Intellectual Space: 2013

Saturday, October 5, 2013

Can There Be a Property Right in Value?

Abstract

There must be a property right in the market value of things, because otherwise a legal system is impossible.

All legal rights are property rights, all legal wrongs are property violations. Legal remedies aim to restore property ("make the victim whole"). Restoring the physical integrity of damaged property is often impossible, thus the need for awarding money damages. The reduction in market value to the damaged property is the only rational measurement for money damages. Since damages awarded must be based on a property right, there must therefore be a property right in the market value of things. Absent a property right in value, a legal system can impose only barter damages, not money damages. A legal system with only barter damages will fail for the same reason that a barter economy fails.

Introduction

Can a person assert a valid property right over the value of something? Or is a property claim limited to the thing's "physical integrity"? This question ends up being crucial to the issue of intellectual property, for two reasons:

First, if sound economic theory finds that a property right can only pertain to physical things, then obviously intellectual works, like songs, movies, novels and computer games cannot be property.

Second, showing that intellectual goods are rightful property depends on showing that they are, by their very nature, scarce and rivalrous goods. The rivalrous nature of an intellectual work comes from the creator's desire to exploit the work commercially, by selling copies of it on the market. A competitor who makes and sells unauthorized copies interferes with the creator's use, which is measurable by the reduction in market value of the creator's original work. If there can be no property right in value, then the unauthorized copier's actions cannot be construed as trespass.

Hans-Hermann Hoppe's "The Idea of Law in a Private Society"

In "The Idea of a Private Law Society" (quoted below), Austrian economist Hans-Hermann Hoppe has explained why, in his view, there cannot be a property right in value. I will show that Hoppe's finding must be incorrect, and that it must be possible to hold a property interest in the value of something.

To understand why there must be a property right in value, we must assume that a correct theory of economics will allow for a viable legal system. Conversely, we must also assume that any conclusion reached by economic reasoning which makes a legal system impossible must be erroneous. If you are not willing to assume the necessity of a viable legal system in society, then read no further.

The Rationale for Property

Begin by imagining a state of nature. Humans are much like wild animals, with no sense of right and wrong, and no concept of property. We could call this a state of total freedom. A man takes what he wants, with nary a thought of who it might "belong" to. Because there are many people, who all want things, conflict ensues.

In such a world, one of the things that people come to want is the elimination of conflict. And thus is born the concept of property. Property is the idea that we can decide who has the right to use a given thing, and the concurrent right to exclude everyone else from using it.

Property represents a step away from total freedom, because it naturally imposes restrictions on allowed behavior. The reasonable person is willing to impose such restrictions on himself because he understands, through reason, that a society with property rights will be one of peace and prosperity, while a society without property rights will be one of conflict and poverty. Hoppe has given a beautiful exposition of the rationale in his "The Ethics and Economics of Private Property".

It is important to scrutinize this chain of reasoning. We start with a theory of "total freedom". Working forwards, we deduce that total freedom leads to an undesirable outcome, and conclude that there must be an error in that theory, because it does not produce our intended result (a peaceful, prosperous society). We then work backwards, modify "total freedom" to include property, work forward again and get a much better result. I wish to underscore that in social theory "working backwards" from a desired conclusion is, to a certain extent, inevitable.

We first assume that avoiding conflict is a desired outcome, then invent property rights to solve the problem. Similarly, we must assume that a viable legal system is a desired outcome. Let us now discover what problems arise in the implementation of law in a libertarian world, and what we must invent as a solution.

The Rationale for Money Damages

The purpose of law is to provide a set of rules governing the conduct of people, and a mechanism by which people who have been harmed by the wrongdoing of others may be compensated. Correctly understood, all rights are property rights, beginning first and foremost with the right of each person to own his or her own physical body. All laws flow from the protection of property rights. All legal wrongs should be understood as a violation of the property rights of another.

The most fundamental concept in compensating victims is "damages". It is not enough to merely note that a victim has been harmed by the wrongdoing of another. We must be able to measure the magnitude of harm. Then, we must have a viable method of transferring the compensation from the wrongdoer to the victim.

In most cases, the simplest and best method to "make the victim whole" is to determine the reduction in market value caused by the offense, then make the wrongdoer pay that amount of money to the victim. There are many different types of legal situations that requires remedy, and the Common Law has devised others sorts of remedies besides money damages (e.g. "replevin", which is forcing a thief to give back the stolen goods). But money damages is, by far, the type of remedy that applies to the greatest number of cases.

Clearly, a viable legal system must have the ability to award money damages. I hope it is plain to the reader that a legal system attempting to impose compensation by barter is not viable for the same reasons that an overall barter economy is not viable.

What Does Hoppe's Conclusion Imply About Damages?

Suppose then that we accept Hoppe's conclusion that there is no property right in the value of a thing. Rather, a property right exists only in its "physical integrity". Suppose you own a car, and a trespasser comes along and smashes the car up with a baseball bat, because he is angry that his former girlfriend fell in love with you. In Hoppe's world, you have a property right only in the physical integrity of the car. The legal system could catch the wrongdoer, and find him liable to you. But what are the damages?

In Hoppe's world, the damages in the car smashing example are a broken windshield, dented hood, slashed tires, etc. We can order the wrongdoer to restore the physical integrity of your car. Technically, this is impossible, under the physical laws of entropy. We cannot reverse time, and magically put your car back in the state it was before.

Lacking magic, repairing your car is the next best thing, but what does that really mean? It doesn't mean restoring the physical integrity of your car, rather it means restoring the value of your car, as best as possible. Let's temporarily ignore the fact that, here in Hoppe's world, you don't have a property right in the value of your car. Unless the wrongdoer is himself a skilled mechanic, he will need to purchase materials and the labor services of a mechanic, to fix the car. This is kind of possible, but we'll run into all sorts of problems regarding which substitute materials are acceptable.

But suppose the car is smashed up so badly that it is literally impossible to repair. What then? Do we order the wrongdoer to buy you a new car? What if your car was not new at the time of the smashing? Must we obtain a new car, and then attempt to inflict whatever wear-and-tear had occurred to your car? Are you beginning to see the problem?

Students of Austrian economics will recognize these clumsy transactions to be quite similar to the types of problems experienced in socialist economies, which lack meaningful prices. The lack of market prices makes rational economic calculation impossible, as proven theoretically by Mises, and empirically confirmed by history.

A Viable Legal System is Impossible Without Money Damages

A viable legal system is impossible without market prices on damages for the same reason that a viable economic system is impossible without market prices in general - rational economic calculation positively requires it. Without accepting the idea that one may have a rightful property interest in the value of a thing, then there is simply no basis whatsoever to consider market value in assessing damages.

Therefore, there must be a valid property right in value, and there must be some error in Hoppe's logic, which I will explore below. If you wish to dispute this finding, it is incumbent upon you to demonstrate why a legal system is unnecessary, or how a barter system of damages might work, or how money damages might otherwise be measured.

I've shown that that there can be valid property rights in the market value of things, because otherwise a legal system is not viable. Of course, this does not mean that one automatically obtains a valid property right in something simply because it has value. The difference between those two propositions lies in the distinction between individual valuation vs. market valuation.

Individual Value is Subjective

One of the more important and insightful findings of Austrian economics is that value is subjective. Two people encounter the exact same object, and come to completely different opinions about what it is worth. As the old saying goes, "one man's trash is another man's treasure."

Not only might it be the case that two people value the same thing differently, it is almost always so. Far from troubling, this is one of the most amazingly beautiful facts about humans, because this subjective valuation is what makes trade possible. When two people make a voluntarily exchange, they demonstrate that they value the things being traded in reverse order. I value what I get from you more than what I give up, while you value what you get from me more than what you give up.

Market Value is Objective

Individual valuation is indeed wholly subjective. It cannot be measured, except in order of preference. I might say that I like apples more than grapefruit, but it makes no sense to say I like it 3 more, or 7 more. However, market valuation is different than individual valuation. In a monetary economy, through the interaction of many people, each with subjective preferences, objective market prices emerge. While it makes no sense to contemplate how much an individual values something, it makes perfect sense to contemplate how the market values something.

Analyzing Hoppe on Property Rights in Value

With this in mind, let me turn now to Hoppe's piece on property rights in value. Note that Hoppe assumes in his definitions here that property must be physical, an assumption obviously I do not share. However, for the purpose of discovering the error in Hoppe's reasoning, I shall allow the assumption that property must be physical, and show that even with that assumption, Hoppe does not disprove the validity of a property right in value.

Hoppe: [P]roperty ownership means the exclusive control of a particular person over specific physical objects and spaces. Conversely, property rights invasion means the uninvited physical damage or diminution of things and territories owned by other persons. In contrast, a widely held view holds that the damage or diminution of the value (or price) of someone’s property also constitutes a punishable offense.

Hoppe is quite correct that it is a "widely held view" that there is a property right in value. The majority can be wrong, of course, but Hoppe would do well to confront the possibility that at least some in that majority have hit upon the idea that a legal system is theoretically impossible without a property right in value, as I've explained above.

Hoppe: As far as the (in)compatibility of both positions is concerned, it is easy to recognize that nearly every action of an individual can alter the value (price) of someone else’s property. For example, when person A enters the labor or the marriage market, this may change the value of B in these markets.

Stop. Did you see what Hoppe did right there? First, he frames the debate as asking whether damage to the value of property can be a punishable offense. But then, he uses entry into a labor market as his example. Did Hoppe establish that some person rightly held a property interest in the labor market? No he did not. Of course it is wrong to think that entering the labor market is a punishable offense, even though it lowers somebody else's value on that market. But the reason it is wrong is because nobody owns a property interest in the "labor market", not because it is categorically impossible to hold a property right in the value of something.

Hoppe: And when A changes his relative valuations of beer and bread, or if A himself decides to become a brewer or baker, this changes the value of the property of other brewers and bakers. According to the view that value damage constitutes a rights violation, A would be committing a punishable offense vis–vis brewers or bakers.

In the above hypothetical, A is asserting a bogus claim to property, because A has done nothing to constitute an act of homesteading that would confer a property right allowing his control over that market. But just because Hoppe cites one example in which there is no property right in value, does not mean there can never be a property right in value. One could just as easily construct a hypothetical in which A asserts a bogus claim to physical property.

Hoppe proceeds to discuss remedies, and finally drops the bombshell:

Hoppe: If A is guilty, then B and the brewers and bakers must have the right to defend themselves against A’s actions, and their defensive actions can only consist of physical invasions of A and his property. (emphasis added)

And there you have it. In Hoppe's world, money damages are impossible. And he admits it, right there. I strongly encourage Hans-Hermann Hoppe to continue forward from this point, exploring the praxeological implications of a legal system that forbids the assessment of damages based on market value. I believe he will collide headlong with the calculation problem, and quickly determine that such a system is completely non-viable.

Conclusion

Hoppe's fundamental error ought to be clear by now. His reasoning is that because some property claims in value are bogus, that all property claims in value are bogus. That's a fallacy. And it is a fallacy even assuming that property rights must only apply to physical things. Even in a world without IP, a theory finding no property right in value is fatally flawed.

That said, the argument that property must be physical is also wrong. The doctrine of Intellectual Space provides the framework to understand and apply strict libertarian principles to intangible objects. Doing so demonstrates that, like all forms of intellectual property, a property right in value is valid when it is created by an act of homesteading.

Sunday, September 29, 2013

Kinsella's Kool-Aid - The Real Reason Libertarians Oppose IP

UPDATE: Readers have pointed out some factual errors in this article, and I wish to correct them. I have indeed read Kinsella's book "Against Intellectual Property", but I have also read many of his other published articles, and had a podcast conversation with him, in addition to various email and discussion thread interactions.

My confusion arises over the use / non-use of the words "scarce" (which appears in the book) and "rivalrous" (which does not). In many subsequent writings, Kinsella uses "rivalrous" to mean what "scarce" means in the book.

As always I appreciate substantive criticism, and I do apologize for sloppy research here. However, I don't believe this is likely to change my opinion on the issues. For posterity I will leave the article and comments below as they are, now relabeled "first draft", and work on a revised version of "Kinsella's Kool-Aid".

-Alexander Baker October 4, 2013

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Kisella's Kool-Aid - First Draft

The Austro-Libertarians have given what I consider to be the correct theory of economics. In the process, they earned my respect, and they accomplished both of those things the same way: by steadfastly adhering to a consistent set of core principles, then diligently exploring all of the implications, regardless of whether the conclusions reached might be popular or not.

Sadly, on the issue of intellectual property, many libertarians, led by Stephan Kinsella, have abandoned academic rigor and principle. Instead, they repeat the basic tenets of Kinsella's attack on IP, without ever stopping to consider if Kinsella has given a defensible thesis. He hasn't.

Kinsella Doesn't Define Key Terms

Kinsella's anti-IP position is crucially founded on showing that IP is not scarce, and not rivalrous. Scarcity of physical goods gives rise to possible conflict, thus necessitating the allocation of property rights in physical things. Since IP is not scarce and not rivalrous, Kinsella argues, there is no need and no justification for IP.

However, a careful reading of Kinsella's central work "Against Intellectual Property" reveals a very troubling shortcoming: he does not define "scarce" and does not define "rivalrous". To fail to define the very terms upon which a thesis stands is inexcusable. The reason for Kinsella's subterfuge becomes clear upon studying the book. He pulls the clever, but intellectually dishonest trick of smuggling his conclusion into his premise.

Kinsella Smuggles his Conclusion Into his Premise

Consider: "Rivalrous" means that "use by one interferes with use by another". Clearly we also need to understand what "use" means. I would define use as "experiencing the value or benefit of". With these definitions in mind, we can test whether or not something is rivalrous, and thus whether it is rightful property.

But Kinsella never defines those terms explicitly, and that's where it gets sneaky. Throughout the book, Kinsella mentions that one can "use" an intellectual work without interfering with someone else's use. But what he means is that they do not interfere physically. Do you see how this works? Kinsella is implicitly including "physical" into the definition of "use", and therefore into the defintion of "rivalrous".

In context, we can conclude that Kinsella is defining "rivalrous" as "physical use by one interferes with the physical use by another". Obviously, if property requires rivalry, and rivalry must be physical, then property must be physical. Thus Kinsella assumes his conclusion. Had Kinsella defined his key terms explicitly, he could have written a very, very short book!

Why Have the Mises Scholars Endorsed Kinsella?

It's clear Kinsella wanted to attack IP, by all means possible, and he's been very successful at doing so. But the question reamins: why? After all, Kinsella himself is a patent attorney and a successful author, having earned over $1,000,000 in royalties, according to him. Why would Kinsella take such a position, and even more importantly, why would the Mises scholars embrace a theory so obviously lacking in academic rigor?

The answer, I'm afraid, is all too plain to see. The Mises scholars have long ago realized that their own intellectual property simply isn't worth very much. That is not to say it is bad. Indeed, I feel that the Austro-libertarian literature comprise the finest books ever written. But the simple fact is that books and videos on economics and philosophy are never going to sell as well as those about Harry Potter or NFL football or the Kardashians, or whatever.

The Napster Generation

The early 2000's saw the great advent of Napster and other file sharing sites, where millions of mostly young people were happily sharing songs and movies, without a care in the world for copyright violations. Then they got caught. The fight was on, as media giants began suing file-sharing sites, and even individual users. The libertarians, led by Kinsella, sensed a golden opportunity.

Since their own intellectual property is not worth very much anyway, they schemed, why not create a theory denouncing the very concept of intellectual property? This is an immensely attractive idea to the Napster generation, desperate for guilt relief about their iPod's full of pirated content. Join the libertarian movement, drink Kinsella's Kool-Aid, and you never have to feel bad about downloading ever again! Those big, bad media companies just want to use the coercive power of the state to enforce their monopoly, and destroy your freedom.

And the strategy may work out for them, I'm sad to say. Libertarianism appears to be more popular than ever, and that's a good thing, as far as it goes. But to me, libertarianism is nothing without a strict adherence to principle. If we must sacrifice principle for membership, count me out. I just don't see eye to eye with intellectual communists.

Hans-Hermann Hoppe's Cursory Statement on Intellectual Property

Dr. Hans-Hermann Hoppe has offered here what appear to be his rather cursory conclusions about IP, quoted below. It is my sincere hope that my interspersed comments will inspire Dr. Hoppe to consider the issue more deeply.

Intellectual goods are not free

Hoppe: I agree with my friend Kinsella, that the idea of intellectual property rights is not just wrong and confused but dangerous. And I have already touched upon why this is so. Ideas – recipes, formulas, statements, arguments, algorithms, theorems, melodies, patterns, rhythms, images, etc. – are certainly goods (insofar as they are good, not bad, recipes, etc.), but they are not scarce goods. Once thought and expressed, they are free, inexhaustible goods.

Intellectual objects are neither free, nor inexhaustible. Free goods, such as atmospheric air, exist naturally and arrive to humans in useful form, without needing any kind of production process. Intellectual goods, such as songs, do not exist naturally, and must first be produced by human effort, and thus are not free goods.

Hoppe says "once thought and expressed, [intellectual goods] are free . . ." This is like saying "Once a car has been manufactured, it is free . . ." One can easily pretend that something is free, if one ignores the cost of producing it. This is quite reminiscent of the socialist mindset, which loves to assume the existence of wealth, and debate how it should be distributed. It is a plain fallacy.

Intellectual goods are not inexhaustible

Intellectual goods are not "inexhaustible" in the economically relevant sense. It is true that, given sufficient expenditure of resources and labor, any number of copies of a song can be made, to meet consumer demand that may exist to listen that particular song. But the exact same thing is true of physical goods. Given sufficient expenditure of resources and labor, any amount of aluminum foil can be manufactured, because the quantity of raw aluminum in the earth's crust is, for practical purposes, infinite. Does this make aluminum foil "inexhaustible"? No.

Aluminum foil is scarce because it requires human effort and resources to produce it, not because of how much raw aluminum exists. The exact same is true of intellectual goods. Both the original creation and duplication of intangible consumer items require an expenditure of time, labor, energy and other resources. Both necessarily entail an opportunity cost, just as with physical goods. These facts render intangible goods scarce, and arise from the very nature of things, not the imposition of law by the state.

Intellectual Goods Are Rivalrous

Hoppe: I whistle a melody or write down a poem, you hear the melody or read the poem and reproduce or copy it. In doing so you have not taken anything away from me. I can whistle and write as before. In fact, the entire world can copy me and yet nothing is taken from me.

Here, Hoppe is reprising Nina Paley's claim that "copying is not theft". In Kinsella's terms, Hoppe is saying that IP is not rivalrous. But neither Paley nor Hoppe nor Kinsella have bothered to define "rivalrous" and prove what they assert. In fact, IP is rivalrous, and if I compose a melody, and you copy and distribute it, you have indeed taken something from me. To show how, let us begin with the definition of "rivalrous":

Rivalrous - having the quality such that use by one interferes with use by another

We must also consider what "use" means, and we must be very careful. If our definition of "use" contains or implies physical use, we would automatically be limiting the concept of "rivalrous" to the physical realm, which is, of course, the entire issue up for debate.

Use - to experience the value and benefit of

When I compose and record a song, my intent is to mass produce copies of the song, and sell them on the market. The original song is a producer good, like a factory, allowing for song copies to come rolling off the assembly line. My use, therefore, is not listening to the song. For me to use my song, i.e. for me to experience its value and benefit, I must sell as many copies as the market will bear. If you copy and distribute my song, you are interfering with my use. You have trespassed, and damaged me by the reduced market value of my song.

Reduction in Market Value as a Measure of Damages

Kinsella and others have responded to the above argument about market value damages. For me to hold you liable for the reduction in the market value of my song, they say, is tantamount to me having a legal claim on the money in the pockets of all those potential customers. In fact, I have no rightful claim on another person's money, nor do you, and both of us have an equal right to exploit the market by selling copies of the song, so Kinsella's argument goes.

In other words, Kinsella holds that if a reduction in market value is the measure of damages for a trespass, then the underlying property claim is invalid. This position is untenable, because a reduction in market value is precisely the measure of damages resulting from trespass to physical property, accroding to long-standing principles of Common Law.

For example, suppose you own a car that would sell for $20,000 on the market. A trespasser comes along and smashes up your car so badly that it is not worth repairing. The best you can do is sell the car as scrap metal for $500. The trespasser is liable to you for damages, and the correct measure of damages is $19,500, i.e the reduction in market value of the car.

Since market value reduction is the only available measure of the damage caused by the trespasser in this case, does this mean that the car is not valid property? Of course not. Does it mean that you, as owner of the damaged car, are asserting a bogus claim on the money in the pocket of the person you wish to sell the car to? Of course not.

Once again, Kinsella, Hoppe and the rest of the anti-IP crowd refuse to apply the logic of their argument against IP to the phsycial property we all agree is valid. I, however, insist on just such a consistent application of logic, and this is the driving force behind Intellectual Space.

A Meaningless Distraction

Hoppe: If I didn’t want anyone to copy my ideas I only have to keep them to myself and never express them.

Of course I have a right to not produce works of music, in the same way Ford has the right not to manufacture cars. This says nothing whatsoever about the property rights enjoyed by me and Ford with regard to the music and cars we do manufacture. Hoppe's statement here is simply not an argument.

Copyright is Valid, Patent is Not

Hoppe: Now imagine I had been granted a property right in my melody or poem such that I could prohibit you from copying it or demanding a royalty from you if you do. Doesn’t that imply, absurdly, that I, in turn, must pay royalties to the person (or his heirs) who invented whistling and writing, and further on to those, who invented sound-making and language, and so on?

Well, no. Hoppe here is conflating copyright and patent, as if they were the same thing. They are not. Copyright applies to finished works, while a patent applies to inventions and methods. For reasons I discuss in detail elsewhere, copyright is legitimate property, while patent is not. Thus Hoppe could claim a copyright in his melody or poem, without owing royalties to the inventor of whistling. Murray Rothbard was Hoppe's mentor, and Rothbard drew the same distinction between copyright and patent. Hoppe would do well to carefully consider Rothbard on this subject, as he has clearly done in every other area.

Logical Trickery: The Shifting Definition

Hoppe: In preventing you from or making you pay for whistling my melody or reciting my poem, I am actually made a (partial) owner of you: of your physical body, your vocal chords, your paper, your pencil, etc. because you did not use anything but your own property when you copied me.

Stop. Underlined above is the exact moment when Hoppe smuggled "physicality" into the definition of "use", just as I warned against. Hoppe says that the copier did not use anything but his own body in the act of copying, but that is begging the question. Only by assuming that the intellectual good is not property can Hoppe make that claim, and this is, of course, the very issue up for discussion. In fact, the copier did use something besides his own physical body - he used the intellectual property belonging to someone else.

As shown above, unauthorized copying is a trespass, because it reduces the market value of the good, the same way that breaking all the windows will reduce the market value of a house. Thus the copying represents the initiation of force, validating the usurpation of the copier's rights, according to libertarian principles.

Begging the Question

Hoppe: If you can no longer copy me, then, this means that I, the intellectual property owner, have expropriated you and your "real" property.

Begging the question again. If copying is not a property violation, then yes, demanding a royalty is expropriation. But if copying is a violation of legitimate property rights, then demanding a royalty is simply rent seeking, perfectly consistent with libertarianism.

All Property Rights Impose Limitations on Others

Hoppe: Which shows: intellectual property rights and real property rights are incompatible, and the promotion of intellectual property must be seen as a most dangerous attack on the idea of "real" property (in scarce goods).

All property rights impose limitations on the behavior of others. You can fire your gun, but not at me. You can chop down trees, but not my trees. You can distribute recorded music, but not my recorded music. Unless I say so. The notion that IP differs from physical property in this way is absurd. Once again, the intellectual communists want a double standard, applying a rule to IP that they are unwilling to apply to physical property.

The Mises Test of External Reality

And again, Hoppe repeats the unsupported assertion that only "real" property is scarce. I've shown above that IP is scarce, because it entails an opportunity cost to produce, to copy, and to distribute. And according to the Ludwig von Mises test of reality, intellectual objects are just as real as physical objects, because they have just as much potential for affecting the outcome of human affairs.

YouTube is Glorious

Intellectual property is not dangerous. Like all property rights, IP is necessary for society to flourish. As just one shining example of how IP enforcement leads to a brilliant and beautiful result, consider YouTube. One can visit YouTube today and choose from hundreds of millions of hours of original entertainment and education, of almost any style and substance imaginable. The explosion of human creativity and diversity on display is mind-boggling. We are all so much richer for YouTube, and I would like to express my sincere gratitude and amazement that such a thing is here.

By the way, YouTube enforces copyright.

Sunday, April 21, 2013

The Mises Test of External Reality

Do intellectual objects exist in the external world?

The nature of existence has plagued philosophers for eons. Physical matter, external to our minds, appears self-evident. We see and feel things, hear them, taste and smell them. We rely on our senses to understand the nature of reality. It is no coincidence that the word “sense” means both “a faculty by which the human body perceives an external stimulus” and also “a judgment derived by reason”, as in “that makes sense to me”. Claims that defy the senses do not make sense.

But is it enough to say that matter is self-evident? Or, as immaterialist philosophers challenge, could not our sensory perception of external reality be merely that – a perception? Is it “all in our minds?” Can we prove the existence of matter? If so, how? And crucially here, what happens if we then attempt the same proof for the existence of intellectual objects? Do intellectual object really exist outside the perception of each individual human mind?

Ludwig von Mises met and conquered the existentialist challenge with praxeology – the logic of human action.

The starting point of praxeology is a self-evident truth, the cognition of action, that is, the cognition of the fact that there is such a thing as consciously aiming at ends. [1]

The Mises Test of External Reality

A thing is real if it can condition the outcome of human events.

Humans act purposefully. To deny this would be a performative contradiction, since the act of denial is purposeful. Only humans can deny, so a denial of human action would actually represent a denial of one’s own humanity, an impossibility. It is literally undeniable that humans act purposefully. Mises then applies that fact to the question of material existence, in “Human Action”, and a section titled “The Reality of the External World”:

From the praxeological point of view it is not possible to question the real existence of matter, of physical objects and of the external world. Their reality is revealed by the fact that man is not omnipotent. There is in the world something that offers resistance to the realization of his wishes and desires. Any attempt to remove by a mere fiat what annoys him and to substitute a state of affairs that suits him better for a state of affairs that suits him less is vain. If he wants to succeed, he must proceed according to methods that are adjusted to the structure of something about which perception provides him with some information. We may define the external world as the totality of all those things and events that determine the feasibility or unfeasibility, the success or failure, of human action.[2]

Clearly, intellectual objects can meet Mises’ conception of “things” in the “external world”, because they can affect the success or failure of people’s goals. For example, consider a book about automobile repairs. The know-how contained in the book may have a major impact on whether someone can successfully replace their carburetor, or just makes a bigger mess of things. Mises continues making the case for external reality:

The much discussed question whether physical objects can or cannot be conceived as existing independently of the mind is vain. For thousands of years the minds of physicians did not perceive germs and did not divine their existence. But the success or failure of their endeavors to preserve their patients’ health and lives depended on the way germs influenced or did not influence the functioning of the patients’ bodily organs. The germs were real because they conditioned the outcome of events either by interfering or by not interfering, either by being present in or by being absent from the field.[3]

From this we can derive “The Mises Test of External Reality”. A thing is real if it can condition the outcome of human events. We ask whether the thing may interfere or not interfere with some human endeavor, depending on whether it is present in the situation or not. Note that “present” does not necessarily mean physically present. Indeed, Mises’ approach was to deliberately ignore physicality in proving the existence of the world external to the human mind.

To run the test, let’s insert the Beatles song “Hey Jude” into Mises’ example:

The much discussed question whether intellectual objects can or cannot be conceived as existing independently of the mind is vain. For thousands of years the minds of musicians did not perceive the combination of words and melody the defines the song “Hey Jude”. But the success or failure of their endeavors to entertain audiences depended on the way the music did or did not influence the emotional functioning of the listeners. “Hey Jude” is real because it conditioned the outcome of events either by interfering or by not interfering, either by being present in or by being absent from the field.

Does “Hey Jude” condition the outcome of human events? I don’t refer to any specific physical instance of Hey Jude, rather I refer to the underlying pattern of language that defines the song itself. Suppose Paul McCartney had written the song differently, with a different melody, and different words. Would the outcome have been different? Yes, the outcome would have been different.

The Beatles recorded hundreds of songs, including “Old Brown Shoe” which immediately succeeded “Hey Jude” on the original album release. “Old Brown Shoe” was not nearly successful at entertaining listeners as was “Hey Jude”. Had “Hey Jude” been more poorly written, fewer people would have recommended it to their friends, fewer radio stations would have played it, and its overall influence would have been less.

“Old Brown Shoe” had the same physical manifestation as did “Hey Jude”, because they were both embodied in the same original album. Yet something about the pattern of information in “Hey Jude” conditioned human events in a way that “Old Brown Shoe” did not. An intellectual creation has the ability to condition the outcome of human events, passes the Mises test, and therefore is a real thing.

By contracting, humans act as though IP exists

We know that intellectual objects exist because people act as though they exist. In particular, people voluntarily contract to buy and sell intellectual objects, such as movies, songs, games, and software. One may only contract with that which is one’s own property. If intellectual objects cannot be property, then we simply cannot make any sort of contract about them at all.

People voluntarily agree to buy and sell things like movies, songs, games and software. By contracting, people demonstrate their belief and understanding that the pattern of information that defines the intellectual object is rightful property. And overwhelmingly, people are satisfied with the intellectual content that they purchase.

Imagine a world in which sellers are allowed to defraud buyers about the intellectual content of their goods. This would seem to be a decidedly non-libertarian situation. When customers buy intellectual objects, we must ask what exactly it is they value. Obviously, it is the pattern of information, not the physical container.

Suppose I go online and order a DVD of the movie “Thor”. I pay the agreed price, and a few days later a DVD arrives at my house. But instead of “Thor”, it features reruns of “Gilligan’s Island”. Do I have a legitimate complaint against the company that sold me the DVD? After all, I ordered a DVD, and I got a DVD. The only difference between what I contracted for and what I received is the pattern of 1’s and 0’s encoded into the disc. In other words, the only distinction is the IP. The physical property is identical, except for the pattern. In some technical sense, the two discs could be said to be physically different, but such would be completely irrelevant to human action. The only humanly meaningful distinction between the two discs is the pattern of information encoded. My satisfaction as a customer depends entirely on the pattern of information I received, and nothing else.

In the above example, obviously, I have a legitimate complaint against the seller of the DVD. The only theoretical basis for such complaints is to assert a property right in the pattern of information stored on a disc. Only property can be the subject of contract, one cannot make contracts regarding that which one does not own.

Doesn’t IP require a physical container?

It is true but irrelevant that intellectual objects require physical containers to be delivered. A movie arrives on a DVD or Blu-Ray disc, computer software lives on your hard drive. But this does not mean that only the physical object can be owned, as the IP opponents would have it.

To demonstrate the physical differences between the two discs are completely irrelevant, let’s consider a different hypothetical. Suppose I go online and purchase a vacuum cleaner. Inside the vacuum cleaner is a motor, and on the motor is a sticker that contains information about the date of manufacture and so forth. Suppose I learn that the motor was installed on a Tuesday, but I hate Tuesdays because it reminds me of September 11.

Assuming the vacuum cleaner sucks up dirt correctly, do I have a legitimate complaint against the company that sold me the vacuum? After all, the pattern of information within the device is different than I would prefer. In some technical sense, there is a physical difference between a vacuum cleaner with “Tuesday” versus “Wednesday” on the motor label. But such is irrelevant to human action. I have contracted to buy a vacuum cleaner, and its use is to suck dirt up off my floor. I did not contract regarding the pattern of information.

Concluding remarks on the Mises test

The fundamental point of the Mises test is to consider human relevance. The same one pattern of information can be embodied on many different types of physical media. And it is the pattern, not the physical media, that matters. In this light, patterns of information must be considered real, and ownable.

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38 Comments

Dave Burns May 28, 2014, 6:02 am Reply
You have shown that information is real, that different sorts of information can be distinguished from each other, and that information is a good. You have not shown that it is rivalrous or ownable in the practical sense (as opposed to the sense in which one can create arbitrary enforcement mechanisms so that we can pretend it is ownable in the usual way).
(I think your analysis has another problem, but I’ll save that for after I see how you deal with my objection above.)
- Alexander Baker May 28, 2014, 6:33 am Reply
  The point of this particular chapter is only to show that intangible objects are real. Thank you for your feedback.
  - Dave Burns June 7, 2014, 11:15 pm Reply
    Quoting from the last sentence, “patterns of information must be considered real, and ownable.”
    You have made the case for “real.” You said nothing to support your conclusion of “ownable.”
Dave Burns June 6, 2014, 9:16 pm Reply
Hmmm, should have made a note, I forgot my additional point.
“It is true but irrelevant that intellectual objects require physical containers to be delivered. A movie arrives on a DVD or Blu-Ray disc, computer software lives on your hard drive. But this does not mean that only the physical object can be owned, as the IP opponents would have it.”
Shouldn’t you produce an argument or explanation why this is the case? Is the vacuum cleaner story supposed to help me understand why you believe this? I don’t see the connection.
Are you saying “it is real, so it can be owned?” If so, why not own ideas, math, etc.?
- Alexander Baker June 7, 2014, 12:12 am Reply
  Dave, when you quote part of an argument, leave out the rest, and claim the argument is missing, that is an intellectually dishonest tactic.
  - Dave Burns June 7, 2014, 11:05 pm Reply
    Or maybe I just don’t get it? I need help to understand how your vacuum cleaner story relates to the conclusion you want to draw. Usually I understand your point and either agree or disagree. This I just don’t understand.
  - Dave Burns June 7, 2014, 11:17 pm Reply
    And what separates songs from ideas?
  - Dave Burns June 8, 2014, 10:07 pm Reply
    “intellectually dishonest”
    Say for the sake of argument that I agree and wish to mend my ways. How would you have me honestly express my confusion regarding the connection between the vacuum cleaner story and the conclusion that I quoted?
Dave Burns June 6, 2014, 9:51 pm Reply
Imagine a scenario. A tells B, “come to my backyard to see the unicorn I have there.” B deduces that A is crazy or has evil intent, and refuses. Has the unicorn conditioned the outcome?
I am trying to understand better what it means to condition the outcome of human events.
- Alexander Baker June 6, 2014, 10:06 pm Reply
  The unicorn is not real, the story about the unicorn is real.
Dave Burns June 7, 2014, 12:16 am Reply
Doesn’t really help me with the “conditions” language.
How about the previous questions? That which is real, can be owned?
- Alexander Baker June 8, 2014, 10:22 pm Reply
  Dave, being real is one necessary element of rightful property, but not the only one.
  Please review the definitions of intellectual space, matter, object, and property I have given them to you previously, and they describe the conditions under which intangible goods are / are not rightful property.
  http://homesteadip.liberty.me/2014/05/26/definitions-of-key-terms/
Dave Burns June 11, 2014, 12:36 am Reply
Ideas are also real. Do you believe they can be owned? Do you draw a line between ideas and songs, and if so, how?
Alexander Baker June 11, 2014, 12:41 am Reply
Intellectual matter – that which can be understood through language
Intellectual object – an ascertainable, temporally stable and bounded pattern of intellectual matter which can condition the outcome of human events
Intellectual property – a non-trivial, homesteaded rivalrous intellectual object that substantially functions as productive capacity
- Dave Burns June 12, 2014, 3:28 am Reply
  Ideas:
  “Non-trivial”, yes, at least some. Not really sure what counts as trivial here.
  “Homesteaded”, yes.
  “Rivalrous”, yes, IF we use Alexander’s approach (100% of production).
  “Intellectual object”, yes.
  “Substantially functions as productive capacity”, depends on what we mean by “substantially”?
  All production requires the use of numerous ideas. Maybe Alexander should be paying royalties to the heirs of the guy who invented the major scale, etc. Or maybe his non-standard use of the word “rivalrous” is a problem?
  - Alexander Baker June 12, 2014, 3:35 am Reply
    “Non-Trivial” and “Substantial” require arbitrary human judgment. Precisely the same is true with physical property, as I’ve shown in #3 here:
    http://homesteadip.liberty.me/2014/05/25/the-alleged-case-agains-intellectual-property/
    - Dave Burns June 12, 2014, 7:11 pm Reply
      Doesn’t clear it up for me. Doe you believe ideas can be owned? If not, how do you separate them from songs?
      - Alexander Baker June 12, 2014, 8:07 pm
        Homesteading property (physical or intellectual) requires transforming raw matter into usefulness, with borders sufficiently clear to distinguish the object from its surroundings, and sufficiently complex so as to be non trivial.
        Asking how we separate ideas from songs is like asking how we separate “iron” from “a bicycle factory made of iron”. There is no end to the amount of raw material ( iron or language). By taking the raw material and transforming it into a useful good ( a factory or a song) one has homesteaded, and is the rightful owner of the object created, and rightly made exclude others from its use.
Dave Burns June 12, 2014, 8:52 pm Reply
“Homesteading property (physical or intellectual) requires[...]”
Are you saying ideas are all trivial? Or have unclear borders? Can’t ideas be homesteaded?
“Asking how we separate ideas from songs is like asking how we separate “iron” from “a bicycle factory made of iron”. ”
Okay, so how do we separate “iron” from “a bicycle factory made of iron?”
Why is an idea raw material and not a producer good? Even so, raw materials are also property and can be owned. Ore in the ground can be owned. The factory producer must own the iron used to construct the factory. Why is this analogy more apt that say, a ton of iron and a bicycle factory made of iron?
“There is no end to the amount of raw material ( iron or language).”
Not sure how this is relevant.
“By taking the raw material and transforming it into a useful good ( a factory or a song) one has homesteaded, and is the rightful owner of the object created, and rightly made exclude others from its use.”
Why would this not apply when the resulting useful good is an idea? Ideas are not useful? They are not goods?
- Alexander Baker June 12, 2014, 8:57 pm Reply
  Honestly Dave, you’re pretending to not know the difference between iron lying dormant in a hillside, versus iron that has been transformed into a factory.
  Either you’re trolling, or unintelligent. Either way . . .
Dave Burns June 12, 2014, 10:54 pm Reply
Forgive me for failing to make myself clear. I didn’t say there was no difference, I just want you to state the difference in a way that makes the analogy work. You say ideas should not be owned but songs should. I asked why, you gave this analogy which actually does not work. We are talking about ownership. Iron ore can be owned. Iron can be owned. Factories made of iron can be owned. Songs can be owned. Ideas cannot be owned. Please explain.
Alexander Baker June 12, 2014, 11:14 pm Reply
There is iron in a hillside. There is iron at the center of the earth. There is iron on mars. There is iron on some planet in a galaxy 100,000 light years away. There is an infinite amount of iron in existence. Truly infinite. And it is unowned. Iron only becomes owned when it is transformed from raw matter into usefulness.
Individual words and ideas cannot be owned because they are trivial, as I’ve explained. Similarly, some specks of dirt on the bottom of your shoe cannot be owned. They are trivial.
At what point does an object (physical or intellectual) become sufficiently useful enough to warrant property rights? It’s a great question, and applies equally to all forms of property.
Dave Burns June 13, 2014, 1:21 am Reply
“Iron only becomes owned when it is transformed from raw matter into usefulness.”
The current system assigns ownership of mineral rights before the ore is mined, before anyone knows whether there is anything there or not.
So, what was your point? That ideas are like the infinite iron in existence which you claim is unowned? What about the ideas that have been written down and used to build things or make new ideas or accomplish things or predict things or argue against things? Are you saying that the ideas in Mises’ Human Action, that you used to develop your test, have not been homesteaded?
“Individual words and ideas cannot be owned because they are trivial, as I’ve explained.”
I must’ve missed it. Hmmm, quick google search turns up nothing, a few uses of “non-trivial”. Maybe you can provide a link?
“At what point does an object (physical or intellectual) become sufficiently useful enough to warrant property rights? It’s a great question, and applies equally to all forms of property.”
So calculus is too trivial, unimportant, and useless to bother with, but your songs are not? Geometry? Addition and subtraction? Evolution? The big bang? {brain explodes}
Alexander Baker June 13, 2014, 1:53 am Reply
Calculus is raw matter. The English language is raw matter. Iron is raw matter. Aluminum is raw mater. The moon is raw matter. The concepts conveyed in “Human Action” are raw matter.
The exact pattern of information that comprises the words of “Human Action” is a homesteaded producer good. Do you see the difference? I can express concepts and ideas about love and forgiveness in a song. Those ideas and concepts are not copyrightable. The exact pattern of words and notes in my song is copyrightable.
You can discuss “Human Action” in your own words. You can write your own book about praxeology. But you can’t copy “Human Action” without permission.
I certainly don’t support statism, but our current system demonstrates that we can make these distinctions. Not perfectly, but well enough. I’m quite sure the free market could do a better job.
- Dave Burns June 13, 2014, 7:55 am Reply
  “The exact pattern of words and notes in my song is copyrightable.”
  It can’t be quite as clear-cut as this, or Harrison would never have lost the “My Sweet Lord/He’s so Fine” lawsuit. You’re not going to let me off the hook if I change only one word, or even all of them, if the music is still recognizable. Do you cut samplers and mash-up artists slack if they use only a part of your pattern and combine it with new patterns?
  Is a novel that steals the plot of a previous book plagiarism only if it contains perfectly quoted passages?
  Mathematical theorems are often published as exact patterns. Then a new theorem may apply an old theorem as a single step. That step is an abbreviation of the full pattern. In effect, the new theorem contains all of the old theorem, all those steps are required and would have needed to be developed independently if the old theorem did not already exist.
  “The concepts conveyed in “Human Action” are raw matter. The exact pattern of information that comprises the words of “Human Action” is a homesteaded producer good. Do you see the difference?”
  I see, but does it make sense? I can take the “raw matter” of Mises’s book and make my own, without violating copyright. How much more did Harrison need to change “He’s so Fine” to cross the line to safety?
Alexander Baker June 13, 2014, 3:26 pm Reply
Dave, you are absolutely correct. Drawing property lines in intellectual space requires arbitrary judgments. So does drawing property lines in physical space.
For just 2 of many examples, look up “Easement” and “Adverse Possession”.
After how many days (weeks, years) does trespassing establish an easement?
Adverse possession must be “open and notorious”. What does that mean?
Can land be abandoned, thus returning to un-owned status? How much time constitutes abandoned? What constitutes “use” of the land anyway?
How much land is allowable for a “setback”? 5 feet? 500 feet? 500 miles?
How deep to land rights go? 5 feet? To the center of the earth?
Etc, etc, etc, etc, etc, etc, etc
- Dave Burns June 13, 2014, 8:11 pm Reply
  But what is the model that the arbitrary judgements are patching up? It sounds indistinguishable from a sort of platonic realm of ideas, where a song or a novel or whatever is a point in idea space, which can be projected into copyrightable pattern space in many different ways (arrangements, notations, formats, media, etc.) But then there is no difference between me using a sample from your song in my mashup and a mathematician using one of Euclid’s theorems or Rorty riffing on Foucault. Copyright deals with the pattern, but a totally different pattern can infringe. It is the object in idea space that is the same.
  - Alexander Baker June 13, 2014, 8:42 pm Reply
    A “totally different pattern” does not infringe. When you sample my song, then mix you own material in, my exact pattern is contained within the emerging pattern. The infringement only involves the use of my pattern.
    The analogy is building a new structure, partly on your own land, but partly on my land.
    Not that it matters, but we don’t actually know how many spatial dimensions exist. Our current best guess is 10 (see string theory).
    - Dave Burns June 13, 2014, 11:58 pm Reply
      ‘A “totally different pattern” does not infringe. ‘
      What counts as the pattern? I could take an MP3 of your song, play it, record the playback, make a new MP3 with bad quality, but still it would be identifiable as your song, so a violation of copyright. But none of the digital encoding in the files will match. Or is that not the pattern that is copyrighted? Is the pattern something I can see, or does it also exist only in intellectual space?
      Hard to think of how to do this with a novel. If I went through and paraphrased every sentence in the book, changed Harry Potter to Barry Hotter, and Hogwarts to Warthogs, would it infringe or not? Some authors threaten lawsuits against fan authors who appropriate characters or settings. Hmmm…
      - Alexander Baker June 14, 2014, 12:22 am
        What counts as the bicycle? I could take a bicycle of yours, ride it, bend up the frame, file off the serial numbers, but still it would be identifiable as your bike, so a violation property laws. But none of the serial numbers will match. Or is that not the bicycle that is owned? Is the bicycle something I can understand, or does it also exist only in physcial space?
      - Dave Burns June 14, 2014, 8:33 am
        Maybe I’m being unclear again. The bad copy of the song infringes the copyright. But where is the pattern? Because it infringes, it must have the same pattern. But the MP3 encoding is unrecognizable, so that is not the pattern. How do we find it?
        You didn’t like the idea of considering an MP3 as a method for reproducing the sound of a performance of a song. But maybe it works better? Instead of copyrighting the MP3 file, you copyright the sound waves produced by the MP3 file? Maybe a frequency analysis of the two recordings would reveal the similarity our minds detect. Of course, that wouldn’t be true for a new recording of a different performance of the song with a different arrangement, though it would still infringe.
      - Alexander Baker June 14, 2014, 2:35 pm
        Dave, you’re now asking what types of evidence support a legal finding in a property dispute. The answer includes, but is not limited to, expert testimony.
        Suppose a construction company built a structure and sold it to you, with the understanding that it is engineered to be earthquake resistant. A 5.4 magnitude earthquake occurs 40 miles away, and the structure sustains $100,000 worth of damage. Who is liable for that repair, you or the construction company?
        You question whether the structure was or was not built according to specs. Your X-Ray analysis shows a fracture along the 15XJN beam of 5.4 centimeters, and your expert says this proves poor design.
        The construction company does ultrasound analysis and shows something else. Their expert says the building was designed well.
        OK? We have the same kinds of technical problems with physical property.
      - Dave Burns June 15, 2014, 5:12 am
        I’m trying to understand intellectual space, not that other stuff.
        The thing that gets copyrighted is a physical object, an MP3, or sheet music, a CD, something like that. The encoding on that physical object identifies one or more objects in intellectual space, depending on whether it infringes or uses samples or whatever. Any physical instance of the song is a projection of the song from intellectual space into real space. Given a song in real space, we can project back into intellectual space and identify the song, songs, or song fragments that it represents.
        But the dimensions are still a problem. We could normalize tempo and key, things like that, so that the same song played in a different key and tempo still maps to the same shape. Hm, if I play your song backwards, is that the same shape in intellectual space? Or if I divide it up into time slices and randomize the play order? Should that map to the same shape? Listening to the performance would definitely be a different experience, some ints lost and new things added. So intersecting but not identical.
Dave Burns June 13, 2014, 7:47 pm Reply
Real space has a limited number of dimensions, and they are all deterministically correlated, so it makes sense to talk about a point in space, or a sphere, and moving from point to point, defining boundaries between areas, and an object occupying space. If I make a mash-up or use sampling, I can trespass on 17 different properties in 17 widely separated locations in intellectual space at the same time. At the same time, I have homesteaded (though illegitimately perhaps) a new region of intellectual space. The intellectual space analogy just doesn’t hold up. It is incoherent, forced, works only for easy cases.
- Alexander Baker June 13, 2014, 10:46 pm Reply
  Intellectual space has a limited number of dimensions, and they are all deterministically correlated, so it makes sense to talk about a point in intellectual space, or a sphere, and moving from point to point, defining boundaries between areas, and an object occupying space. If my agents trespass or build structures on others land, I (through my agents) can trespass on 17 different properties in 17 widely separated locations in physical space at the same time. At the same time, I have homesteaded (though illegitimately perhaps) a new structure in physical space.
  The intellectual space analogy thus does hold up, as I’ve demonstrated by editing your hypothetical. It is coherent, well thought out, and works well in theory, as well as the real world.
  Next.
  - Dave Burns June 14, 2014, 12:06 am Reply
    Maybe I don’t understand. Are you just saying intellectual space is not continuous? Or diminesionless? How can a single object occupy 17 different places, and not occupy the space in between the 17?
    - Alexander Baker June 14, 2014, 12:37 am Reply
      My song exists at a unique location in intellectual space. Visualize it as 3D space, because that is humanly relevant (all that matters). 17 people can trespass on my property, if they are disrespectful and cruel enough to do so.
Dave Burns June 15, 2014, 5:20 am Reply
The first to project a song from intellectual space to real space is the homesteader. Others who follow without permission are trespassers, Those who project a song using all or part of the homesteaded song with permission are guests or tenants. Okay, that works.