When Mark Twain’s Connecticut Yankee assumed control of the administration of Camelot, his very first official act, he tells us, “was to start a patent office.” Why? Because “a country without a patent office and good patent laws was just a crab, and couldn’t travel any way but sideways or backwards.” The Framers of the United States Constitution seemed to agree. In Article 1, Section 8, Clause 8 of that document (often called the Commerce Clause) they made a point of ensuring that “the Congress shall have power to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”—interestingly, the only explicit reference to a right in the body of the Constitution. James Madison, in Federalist no. 43, writes,
Indeed, the institution of patent and copyright law, especially the manner in which it recognizes and establishes intellectual property rights, is an important watershed moment in the history of liberty and an essential aspect of the impressive productivity and creativity of the free economy.
Property Rights in a Nutshell
The specific application of intellectual property rights builds on the principles of property rights more generally. The economist’s concerns with property rights are simply practical: Property rights establish the “rules of the game,” which typically encourage naturally selfish individuals to behave in socially productive ways. Economists observe that people often treat their belongings more carefully than the belongings of others. As a case in point, consider how people treat rental cars compared to how they treat their own vehicles. (Of course, Christians are called to treat the belongings of others at least as well as their own belongings; whether they respond to the temptation to do otherwise is another matter.) Property rights encourage people to work to own things and then to treat those things with greater care.
The practical merits of property rights extend further. In combination with contracts to regulate their exchange (assuming a judicial system that is not costly or corrupt), robust property rights allow people to focus their labor on what they do best and then to engage in mutually beneficial, wealth-creating exchanges with people who have done likewise. Without such a system of easily exchangeable property rights, each person must rely on himself for all the necessities of life, and the resulting inefficiency prevents the specialized division of labor as well as the freedom to pursue goods beyond mere necessity.
Property rights have moral and philosophical merits as well. The absence of property rights leads to waste. The poor enforcement of property rights leads to theft. Property rights derived merely from the whims of a capricious ruler result in graft. On the other hand, strong property rights encourage productive behaviors, which amount to acts of creation, as people behave in ways consistent with their creation in the image of God.
What is more, property rights—at least to an economist—are not merely concerned with owning stuff but with having legitimate sovereignty over one’s body, the fruits of one’s labor, the way one conducts business, and so on. (It follows that property rights are limited to the extent that they impose direct costs on others, such as when one violates the property rights of another.) Laws permitting slavery, excessive taxation, and intrusive commercial regulation all restrict property rights and lead to the same practical and philosophical concerns described above.
Voluntary, mutually beneficial trade can occur in all sectors of an economy. In fact, wealth can be created simply by reducing transaction costs (the costs of making a trade happen), which increases the frequency of wealth-creating activities. Although hands and feet often play a role in creating wealth, the more essential engine of capitalism is the activity of the mind.
Carefully protected property rights, then, are important for countries no less than for individuals. Strong property rights are not only to be passionately preserved in countries that have grown prosperous in large part because of them, but also to be passionately pursued in less developed countries where their absence has contributed greatly to poverty. It is fortunate that institutional reforms of this sort are more popular today than in years past.
Adding the Fuel of Interest to the Fire of Invention
The specific role of copyrights and patents is an application of the above principles to the arena of creative and innovative endeavors. One additional point merits a mention in this context. The disincentives created by the absence of intellectual property rights are equally troubling but a bit more complex. Imagine that you invent something in a regime that lacks effective patent laws. If your invention turns out to be profitable, others will seek to directly copy it, thus reducing the rate of return from your entrepreneurial investment. In fact, your costs of research and development would then likely outweigh any financial benefits you might accrue, since you would still incur the burden of the costs but realize less revenue. Would you engage in such inventive and entrepreneurial investments in the future? Probably not.
In chapter two of his book, The Fire of Invention, Michael Novak relates Abraham Lincoln’s “Lecture on Discoveries and Inventions,” in which Lincoln describes the Commerce Clause as the last of the six great steps in the history of liberty—along with the origin of language, “the art of discovery,” the creation of writing, the invention of the printing press, and the discovery of America.* Lincoln argued that, before the adoption of the Commerce Clause, “any man might instantly use what another had invented; so that the inventor had no special advantage from his own invention.” The institution of patent law changed this and “secured to the inventor, for a limited time, the exclusive use of his invention; and thereby added the fuel of interest to the fire of genius, in the discovery and production of new and useful things.”
Novak, glossing this, writes, “Ever the realist, Lincoln knew what is in the human being: to be a genius is one thing, to be motivated is quite another, and then to be supported in this motivation by a wise regime is an unprecedented blessing.” Lincoln’s “fuel of interest” and Novak’s “motivation” are the financial incentives stemming from the state’s recognition and protection of intellectual property rights. In contrast, Novak notes that “a regime that does not secure natural rights depresses human energy.” Furthermore, patents and copyrights emphasize that, for capitalism, wealth springs less from land, money, or machines than it does from intellect and know-how, which is no less true for us today that it was in Lincoln’s day.
If Twain, Madison, Lincoln, and Novak are correct, Americans owe their material prosperity to the boon of having patent and copyright law secured by their Constitution. Moreover, with regard to the Constitution, this boon is a consequence of a natural right, not governmental fiat. Note that the Commerce Clause discusses “securing” the right, which implies, first, that intellectual property rights are pre-existent and to be protected by government, and, second, that they are not a privilege artificially created and then conferred by government. But how did individuals discover and then protect this natural right?
A Short History of Intellectual Property
Patents and copyrights were essential for the advent of the Industrial Revolution; not surprisingly, patent and copyright laws pre-date the economic prosperity of the West. The first recorded patent, granted in Florence in 1421, allowed for the exclusive manufacture of a type of barge for three years. As George Wagman and Stephen Scofield note in the S.A.M. Advanced Management Journal, this first patent was established so that the benefits of the patent holder’s “genius and skill may not be reaped by another without his will and consent” and so that “he may be animated more fervently to even higher pursuits and stimulated to more subtle inventions.…”
Similar monopoly privileges were granted by European monarchs over the next two centuries and were concerned with either importing new products or establishing new industries; in this way, patents essentially functioned as tariffs and subsidies. In 1623, the English Parliament, frustrated by the Crown’s prodigal and imprudent sale of monopoly rights of all kinds, enacted the Statute of Monopolies, which curtailed state power by limiting royal grants only to genuinely new inventions and only for fourteen years.
Copyright law had a similar origin. Just as the Crown would provide royal monopolies in certain industries, it would give to authors and printers exclusive rights to publish certain books. Such privileges were not given to protect the rights of authors or publishers but to provide a governmental mechanism for taxation and censorship. Again, in England, the Parliament intervened by passing the 1710 Statute of Anne, which established that authors, not the Crown, should enjoy the rights to and benefits of their work. As in the case of patents, copyrights also were valid for a limited time, after which point the works entered the public domain. Such restrictions of governmental power entered English Common Law, which, as Madison attests, informed the Commerce Clause of the United States Constitution.
Lives of Creative Genius
The existence and duration of patents and copyrights stimulate creative energies, economic advances, and market competition. The competition to innovate is enhanced by patents, as well as by attempts to get around those patents legally. Patent and copyright law harnesses self-interest in a manner that typically augments the public good. Still, some have questioned the justice of the “winner-take-all” nature of patent awards. For example, if you and I were to independently devise a mechanism for improving the production of a product, and if you were to apply for a patent one day earlier than me, you would receive all of the patent’s benefits, and I would receive nothing. It is troubling that one person is rewarded completely and the other is not rewarded at all, but, given the constraints of an imperfect world, it is difficult to imagine a more equitable or efficient system. In their book How the West Grew Rich, Nathan Rosenberg and Luther Birdzell expand on the importance of patent law’s emphasis on competition:
Law that rewards innovators is an impediment to mercantilism, special interest group politics, and the economic stagnation that result from protecting an inefficient status quo.
The extension of strong property rights to intellectual property is, indeed, a watershed in economic history and, more specifically, in the West’s march toward economic prosperity. Along the way, individuals have been freed to pursue lives of creative genius—in everything from product innovation to artistic creativity, from the mundane to the extraordinary, from the crass to the academic, from the trivial to the revolutionary. In sum, the resulting liberty makes for stronger and more prosperous nations and allows people to pursue creative endeavors in line with their creation in the image of a creative and creating God.