Psychic Enclosure as a Broken Window

It always excites me to find a new blog to read, especially when it covers a variety of topics and is well written. Something tells me that a brand new blog from X. Trapnel will be just that. I found it via a recent post at the Technology Liberation Front blog in which Tim Lee critiques Trapnel's argument that intellectual property apologism is a version of Bastiat's "broken window" fallacy:

Just as in the Bastiat story, you have the helpful onlooker who says "But everyone must live, and what would become of innovation if every innovator could have his insight copied by the first free-rider who came along?" Just as in the Bastiat story, this is wrong. What is seen is the way in which the protected firm uses his IPR to generate monopoly profits, some of which are then plowed back into R&D, generating a pleasant stream of innovation. What is not seen is what would happen in the absence of this protection: the innovator would have to keep innovating in order to maintain his market, leveraging his expertise into further productive developments, while newcomers would be able to experiment on their own with the knowledge produced by the first. Money that once went to monopoly rents would go instead to other, more productive things--including further innovation. The neo-Schumpeterian retort is that this is hopelessly naive: innovation requires large capital investment and the reasonable hope of monopoly rents to recoup it. But this is mere question-begging, and its plausibility lies, again, with the distinction between What Is Seen and What Is Not Seen: when we give innovators monopoly privileges of this sort, we thereby tilt the playing field dramatically towards heavily capitalized firms by jacking up the costs of the inputs (eg., prior innovations, a skilled legal team, insurance against lawsuits) to production. As a result, What Is Seen is capital-intensive innovation; What Is Not Seen is the less capital-intensive innovation that the legal regime has stamped out. (my emphasis)

Indeed, this argument parallels Kevin Carson's position on patents and intellectual property: the State intervenes to purposely distort the economy towards capital-intensive production in order to ensure big business controls the avenues to technological innovation:

The patent privilege has been used on a massive scale to promote concentration of capital, erect entry barriers, and maintain a monopoly of advanced technology in the hands of western corporations. It is hard even to imagine how much more decentralized the economy would be without it. (my emphasis)

Of course, "What Is Not Seen" is no easier to demonstrate in this day and age than it was in Bastiat's. It is this failure of the imagination that I believe partially motivates Lee's critique. Failing to identify the "broken window" at play in Trapnel's argument, he misidentifies the losses expended on maintaining intellectual property.

The more fundamental objection is that it's not obvious to me that there's a broken window at all here. Keep in mind that the harm of the broken window lies in the fact that a window was broken, not merely that the shopkeeper had to give money to the glazier. If we could magically transfer six francs from the shopkeeper's pocket to the glazier's pocket without breaking anything in the process, that would not be an example of the broken window fallacy. Likewise, to the extent that copyright simply transfers money from the pockets of consumers to the pockets of authors (or their publishers), this isn't a broken window at all; it's just a wealth transfer. And one that, frankly, most people including myself feel is morally justified.

There is something to be said about the morality of this system. However, I must point out that this introduction of the concept of the magical transfer - by an intellectual property advocate, no less - strikes me as quite curious. If one snap one's fingers to perform a one sided transaction, then doing so would not be an example of the "broken window" fallacy per se. But it wouldn't even be an example of real economic activity as libertarians understand it anyway, since magic is outside the realm of scarcity that economics informs.

However, there are institutions which purport to subvert the reciprocal nature of the market in order to establish a "higher," more authoritative form of reciprocity. Libertarians typically count the State chief among these institutions of mysticism. (Lee mentions deadweight costs imposed by enforcement, but to the extent that they're subsidized by the State, the costs are not material to the transaction.) Comparing the enforcement of State interests with magical wealth transfers involves roughly the same outlandish dynamics from an economic perspective. This type of "magic", or definitional slight of hand, comprises the whole argument of the intellectual property advocate in the first place. By arguing for the imbuement of psychic objects (concepts, ideas, plans, artistically significant patterns, etc.) with artificial qualities of scarcity, the lack of a material, intrinsic quid pro quo obvious to all parties is the paramount injustice. Advances in technology have not changed this dynamic but only cast it into greater relief.

Lee argues that without a broken window - that is to say, without an injury for which the victim must make himself whole - this is all just a wealth transfer, not an example of Bastiat's famous fallacy. But suppose for a moment that the shopkeeper could make his own window (perhaps by studying glazier techniques). The value is restored without a wealth transfer at all! The transaction needn't coincide with the injury - what matters is that the shopkeeper had to expend some time, effort, and/or wealth just to make himself whole.

Bastiat is talking about situations where transactions are effectively imposed on third parties by the metaphorical boy and metaphorical glazier - indeed, this is the theme of a large part of the essay. The injury or damage is not the vital component of his parable, but the excuse for the final object: the wealth transfer. Lee gets it wrong: wealth transfer is the end, destruction of property only the means.

However, if one needs to identify a property loss in order to apply this fallacy to the arguments of copyright advocates, one can look to the history of enclosure - the practice of forcibly aggregating what was once common property in the name of "efficiency". By staking out a claim in the mind, the source of all intellectual property, the State (and the "glaziers" on whose behalf it intervenes) effectively privatizes a domain that was once a common, public area. It is not so much that people "steal" intellectual property, but that the State and the special interests it props up demands that human faculties be "fenced off" and constrained.

Were this a pure function of the market, there would be no issue, because the disparate interests would likely achieve some balance between producer and consumer. The goal is to not make innovation occur outside the market; rather, it is to encourage the operation of creativity within a framework of centralization rather than decentralization. In his new book he's writing, Kevin Carson addresses the dynamics of innovation with regard to centralization:

It's important to remember that there is no such thing as generic "superiority" of one technology over another. One technology can only be said to be superior to another with reference to some purpose. The transition to the paleotechnics [centralized production technologies], instead of further development of eotechnics [decentralized production technologies], reflected a given set of interests. The paleotechnic was more "efficient" at serving the interests of the absolute state and its privileged clients, the great landowners and mercantilists.

By introducing the alien framework of private material property into the extra-economic world of ideas, a particular kind of innovation and creativity that can be centrally administered and produced is promoted. Hint: it's not for the benefit of consumers that this framework is instituted (since it makes no difference to a consumer whether others share the property or not). After all, it may indeed be true that certain innovations or creative works would not come to market within a less interventionist marketplace, because ideas are conceived within the real world. Legal, traditional, and economic context matters. So when Lee argues that:'s not obvious that these "broken window" costs are particularly large compared to the size of the industries we're considering here. The movie, music, and book industries collectively generate tens of billions of dollars in revenue every year. If even a small part of that output is content that would otherwise not have been produced, it could easily outweigh the deadweight costs I outlined above.

He's begging the question, isn't he? Those industries exist within a legal framework that promotes that particular organization and philosophy! Without State intervention, so much would look different that it's impossible to say which is better and which is worse. A more useful conclusion is to articulate which interests are advanced by one framework or another. And there's a powerful argument to be made that within a less interventionist market in ideas these costs would be astronomical.

I realize Lee is not an anarchist and sees the State as a vehicle for realizing basic moral outcomes. He believes people who innovate should be paid for their ideas directly. That's a sort of a priori or consequentialist argument with which I've no problem in so far as it goes. You can argue for moral outcomes from State enforcement - all I'm questioning is whether morality is the only factor (or even the main factor) at play here.

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Written on Saturday, January 06, 2007