Al and Ben, malfeasance, destruction

August 29, 2009

I only wish I could call the actions of Al and Ben simply malfeasance.  It is far worse when you examine what a disaster they have wrought.

First, let me explain what the following graphs will demonstrate.  The data comes form the BEA website, NIPA table 5.1.

There are two sets of data are of particular interest: line 13 – Consumption of Fixed Capital and line 22 – Gross Private Domestic Investment.  What is it about those two sets?

The first set indicates what accountants call depreciation, and is an important measurement for businesses.  (Sadly, it is also necessary for tax purposes as leviathan is hungry.) So, it would be the amount by which the capital stock declines.  Now, that doesn’t imply total loss, or even any in practical terms, as machines might very well be fully working and well within their serviceable life.  But it does indicate diminished productive capacity.

The second set would be private investment, which directly corresponds to the capital stock.  This measure includes both replenishment (for depreciation) and new capital expenditures.  Counting only the latter is called net investment, but for this examination, replenishment and new are both required.

Austrian economists stress the vital role of capital stock, and how only real savings and real investment facilitate real growth and real prosperity.   (As such, Austrian economists know you cannot borrow and spend, or worse, print and spend, your way to prosperity.)  Capital stock, in a modern economy is very diverse, differentiated, and integrated in a myriad of complex ways.

As Hayek wrote in his Theory of Pure Capital

The problems that are raised by any attempt to analyse the dynamics of production are mainly problems connected with the inter-relationships between the different parts of the elaborate structure of productive equipment which man has built to serve his needs. But all the essential differences between these parts were obscured by the general endeavour to subsume them under one comprehensive definition of the stock of capital. The fact that this stock of capital is not an amorphous mass but possesses a definite structure, that it is organised in a definite way, and that its composition of essentially different items is much more important than its aggregate” quantity”, was systematically disregarded. Nor did it help much further when it was occasionally emphasised that capital was an “integrated organic conception” so long as such hints were not followed up by a careful analysis of the way in which the different parts were made to fit together.

Thus, it is vital, if we are to accurately measure a nation’s true economic health and well being, to examine the capital stock and investment.  So, what do these numbers mean together?

Basically, if capital consumption is what value is lost, then gross private investment ought to be what value is replaced and created.  Let’s look at the graphs (click to enlarge):

The first graph (top left) compares capital consumption versus private investment since 1990, quarterly.

The recessions are clearly obvious, the declines in private investment.  This of course corresponds to the readjustment process, the clearing of bad investments.  We also know that in particular, the 2000-1 recession was a bursting of the tech bubble (we have Al Greenspan to thank for that) and that the soft landing was certainly anything but.  However, note that even during the last two recessions, the capital stock actually increased.  Even though investment slowed, firms still managed to replenish AND expand productive capacity.  Any wonder that both decades, the 90’s and the 00’s saw tremendous economic growth.

No, much of wasn’t real, as we’re seeing only too clearly now.  But what is so obvious is that right now, in 2009, we are consuming capital at a greater rate than were replacing it.  In other words, we are truly destroying wealth.  We are currently poorer than we were a year ago.  And we are poorer now than we were five years ago.

Perhaps all those recent youtube videos of C4C destruction are metaphors for the economy as a whole.

The second graph shows the ratio or percentage of consumption to investment.  For the entire period until 2009, investment was at worst, 10% greater than consumption, and usually was much higher.  For us to return to a period of real economic growth, we will need to be somewhere at a minimum of 20% of greater investment than consumption.  (Again, this is consumption of capital, the loss of capital stock.  Not that silly consumption nonsense Keynesians are all gaga over.)

The first graph shows us relative values, the second shows us the necessary requirements for economic growth.  Our current situation is quite scary indeed.

So, I figured that the period of inquiry had to be different than previous decades.  Certainly, Al “soft landing”* Greenspan was right when he described it as the “new economy”.  Certainly that previous period had to be different.

Nope.  Not at all.  Not a bit of difference.

So, for the first time in 40 years, we have actually consumed more capital than we’ve created.  For the first time in 40 years, we are poorer than the previous year.  For the first time in 40 years, we have destroyed capital and impoverished ourselves.  And unless that little pink line in the top left does a sharp turn upwards, we’re only going to be getting poorer.

Alan Greenspan’s money policies brought us the tech bubble in the 1990’s.  When it burst, he flooded the economy with money in order to prevent a rough landing.  Didn’t happen.  So, he flooded the economy with money again and brought us the housing bubble.  Just months before the bursting of that bubble, he assured us everything was fine.  Not even close.

Ben Bernanke came onto the scene and promised us he’d not replay the mistakes that brought us the Depression.  He has purchased upwards of $1 trillion in “toxic assets”, has montetarized the stimulus, flooded the banks with so much credit they are sitting on several hundred billion in reserves, and promised dear leader that he will monetarize the coming multi-trillion dollar deficits.

He’s printing money at such an accelerated clip that the DC printer’s union is planning on going on strike due to overworking.


The Austrian School of economics stresses the importance of the investment and savings, and how they rely heavily on the interest rate (i.e. the price of money) to coordinate.  As savers increase or decrease their savings, this affects the interest rate which sends vital signals to investors, not just where, but what time frame, to invest.  For example, greater savings puts downward pressure on interest rates: this means that longer term projects are cheaper AND savers are more future oriented.  Thus, the ideal is to time the stages of production to meet the consumers’ demand preferences.

Austrian Business Cycle Theory is clear when it comes to savings and investment and the money supply.  In fact, not only is it clear, but it is so precisely accurate in explaining the problems that arise due to artificial monetary and interest rate manipulations.  Interference in the signals and pricing mechanisms distorts the markets and causes not only misallocated resources, but even worse, mistimed allocations.

Thus, the booms are driven by artificially low interest rates instead of real savings, which tell investors to “go long”.  They borrow and invest in longer term projects, in lower stages of production, with the assumption that consumers will have the funds to available for purchase at a later date.  Thus, resources which should have gone to higher stages of production don’t.  And, as this makes the investment cheaper than it otherwise would be, those resources are misallocated into ventures that the market does not desire.  Unfortunately, this revelation comes much later in the future.  The longer, the more painful.

This was ever so evident in the recent housing bubble.  In fact, once again, here’s the graph that tells the tale:

res_v_nonresThis is the graph of non-residential to residential investment.  See that oddly peculiar “bubble” beginning around 2001?  That huge burst of residential investment not only was unsupported by real savings, but came at the expense of real wealth producing capital.  And we wonder why we’re consuming capital?

The bust comes as all the wasted, misallocated investment must be liquidated.

This bubble, the bursting, the great pain we’re suffering, and even worse, the terrible consumption of our capital stock is the direct result of the gross distortions of the money supply and interest rate.

It would be bad enough if we were to only find new avenues for the malinvestment.  It would be bad enough if we only had to liquidate.  But it has been far worse and just when you think the worst is passed, wait until the loan resets come.  Then wait until the commercial real estate market collapses.  We haven’t even begun to see the worst.

The real problem is that we are siting on literally a million or more homes, and who knows how many accompanying shopping malls, that cannot simply be liquidated.  And, they represent not only malinvestment, but perhaps the worst sort of the kind: non-productive.

That a newly constructed home was intended to sell for say $500,000 and sells at auction for $150,000 is irrelevant.  It has no productive capacity and its resources cannot go into other uses.  It sits there and added, nor will it add, anything to the economy.  (Well, other than lower property taxes!!)

And, if that wasn’t enough, we’ve seen the closing of stores such as Circuit City and Linens and Things.  Examining most of the failed businesses and we’ll see that they revolved around the artificial credit driven housing bubble.  All this waste, and the destruction that followed, the seen and the unseen, all flowed from the same tap: federal reserve monetary creation.

And the worst is still yet to come. [end update]  The inflation (The term inflation is used here in the general sense.  What Austrian economics correctly teaches is that rising prices are the result of inflation, which is the artificial increasing of the money supply.  ) that will be coming will be even far more destructive.  The malfeasance of the Fed and its current and former chairmen, the Shermanesque path of destruction, the current impoverishing, is only now being brought to light.

It ought really be asked:  Under what authority does the government have to destroy one’s wealth?  And if it doesn’t, which it surely cannot be proven to have, then it is abundantly clear that our current regime is operating in violation of its most sacred covenants: protection of property and liberty.

Nothing more clearly illustrates the immense folly and danger of pursing Keynesianism.  Not only can we not spend our way to prosperity, we will only spend our way to poverty.  Worse, we are printing our way to impending financial disaster.

*As for soft landings:

I am not a pilot, nor have I ever taken flying lessons.  Although, I did spend considerable time playing flight sims on the computer!!  Anyways, in reality, planes do not “land” as in the manner of a bird.  What planes basically do is gently crash.

Planes fly based on Bernoulli’s principle, about pressure and air flow, and what not.  As a plane flies, wind passes over the top of a wing at a faster speed than below.  Thus the higher pressure below pushes upwards on the wing towards the lower pressure above the wing.  (or something pretty much like that.)  When a plane flies it requires enough speed to produce sufficient lift to overcome gravity.

It’s the same as opening your car window at 65 mph when you’re smoking.  Smoke actually goes out the window.  It’s also how carburetors work as well as old perfume bottles.  I’m sure there are other things, but that’s enough to suffice.

Anyways, when a plane lands, it extends the leading edges and rear flaps, thus enlarging the wing surface and increasing lift.  This allows the pilot to slow the plane down as it requires less speed to maintain lift.  However, there is a trade-off between lift and speed.  Less lift requires more speed, but less lift facilitates greater speed.

In preparation for landing, the pilot increases lift and decreases speed.  This is a delicate balance as the plane is in actuality slowly falling out of the sky.  If anyone has ever flown, they will know that at no time does the nose of the airplane actually point downwards.  (by the way, if the nose of your airplane ever does point downwards, time to pray!!)  In fact, when a plane lands, the nose is actually pointed upwards.

What is happening, is that a series of finely controlled and measurable mechanisms are being manipulated in such a precise manner as to present the plane in such a glide path that its fall coincides with the touchdown spot on a runway.  In other words, it is a (very) controlled crash.  It must also be what is perhaps the greatest of reasons for the phrase “ignorance is bliss”.  If all air travelers really knew exactly what landing an airplane really meant…

But, notice the necessary conditions: finely controlled and measurable mechanisms, precise manipulations, etc.  The economy is nothing of the sort.  For anyone who thinks such, it would be nice just to call them foolish.  But when the policy makers in DC, both fiscally and (especially) monetarily, try landing the economic airplane, it’s going to be a disaster.

That is precisely the Keynesian mindset which led us to this crisis and just digs us deeper and deeper into the pit.  You could no more create a soft landing with the economy then Al Greenspan could have flapped his arms and flown.  Actually he’d have better chance overcoming the law of gravity than the laws of supply and demand.


Another chapter in Keynesian destructonomics

August 26, 2009

One of the serious problems with Keynesian “stimulus” spending, is that it sends the entirely wrong signals to businesses.  Case in point:

Gleeful automakers are reacting to the cash-for-clunkers-driven spike in car demand with increased production plans for the third and fourth quarters.

That comes even as one leading industry researcher says the rebate program’s appeal is waning and there are few signs a broad recovery has begun.

If automakers are premature in their plans they will end up in a cycle seen many times before: ramping up production and leaving dealers with lots of inventory that then requires profit-killing rebates to unload.

The recession, what Austrian economics teaches us is liquidation phase, the actual real recovery, is when the mainvestments and bad decisions get cleared, freeing resources to more productive ventures.  Right now, after all the years of disastrous monetary and fiscal policy which brought on this crisis, the solution is sadly more disastrous monetary and fiscal policy.

This is a perfect example, one which I’ve often tried to explain.

First, there is no such thing as lack of demand.  The simple truth is that demand is unlimited.  That is the entire concept of scarcity (which unless you win a nobel prize and write for the NY Times) exists everywhere, always.  It is the simple and unavoidable condition of unlimited wants versus limited resources.  In fact, what Keynesians would call insufficient demand is in reality insufficient demand at the current price.  This is an extremely important difference.

Of course, that boondoggle of C4C spurred new car purchases.  In essence, the price was lower.  And, cars happen to be an elastic item, i.e. very price sensitive.  So, a $4500 reduction in price, which on a $25,000 car is almost 20% off, would result in a greater than 20% increase in sales.  Don’t know exactly how many more cars have been sold than otherwise would have.  But the program ran out of cash far sooner than expected and had need more than twice the original amount in additional funds.  $1 billion quickly evaporated and another $2 billion was needed.  Hmmm..shocking indeed.

During a liquidation period, firms must lower prices to clear out unsold inventories.  Disastrous policies such as C4C, don’t require them to do so.  They can’t know (although in one sense, a C4C trade in should have tipped them off) whether the new purchase was due to “stimulus” money or a normal consumer purchase.  Thus, the artificial signal is sent, the producer is rewarded for bad decision, and worse, continues to make the bad decisions.

It is destructive in that those resources which should have gone towards newer, better uses will be directed towards the current, poorer ones.  Another broken window.  Well, actually two.  The trade-ins are set for destruction.

Topping off all this is that this program simply encourages people to take on more debt.  So, the solution to a debt driven bubble that burst is…more debt.

What Constitution

August 22, 2009


President Obama has called for a serious and reasoned debate about his plans to overhaul the health-care system. Any such debate must include the question of whether it is constitutional for the federal government to adopt and implement the president’s proposals. Consider one element known as the “individual mandate,” which would require every American to have health insurance, if not through an employer then by individual purchase…

The Constitution assigns only limited, enumerated powers to Congress and none, including the power to regulate interstate commerce or to impose taxes, would support a federal mandate requiring anyone who is otherwise without health insurance to buy it.

Of course, these constitutional impediments can be avoided if Congress is willing to raise corporate and/or income taxes enough to fund fully a new national health system.

Here’s the best part, what I have been saying for a long time.

This requirement would particularly affect young adults, who often choose to save the expense and go without coverage. Without the young to subsidize the old, a comprehensive national health system will not work.

First, the vast majority of what congress does is unconstitutional, federal jurisprudence notwithstanding.  Force and coercion are mainstays of pretty much everything the government does: taxation, spending, regulation, and a whole host of other measures designed to radically alter the free, voluntary transactions between free citizens.  Even worse are the subtle yet omnipotent actions like the CRA which created massive new “demand” for homes among millions incapable of paying for them.  And if that’s not enough, when did Congress decide it cold create a monopolist in control of the money supply?

The fact that this too would fail to meet constitutional muster is a trifling concern.  Name one administration, republican or democrat, that didn’t treat the constitutional like a checkout counter tabloid.  You look at it, laugh at the headlines, and move on.

But at least the authors got their economics right: our current health care system is based on theft.  Until a pure free market in heath care exists, one that is based solely on a price system, where consumers pay producers for their goods and services, where the forces of scarcity, supply and demand, guide all decisions, then we’ll just dig ourselves deeper into a health abyss.

We haven’t had a constitution in at least a century.  The piece of paper might exist.  The words are still there.  But beyond that, they haven’t taken their oaths of office too seriously for a long, long time.

Leviathan…if only

August 22, 2009

This is truly indescribable.  The feds are going to go after garage sales for selling recalled toys.  It will particularly effect Goodwill and the Salvation Army.  Of course, why would we ever want the needy to look towards private charity.

Gibbons said the nonprofit group was accustomed to inspectors from the Consumer Product Safety Commission making unannounced visits to its stores.

Scott Wolfson, a spokesman for the agency, said it wouldn’t be dispatching bureaucratic storm troopers into private homes to see whether people were selling recalled products from their garages, yards or churches.

“We’re not looking to come across as being heavy-handed,” he said. “We want to make sure that everybody knows what the rules of engagement are to help spur greater compliance, so that enforcement becomes less of an issue. But we’re still going to enforce.”

Got it.  We won’t send in the stormtroopers.  Yet.  Just comply and all will be well. See, it is all “for the children”.

There’s a word for this: totalitarian.

Actually, sometimes there are no words for this.  It transcends everything you could even imagine.  Of course, with this current group in DC, dear leader at the helm, leviathan will be an understatement.

Why I went there

August 22, 2009

In response to my last post.  Gee, someone actually visited here.  Maybe somebody flagged me for “fishy” or whatever.  When guys in dark suits visit, then I’ll worry.

So, this was the (yeah, as in singular) comment.

So…are you suggesting that rationing care based on wealth (the system we have now) would be better than need (the system being debated)?

And to imply that the current system is based on an individual’s best interest is folly, unless that individual is the CEO of a private insurance conglomerate.

Furthermore, your example of an organ transplant indicates that you know very little of current organ policy or the mechanisms through which that is changed.

I have written many times here about the problems with health care.  Rather than go back and requote myself, I’ll leave it as an exercise to the reader’s curiosity (as well as add to my visit counts!!).

Let’s look at each each part:

Ration based on wealth rather than need.

First, everything is rationed, period.  That’s the result of things being scarce.  Econ 101.  We don’t ration on “wealth” but on price.  There’s a huge difference.

Now, the cost of medical care will be more for me than someone of much greater means, even if the price is the same.  This means simply that if I spend $1000 on health care, and my income is $50,000, it constitutes a bigger share of my income than my income was $100,000.  Thus, I would be giving up more, and must ration my other purchases more.

The problem with rationing on need, is we haven’t any idea how to determine “need”.  It is an arbitrary and capricious standard, one for which no objective or measurable unit exists, nor could exist.  With a purely price based system, we can then truly know (in fact it’s the only way to know) individual preferences.  Mises wrote about this in Human Action.  I quoted the relevant selection a few posts back.  Take a look.

Now, say one can’t afford to purchase the particular service but another can.  By what power hath the state authority to prevent one from purchasing something they can afford, yet force the very same person to purchase it for another?

And, we in fact do ration, well pretty much everything, according to price.  It is why I haven’t a Porsche.  Or an Accurate fishing reel.  Though I can’t in any sense afford a Porsche, I actually could an Accurate fishing reel.  However, there are other, higher priority items that I purchase in lieu of the fishing reel.

Of the X million “uninsured”, are many who simply choose not to be insured.  But please keep in mind, that despite being “uninsured”, many millions of people are treated.  The “cost” is shifted to those with insurance by higher premiums, deductibles, and co-pays, not to mention higher prices for all the various and sundry medical purchases.

Also, as the government currently spends 46 cents out of every health care dollar, they do dominate the market.  And, through medi -care, -caid, -cal, et al., it pays vastly under the market price.  In fact, many doctors refuse to take medi-whatever anymore.

Insurance CEO’s best interest

Of course, demagoguery, the favorite pastime of the left!!

Insurance is actually the problem in as much as someone other than the consumer is paying.  And insurance is the problem in as much as the consumer and producer are both dealing with a third party whose “cost” is entirely different than the doctor’s or patient’s.

Insurance by its definition is something you don’t plan to use, such as auto insurance.  It is simply there “just in case”.  But, when you DO plan on using “insurance”, it isn’t.  What we have created is a terrible market distortion, whereby many people pay into a “pool” (I already posted why pooling is theft.  ought to check it out too.) and some gain while some lose.  In no other good or service do we do such foolish and diseconomic actions.

Of course the CEO of an insurance company must act in his best interest, he has absolute incentive to: he’s paying.  Were the consumer paying the producer’s price, then the entire situation would be different.  Why do we expect someone else to pay for our health care, then get furious when they balk at times?

The problem is that we don’t ration, or think we have to, health care the same as any other item.  If we were to have insurance, instead of a purely pay-for-service, like, um, everything else, then it ought to be entirely one of insurance company selling to the individual.  Why do we believe our employers are more qualified to provide for our health care needs than we are?

Organ Transplants

No, I’m not familiar with the entire process.  I understand that it is not based on price rationing, but a waiting list.  (I do remember several years ago when Mickey Mantle got a liver transplant, all the ruckus it created.)  Ironically, waiting lists are entirely a form of rationing.  It does save someone (directly that is) from basically sentencing someone to death, but no matter.

But, the specifics of organ transplants, or any surgery, or any procedure for that matter, are irrelevant.  The simple fact is that as the single payer (I know, the administration isn’t proposing single payer.  And the earth is flat.  Public option will become single payer.  It’s already been demonstrated, that’s the backdoor plan.  Sure, you can “keep your current plan”, but not if your employer no longer offers it.  See above.), what is known in microeconomics as a monopsony, they will decide entirely what they will and won’t pay for.


And before they decide to spend the money, they will most certainly have to make the cost/benefit analysis that all decision makers must.


Interestingly enough, they have waiting lists for all sorts of procedures in Canada, UK, et al.  There’s no other way.  So, someone has to be making the decision, and yes, there are many factors.  However, the administration, ah hell, dear leader himself, has already said we need to consider just how necessary every procedure is on granny.  And yes, he did, his circumlocutions not achieving their intended effect.

The bottom line is we have anything BUT a free market in health care.  Period.  And that is exactly the problem.

But thanks for taking the time to visit and comment.  Much appreciated.

I will go there

August 21, 2009

Call them death panels or something less ominous sounding such as “end of life counseling”, it really doesn’t matter.  The absolute truth is that dear leader’s health care scheme WILL absolutely, totally, completely, and undeniably ration care.  It has no option otherwise.  Doing so would violate the most basic laws of economics, laws which are as immutable as they are sacrosanct.

But lest anyone think that it is only health care that must be rationed, it is true for ALL goods, ALL resources.  To use this space to explain the best, and only, way to effectively allocate those scarce resources is through complete freedom of the pricing mechanism in the free market would be analogous to using this space to explain gravity.

What makes this scheme so pernicious and so evil, is that it is the state that will force this rationing.  And yes, they will be forced to do so based on (since price is completely out of the equation) who most “needs” the care.  And why not?

Wouldn’t a 25 year old be more “worthy” of an organ transplant than a 65 year old?  Surely, the tax revenue that will (be stolen) come in from the younger will far more beneficial to society than the monies expended on the elderly.

So, what we’re going to see is cost/benefit decisions based purely on what is in society’s best interest, not the individual’s.  And when you do that, what do you have?

Lebensunwertes leben

Yes, I will go there.

See, you cannot do what happened there without the masses of people believing it.  They did, and it happened.  It happened precisely because they were led to believe, long before “he” came to power, eg. Hegel, Neitchse, Fichte, Treistche, et al., that this was not only right and proper, but necessary.  What “he” said was merely a recitation of, and reaffirmation of, preexisting popular will.

The uproar we are currently seeing and hearing, if for nothing else, reaffirms my deep beliefs that we are a unique people with an attachment to life, the sanctity and dignity of humanity, and respect for the individual’s worth.  Regardless our past indiscretions and failings, we are a good and just people.  Thankfully, oh so thankfully, the blood of Locke and Hume and Burke is still flowing.

That the benighted in Washington are in such opposition, and the manner in which they have lashed out against them, only serves as testament to their inhumanity.

Objectivists, anarchy, IP, libertarianism, and Galt’s Gulch

August 20, 2009

Wow, a herculean task.

Over at blog, there’s been an ongoing discussion about IP (intellectual property) and patents, and how they inhibit wealth creation and economic prosperity.

I’ll grant completely that patent holders (as in the most recent Microsoft ruling, an act of judicial tyranny.  Even though I write this on a mac, and use PC’s* only by “force” at the workplace.) spend considerable time defending their patents once granted, and squander valuable resources that could otherwise be devoted to entrepreneurial efforts.  I completely agree that open standards, such as .pdf, would not be such had it not become a royalty free standard.  (which has oddly enough been a major problem/issue with MS Word, the .doc format.  It isn’t Word per se, but the closed file format.)

I used to be a regular reader of slashdot but haven’t been for a few years.  There are a variety of reasons, some philosophical, some just of different interests.  Either way, IP has been a major recurring theme and oftentimes dominated the stories.

I have been involved with computers, both networking and programming, for some time.  I have been a linux user since the mid 1990’s, when as much as I tried to validate its desktop viability, it was so far from being such, that only the rosiest of lenses (which I proudly wore) would allow one to see it so.  Linux, if one is not aware, is a version (in a general sense) of UNIX.  It is open source, meaning the source code, i.e. computer instructions, are freely available and alterable by anyone.  It is freely redistributable and can be downloaded in many, many version, from many hundreds of thousands of websites.  (side note: I highly recommend ubuntu linux. )

Linux is licensed under the GPL, General Public License, itself a form of IP agreement.  Linux code, all GPL’d code, can be used openly, freely, but with one caveat: it must remain GPL code, and cannot be closed.

In a manner of speaking, if Microsoft is defender of IP, linux is the exact opposite: an anti-IP, if you will.  So, I am very familiar with, and have been involved with, IP issues for several years.  Though, in all fairness, this has been purely from a hobbyist/enthusiast standpoint, not as one with any real stake in the outcome.

As for Rand’s strong support of IP and the need for state protection of IP right, akin to protection of physical property rights, I believe there could be a comparison made.

This does not negate or argue against the anarchist, pure libertarian argument against IP.  Rather, I simply acknowledge, that in some instances, IP rights do have a place.  I look at it thusly.

An inventor ought to have ownership of his efforts, just as any producer has ownership of the product of their resources.  The problem, which ought be fairly obvious, is that ownership of an idea is altogether different from ownership of physical property.  All physical property is a scarce item.  An idea, once shared, doesn’t leave the originating mind upon entry into the replicator’s.  Ideas are not scarce.

Thus, property rights, a sine que non with scarce resources, are not equatable.

I recognize that there are considerable societal benefits both from protecting IP, as well equally from a lack thereof.  It could be that IP provides the inventor incentive to produce, to take risk, just as ownership of physical property does.  It could also be true that IP stifles invention just the same, that improvements to and other uses are prohibited.

The ultimate question arises, one of cost/benefit analysis.  Do the costs outweigh the benefits?  That is one for much greater scholarly research and inquiry.  Suffice to say, I’ll acknowledge the issue to be one much grayer than that of physical, scarce property.

Why then would objectivist so disdain anarchy even though Galt’s Gulch is an anarchist’s utopia?  I have a few thoughts.

First, Galt’s Gulch consisted entirely of people chosen by John Galt, who shared his views that nobody had right to claim against him, nor did he have right to claim against another.  Thus, all members of GG had were of like mind regarding the sanctity of property.  In such a society, no doubt, anarchy could and very well would, be the natural outcome.

But alas, that does not reflect the true nature of human political intercourse.  We know quite the opposite, that ochlocracy is more often the rule.  As Aristotle wrote in the Politics, it is the middle class who should govern, as they are to busy tending to their own affairs to be concerned with the affairs of others.  They were those of property, who stood to lose if either the rich or poor would rule.

In either case, the rich or the poor would rule for their own benefit.  Rand was very much influenced by Aristotle, his work on reason and logic being our most valuable tools,our only tools we had for our survival.  No doubt both would well have understood that there are inequalities inherent in mankind, and that given the chance, mankind would seek to mitigate, or outright overturn, those natural differences.

Aristotle was also a proponent of private property.  It was his teacher, Plato, who was the communal utopian.  Aristotle believed that only private property kept people from jealousies and violence.

John Locke, a profound thinker and champion of liberty, wrote in the Second Treatise that

therefore God hath certainly appointed government to restrain the partiality and violence of men. I easily grant, that civil government is the proper remedy for the inconveniences of the state of nature

I have always loved that phrase, “the inconveniences of the state of nature”.  Without question, Locke, who argues that we were of perfect equality (i.e. rights, not outcomes) and freedom (of action), knew that though true, it would not be appreciated by all members of society.

Thomas Jefferson was as influenced as any by the works of Locke.  Reading the Declaration of Independence might be referred to as reading the Cliff Notes for Locke.  In Jefferson’s first inaugural address he stated that

Still one thing more, fellow-citizens–a wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement

Certainly this indicates, at the very least, that some men might have proclivity towards injuring one another.  He also full well understood (and with good cause, for he served in the same cabinet with the American Caesar in waiting, Hamilton) that the greatest threat to liberty and property was the state.  And sadly, it would be men, using the instrument of the state, that would bring about such ruinous appurtenances.

Trying to climb into the minds of the departed, especially ones two millenia or more so, is an act of intellectual curiosity and perhaps frivolity.  To speculate how Aristotle would have argued IP is an absurd undertaking.  However, I would argue, it is a highly improbable possibility that in a state of anarchy one could expect property rights to be recognized and respected.  Thus, there would be need for an enforcement mechanism of some kind, as minimalist in nature as possible, but nonetheless needed.

Galt’s Gulch is entirely possible if such controls (limited entry, prohibitions on revelation to the outside, etc.) were in place.  Odd that Rand didn’t include that as it would certainly have altered the calculus considerably.  One could only surmise that just as the death ray (the exact name escapes me right now) that was taken over and subsequently exploded, so too would GG have been “liberated”.

Given its very limited nature, the almost scientific controls, the complete agreement and adherence to such rules, and the select members of the residents, then by default, IP would surely be unneeded in GG.  As would any state of any kind.  The problem is that such a world, in all honesty, does not exist.  It cannot exist.

The ancients knew it and the modern thinkers of the enlightenment knew it.  Today, the massive welfare state and the subsequent, widespread belief by so many that they have a right to make claims against the property of others, only reinforces such beliefs.

Certainly I do not answer the question regarding the validity of IP, but only serve to offer some thoughts as to why Rand, given her fierce support of the individual, rights, property, free markets, and the limited state, was a strong opponent of anarchy.

A final thought and I do think it is relevant to the entire theme: Stephen Kinsella refers to Atlas Shrugged.  It was Rand’s prior work, The Fountainhead, which IP was perhaps most prominent.  Howard Roark was an architect.  It was his ideas on paper, his creation and property, that were stolen and so grossly distorted in the Cortland project.  If we dispute the notion of IP, then it cannot be said that Peter Keating stole anything from Howard Roark.

Howard Roark’s genius was his mind.  He owned it, and all work form his mind could rightly be said to belong to him and him alone.  The disposition of such would be entirely of his discretion. Would he not have complete right to determine who, when, and how it was to be used?  If not, then taken to an extreme, all he thus “owned” was a piece of paper with pencil marks on it.

That sounds rather socialist to me.

Don’t know if the stables are clean. 🙂 🙂

* PC is a hardware architecture.  Many operating systems run on it, including but not limited to Windows.  PC has become synonymous with windows, but this is in error.  I do like PC’s.  They are powerful, cheap, and have multitude of peripherals.  I also choose to run linux on them when I own them.

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