KOL475 | Guest Lecture: Intellectual Property: Principles of Austrian Economics II | ECON104 (Saifedean Ammous and Saylor Academy)

Kinsella on Liberty Podcast, Episode 475. This is my guest lecture for Saifedean Ammous's course Principles of Austrian Economics II | ECON104 (recorded May 7, 2020, I believe), also now on Saylor Academy. Transcript and summary and other notes below. KOL441 | The Bitcoin Standard Podcast with Saifedean Ammous: Legal Foundations of a Free Society, Property Rights, Intellectual Property KOL314 | Patents vs. Bitcoin: The Bitcoin Standard Podcast (Saifedean Ammous) https://youtu.be/02wY_qL0qRU?si=HU40GGg8xu6Wfn3U GROK SUMMARY Summary of Economics 12 Seminar: Intellectual Property Discussion with Stephan Kinsella Introduction to Intellectual Property and Scarcity Timestamp: 0:01 In the ninth discussion seminar of Economics 12, Principles of Economics 2, host Saifedean Ammous introduces guest discussant Stephan Kinsella, who has written extensively on intellectual property (IP) and its justifications. The lecture focuses on Kinsella’s paper, which explores the legitimacy of property rights and why IP lacks a coherent basis. Ammous highlights the core issue of scarcity: property rights manage scarce resources, but ideas, being non-scarce, cannot be owned without controlling others’ bodies or property, violating individual rights. This is described as a “kill shot” to IP arguments, though other critiques are also explored. Utilitarian and Natural Rights Arguments Against IP Timestamp: 3:07 Stephan Kinsella elaborates on the incoherence of IP, arguing that information is a characteristic of owned resources, not property itself. Claiming ownership over ideas, like owning the “redness” of a ball, would absurdly grant control over others’ property. He traces IP’s origins to Locke’s labor theory of property, which confuses action with ownership, leading to flawed justifications by Ayn Rand and others. Kinsella critiques the utilitarian argument that IP stimulates innovation, noting the U.S. Constitution’s temporary monopoly grants were based on unproven assumptions. He argues that 200 years of data fail to show IP’s net benefit, with studies suggesting it distorts or depresses innovation. Empirical Weaknesses and Market Failures Timestamp: 7:44 Kinsella challenges the empirical case for IP, pointing out that proponents assume a market failure in innovation without government intervention. However, studies are inconclusive or show patents hinder innovation, costing billions annually in the U.S. alone. He criticizes reports like the Commerce Department’s, which claim IP-intensive industries drive GDP, for mistaking correlation with causation. Ammous adds that academic theoretical models often support IP without empirical backing, relying on simulated universes to justify claims of increased innovation, further highlighting the lack of real-world evidence. Alternative Business Models Without IP Timestamp: 19:13 Ammous argues that the assumption IP is essential for creators’ income reflects limited imagination. Musicians, for instance, earn most of their income from concerts and sponsorships, not record sales, as seen with artists from local bands to superstars like Madonna. Platforms like SoundCloud and YouTube allow free music distribution, boosting popularity and concert attendance, as evidenced by Iron Maiden’s use of BitTorrent data for tour planning. Authors can profit from physical books, courses, or speaking engagements. Without IP, lower legal costs would reduce prices, benefiting consumers and producers, with first-mover advantages and reputation sufficing for profitability. Trade Secrets and Regulatory Impacts Timestamp: 27:44 Kinsella discusses trade secrets as an alternative to patents, noting that patent law encourages disclosure over secrecy, undermining natural market advantages. The FDA’s regulatory system exacerbates this by requiring public disclosure during drug approval, negating trade secret benefits and justifying patents. He argues that removing both systems would allow trade secrets and first-mover advantages to thrive, criticizing the cycle where one regulation (FDA) necessitates another (patents). Ammous suggests that trade secrets could reduce offshoring, potentially benefiting local industries. Market Solutions and Moral Considerations Timestamp: 32:58 Kinsella proposes that in a free market, creators like J.K. Rowling could profit without IP through fan support, crowdfunding, or authorized endorsements, as fans value authenticity. He refutes claims that IP prevents fraud or plagiarism, noting market mechanisms like Amazon’s removal of knockoff books naturally police such issues. Ammous emphasizes that fans are unlikely to harm creators they admire, and pirated copies by non-paying audiences only expand reach. Kinsella illustrates with examples like fake Crest toothpaste or McDonald’s, showing market incentives deter fraud without IP laws. Visual Critique of Patent Policy Timestamp: 42:28 Kinsella shares a chart critiquing libertarian Alex Tabarrok’s “patent policy on the back of a napkin,” which assumes an optimal patent strength without data. He argues that innovation decreases with more patent protection, contrary to Tabarrok’s unproven Gaussian curve, reflecting a broader failure of empiricists to address IP’s root issues. Student Questions: Photography and Copyright Timestamp: 45:25 A student, Tim, a former photographer, raises concerns about copyright’s role in photography, citing moral issues when images are used without permission, potentially stifling creativity. Ammous suggests market demand may not support all photographers, and alternative income sources like event photography could replace royalty-based models. Kinsella argues that copyright on photographs is absurd, citing cases like a monkey taking photos, and notes that digital technology makes copying unstoppable. He suggests private contracts or watermarks as solutions, emphasizing that information, once public, cannot be controlled like property. Case Studies: Samsung, Apple, and Tesla Timestamp: 1:03:03 Student Daniel discusses the Samsung-Apple patent battles, which enriched lawyers, and Tesla’s 2014 decision to open its patents, which didn’t spur expected innovation in electric cars. Kinsella notes that patent disputes create cartels, locking out small innovators, and Tesla’s move was largely PR, as they likely still acquire patents for defense. He argues patent thickets hinder innovation, acting as a tax on building upon prior technologies. Open-Source Models and Ethereum Timestamp: 1:12:28 Ammous praises open-source models like Linux, which avoid patent taxes and dominate critical infrastructure. Student Andrew highlights Ethereum’s open-source innovation, but Ammous critiques it as a Ponzi scheme, producing unprofitable “Rube Goldberg machines.” Kinsella humorously notes Ammous’s tendency to bring up crypto, contrasting it with his own focus on IP. Protecting Trade Secrets and NDAs Timestamp: 1:24:24 Ammous and Kinsella discuss trade secrets as a viable alternative, using NDAs to protect proprietary processes without patents. Kinsella explains that NDAs create contractual disincentives for leaks, but patents discourage secrecy by risking others patenting the same invention. They address concerns about employees leaking secrets, suggesting contracts and incentives like bonuses can suffice without resorting to violence. Ammous argues that Austrian economics shows coercive solutions backfire. Guilds and Market Dynamics Timestamp: 1:41:43 Ammous proposes that in a free market, industries like car manufacturing could form guilds to mutually respect innovations, shunning violators. However, he remains skeptical, believing information wants to be free and markets will find profitable models without IP. Bitcoin’s open-source success, dominating despite copycats, illustrates this, as its competitors lose relevance over time. Conclusion Timestamp: 1:46:11 The seminar concludes with Kinsella and Ammous emphasizing that IP’s flaws—philosophical, ethical, and empirical—outweigh its benefits. [Actually, I don't concede there are any benefits. —SK] They advocate for market-driven solutions [there is no problem to have a "solution" to], encouraging students to contact Kinsella for further questions and to follow him on Twitter. The discussion underscores the power of free markets to innovate without IP’s coercive framework. *** Audience Pre-Lecture Discussion and Questions Kinsella: For our joint lecture today, I think these are some of the resources you might want to share with the class, for the utilitarianism/empiricism issue (all articles or posts by me unless noted otherwise) There’s No Such Thing as a Free Patent, Mises Daily (Mar. 7, 2005) “The Overwhelming Empirical Case Against Patent and Copyright” (Oct. 23, 2012) Against Intellectual Property, the section "Utilitarian Defenses of IP" Boldrin & Levine, The Case Against Patents: https://www.aeaweb.org/articles?id=10.1257/jep.27.1.3 B&L, Against Intellectual Monopoly http://www.dklevine.com/general/intellectual/againstfinal.htm See also: The Problem with Intellectual Property Boldrin and Levine: The Case Against Patents A Selection of my Best Articles and Speeches on IP Kinsella, You Can’t Own Ideas: Essays on Intellectual Property (Papinian Press, 2023) Kinsella, ed., The Anti-IP Reader: Free Market Critiques of Intellectual Property (Papinian Press, 2023) Question from Peter: Please see below my question for tomorrow’s seminar. Unfortunately I won’t be able to join the session live so I’d be grateful if you could ask this on my behalf. As a lawyer how much of the legal work you encounter do you think would still exist in a libertarian society based solely on private law? Clearly there would no IP lawyers, tax lawyers or lawyers advising on regulatory compliance. If you strip away this “statist” part of the legal profession as it exists in the 21st century,