Difficult circumstances are not the main factor in making anyone tough; it’s the person’s choices. Insofar as you rise to some challenge in circumstances, the approach you took and even the lessons you drew were primarily up to you. 

 Toughness is not a passive response to circumstances; it is a proactive choice. And, to a large extent, a tough person doesn’t have to have difficulties imposed for him or her to undertake creative projects that require discipline. For that reason, a child does not need for adults to impose harsh circumstances upon him for him to learn discipline. All he needs is to be encouraged and supported in following through on the goals he set for himself. 

 In 1903, a member of the New Thought movement, James Allen, published a self-help book titled As a Man Thinketh. It emphasized that your well-being as an adult is mostly the result of your own choices. It was too harsh for my taste in saying that if you are poor in the USA, it is your own fault. However, the book also provided some wise words that are most pertinent to this discussion: “Circumstance does not make the man; it reveals him to himself.” 

 Also helpful are some ponderings from Marcus Aurelius: 
 You need never believe that anyone who depends upon happiness [to come from circumstances external to the self] is happy! ...that joy which springs wholly from oneself [one’s own choices] is legal and sound... All things that Fortune looks upon become productive and pleasant only if he who possesses them is in possession also of himself...

 For men make a mistake, my dear Lucius, if they hold that anything good, or evil either, is bestowed upon us by Fortune; it is simply the raw materials of Goods and Ills that she gives to us — the source of things which, in our keeping [choices], will develop into good or ill... ...the upright and honest man corrects the wrongs of Fortune...

Wednesday, September 02, 2020

More Than Ever

Stuart K. Hayashi

On September 2, under these political circumstances and especially the current dysfunctional U.S. President, this passage is even more eerily relevant than before.

Tuesday, August 18, 2020

Capitalism ‘Versus’ the Pursuit of My Dreams

Stuart K. Hayashi

“Wanderer Above the Sea of Fog,” c. 1818, 
by Caspar David Friedrich, a Romanticist painter

“I hate capitalism!” the lament often goes. It comes from someone young. She is in her late teens or early twenties. When this gripe is spotted online, too often people who think of themselves as defenders of free enterprise — utilitarian economic libertarians and Objectivists — are too quick to assume that, by capitalism, this young person uses that word with largely the same definition as they. They immediately seek to explain to this young person the error of her anti-capitalism.

The economic libertarian, likely most influenced by Milton Friedman or Ludwig von Mises, says,
So you hate capitalism? What do you have against the allocation of economic resources being organized from the bottom-up? Why is this worse than some central planner presuming omniscience and trying to organize the economy from the top-down? Under capitalism, individuals are free to make their own choices in their business.

You as a vendor don’t have to know everything about everyone’s needs. You only need to gain knowledge of your specific customers’ needs and expectations. The same applies to every other vendor. This is the division of labor. The alternative to the market is central planning of the economy by the State. Apparently, that is what you favor. The central planner presumes to know more about everyone else’s needs than do the people themselves.

Yet the central planner is supremely ignorant. He doesn’t even have as a direct a pipeline to learning about his citizens’ needs as a vendor does with her customers. That is why the Soviet Union and other centrally planned economies fail. That is what your hatred for capitalism brings you.
The Objectivist usually reacts more angrily. “So you hate capitalism?!” he yells.
There are only two methods whereby human beings can deal with one another. They are either by rational persuasion or by force. Under capitalism, people interact through rational persuasion. I can’t force you to buy my wares. I have to offer you something of value that appeals to your rational judgment. The alternative to this is socialism or some other system of government force. For socialists to get me to do what they want, they have the State threaten to fine or imprison me if I don’t do as they command. And when you reject capitalism, such force is the one alternative. That is what you want. Why do you want to threaten force on me? Why do you insist on robbing me of my freedom?
In both instances, the young person is genuinely baffled by such a response. “I said that it’s capitalism that I hate,” the young person replies sheepishly. “Why are you changing the subject?”

There is a miscommunication. When young people mope about what they hate, what they mean by “capitalism” and even “free enterprise” is often only superficially similar to what avowed ideological free-enterprisers mean by these terms. The upshot is that the usual defenses provided for capitalism — such as the two given above — do not actually address the young American’s primary misgiving about unregulated commerce.

What Do They Mean By “Capitalism”?
For many — possibly most — young Americans, “capitalism” vaguely refers to any activity where both of the following conditions apply.
  1. Someone is paid money to do something.
  2. This person probably would not have done it if not having been paid to do it.
That definition, by itself, seems straightforward. Yet in many respects, it prejudices the people who adopt it. The premise behind it also leads them to form various convoluted conclusions and invalid inferences.

The implications of this interpretation are as follows. When we take an action without having been paid to do so, the value in that action must have been intrinsic to the action itself. By contrast, when we are paid to take an action, our motivation in performing it was necessarily extrinsic to the action. Eventually, too many of our actions are those that are not worth taking for their own sake. The introduction of money payments, then, has a corrupting influence over our process of deciding which actions to take.

Suppose someone yearns to be a great guitarist as a career. Yet his parents discourage that. They warn him how irregular it is for an up-and-coming musician to get gigs. He cannot realistically expect this to be a source of steady income. At his parent’s urging, this young man goes to business school and lands an office job. He is terribly bored. His prior dreams of making it big as a guitarist become nothing more than a memory. And when this man reflects on it later years, it triggers in him feelings of regret and shame.

For many young people, this is the image that immediately enters their thoughts when they hear “capitalism” and “free enterprise.”

They also think of it as supremely capitalist if, placed in desperate straits, someone sacrifices her personal morals to acquire the cash she needs. To them, if someone pays a hit man to bump off a spouse, the exchange of cash renders this the prime example of capitalism, free enterprise, and laissez faire. The same applies to the slave trade.

Stigmatization results from the premise that what is integral to “capitalism” is that someone would not have found an activity worthwhile in the absence of monetary payment. If your action is conditional upon having been paid for it, then in most instances it must be tedious at best and reprehensible at worst. In either case, the person being paid did not have his heart in the activity. After all, had his heart been in it, he wouldn’t need to be paid to do it, now would he?

Naturally, we free-enterprisers mean something very different when we say capitalism, free enterprise, free markets, laissez faire, and liberalization. What we want is a society in which people are free to do anything that’s peaceful. Because most efforts at government control over peaceful behaviors are over economic matters and are done with an economic rationale, many of our arguments for freedom overall turn into arguments about commerce. That is how our arguments for freedom in general come to be misconstrued as being narrowly about financial freedom only.

Yes, we vigorously defend the right to profit by peaceful means. There is nothing wrong with that. And we understand that whether or not someone profits is not the central issue over whether an activity should be legal. The issue is over whether an action is violently coercive or not.

Etymologically, then, the expression free enterprise relates more strongly to our political priority than capitalism does. Capitalism alludes to “capital” as in financial capital — the resources that people invest into a business concern out of the hope that those resources will be used productively, yielding a greater quantity of material wealth.

One might say that, etymologically, the term “capitalism” does fit with these young people’s notions about what it means. The “capital” in capitalism usually takes the form of money. “Capital-ism” translates to “money-ism.” And the prospect of human actions becoming primarily driven by the promise of monetary rewards is exactly what these young Americans revile most.

By contrast, “enterprise” simply refers to activity more generally, an endeavor. Free enterprise amounts to the freedom of action, the freedom to endeavor and venture, the freedom to enterprise. This, again, includes anything that is peaceful, regardless of whether financial profit is the stated objective.

I take it that most of my readers are already familiar with how anti-capitalists who object to my definition do so by equivocating the distinction between economic power and political power. I will therefore avoid that discussion in favor of one I think too often goes overlooked by Objectivists and libertarians. What makes it particularly galling that this goes overlooked is that Ayn Rand’s The Fountainhead implicitly addresses it. In fact, a common reaction to this book by a number of its young admirers is what helped me consider the issue.

Besides the equivocations about “economic power” and “political power,” there is something else that prejudices many young people against capitalism. It is that they are hung up on conflating it with actions they consider wholly undesirable — actions that, being unpleasant or unethical, they believe no one would take if not having been paid to take them.

How Ayn Rand’s The Fountainhead Is Interpreted As Anti-Capitalist
Let us say you want to start a charity that is of great priority to you. You judge that, based on the nature of the activity and the circumstances involved, it makes more sense for you and others to think of it as a not-for-profit operation. That is literally free enterprise — it is an enterprise in which you are free to engage in. Yet, to many young people, this is not free enterprise and definitely not capitalism. That you would do this without having been paid precludes it from being such.

Let us imagine something else. Someone wants to be a magnificent guitarist. This is something that this man would do even if no one paid him to do it. In fact, if this young man found very few opportunities to do so otherwise, he might even be willing to pay others to let him serenade them. Yet, on account of a combination of luck and a steadfast commitment to his craft, this man discovers methods whereby he can monetize this obsession. He realizes a great financial windfall doing something he would have done anyway.

The pertinent question is this: isn’t this young man gaining a fortune from his passion an exercise in free enterprise and capitalism? Exactly to the very degree to which they do approve of this guitarist’s financial success, many of our young people who moan “I hate capitalism!” reply that the answer is no. No, this guitarist’s success is not capitalism. The consideration that this man still would have wanted to be a guitarist in the absence of remuneration precludes that possibility. But if this man’s success was not capitalism, then what was it? The answer from young people is that this was an example of the greatest foil to capitalism: it was someone pursuing his dreams.

Even among many young people who get a rebellious thrill out of labeling themselves “socialists” or “Marxists,” very few of them truly believe, on a deep level, that the great conflict of our age is that of “capitalism versus socialism” or “the market’s bottom-up division of labor versus top-down central planning of the economy.” For them, it is:
Capitalism Versus the Pursuit of My Dreams
It can also be phrased as:
The Right to Property Versus the Right to the Pursuit of Happiness
Upon my making this point before, some persons sympathetic to Objectivism brushed this off and said, “Well, then those young people should just get their definitions straight.” For them, that was the end of it. But for those of us who would like to enlighten America’s youths, it is not adequate to be so dismissive. Upon understanding why young people interpret capitalism and its opposition as they do, we can be better-equipped in edifying them.

Something that helped me confront this was a startlingly common reaction to The Fountainhead I have heard from many young people who have gushed to me that it was a great inspiration to them. They informed me, without sarcasm or knowing irony on their parts, that they greatly appreciated the authoress’s clear and successful intention on indicting the conformity and corruption of motives that is an inherent byproduct to capitalism. In brief, they cherished this book for its always having meant to be anti-capitalist.

More than that, they fell in love with Howard Roark for being the ultimate rebel against corporate greed. As far as they were concerned, the perfect representation of someone striking a blow against this system was not Che Guevara or Leon Trotsky or Jesus whipping the money changers. It was Howard Roark.

This is how they explained it to me. The two characters whose behavior was most consistent with what they expected of archetypal capitalists were Peter Keating and Gail Wynand. For Keating, the customer is always right and the customer is king. He gave his clients designs that were both popular and sub-par because his heart was not in the work. Architecture, as such, was monotonous to him. He pursued this career to obtain money and prestige and to hold onto his mother’s approval. Consequently, he employed manipulation and office politics to rid himself of potential rivals for promotion within the firm. When free-marketers speak of “competition,” Keating’s sort of intra-company backstabbing inadvertently comes to mind.

But, for the young readers, Wynand even more closely matches what they predict the quintessential capitalist to be like — mostly because he was even richer than Keating. His cynicism was of especial import. Wynand held his own customers in contempt. He promulgated yellow journalism he thought to be beneath him for the sake of money and clout. These actions made him the wealthiest character in the story. Wynand’s worst personality traits are exactly what young Americans imagine of real-life billionaires in the mold of Rupert Murdoch and Jeff Bezos.

By contrast, these young people said, Howard Roark was not a capitalist by any conventional understanding of the term. I naturally agreed with that part, except that my interlocutors meant that if someone was a capitalist by any conventional understanding, that person could not be a capitalist at all. They remember the various instances of Roark foregoing lucrative commissions for the sake of seeing that his buildings be constructed precisely according to his designs. I asked these young readers if this meant, then, that they thought Roark was some sort of socialist or communist. They replied, “Of course not.” Instead, he was the true opposite of a capitalist: someone who pursued his passions and lived his dreams.

And even among young readers reluctant to go as far as calling Roark anti-capitalist, it was still the majority opinion that Wynand was the much more consistent representative of what it means to thrive under free enterprise. Some readers in their thirties added that they surmise that while Roark represents Ayn Rand’s ideal conception of free enterprise, Wynand more accurately represents how it functions in practice.

This is what many young Americans really mean when they say they “hate capitalism.” What they actually mean is that their great fear is of committing the next several decades of their lives to a career that they know will not provide them fulfillment. They lose sleep over the worry that they will do this out of capitulation. They would resort to it to meet their material needs and to cave in to pressure from their elder relatives, à la Peter Keating’s appeasement of his mother. Their idea of what it means to be a capitalist is ultimately influenced by the imagery of Sinclair Lewis’s Babbitt, even if they have never heard of this title directly.

Coming across so many young Americans who admire The Fountainhead as anti-capitalist is far from unique to my own experiences. I know that because Ayn Rand herself encountered such fans. In 1945, she received a letter from one who at least partially agreed with this interpretation. In a reply dated March 4, she explained to him,
You’re completely wrong on Wynand. Wynand is not the symbol of free enterprise — Roark is. (If you wish to call it a symbol.) Free enterprise was not made by those who catered to the masses, as Wynand did, but by the originators and innovators who went against the masses, against all public opinion, against all “trends” and “currents.” Wynand — if you want to look at him in one of his lesser aspects, in the narrow, “journalistic” sense of contemporary events — represents the men who are destroying free enterprise today... [“To O. W. Kracht,” Letters of Ayn Rand, ed. Michael S. Berliner, (New York: Plume, {1995} 1997 trade paperback), 224. Emphases hers.]
The anti-capitalist interpretation was also held by Nathaniel Branden upon his first complete reading of it.
The Fountainhead, a novel by Ayn Rand. . . .

There are extraordinary experiences in life that remain permanently engraved in memory. . . . Reading this book was such an experience. . . .

[Cousin] Allan [Blumenthal] introduced me to a novel by Romain Rolland, Jean-Christophe, which deals with the life and struggles of a musical genius. It reinforced a conviction already forming in me, especially after I read The Fountainhead, that a hero is one who perseveres. . . . On an impulse...I decided to write her [Ayn Rand] a letter, care of a publisher, inquiring about her political convictions. What did she believe in? “Certainly not capitalism,” I wrote her confidently. [My Years With Ayn Rand, (New York: Jossey-Bass, 1999 revision), 8, 13, 30.]
As a teenager, Branden put The Fountainhead and Jean-Christophe in the same category for an unsurprising reason. The protagonists were both dedicated dreamers who pursued their creative visions being more inspired by the challenges of the craft than the financial rewards of it. That is why Branden, as with so many young readers today, could not fathom that Roark, not Wynand or Keating, was the free-enterpriser of the novel.

Why the Dichotomy Is False
Of course, the sort of success realized by our imaginary guitarist from is far from exclusive to persons who have gotten rich through their art. Such figures in biotechnology as Genentech cofounder Herbert W. Boyer and human insulin inventor David Goeddel were primarily interested in gratifying their scientific curiosity. Yet they found methods of monetizing their own intellectual excursions, earning hundreds of millions of dollars in the process.

The same applies to many great entrepreneurs who’ve monetized their childhood obsessions. William Scholl was a very strange little boy who, upon meeting new neighbors, reportedly insisted on inspecting their feet. Fortunately, his parents let him indulge in this fetish. He carried around the skeletal remains of a human foot everywhere he went and named it George. Consistent with this quirk, he became a podiatrist. Treating his patients, he noticed that many of the bunions and other problems with their feet resulted from their shoes not being very ergonomically designed.

Scholl decided to rectify this. He earned over a hundred patents on his improvements, developing new orthopedic shoes. This was the beginning of Dr. Scholl’s. He made a fortune by inspecting strangers’ feet — something he had done repeatedly as a child when not having been compensated for it and likely would have continued to want to do had he never been compensated.

Scholl here followed a pattern that is actually common to most famous entrepreneurs. They start off as eccentrics who nurture a particular obsession of theirs. Only years later do they discover a means by which they can profit financially from their own obsession.

Richard Branson, for instance, sounds completely sincere when he says that money was always just the secondary motivation for him as he started his music production and airline. His deepest interest was in the challenge itself.

That success as an entrepreneur is seldom ever in opposition to doing what one enjoys is often lost on young people. They are fixated on the cartoonish stereotype of businessmen all looking alike, thinking alike, behaving alike, and being perpetually bored by their jobs. They can more easily recognize examples in arts they admire. They know that only a tiny minority of artist working in any medium become household names and millionaires.

But they do know that such people exist. Examples such as Howard Roark and our hypothetical guitarist remind them of this. But because they know that such artists are often tempted to sacrifice their long-term creative ambitions — that might yield greater financial windfalls in the future — for the sake of more immediate monetary gains, even these successful people are thought not to be examples of capitalism but some subversion of it.

It is for this reason that you can find indie hipster artists who, in the same breath, tell you they despise capitalism and that they rooted for Howard Hughes when they watched The Aviator. It is also why you can find indie musicians on YouTube and Twitch who rail against capitalism soon before professing their love for The Greatest Showman and proclaiming “A Million Dreams” to be among their favorite songs. You can say to these people, “The protagonists of both of these stories were capitalists, were they not?” You will often get the same reply: insofar as these entrepreneurs were doing something that they enjoyed enough to do even if they were not paid, they were not acting in the capacity of capitalists.

Indeed, they are wont to rationalize, as long as our hypothetical great guitarist makes money doing just what he believes in, he has not yet become a capitalist. Rather, he only becomes a true capitalist when, coming to prioritize big bucks instead, he lets the quality of his art decline as he churns out one album after another.

One twentysomething, the up-and-coming YouTube vlogger XanderHal (short for Alexander Haley), articulates that position:
As a leftist — as an anti-capitalist — I do have to acknowledge that there are times where capitalism does benefit the Progressive cause. . . . For example, when corporations market to LGBT people in order to make money. It may be insincere, and that’s obvious. But, regardless, when they do that, they contribute to normalizing LGBT people in society. . . . So while capitalism is shit, there are times where it gets stuff right — where some good comes out of it. Now, funnily enough, conservatives will only ever criticize those small instances where it ends up doing some good for some particular marginalized group like LGBT people.
Why is it “obvious” to XanderHal that corporate executives are “insincere” in professing concern for the well-being of LGBT people? It is that, as they do so, these corporations “make money.” If these executives were sincere about wishing to improve the lives of LGBT customers, they would not be charging them money, would they?

The reality that is glossed over too frequently is that someone can indeed do something she genuinely enjoys while hoping that she is rewarded for it monetarily. There is a very simple reason for this. It is that when someone partakes in her favorite creative activities, it usually requires that she use up a lot of her own material resources.

This is visible with the cottage industry of people video-streaming themselves on Twitch as they paint their pictures. As they will attest, they love their painting, but if they painted full-time and never received any remuneration, they would run out of paints and canvases. Then they would have to stop. Admirers paying money to these artists is the same as restocking these artists’ supplies.

The same principle applies to other creative endeavors. To pay a filmmaker is to cover her costs. That, in turn, helps her make more movies. The same applies to compensating an inventor monetarily. To pay him royalties is to cover his expenses. And to cover his expenses is to restock the supply of the resources he needs to proceed with more R-and-D in the future.

Such psychologists as James Carlsmith and Leon Festinger have noted a phenomenon. If parties A and B perform the same task, with party A being paid and party B going unpaid, party B is likelier to take more pride in the very performance of the task. Psychologists theorize that when members of party B do not receive an extrinsic incentive, they feel more motivated to tell themselves that they must have considered the value in their actions to be intrinsic to the task itself.

In that respect, the introduction of monetary rewards to a long-running project of mine can indeed influence my judgment of the project itself. For years, I have been drawing and not being paid for it. There may come a day when I start to accept payment for my art. When that happens, that may change my motivation. There is a risk that I may feel tempted to take my style in a particular direction more to appease my patrons than to satisfy my own personal tastes.

Should that happen, it does not follow that the money itself had a corrupting influence. Rather, this is a private psychological issue for me to work out on my own. It is up to me to weigh the values of mine that seem to be in competition for the top spot on my list of priorities. Insofar as painting streamers on Twitch can maintain their love for their craft as they obtain payments for more supplies, this is not to be reproached as a form of selling out. It is to be applauded.

The truth is that no specific actions — not even ones we enjoy without having been paid to take them — have value in themselves. Whether or not we are paid — whether or not we find them fun — all of our actions should ultimately be in service to a greater end. That greater end is our overall quality of life and lasting happiness, our eudaemonia. If I peaceably perform an action that bores me for the sake of a large payment, it may still be worth it if it provides a net gain to my happiness overall. And if doing something fun without payment also provides a net gain for my life, it is worthwhile as well.

Why the Conflation Between Free Enterprise and “Grudgingly Doing Something Only Upon Being Paid”?
It is true that if you press these young Americans on specific issues, they will probably start regurgitating clichés about how business owners always exploit their employees and of the need for raising the minimum wage. But I suspect that these clichés are likely rationalizations added on, ex post facto. First, these young Americans come to associate capitalism with the prospect of selling out one’s dreams for the sake of a more “safely” lucrative and conservative career. But that seems too selfish a reason to hold reservations about capitalism. Hence, they pin on these other grievances that sound more altruistic and civic-minded.

As I will mention again later, I doubt that most young persons who declare their revulsion toward capitalism genuinely aspire to toil on communes every hour of the day. But as they associate capitalism with actions being performed for nothing but payment, it is not difficult for them to hold up those commune dwellers as having the moral high ground over CEOs. If people on communes do what they do for reasons other than riches, it is assumed, it must be because their heart is in it. It is for similar reasons that so many young people who started off hating capitalism out of fear of a thankless career eventually give lip service to socialism.

Yet the false dichotomy of “capitalism versus my dreams” is influenced less by Karl Marx than by his contemporaries in the philosophic Romanticist movement. This is a manifestation of the false dichotomy that pits emotion and morality and idealism on one side, and reason and utility and practicality on the other. And for all of the illogic and faults of him and his followers, Marx touted himself as being squarely on the side of cold reason and practicality. By contrast, the general impression by the Romanticists was that human beings were happier in their state of nature, frolicking in the wilderness. This is the sort of happiness a child experiences before having to grow up and go by the humdrum routine of big business.

Then the Romanticists’ equivalent of Original Sin occurred. As Jean-Jacques Rousseau bemoaned, someone thought of considering a patch of land to be private property. The happiness of frolicking was ruined when, through the use of cold reason, human beings adopted stodgy civilization in general and industrialization in particular. Unwittingly applying the old general ideas of philosophic Romanticism to their own lives, young people conclude that they must choose whether they are to surrender to the uptight and proper grind of the corporate machine or if they are to reclaim the wild and unsullied mirth of their childhood aspirations.

Greatly contributing to this attitude is the manner in which parents are woefully inadequate in explaining to their children why “capitalism” is better than “socialism” and “communism.” It starts when a child asks why she should have to go to work one day as an adult and why should she have to pay money for anything instead of just get it free. After all, she got everything free as a baby.
Child: “When you go to the store, why did you have to give them money? Why doesn’t the store just give us what we need?” 
Parent: “Everyone would rather just get everything free. But we can’t all just go around demanding free stuff from everyone else, can we? We wouldn’t get anywhere. We would all be telling everyone else what we want from them. And no one would get what he wants. That’s why the best that we can do is trade. I go to work to get money. Then I use the money to get what I want from the store. Then the people at the store use that money the same way. And one day when you’re old enough, you too will have to go to work to get money.”

Child: “I don’t wanna to go to work. You told me it’s boring. It sure looks boring. I’d rather just play all day.” 
Parent: “Well, that’s not how life is! So too bad! What we have is capitalism. Some people would rather be like you and just demand that they get stuff. That’s called socialism or the welfare state. But it does not work in the end. It doesn’t work because we’re all too selfish. You can see that because we all wish we could just have free stuff.” 
Child: “But I don’t wanna go to work and be bored. I wanna play!” 
Parent: “Too bad! What we have is capitalism. I wish we could have something better, but everything else is worse. We’re stuck with it. That’s reality, and reality is harsh.”
The attitude of the parent in the hypothetical conversation above is hardly going to enthuse our young Americans about capitalism. I wish I could say that our conservative Republicans provide defenses that are more sophisticated. But they don’t. Thomas Sowell’s writings on the topic are more erudite in their phrasings and case studies, but the underlying meaning of what he says is actually the same.
If everyone were sweetness and light, socialism would be the way to go. . . . Maybe some day we will discover creatures in some other galaxy who can operate a whole society that way. But the history of human beings shows that a nation with millions of people cannot operate like one big family. . . .

The rhetoric of socialism may be inspiring, but its actual record is dismal. . . .

While my desires for a better life for ordinary people have not changed from the days of my youthful Marxism, experience has taught the bitter lesson that the way to get there is the opposite of what I once thought.
Now, I do think that the Objectivist case for capitalism is more sophisticated and correct. I don’t have any qualms about the argument itself. And the Objectivist defense of the profit motive, so distinct from Adam Smith’s, is of especial importance.

But as stated at the essay’s beginning, I do think it’s the case that, too often, upon coming across someone on the internet who proclaims, “I hate capitalism,” too many Objectivists are too quick to launch some verbose lecture about the superiority of free persuasion over force. They do this under the assumption that the young person already agrees with them on their definitions. And, insofar as they know that the young person holds a different definition for capitalism, too often Objectivists will bossily tell her their own definition and expect her to accept it right then and there.

Upon Asking What Is Meant By This “Capitalism” That One Hates So Much
Although many — probably most — young Americans will, upon being prompted to do so, begin reciting the clichés about capitalism exploiting workers and destroying the Earth that their teachers and popular culture have taught them, I still think that is usually not their most fundamental objection. I say this because very few of them actually want to sacrifice their happiness and material comforts to toil in subsistence agriculture on some commune.

And although most of them cling too strongly in their civic indoctrination to consider how preferable laissez faire would be to their mixed-economy regulatory entitlement state, most of them do nurse some vague desire for fulfillment in a career that is lucrative and where they have a lot of autonomy. They don’t know it consciously, but if they took this vague desire of theirs to its logical conclusion, it would be what many of us recognize as a form of entrepreneurship.

Many will convey that they hate capitalism both because of the usual accusations about it in general, and also because of their personal dread that participating in a commercial economy will result in their sacrificing their risky ambitions in favor of a “safer” vocation. When you converse with someone long enough and regularly enough, however, it becomes easier to detect when the latter reason for professing her hatred for capitalism is also her predominant reason.

Therefore, if they wish to engage the next time they hear a young person mope “I hate capitalism,” I recommend to Objectivists that they start with something other than talking immediately about the superiority of freedom over coercion. Instead, I implore them first to inquire to this young person exactly what she means by capitalism.

She might initially get huffy and say, “How can you even ask that? Everyone older than fourteen already knows what capitalism is.” You can point out that not all adults place the same amount of emphasis on the features that they believe define capitalism. Some believe that all commercial activity, such as contract killings and slave trading, count as capitalism, whereas by this word other people are referring simply to the removal of government controls from economic activity. Perhaps after this clarification is offered, the young person will start to answer.

I concede that the answers initially given will probably be vague and equivocal. The first answers will probably include a recitation of our culture’s litany of grievances about capitalism being exploitative and evil. I also recommend asking the young person, “Regardless of what word is used for the ideal society you would like — ‘capitalism’ or ‘socialism’ or whatever — is there a special passion project you would wish to pursue?”

If the answer to that is yes, and the young person explains that she would pursue this project even if she were not paid for it, she can be asked, “But if you could also gain in material comforts by pursuing this, would you? Would that be bad? Would it be good if, in our ideal social system, you could pursue this passion while simultaneously be paid in resources for it?”

Even upon being amenable to our asking them about the pursuit of their ambitions, the young American will still probably be equivocal. The young American may concede that someone getting rich from doing the art that he enjoy is not contrary to capitalism, but still insist someone being paid to do something he hates is still a much purer expression of it. But when that happens, the conversation is going in a better direction than it otherwise would have.

When every member of the conversation is in agreement that it is valid for people to follow their dreams peaceably, we have reached a milestone. Here we can start to show young Americans that the freedom of enterprise is actually the perquisite to their pursuing and realizing their dreams. We can help them confront what we know. Free enterprise is the pursuit of one’s dreams.

Sure, it is common for many aspiring artists and scientists to believe that the prerequisite to realizing their dream is not their own freedom to act but a governmental intrusion upon others. Namely, they feel helpless unless they can secure taxpayer funding for their projects. Yet this is contrary to having a social system that maximizes everyone’s freedom to pursue her own dreams peaceably. For the government to confiscate resources from other people in order to provide those resources for my own project in art or science is to make victims of others. The taxpayers from whom those resources were confiscated now have fewer resources at their own disposal with which they can pursue their own dreams.

This is the moment in the conversation where it becomes productive to point out that the crucial distinction of free enterprise is not whether or not someone enjoys what she is paid to do, but whether people cooperate with one another through peaceful consent or instead call upon government power to impose their own wills upon others. Here, they will probably concede that the taxpayer funding that they want comes at other people’s forcible expense, but defend that by saying that wealth is a zero-sum game no matter the type of political system. They presume that this applies in both capitalism and socialism, in both the night watchman state and the regulatory-entitlement state.

That misapprehension adds another wrinkle to how they interpret what the ramifications would be if they indeed achieved their dreams through entirely consensual means. Their happiness about this would be tainted by some remorse over their belief that their attainment of their dreams deprived of other people of theirs. Here we can then educate these young people about how freedom of enterprise is a positive-sum game.

We can inform them that the incentive is to create more economic value for everyone. Insofar as people are free from force, the entrepreneur incurs the cost of every input of labor or natural resources. For that reason, the entrepreneur downsizes her costs and upsizes her profits insofar as she can employ new and improved methods of producing greater economic value from ever-smaller and ever-fewer inputs of labor and natural resources. That is in large part the explanation for gains in energy efficiency. In the year 1900, it took ten pounds of coal to power a 100-watt light bulb for an hour. By 2002, it took less than a pound of coal to accomplish that same task.

Clearly, even after we have shown America’s youth that freedom of enterprise is the precondition to their realizing their dreams to the utmost, our work will be far from finished. There will still be thousands more misconceptions of which we can disabuse them. But as so much anti-capitalism stems from the false premise that capitalism stands in opposition to their dreams, helping young people see that the freedom of enterprise is what they need to fulfill their dreams is a major victory.

For this reason, the next time any of us observes a young person proclaiming her hatred for capitalism, any effort to enlighten her on the matter should begin with asking her for clarity on what she means by this word.

Monday, July 06, 2020

Is the Pirating of Intellectual Property Just a Form of Intra-Industry Competition?

or, Intellectual Property: For Documenting and Protecting Your Financial Identity

Stuart K. Hayashi

The following is an essay that comes in four different versions, differing mostly by length. I think that the longest version is the most convincing.

The blog post you are now reading is for the very shortest version.

My concern is that often when a complex point is made the first time around, the words will be read just fine but readers might go past that point without all of the important ramifications of the point registering completely. When this happens, I think the true dimensions of the argument can be made clearer if the point is later rephrased using a different sort of framework — one that might be more amenable to the reader.

Moreover, the essay goes over some points that are in anticipation of some readers’ objections, but which other readers might judge to be digressing too far from the main topic of discussion, which is intellectual property rights. This would be an example: I write of how the quantity of economic resources at a person’s disposal is reflective of the quantity of economic value that the person has created. That point is very pertinent to my discussion of intellectual property rights. I anticipate the rejoinder that my point about a person’s fortune being largely self-created is discredited by the fact that many people inherit their wealth. I try to explain how the earlier principle I explicated still applies. I understand that some readers will judge the discussion of inherited wealth to be too tangential.

For readers who might be bored by the rephrasings and the side discussions, I have produced shorter versions of the essay. The shorter the version, the more points and rephrasings were edited out of it. But, again, the longest version is still the one I recommend most.

The Shortest Version:

Most creative persons properly regard infringement of their intellectual property rights (IPRs) to be theft. Imagine there is a woman named Justine, who produces and directs her own low-budget independent movie for $100,000. Its story takes place in a haunted house. Justine had to rent out the set or herself arrange for its construction. In a long series of choices on her part, big and small, she devoted hundreds of hours to this. When Justine makes her motion picture commercially available, she does so on the same implicit conditions requested by most artists and inventors when they put their designs on the market. Although it is seldom explicated, in practice this set of terms is the default. Moreover, this implicit understanding is also common among those who use those designs.

That implicit understanding is threefold.
  1. When Justine puts her motion picture on the market, those who access this artwork contractually agree to pay her the price she sets.
  2. This remuneration helps cover the costs of the scarce resources that Justine inputted in the process of bringing this creation into being. Important to observe here is not only the fact that Justine made an investment per se, but also the series of particular choices of which that investment is comprised. Such choices include which crew members to hire and what set to rent out. In the end, these choices coming from Justine give her work its identity. The identity is tied to the economic value created from Justine’s specific choices.
  3. Justine put the product of her creative choices on the market on the condition that those who accessed that product would remunerate her, at the price she set, for the choices of hers that produced the product. Those who access Justine’s work and refuse to compensate her are stealing the value of the choices by which Justine made that work a reality. Yes, it is true that those who pirate Justin’s work are depriving her of her ability to defray the expenses specific to her product. Yes, it is true that insofar as pirates refuse to pay Justine for accessing the value her choices created, it will be more difficult for Justine and other aspiring artists and inventors to put out additional original works in the future. But the desecration goes deeper than that. When someone such as Justine sets a price for the economic value that is properly identified with the choices of hers that brought it into being, and then would-be customers access that value while reneging on payment, those would-be customers plunder not just the economic value itself but the very choices of the individual who produced it. That principle applies to every form of productive work. And it is especially pertinent to the designs that are to be protected as intellectual property (IP).
Suppose I hire you for a temporary job. Then I skip out on paying you after you have performed the work. That would be theft on my part. I stole from you an economic value that came from you. The value I stole is equivalent to the efforts and scarce time that you put in. The same principle applies to parties who access Justine’s movie and decline to meet the price she announced. To access the original design of an artist or inventor on terms other than ones to which the artist or inventor agreed is theft.

If I Profit From Pirating the Original Design in Which You Invested, I’m Just a Vendor in Legitimate Intra-Industry Competition Against You?
Libertarian lawyer and IP detractor Timothy Sandefur scoffs at the understanding that “if a man copies the new mousetrap idea and goes into competition with the inventor, the copier is obtaining market premiums in the form of not having to pay for research and development, which is ‘stolen’ [Sandefur’s sarcastic scare quotes] from the inventor.” The reason nothing was actually stolen, Sandefur continues, is that intra-industry “competition is not a crime, and if a competitor sees that another person has implemented a successful business model, it does not harm anyone for the competitor to implement that model himself so as to more successfully [split infinitive] compete.”

Sandefur’s argument is in a long tradition of libertarian anarchists influenced by Murray N. Rothbard; Roy A. Childs, Jr.; and Samuel Edward Konkin III. It is the party line of the Ludwig von Mises Institute and Liberty International. The Reason Foundation and the Cato Institute do not go so far in an official capacity. But when there is any high-profile court case that may set a precedent that weakens the enforceability of IP, the Reason Foundation and Cato Institute reliably produce written materials biased in favor of that weakening.

The libertarian anarchists’ party line goes ever father than Rothbard — it applies Rothbard’s misconceptions about patents alone to copyrights as well, the latter of which Rothbard was less willing to denounce. But because it takes Rothbard’s fallacies to their logical conclusion, I refer to the party line against IP as the Rothbardian position.

Note that Sandefur here conflates a copyrighted work or patented design with a “business model.” A business model is a generalized idea of a method for conducting business. An example of a business model is TV networks showing TV programs free to audiences and charging advertisers money for airtime.

The conflation of “business model” with a patent is misleading — and it is misleading in a fashion that is convenient for Sandefur’s case. A business model can be explained in a few sentences. The design codified in a patent requires more elaboration and precision in words. Diagrams and schematics normally accompany this detailed explanation. As I have mentioned before, this is not a mere difference in degree, but a difference in kind.

Yet the implication in Sandefur’s statement is that a copyrighted work or patented design is no more than a similarly vague idea or general strategy. The reality, as I have written in the past, is that copyrights and patents apply to specific original designs that are distinct from a vague general idea for a product category or industry.

According to the interpretation that Sandefur articulates, it is the case that when another party tries to profit from bootlegging your design, that bootlegger is not robbing you. Rather, that bootlegger is simply another vendor who is competing against you in the same industry for the same customers that you target. In infringing your IP, the bootlegger is not appropriating any valuable commodity that rightfully belongs to you alone. No, the bootlegger observed the example you set as a role model, and is incorporating these lessons in producing merchandise that is harmlessly similar to your own. Furthermore, goes this interpretation, if you file suit against the parties profiting from these bootlegs, you are wrongfully using government force to monopolize this industry. Filing suit against those who have pirated your design is simply siccing government regulation against your intra-industry competitors.

Sandefur would therefore misidentify governmental protection of your IP as a type of protectionism. In this protectionism, we are to believe, you can gouge on your prices because you had the government thwart your intra-industry competitors who otherwise would have offered your desired customers a better deal than the one you offer. Insofar as the bootleggers are vanquished, the designer can be a government-protected monopolist charging whatever price she wants for her design. This price will be much higher than it would be if the bootleggers operated unfettered. That profit margin is, in this interpretation, the equivalent of a tariff or duty imposed on the customer.

Now imagine I produce bootleg copies of Justine’s movie and profit from distributing each unit of it for a price much lower than what Justine charges. Running this bootleg operation has its own costs. But this cost is no more than $10,000 over the course of four years. The operation’s cost will never be more than a fraction what Justine invested to make her motion picture. Yet there is an inequality more important than the value, measured strictly in terms of monetary units, of the respective investments of Justine and me. More dramatically unequal are the degrees of initiative and conscientiousness Justine and I each employed in the specific choices that culminated in our respective investments. We will revisit that distinction later in this essay. Following the train of thought from Sandefur’s comments, we can discern how this is interpreted by those under the sway of Rothbard-Childs-Konkin.

According to this Rothbardian interpretation, I am not some parasite who has appropriated wrongful control over someone else’s creation. Nay, Justine and I are just competing vendors in the same industry. Granted, Justine’s movie would exist without my bootleg operation. Also granted, the existence of my low-cost bootlegs is filched from Justine’s efforts. Justine’s original work would continue in the bootlegger’s absence. On the converse, had Justine not been in the picture, the bootlegger would be powerless.

But Sandefur dismisses what I did to Justine as just a regular cost of doing business. In the Rothbardian interpretation, Justine should have expected and accepted this cost as legit if she bothered to heed any common sense.

As Sandefur rationalizes it, the bootlegger “is also taking the economic risk in this circumstance...” And, continues Sandefur’s argument, if Justine sent the government to stop customers from purchasing the bootlegs, Justine would be the actual parasite and looter who is trying to micromanage what her intra-industry competition and her intended customers are doing peaceably with their property.

There is something that must be said about those who insist that a bootlegger is in legitimate intra-industry competition against the originator. It is this: these detractors against IP obfuscate the division of intra-industry competition from identity theft.

Most Intellectuals Who Discuss Private Property Rights Need to Give Them a Closer Look
The Rothbardians’ case against IPRs is able to bamboozle many people. The reason is that the people who buy into this argument against IP hold, at least on an implicit level, three misconceptions about private property rights. The misconceptions are as follows.
  1. Private property rights can only apply legitimately to physical objects.
  2. This relates to the first misconception. It is that because IPRs are intangible, no sort of economic “scarcity” applies to them. Hence, IPRs are imaginary at best. I have already written of how those misconceptions fail to make the point they intend.
  3. This follows from the misconception that private property rights are no more than a means of allocating scarce physical objects. It is that private property rights are nothing better than a tentative method for resolving disputes over separate parties that are each proclaiming themselves to be the party most deserving control over the same physical object.
I estimate that I have not written sufficiently about the third misconception. I will go over it now.

Many philosophers from the Renaissance onward have had some implicit understanding of how private property rights are of greater moral significance than just a tentative method for dispute resolution. However, those philosophers have not articulated this significance adequately. Not even those from the Age of Enlightenment has explained it as well as they should have. Hence, I have to try to continue the job they left unfinished.

First I will describe the conventional interpretation of private property rights as just a means of dispute resolution. Once I have done that, I will try to explain how the essence of private property rights is more complex. Following that, I will go over how this greater significance of private property rights in general necessarily applies to the legitimacy of IPRs.

Are Private Property Rights For Nothing Better Than Stopping Fights?
Though it is not often phrased in this manner, there is an implication buried in economists’ conventional explanations for the origin of the concept of private property rights. The implication is that the main purpose of private property rights is to resolve disputes over competing claims over who should be able to control and consume which resources. This has much to do with the conventional proclamation by economists that the basis of economics in general and private property rights in particular is “scarcity.”

“Scarcity,” in this context, refers to the fact that, at any given moment, there is a specific total quantity of units of a good on the market. That there is this specific total quantity means that if, at this very moment, I gain and consume 50 units of this good, those are 50 fewer units available for anyone else at any given moment. My accessing and consuming more units at this moment means fewer units available for everyone else.

The number of units of the good available are on the supply side. Economists then conventionally continue that human wants are unlimited, and these wants are on the demand side. They thus come to two conclusions.
  • Without establishing who privately owns what, a society lacking in recognition of property rights of any sort would devolve into chaos where everyone fights everyone else for “scarce” units of what they need. Insofar as people accept the institution of private ownership, that helps reduce the squabbling.
  • The proper value and free-market price of a good are at the intersection of demand and supply, where vendor and buyer agree on how much of the buyer’s own wealth the buyer will give up in exchange for the good.
Both conclusions are mostly correct, but they are far from sufficient. Insofar as this dispute resolution was the major impetus for the origin of the concept of private property, that still leaves an important question unanswered. This “scarcity” might explain why life for everyone in general is more harmonious if different parties control different resources and units of goods. But this “scarcity” is not adequate to explain why it is that this specific party, as opposed to any other, should control that particular resource or unit. In effect, most libertarians and economists conclude that your homestead should be privately owned by somebody, but few libertarians and economists care to elaborate on why it is you in particular who should own the very homestead that you settled.

Conventional economists are largely silent on this issue. Even economists who have reputations for defending laissez-faire enterprise have been lackluster on this. That is ironic. The issue of why a particular person is right to own and control a particular resource was touched upon by two founding fathers of the discipline, John Locke and Adam Smith, though they didn’t write essays that explored this idea to the point where they would take it to its logical conclusion. This essay you are reading is part of my attempt to expand upon the logic of their argument.

Imagine you’re a homesteader. You go onto wilderness land that was not claimed by anyone.  For the land to be truly hospitable, you need to change it.

You choose which crops to plant. You irrigate the land so that the crops receive water with greater regularity. Although Karl Marx mischaracterizes this process as if it were manual labor and nothing else, the process actually involves the exercise of a body part other than the arms and shoulders: the brain. You improve the land and make it livable mostly through the plans you devise for it. And, as John Locke points out, the new livability of the land is economic value that was not inherent to the land. No, the net increase in the land’s economic value was something that your creative choices had put into it. It is for this reason, note John Locke and Adam Smith, that the homestead has rightfully become yours. As Locke and Smith laid the foundation for this interpretation, I call it the Locke-Smith (“Locksmith”) Theory. When other people come and homestead their own plots, it is proper that they respect that your own plot is rightfully yours to control exclusively.

Let us examine the scenario where you have improved a plot of land and therefore gained legal ownership over it. I have contributed nothing to your improvement over the land. But once I see the improvements you have made on it, I decide that that is where I need to stay. I try to squat on your land. You accuse me of trespassing and call the police on me. I then proclaim that you are a greedy overlord trying to deprive me of the amenities I need and therefore deserve. You and I go to court to settle this.

Throughout most Western and even central Asian history, most courts would side with you. But it would not necessarily be because these courts concede that moral right and righteousness are on your side. As I have written before, throughout most of history it was that most societies regarded your private control over your land as nothing better than as a stewardship tentatively assigned to you by society-as-a-whole or by the gods and wilderness spirits. Pertinent to this discussion, it was not until the arrival of Enlightenment philosophers such as Locke that intellectuals began to recognize that the economic value of your land did not come primarily from the land’s default state or from the gods. It was not until Enlightenment philosophers such as Locke that intellectuals began to consider that the economic value of your land comes from your choices in what to do with the land. It was when people began to entertain the realization that economic value and wealth are created by such intellectual and entrepreneurial effort.

But, generally, the courts would side with you for a different reason: they see the precedent of previously-established private ownership as the easiest, quickest, and most convenient method for settling the dispute. The courts ruling in favor of the private property holder is indeed the morally just ruling. But very few people, even judges who rule on the side of the property holder, understand that. In the scenario where the courts must settle the dispute between you, the homesteader, and me, the trespassing squatter, the courts come down on the side of right largely by accident. In many instances where people side with the property holder, they do so grudgingly.

To the degree that most people are more sympathetic to the property holder than the trespasser, it has less to do with the fact that the property holder earned her property, and more to do with the property holder being seen as more predictable and reliable — and therefore less dangerous to the community. Contrariwise, the trespasser is regarded as inherently more disruptive and therefore likelier to instigate future intra-neighborhood conflict. Again, the very emergence of strife is considered worse than any injustice that might be inflicted within the squabble or in attempt to end it.

This notion that the institution of private property is nothing better than a begrudging recourse for resolving disputes over the distribution of resources is also found in the arguments of many libertarians. That is visible when libertarians argue that all resources that can be privately owned, such as forests and even rivers, should be. Their main rationale for this privatization that the differing incentives between private profiteers versus tax-funded government employees often result in the privately owned resources being better-conserved and better-managed. Libertarians who advance that point are not wrong on it. Still, when that is presented as the main argument for private property, it overlooks the implicit role played by private property which is of far greater psychological significance.

Sandefur exemplifies that approach. Consistent with that approach, he writes that legitimate private property “is naturally exclusive, meaning that if I have it, you simply cannot; if I take it, you no longer have it — you have been ‘disseised.’ Intellectual property, however, is not like this. I can ‘take’ it from you, and yet you still have it” (emphasis his).

Sandefur presents private property as, more than anything, that form of dispute resolution, and simultaneously fails to address who exactly should be recognized by the law as the default owner of a newly created economic value. A proper addressing of the second point not only would undermine Sandefur’s first point, but would also undermine his overall case against IP.

There is an argument, to which an old Facebook group and Facebook page group allude, that states it more simply. It is this: If I steal your car, you no longer have your car. By contrast, if I pirate Justine’s movie, she still retains her master copy. Therefore, concludes the argument, Justine actually lost nothing.

That argument whacks at a straw man. No defender of intellectual property claimed that pirating of Justine’s movie causes her to lose the master copy. It is other values that are snatched. Through her specific choices, Justine invested time and other scarce resources into creating her original movie. The quality of her specific choices in allocating the resources invested directly affected the quality of her movie. The wiser Justine was in her choices in how to invest her resources to produce the movie, the more valuable a viewing experience the movie was to filmgoers.

Likewise, through his specific choices, an inventor invests his time and other specific scarce resources into the R-and-D that are necessary to ensure that his invention operates as planned. The quality of his specific choices in allocating the resources for this process had a direct effect on the quality of his design. The wiser the inventor was in his choices in how to invest resources in the R-and-D stage, the more valuable the units of his invention will be to customers.

The filmmaker and inventor put the result of the specific choices comprising their investments — the result being the original design — onto the market on the condition that parties that use this design directly shall contribute to the designer recouping her investment. Those who pirate the design are swiping part of the value of the choices in resources that the designer inputted in the process of making the design a reality. The defenders of IP have always pointed out that that is what the IP infringer swipes.

Rightful Ownership As Identification
Ayn Rand said, “Existence is Identity, Consciousness is Identification.” That has a two-part meaning. First is that every entity that exists has its own identity, its own specific nature. That means that insofar as an entity can be distinguished as such, it possesses traits that make it stand out from other entities. “Consciousness is Identification” refers to how it is by use of your reasoning mind that you discern the attributes that distinguish one entity from others. To translate, an entity has its own identity and it is through your rational faculty that you gain knowledge of its identity. To gain knowledge of something’s identity is to identify it. That is the identification. And an important application of this faculty for identification of anything is the identification of a piece of property with its owner.

Here we find that the notions about private property that I have described above — property as a tentative method for dispute resolution — is, at best, woefully incomplete. To identify a property with its owner is about so much more than identifying who currently has the legal authority to control which resources. We return to the previously imagined scenario of a dispute concerning you, the homesteader, versus me, the trespassing squatter. Here, to identify the property owner is about so much more than identifying which of the disputing parties is the safer, more reliable party who is less prone to initiate social discord. Nay. To a large extent, to identify a form of wealth with its rightful owner is to identify that wealth with the party that created it. That is a fundamental distinction.

Let us return to the hypothetical dispute concerning you, the homesteader who bothered to improve the land, versus me, the mooching squatter who contributed nothing to your improvement of the land but tries to benefit from it. Many judges would say that they rule in your favor because that is just the law. For them, that is the end of it. At least, for them that is the most direct and substantial reason why it is you who should have ownership control over your homestead. It is on account of official legal documents saying so. Judges who are more philosophically inclined, but who tend to be molded by the conventional philosophic consensus, may cite, as their reason for siding with the property holder, that it is the tradition that accords with the big priority that is ending conflicts per se.

In court, we establish that I am the one who trespassed on the plot that you improved. You point out that you were rightfully minding your own business, whereas I took the initiative to intrude upon your life. We get into a fight. Here, “I don’t care who started it!” is the perfect retort from a judge who believes that private property rights are merely about settling disputes over scarce tangible resources. Such a person sure doesn’t care that the economic value over which we are fighting is a value that was started by you and your choices.

In actuality, the most direct and substantial reason why you are the one who should have ownership control over the economic value of your homestead is that you are the one who created that economic value. The law’s formal observance of you as the homestead’s owner is no more than secondary to that fact. And the law’s formal recognition of you as the owner is merely the law acknowledging, always implicitly though seldom explicitly, that the party that should have default claim of ownership control over an economic value is the party that fashioned it.

Ownership is the means of identifying an economic value with its creator. This identification is what helps the law ensure that, in controlling and enjoying the economic value she took the initiative in producing, a person experiences the logical consequences of her peaceful chosen actions. That identification helps prevent thieves from wrestling away control of the effect (the economic value) from its cause (the value’s creator).  This is your financial identity.   It especially applies to intellectual property rights.

Note that an extension of the right of the homesteader to the land he improved is his right to sell that land. Thus, the homesteader’s right to the land he improved is applied in the homesteader’s ability to transfer ownership of it to someone else. That does not change the fact that, by default, the first rightful claim of ownership over improved land goes to the homesteader whose planning choices improved it.

That principle applies to manual labor. An extension of the Locke-Smith Principle is the laborer’s right to transfer ownership of his labor. For that reason, it is consistent with the worker’s rights that the worker may forge an agreement with an employer. The worker implicitly agrees that, in exchange for the employer’s remuneration, the employer gains ownership over the product of the worker’s physical labor as that labor is being performed. That does not change the principle that, by default, the first rightful claim of ownership over one’s efforts goes to the person who is performing that effort.

And that principle applies to intellectual property. An extension of the right to intellectual property is the designer’s right to transfer ownership of that design. For that reason, it is consistent with the designer’s rights that the designer may forge an agreement with an investor. The designer may rightfully agree that, in exchange for the investor’s financial assistance, the investor may gain partial or total ownership over the design once it is patented, copyrighted, or trademarked. That does not change the principle that, by default, the first rightful claim of ownership over a design goes to the designer whose creative choices produced that design.

This principle — that insofar as people are free, the wealth a person enjoys happens to be the very same economic value she created — is not mitigated by the fact that a particular unit’s rightful owner is seldom the same party that produced the unit directly. There is a corollary to a person’s right to trade away the units she produced directly. That corollary is this: once she trades away the units she produced directly, she still maintains the economic value of those directly-produced units. She still holds onto the economic value she produced. It’s just now in a different form: the goods or services she obtained in exchange for the units she produced directly.

In most instances where someone resolutely trades away the units she produced directly, she thus maintains the economic value she had created in the direct production of the units. The economic value she previously had in those units is what she now has stored in whatever good or service she obtained in exchange for the units. Indeed, insofar as this party first produced those units with the intention of trading them away later, she did so for the purpose of maintaining the units’ economic value in the form of good or service she gained in exchange for the units.

When you improve your land, the improvements are what you have produced directly. But when you sell the land for $500,000, you retain the economic value of the improvements. The economic value you produced is now stored in the $500,000. When you exchange the $500,000 for Y, the Y itself was assembled directly by other parties, but the economic value you produced is now in the Y.

Many readers balk at my idea that one’s personal fortune is commensurate with the economic value that one has produced. Such balkers retort that most of the wealth a person has was not created by she herself, but was what she inherited from elder relatives. They say that especially applies in instances of the heiresses of multi-million-dollar fortunes.  I have refuted that argument at greater length over here.

Thus, indeed, insofar as anyone acquired it through choices made in freedom and peace, the amount of wealth that someone owns is the quantity of economic value that he or she created through her choices. And these choices are an important portion of one’s identity. Concordantly, identifying someone’s ownership over wealth that is the result of such choices is a method of identifying important aspects of the owner herself.

Yes, your private ownership over the economic value you created identifies you with the creative actions you chose to bring that economic value into existence.

Point to any one innocuous, whimsical decision I made in my life — such as eating a hamburger at McDonald’s today — and probably millions or even billions of other people probably made that very same choice for themselves. However, the specific choices add up over a lifetime. Looking at the entire series of choices a single person has made over his or her lifetime, it is not exactly like anyone else’s series of lifetime choices. To reclaim a noble term that internet trolls have tried to make into a slur, the identity that comes from the sum of your lifetime choices is of a uniqueness comparable to a snowflake.

As noted by Amazon founder Jeff Bezos, “We are our choices.”

And among the choices that make up our identity are those pertaining to finance and economics.  These choices comprise your financial identity.

I here summarize the first major point of this essay. Your identity consists of your creative choices. Your creative choices produce economic value. When the economic value you produce is respected as your private property, that ownership identifies the economic value with its creator. That is, respectively, to identify the effect with its cause. Rightful ownership is thus a form of identification. For someone to steal the economic value you produced is for that person to steal the logical effects of your choices, choices that are part of your identity. On a broad level, all theft is a sort of identity theft.

Much of what I am arguing, I think has not been verbalized or phrased adequately enough throughout history. That is the very reason why I have written this essay. However, I think that since ancient times, there have been people who have understood parts of it on some implicit level. For that implicit reason, ancient peoples in such places as Egypt and Rome took significant actions hinting at their having some understanding of fundamental aspects to it.

As an institution that is supposed to be helpful in safeguarding you against theft, a document of rightful ownership is a document of identification. It is an identification in several important respects. The deed to your homestead, for instance, is such a document for identification. Consistent with what I have been saying, the deed identifies you with the property you control because it identifies the economic value with its creator.

A Form of IP Older Than Patents and Copyrights That Is a Method for Identification of a Person With the Economic Value She Created
Sadly, legal documents such as deeds are notoriously wordy, filled with phraseology that is difficult for most citizens to penetrate. Hence, human beings have long needed to use symbols, or a shorthand, to ease comprehension over the documents’ meaning. These symbols are identifying marks that are understood more easily and readily than any lengthy document. These symbols, which are associated with pictograms and writing, are conventionally regarded as the oldest form of IPR recognition, though, as I shall explain at this essay’s conclusion, there might be an older form of IP still.

But these, the earliest written symbolic notations of intellectual property, are an institution pertaining to intellectual property that Rothbardians normally overlook. In diatribes that purport to expose the invalidity of intellectual property rights per se, Rothbardians almost always cite only patents and copyrights. They miss the newest type of IPR, which are plant variety protections — a horticulturalist’s ownership over the sexually bred cultivar she produced. And they also miss the older type that is almost directly associated with written language.

I am speaking of trademarks, which are more colloquially called “brands.” The latter term comes from the literal practice of branding. Ranchers had their names carved into a branding iron and used it on the livestock so that anyone coming upon a live cow could look at the brand and identify it as the property of a particular rancher. It makes sense; cattle-ranching requires the use of one’s mind just as drawing up plans for one’s homestead does. Ranchers have long used their minds in the selective breeding of cattle to possess the phenotypes most suitable for their commercial purposes. In selectively-bred cattle being identified with their owner, the owner is properly recognized throughout the community as the specific creator of this particular form of wealth. Branding goes at least as far back as the Indus River Valley and ancient Egypt in 2700 BCE.

What are more specifically known as trademarks date at least as early as ancient Rome. There, customers and clients noticed that some blacksmiths made choices that demonstrated more competence and care than others. As blacksmiths competed against one another, customers and clients needed a method to identify a blacksmith who was remarkably consistent in high-quality services resulting from the blacksmith’s wise choices. That blacksmith identified himself — specifically, his wise choices — with the wares he produced by placing his trademark on those wares. Upon gradually coming out of the overall economic stagnation of the early Middle Ages, which were indeed dark, European governments began to codify into law the formal recognition of such trademarks in the 1200s.

Brand names are written, but often in a stylized format that gives them a picturesque quality. A logo is usually more of a picture than it is a written character, but the logo is not art enjoyed for art’s sake, as the Mona Lisa would be. Although the Starbucks logo is a picture, its main purpose is not aesthetic as much as it is that the logo’s placement on Starbucks products gets the chain’s patrons to form a mental association between Starbucks and its products. Again, that associates the economic value with the team of entrepreneurs that produced it.

The brand name and logo of a firm are symbols developed for the precise purpose of identifying a specific entrepreneurial party with the value it created, but this system of identification is so vital that it has more generalized symbols as well. These generalized symbols are TM, ® (registered trademark), and ©. Licensed merchandise featuring Godzilla’s likeness, for instance, assign the ® directly to the right of Godzilla’s name, followed by the two sentences “Godzilla is a registered trademark of Toho Co., Ltd. All rights reserved.” These symbols are no less essential to signaling important information to market participants than are the numeric figures indicating price drops and spikes or the debits and credits in a firm’s accounting ledgers.

Let us imagine a brand — Beth’s Restaurant. This is a whole chain by the titular owner, specializing in a particular ethnic cuisine. Not only does the chain have a reputation for tasty food, but also holding its chefs and waiters to high standards of cleanliness. Inspectors can find no fault with its kitchens. Beth’s Restaurant has a gained a reputation for all this, and they are selling points that attract patrons.  Investments in such particular details are the result of the owner’s many choices to commit to such. The investments are about more than their respective dollar amounts. They are about the specific choices in effort and resources for which the monetary units are exchanged. Here, those specific investment choices refer to Beth’s concern about sanitation. Those choices are part of the brand’s identity, and that identity is readily recognized in the trademark — that is, in the IP.

Now let us imagine that I decide to appropriate Beth’s brand against her authorization. I set up my own restaurants calling them “Beth’s Restaurant,” using her logo and having my “Beth’s Restaurant” signs be very accurate reproductions of hers. The interiors of my restaurant mimic her aesthetic. I even have my cooks use Beth’s recipes and serve the same ethnic cuisine.

There is but one crucial difference — I make no investment in cleanliness. When I notice employees using the restroom without washing their hands, I take no action against them. Mice scurry around openly and I ignore it. Eventually patrons get food poisoning. Aside from this consideration, it is difficult for casual diners to tell real outlets of Beth’s from those of my knockoff operation. Would-be patrons have heard vaguely of the poor sanitation at knockoff outlets. They decide the safest course is to avoid any restaurant calling itself Beth’s. For several months I made much more money than I otherwise would have. And it is on account of my copying Beth and using her trademarks. Beth is not so fortunate. Her sales plunge.

All Theft, Speaking Broadly and Unconventionally, Is Identity Theft; IP Theft Is Even Closer to the Conventional Understanding of ID Theft
I have previously argued that the economic value someone possesses is the same economic value that she has created. And I continued that because someone’s choices are part of her identity, to steal the economic value her choices produced is to steal part of her identity, her financial identity. Hence, I concluded that on a general level, every theft is a sort of identity theft. However, the argument is deeper than that. As intellectual property rights are a very specific documentation to identify someone’s valuable design with the financial choices of hers that produced it, theft of intellectual property comes even closer than other forms of theft in matching “identity theft” in the more conventional understanding of that term.

Identity theft is generally thought of as follows. Someone appropriates information that is properly used to identify you in commercial activity. Taking on your identity, the identity thief manipulates the parties that otherwise would be doing business with you. In so doing, the identity thief receives from those other parties the payments that those parties would otherwise be sending properly to you.

You normally work for your employer. The time and labor you put into your work is the economic value you create. When you exchange your time and labor for payments, you retain the economic value you created. It is now stored in the money that your debtors now owe to you, their creditor. Now suppose an identity thief impersonates you to those indebted to you. The theft of your identity takes place in moments besides the very ones in which the thief poses as you.

The ultimate goal of the identity theft is to steal the effects of your chosen actions. You chose to perform creative efforts for parties who are thus indebted to you. As stated earlier, those creative choices are part of your identity, as are the consequences of your creative choices. For someone to wrestle away from you the control you had over the effects of your choices is to wrestle away from you the choices themselves. Your choices are your identity. Thus, for someone to steal your choices is to steal parts of your life that are your identity. The identity theft is therefore not in the impersonation alone. The theft is in the very appropriation of the economic value in which you invested your identity when your choices produced it.

Should we say that the identity thief is a businessperson in your industry who is trying to engage in honest competition against you? Should we say that in impersonating you to your debtors, the identity thief is simply your intra-industry competitor trying to lure away your debtors so that they will make future contracts with him instead of those debtors making additional contracts with you in the future?

No, the identity thief is not engaging in any sort of intra-industry competition. Rather, the identity thief is mimicking you to benefit financially from the economic value produced from the creative choices in which you invested your identity. These are creative choices specific to you; choices made by you, not he. And the identity thief does this without having contributed any creative choices himself to help you create that economic value.

And that is exactly what I did in the aforementioned scenario of me profiting more than I otherwise would have, on account of my appropriating Beth’s trademark.

I mimicked Beth to benefit financially from the economic value produced from the creative choices in which she invested her identity. I mean the reputation she earned. And I did this without having contributed any creative choices myself to help her create that economic value.

Yes, your financial identity refers to there being documentation of your economic choices. Your being identified in this manner allows for your economic effects, the wealth you created, to be attributed properly to their cause, you. Thus able to identify you properly, you can be sought and remunerated properly by those who benefit from the economic value you have created. That is the whole point in trademarks. Hence, your brand identity is part of your financial identity.

On the converse, for someone to appropriate some of your financial identity — identity theft in the more conventional understanding of the term — is for him to cut his own costs by shifting those costs onto you. And that is what happens when someone appropriates the brand identity into which you invested your creative choices, including your choices in using up scarce resources.

Deliberate infringement of someone else’s brand or other intellectual property is identity theft. This also applies to violating copyrights in the form of pirating someone’s artwork. And this applies even if the amount of money an infringer invests in equal to, or greater than, the amount of money invested by the designer from whom the infringer pilfers.

One PIRATI Against Another: Drawing InsPIRATIon Versus PIRATIng
We should dispel a misconception that confuses many laymen have about copyrights and patents. It is a misconception that, convenient for Sandefur’s argument, goes conspicuously uncorrected in two of his blog posts on IPRs. Too many people are under the misapprehension that a copyright over a story claims exclusive ownership over its general premise or its basic plot. Likewise, many of these same people presume that to be awarded a patent is to claim exclusive ownership over the general idea of a whole product category, such as “paperclip.” According to the fable against IP, to have a patent is to be granted a government-enforced monopoly over an entire industry.

We can recall what Timothy Sandefur said about this. Using the term “business model” as his stand-in for “general idea,” Sandefur writes that it is sheer bullying for an IP holder to sue an infringer who copies her. As he puts it, “if a competitor sees that another person has implemented a successful business model, it does not harm anyone for the competitor to implement that model himself so as to more successfully [split infinitive] compete.”

From that passage, a layman would likely infer that copyright lawsuits commonly happen in this fashion. Mr. Kentolk conceives of a story taking place in the Middle Ages but with wizards, magic, and dragons. Miss Yaffrey reads Mr. Kentolk’s work and is entranced by it. It inspires her to write her own sword-and-sorcery epic in homage to Mr. Kentolk. She writes of her own characters with dissimilar names and dissimilar personality traits. She makes many specific choices unlike the protagonists of Mr. Kentolk’s tale. Yet Miss Yaffrey’s protagonists do share in the same spirit of chivalry and fair dealings. This enrages Mr. Kentolk, as his copyright was to ensure his government-enforced monopoly on this genre. Thanks to copyrights, Mr. Kentolk successfully sues Miss Yaffrey. That is how the narrative goes, according to the logic of propaganda against IP.

Now let us consider the truth. Copyrights do not forbid or even discourage artists from creating works of their own that are obviously inspired by the works of others. What copyrights do forbid is another party from financially profiting off of an exact duplicate of the artist’s work against the artist’s consent. Aside from both words having the six-letter sequence pirati in them, there is a thick line of demarcation between drawing inspiration from someone else’s design versus pirating it.

It is a common Hollywood practice to have two competing movies — both with a similar premise — coming out from different studios within months of one another. The year 2013 saw the release of Olympus Has Fallen and White House Down, both about terrorists taking over the White House. In 1997, there were both Volcano and Dante’s Peak. Both pics featured a geographic formation erupting lava and endangering human beings.

In August 1928, the author Philip Francis Nowlan came out with his novel Armageddon 2419 A.D. This work introduced Buck Rogers, a space-faring adventurer in the far-flung future. Four months later, Nowlan adapted this premise to a newspaper comic strip of the same title. Five years later, Alex Raymond introduced the comic strip Flash Gordon, which had mostly the same premise. The stories had different characters with different names. One big difference was that Buck Rogers began as a man in the twentieth century. Buck had entered suspended animation in a freak accident, only to awaken finding himself in the twenty-fifth century. Flash Gordon, by contrast, was born into his own era.

Alex Raymond being inspired by Philip Francis Nowlan is not the grounds for any successful copyright suit. By contrast, it would be copyright violation if, in 1928, someone made unauthorized copies of Armageddon 2419 A.D., duplicating the work’s prose exactly, and sold each unit at a price lower than what Nowlan and his publisher charged.

As for patents, it not the case that your gaining a patent for your paperclip design grants you a government-enforced monopoly on the production of paperclips. Between the years 1867 and 1957, the U.S. Patent-and-Trademark Office issued 17 U.S. patents relating to paperclips. Every new paperclip patent arrived within an interval shorter than 17 years. That is, each of these patents was granted prior to the expiration of the previous paperclip patent. The reason is that a patent does not claim ownership over a general idea for a product category such as “paperclip.” Instead, enshrined in a patent is recognition of a party’s rightful ownership over the specifics of its design.

A utility patent protects the design with respect to its main functionality and operation. The design patents protects the design with respect to its aesthetic qualities and how every component of the device contributes to an integrated whole. The reason that so many patents were granted on the same type of device is that a patent has to be more specific than “object that temporarily fastens papers together without making any punctures in the sheets.” The patents themselves were varied in the shape of the fastener, its exact size, and the material with which it was to be made.

Nor is there validity to another myth. This other myth is that multiple parties, each unknown to the others, each independently arrive at the exact same patentable design at the exact same time. So goes the myth, only one of these parties is able to win the patent. The result of this, we are told, is that one victorious party shall now exercise patent law to ban the other independent parties from producing or licensing units from their own unique design. The reality is that multiple parties, each unknown to the others, can hit upon the same general idea within relatively short times from one another. The different parties’ designs are not exactly alike. There are still legal disputes between these parties insofar as there is an “overlap” where functional attributes of the design are very similar.

That is what happened when Robert Noyce of Fairchild Semiconductor and Jack Kilby of Texas Instruments each arrived at the same general idea for the Integrated Circuit. Kilby’s patent focused on the body of the device itself, whereas Noyce’s patent put more emphasis on the arrangement in which the Integrated Circuit was to be wired. Insofar as separate parties’ patents are similar, they can do what Fairchild and Texas Instruments did. Their mutual solution is a common practice. They pooled their patents jointly in a single trust. Such situations do not discredit patents. Nor do such situations exonerate any cribber who would duplicate the design of either Noyce or Kilby while refusing to contribute any financing of the R-and-D that enabled Noyce and Kilby to come upon the breakthroughs that they did.

Your patent on the paperclip design you originated is an acknowledgment of your ownership over your choices to invest your time, efforts, and scarce resources as you did. That is not a government-enforced monopoly on the production of paperclips. Your patent monopolizes nothing more than the specific original details explained and diagrammed in your patent. This is just as your deed over your homestead does not monopolize all real estate but nothing more than the specific plot you improved. This is just as Beth trademarking her restaurant is not a government-enforced monopoly on eateries that serve cuisine of the same ethnicity.

Philip Francis Nowlan’s copyright is not a government-enforced monopoly on the space-opera genre of fiction. Nor is the copyright of our fictitious filmmaker Justine a government-enforced monopoly on movies about haunted houses. The copyrights of these respective artists are on the respective artworks that the artist directly brought into being.

To pay someone homage is to observe general principles in someone else’s work and then apply them in producing one’s original work that still displays its own unique spin. By contrast, to infringe on a trademark, copyright, or patent is to appropriate someone’s original work directly, all the while refraining from reimbursing the designer or choosing to partake in any comparable investment in innovation.

Your having possession of the trademark, copyright, or patent on the productive design you originated is the law’s proper identification of the association between (1) the productive design’s economic value and (2) the person whose choices in time, efforts, and investments brought that new value into being. That is just as a deed identifies a homestead’s economic value with the settler whose choices in time, efforts, and investments created new value from that plot of land. A patent, as with a deed on an improved plot of land, identifies the new value with its creator so that, in legal matters, she will have control over the value that resulted from her choices. This identification — and the subsequently respected legal control that the value’s creator is to exercise over her creation — safeguards the ability of the value’s creator to experience the logical consequences of such choices.

Thus, we find that infringement on someone’s copyright of her artwork is similar in principle to what happened in the aforementioned scenario of my setting out to infringe on Beth’s trademark.

Is IP a Form of Protectionism to Force Customers to Make Contracts With the IP Holder in the Future? Or Did the Customers Already Contract With the IP Holder Upon Accessing the IP?
Let us revisit the two scenarios in which people could have bootlegged Justine’s low-budget independent movie. The first involved the sort of situation from the 1980s and early 1990s, in which bootleggers record unauthorized copies of Justine’s movie and sell them at prices much lower than those of the official copies. Is such a bootlegger an honest intra-industry “competitor” to Justine in the vending of her movie? Is the bootlegger’s appropriation of her IP simply an effort to “implement” her “business model” out of a desire to engage in intra-industry “competition” with her?

In the second scenario, from the two first two decades of the twenty-first century, people could produce unauthorized digital copies of the movie and torrent them over file-sharing services such as the Pirate Bay.

In the former instance, no, anyone who genuinely wanted to learn from Justine’s business model and apply it himself would watch her movie and then produce his own movie that pays homage to hers. By contrast, what the videotape bootlegger takes from her is not a lesson on how to “implement” her “business model,” but her product directly, the productive design resulting from the committed investments, much of her identity. That is just as someone impersonating you to your debtors is an act that directly takes from you the economic value that resulted from choices of yours that were committed investments, much of your identity. There is financial gain in this for the videotape bootlegger, at least in the short run.

And this is what happens in the instance where people swap unauthorized digital copies of Justine’s movie, over the World Wide Web, through a file-sharing service. Recall that Justine made the difficult and committed choice to invest, purchase, use up, depreciate, and expend scarce resources — tangible and otherwise — in order to bring her movie into existence. These choices imposed enormous costs upon her. These choices, and with them the control of the economic value that is the product of these choices, are to be regarded rightfully as part of her identity.

When commercializing any units produced from her IP, or making available any access to her artwork at all, every IP holder does so on the implicit contractual condition that those who access this IP will meet her at the price for which she will grant that access. Payments to Justine will help cover her expenses. This is a defraying of expenses without which Justine will be in no position to produce any further original designs in the future. True, those who access Justine’s artwork through unauthorized digital copies might not be selling anything. But by accessing the art while reneging on any fulfillment of the condition on which that access was granted, these consumers of Justine’s work are benefiting financially. In taking Justine’s service and failing to deliver the payments they owe for it, the people consuming these unauthorized downloads are trying to cut their own costs by imposing them on Justine. The principle would be the same if you performed a service I hired you to provide me and then I conveniently “forgot” to turn over the money I owe you.

At this juncture, we can revisit the cliché comparison, consistent with Sandefur’s verbiage, of IP enforcement with protectionism. Again, in talking as if (1) filmmaker Justine and (2) those who bootleg her movie are equally legitimate vendors in intra-industry competition for the same customers, Sandefur frames the situation in such a manner that an incautious reader would interpret it as follows. Justine wants her potential customers to contract with her, but instead these customers are contracting with her intra-industry competition, the bootleggers, as those competitors offer a better deal with their own, similar merchandise.

This, we are to believe, is comparable to an incompetent American automaker pining for American consumers to contract with it as these American consumers instead purchased much-more-attractive Japanese imports. When the managers of the American automaker lobby the U.S. federal government to impose tariffs or import quotas against the Japanese cars, it is the American automaker being a protectionist would-be monopolist employing government-enforced action to impede on the ability to potential customers to contract with the American automaker’s intra-industry competitors. This manipulates the potential customers into having to resort to entering a contract with the American automaker instead. Entering into contracts with the American automaker is something American consumers would not have done if not for the tariffs. After all, the American automaker invested a lot of fixed costs in establishing its operations. The absence of tariffs or quotas against the foreign competitors would render it difficult for the American automaker to recoup its investment.

It is in principle the same, we are to think, when Justine seeks enforcement of her copyright. Supposedly, Justine seeking governmental protection of her work against bootleggers is her being a protectionist would-be monopolist employing government-enforced action to impede on the ability of potential customers to contract with her intra-industry competition, the parties that are making available pirated copies of her movie. Enforcement of Justine’s copyright, ostensibly, manipulates potential customers into having to resort to entering a contract directly with Justine instead. Entering directly into contracts with Justine is something these movie viewers otherwise would not have done. After all, Justine invested a lot in the production in her movie. The absence of copyright protection would render it difficult for Justine to recoup her investment.

Sandefur misleads his readers in depicting this as a matter of Justine invoking her copyright to pressure her intended audience into contracting with her instead of with what Sandefur calls her intra-industry “competitors.” Sandefur’s approach reflects a misunderstanding of when exactly the contract is made. It is not that in suing bootleggers and websites like the Pirate Bay that facilitate pirating of her movie, Justine is using the State to manipulate her desired customers into forming contracts with her in the future. It is that when they accessed Justine’s artwork, those customers had already implicitly entered into their contract with her.

When a designer puts her design on the market, the default is for her to do so on the implicit contractual understanding I verbalized at the start of this essay. The copyright © symbol attached to her work is not the source of this implicit contractual agreement, but is the explicit acknowledgment of the implicit contractual terms that were offered beforehand.

Among the implicit contractual terms is that when the designer makes her design accessible to the market, those who access it do so on the condition that they pay the designer the price she sets for that access, thereby helping her cover her costs. This is the same as a store making an item available to shoppers on the agreement that the shopper pay for the item, thereby covering the store’s costs.

I will now state that discrepancy more simply:

If the absence of tariffs is the main reason why Chrysler goes bankrupt, it is because motorists rebuffed Chrysler’s product and therefore didn’t obligate themselves to pay Chrysler anything.

Conversely, if the absence of copyright enforcement is the main reason filmmaker Justine goes bankrupt, it is because movie fans used Justine’s product and then still stiffed her on the bill.

A Patent As a Document For Identifying a Person With Her Productive Actions
When you deal with financial institutions, they often want documents officially confirming that you are who you say you are, thereby identifying you with the deposited earnings that are the product of your creative choices.  A patent is a similarly official document identifying you with the particular, detailed, diagrammed, and productive original design that is the product of your creative choices. A patent thus serves to confirm the productive choices in research, development, experimentation, and engineering that you have exercised. The patent is in a category that is at least similar to those of the other aforementioned documents of identification. As with a brand or trademark, so does a patent identify a specific economic value with the creative party whose choices produced that very value.

With acknowledgment of your IP comes documentation recognizing your work as the product of your creative choices, those choices being inexorable from your identity. IP is an institutional method for documenting and protecting your identity.

That understood, one can cite a case study that more closely resembles IP infringement than does any intra-industry competition.

An identity thief withdraws money from your accounts in order to co-opt the economic value you created as a worker. Parties are indebted to you, but the identity thief manipulates these debtors into paying him instead. The identity thief redirects to himself the money that you earned. He does this by blurring the distinction between his own work and yours.

An infringer on your intellectual property attempts to co-opt the economic value you created as a designer. Parties that willfully benefit from your design are parties that willingly chose to be customers indebted to you, but by selling your work as if it his own to sell, the infringer manipulates these debtors into paying him instead. The infringer redirects to himself the money that you earned. He does this by blurring the distinction between his own work and yours.

In short, upon your dedicating your choices to producing a practicable original design, the parties that benefit from making direct use of your original design owe it to you that they follow the terms you set for such use of your design. That includes the payment for which you ask. For me to usurp control of your design directly, and then for me to benefit financially by distributing your design to other users, is for me to usurp control over the choices and work of the actual party to whom those users owe their payments.

There is no intra-industry competition here. The matter is simpler and worse than that. Trademarks, copyrights, and patents are documentations of someone’s financial identity. IP theft is ID theft.

Still, the implications go even wider than that.  Not only is all theft a form of ID theft, but all theft is ultimately a form of IP theft.

Conclusion: What Intellectual Property Is in Relation to Every Other Form of Rightful Property
Note my point from the essay’s beginning. I wrote that even in earl human history, economic value has always come from the application of the human mind, rather than every unit of natural resource already possessing an obvious economic value. That is why, although the homesteader did not create the plot on which she settled, it was through her choices in improving the land that she created the plot’s economic value, thereby rendering her the rightful owner. The deed, like a patent, is a document of identification, identifying an economic value with the person who, through choices that are also part of her identity, brought that economic value into being. And this Locke-Smith principle, wherein it is the application of practical reasoning that converts wilderness into useful economic units, is behind most economic value that exists today.

Here we can revisit Ayn Rand having noted, “Existence is Identity, Consciousness is Identification.” Continuing our revisit, there is a specific instance of employing one’s consciousness in rationally identifying something importance in existence. That is the institution of private property — especially the intellectual sort — in identifying the relationship between (1) the economic value that is now the property and (2) the person whose creative choices, the person whose identity, brought forth that economic value. To start out broadly, “Existence is Identity, Consciousness is Identification” — and, applying that to a context that is more specific, rightful Ownership is Identification, identification of someone with wealth his implemented reasoning produced from a wilderness where it had not earlier been.

I concede there are some instances of some natural resources already possessing economic value as a default. I address that issue over here.  But, for the most part, most economic value comes from market participants applying scientific knowledge to convert objects from the wilderness into an environment more suited to human habitation. The Indus River Valley civilization and ancient Egypt pioneered in branding. The ancient Greek architect Hippodamus of Miletus proposed a legal institution that can be called an early conception of patenting. Aristotle alluded to this though he did not entirely approve. The writings of Athenaeus suggest to modern scholars that one ancient Greek city-stateimplemented something like this. And as these peoples developed trademarks, jurist William Blackstone also noted that the ancient Romans likewise developed a precursor to copyright recognition. Sadly, devaluing much of the achievements of antiquity, the Dark Ages devalued intellectual property. Then, since the Renaissance era, modern patents have emerged to protect very specific, detailed, and rare formulae on how to convert harsh wilderness into economic value. Ultimately, all nonviolent production of economic value, from the Stone Age, came from at least a generalized version of this approach. Insofar as people could be free to do so, all this wealth-creation required free intellectual efforts.

To recall what I wrote earlier about the homesteader’s improvement of land, even more imperative than the physical motions the homesteader undertakes to improve the land are the creative plans she chose to devise and which she had to check against the scientific laws of nature. Locke and Adam Smith presented the homesteader’s choices in improving the land as the most basic example of a particular principle. The principle is that when someone’s choices produce a net increase in economic value on the market, the default in assigning rightful ownership over the value is that the first claim on ownership over the value must go to the party whose choices created it. To apply that principle to designs in artwork, tools, industrial processes, plant varieties, and engineered life forms is to take this Locke-Smith principle to its logical conclusion.

The creation of economic value from one’s homestead, rightfully to be taken as one’s private property, was always the intellectual efforts in one’s choices, just as in the economic value in one’s patent. Like a specific innovative and productive original design to be patented, the improving of one’s land — even if on a more primitive level — was the rightful creation of property through the exercise of one’s intellect. In that more abstract respect, the homestead and all other human-made goods are a form of intellectual property at least as old as the first selectively and intelligently-bred livestock to be branded and the first metal wares that blacksmiths trademarked.

Concordant with all theft ultimately being ID theft, all theft is theft of intellectual property. That is so, as all rightful property is ultimately, at least on some broad level, a sort of intellectual property.

It is therefore tempting for me to ponder the reason why IP-hating Rothbardians are so insistent on the establishment of private property rights being about dispute resolution but not about the conversion of previously unhelpful wilderness into economic value. It apparently has to do with their not bothered with contemplating too much about the role played by the free human mind in this matter. That is, they have not put enough of their property in thought to the property in thought.

Both the IP-hating Rothbardians and I agree that when people are squabbling over who gets to control which economic value that comes in a finite quantity, private property rights play an important role in the dispute resolution. But if we think of the property rights as being justified for the purpose of dispute resolution and not much else, then we care only that somebody owns and controls X; not who gets to do so or why. That approach ignores the crucial role of the initiative-taking human mind in producing economic value where it wasn’t before. Poverty is the default. I say:
  1. Economic value has to be created. Raw materials only become useful resources when the mind is applied to them. This is done using a productive original design.
  2. The default of ownership and control over the economic value must go to the one who created the value, meaning the designer.
To say that every natural resource should be owned by someone privately, but that it doesn’t matter who, would only make sense if the economic usefulness of every natural resource were immediately obvious. But it is not obvious.

When, in previous centuries, farmers found oil on their land, they were horrified. The glop ruined crops and no one knew of how the glop could be put to good use. It took scientists, engineers, inventors, and entrepreneurs to recognize petroleum as a versatile fuel source. Nor was it obvious to cavemen that petrified tree sap would be useful in telegraphs. Stirring in the Renaissance and coming to full force in the Industrial Revolution, this was the application of scientific discovery to finding previously-unknown uses for materials from the wild. And this produced a net increase in economic value even more consistently than was the homesteaders’ improvement over their land. The more we look at how the usefulness of the units we consume results from the units being produced according to specifications from specific clever designs, the more we see evidence for two considerations.
  • There are costs and financial risks to producing those designs.
  • This results in the default condition that the designs themselves are no less “scarce” in quantity than is the square footage of improved land.
All of the net gains in economic value produced from the Industrial Revolution onward have been the result of human creativity — human inventiveness. This inventiveness had much more to do with this proliferation of wealth than any inherent value in scarce and intangible natural resources such as coal. Those scarce and intangible natural resources had already existed since Stone Age, and their full potential in usefulness remained untapped until human inventiveness in designs were applied to them.

What too many Rothbardian libertarians have tragically chosen to overlook is how those practicable inventive designs, so instrumental in producing every other form of economic value recognized as private property, are far scarcer in quantity than all the units of products produced from those designs.

There is something even more essential to human flourishing, in enabling an individual to reap the logical consequences of her creative choices, than recognition of private ownership over units of goods produced from practicable designs. More important is the recognition of private ownership over those very same designs by their designer. What is (1) anyone’s ability to have abundant ownership in many economically valuable industrial units is, in the end, enabled by (2) a designer’s ability to own, and thereby profit from, the very design that her private choices produced, the very design from which those industrial units were assembled. The former is dependent on the latter.

Intellectual property provides to us the other forms of property. To understand this is to understand the central role that the active use of one’s free mind plays in producing all the wealth we enjoy.

It is therefore ironic that libertarian anarchy, in the tradition of Rothbard and Childs and Konkin and in opposition to intellectual property, is thought to be associated with individualism. There is an internal contradiction in advocating that everything be privately owned, while failing to admit that anything that can be rightfully owned was made into an own-able value by the same volitional intellectual efforts of individuals, the efforts that go into the unique and practicable designs enshrined in IP. Any wealth to own that goes beyond Stone Age subsistence owes its existence to the specific, practical, and costly plans and instructions detailed in patents, the plans and instructions produced by the choices of dedicated individuals.

Libertarians seem to grasp that there is no ownership without an owner. But, more than that, there are no improved models for tangible units to own if not for both (a) the inventor who produced those units’ improved design and (b) the inventor’s ability to secure the improved design that his choices brought forth. Any property, especially intellectual property, must go by default to the individual whose free choices produced it.

On Saturday, October 10, 2020, I added the sentences about Hippodamus of Miletus.