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Intellectual Property

Monopoly corrupts. Absolute monopoly corrupts absolutely.





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Comparitive dreaming about imputed propertyhood and corporate personhood

Writing as Schumpeter, The Economist speculates on how far to push the idea that companies have the same rights as real people (Paywall workaround: enter the link in Google) link here. That started me off, speculating on civil rights for companies and trade unions as  court imputed rights notably lacking grounding in the constitution or in common sense. Who dreamed up the idea that companies are persons? That got me to thinking about how intellectual property in general is anchored in the constitution but it too has no physical dimensions; I can't see it or pick it up or lock it up. Therefore, intellectual property is a legal construct or attribute, also lacking in common sense.

One notable difference results; the civil rights of persons have a grounding in the constitution to the extent that personhood is clearly defined there. But it is not. A major further consequence is that personhood gets defined by the courts, hopefully applying common sense but with no guarantees.

In contrast, the constitution allows the Congress "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." No room for the courts in that until someone's rights are violated and he shows he has a substantial interest sufficient to satisfy the courts and they agree to hearing the case. Thus, changing the law pretty much requires getting the Congress to act.

Schumpeter has a lot of other interesting things to say, so read the article. Among them is a defense of the personhood of corporations which struck me as way over the top. But it is thought-provoking.

A spoon full of humor makes the medicine go down

You can see all the Nina cartoons at http://mimiandeunice.com/

How long will innovation continue in internet software?

Monopolies and the internet are the subject of articles by kdawson at Slashdot link here and Tim Wu at the Wall Street Journal link here. They note that the monopolies are innovative, but that they will not always remain so.

Actually, they are not real monopolies, but rather collectively they make up an oligopoly where the companies compete at the margins, mainly in the form of product differentiation, They are successful as long as they innovate. Why would they not continue to do so? On first thought, because they run out of innovations. But is that likely?

I don't think so. The problem here is that further innovation gets blocked by patents and copyrights so that big companies like Apple and Microsoft use their intellectual property to ward off new competitors by building an IP fence. There is competition now and it will continue so long as the industry can continue to innovate. When innovation stops, the oligopolists will be in full control and the need to do something about the industry's IP will become pressing.

Politically, it seems hard to do anything about this IP so long as innovation continues and the industry can argue it is constantly in flux. So far, the big players have been right.

Southj Korean Army applies for a patent on ithe pattern of its uniform material

Screwball uses of the patent and copyright system are occurring with increasing frequency both at home and abroad. Here is today's link here. The South Korean Army has applied for a patent on "the camouflage pattern on its newly developed combat fatigue, which would ban unauthorized use and sales of the same-patterned civilian attires and accessories. The military has been developing the new combat uniform since 2008. It will be distributed from next July to replace the current uniform within three years." The army with its political clout in the South has every reason to believe the patent will be granted.

The article suggests the reason for a patent is national security, that is to prevent "unauthorized use", say by North Koreans dressing attacking forces to confuse the southerners. I didn't think a southern law would restrain the northerners copying, if they really wanted to try to confuse an enemy, even at the risk of confusing their own side. Miracles will never cease.

"The Social Network" and Intellectual Property

The Daily Caller has an excellent article on the portrayal of intellectual property rights in the movie "The Social Network." Here's a quote:
"The Social Network" should also be celebrated for casting an intellectual property dispute as its central conflict and in doing so, chipping away at the legitimacy of modern intellectual property protections.

Inventor to Harvard to Aileron to Roche--Who wins?

Duff Wilson writing for the The New York Times link here, tells us about a deal between Roche, the Swiss drug giant, and a start-up, Aileron, which engages in research involving peptides that are "stapled" to another chemical and can be delivered right into the offending illness cells where they may deliver cures without damaging the body elsewhere a magic bullet. The gee-whiz tone of the article will sell stock and improve the chances that boards will approve the drill little different from most promotions.

What struck me, however, was that Aileron holds patent rights to the stapled technology from Harvard University and its associated Dana Farber Cancer Institute. So now creating a patent monopoly, granted according to the constitution to individuals ostensibly to encourage innovation, becomes a way to make the university richer than it already is. Harvard is the same place that lost millions from its fat endowment when its then president Larry Summers began giving directions as to how it was to be invested and guessed wrong. Aileron will get a potential minimum gain of $25 million and a maximum of $1.1 billion if Aileron's projections work out. The article doesn't tell us what Harvard gets, beyond the original patent license fee of an undisclosed amount. Or whether the original research was funded by Federal Government research grants as is common or what the individual scientists involved get. A lot seems to be missing from this story.

Lessig: Congress is broken and Obama has failed

Lawrence Lessig's name appears on our blogrole which, however, has been hibernated since August 20 last year. I can't tell whether our readers or my colleagues are aware of what he is up to. Today I came across this article in The Nation link here and this video on the internet link here and then he appeared on Bill Moyer's Journal last night (the transcript is up, but the video will appear next week) link here.

The easiest way to parse Lessig's current thinking is the four-minute video. He picks up on his disappointment with Obama who vowed to change the way business is done in Washington--and then seemed to forget his promise. Larry thinks along with many of us that Congress is broken and that the only way to change that is to limit campaign contributions. He proposes that they be funded by individuals and that they be limited to less than $100.

The most complete and eloquent account of Lessig's views is The Nation piece. Here he picks up on the recent Supreme Court decision in Citizens United v. FEC, which would make any limit on campaign contributions unconstitutional. "... the clear signal of the Roberts Court is that any reform designed to muck about with whatever wealth wants is constitutionally suspect." He despairs of getting the Congress, (that he calls the Fundraising Congress) to do anything. He proposes instead a Convention to amend the Constitution as the only possible avenue.

Here are two paragraphs from The Nation piece:

"Here a second and completely damning response walks onto the field: if money really doesn't affect results in Washington, then what could possibly explain the fundamental policy failures--relative to every comparable democracy across the world, whether liberal or conservative--of our government over the past decades? The choice (made by Democrats and Republicans alike) to leave unchecked a huge and crucially vulnerable segment of our economy, which threw the economy over a cliff when it tanked (as independent analysts again and again predicted it would). Or the choice to leave unchecked the spread of greenhouse gases. Or to leave unregulated the exploding use of antibiotics in our food supply--producing deadly strains of E. coli. Or the inability of the twenty years of "small government" Republican presidents in the past twenty-nine to reduce the size of government at all. Or... you fill in the blank. From the perspective of what the People want, or even the perspective of what the political parties say they want, the Fundraising Congress is misfiring in every dimension. That is either because Congress is filled with idiots or because Congress has a dependency on something other than principle or public policy sense. In my view, Congress is not filled with idiots."

And:

"But it is this part of the current crisis that the dark soul in me admires most. There is a brilliance to how the current fraud is sustained. Everyone inside this game recognizes that if the public saw too clearly that the driving force in Washington is campaign cash, the public might actually do something to change that. So every issue gets reframed as if it were really a question touching some deep (or not so deep) ideological question. Drug companies fund members, for example, to stop reforms that might actually test whether "me too" drugs are worth the money they cost. But the reforms get stopped by being framed as debates about "death panels" or "denying doctor choice" rather than the simple argument of cost-effectiveness that motivates the original reform. A very effective campaign succeeds in obscuring the source of conflict over major issues of reform with the pretense that it is ideology rather than campaign cash that divides us."

For those of us who want to see intellectual property law changed or eliminated, here is the reality we face: nothing will change until something sharply limits campaign contributions.

Kinsella's "Against Intellectual Property": Audiobook Version

An audiobook of my monograph Against Intellectual Property (Mises Institute, 2008; Mises Store; PDF; Scribd; HTML) has been prepared. The narrator is Jock Coats, who produced a very impressive, professional-quality product. The audiobook, about 1 hour, 54 minutes in length, is available in .mp3 format and in .m4b iTunes book format (each about 57M). The .m4b file has chapter breaks built in. It's also available in a Mises.org version and on iTunes U.

[Mises; SK]

IP and Aggression as Limits on Property Rights: How They Differ

From the comments to Reducing the Cost of IP Law (see also my post The Non-Aggression Principle as a Limit on Action, Not on Property Rights):

Russ:

"...You are (in effect) assuming that only scarce (and hence physical) entities can be "property" in order to "prove" that ideas and patterns cannot be "property"."

I agree, Stephan. In Randian terms, you are smuggling in as an assumption that which is to be proved; that only scarce goods can qualify as property. In your own terms, you're begging the question, every bit as much as you accuse others of doing.

Kerem: "How is, "IP is not valid because it infringes on the property rights of others" is an independent argument when it depends on the never proven but often assumed assertion that only scarce things can be property?"

It does not assume that ONLY scarce things are property, but it assumes that scarce things ARE property--don't we all agree on this? The one that is up for debate is property in anything else. My contention is that assigning rights in non-scarce things necessarily undermines rights in scarce things. Since we all agree with rights in scarce things, we should oppose the type of rights-inflation that undermines this.

Surda:

any theory of property restricts the way some people may act.
Let's be precise here. It is the nature of scarcity that restricts how people may act. Consider Guido Hülsmann's comments in his 1997 article Knowledge, Judgment, and the Use of Property, p. 28:
There can be no doubt that the effect of the increased scarcity of tin will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes, etc. This process is, however, not best characterized by a coordinative function of prices.

The fundamental fact of scarcity implies that not every demand for tin can be satisfied. Some people have tin whereas others do not. An increased scarcity of tin implies that some market participants who otherwise could have benefited from tin are now of necessity prevented from using it. If a quantity of tin is sold, then the seller cannot sell it again, regardless of the exchange rate. There is simply no more of this tin left. Whether the seller takes notice of this or not is immaterial. He cannot sell what is no longer in his possession. Moreover, tin does not become scarcer and then this fact can come to be known to someone and lead to adaptations. Rather it is the other way around. The very fact that demand increases means that someone already knows of a more value-productive employment of tin.

(I discuss this also at note 9 and accompanying text of my Knowledge, Calculation, Conflict, and Law.)

Now, the fact of scarcity is part of the world. It is this which limits how we can act. The fact is that if there is a scarce resource, A and B cannot both use it at the same time. If they can, there is no scarcity, and no conflict. Conflict can only arise when there is scarcity, and conflict can only be conflict over the use of scarce resources. People say there is conflict over religion, etc., say--nonsense. Religion is the reason why A wants to kill or control B's body, perhaps, but the conflict is over B's body--a scarce resource.

The only question is whether the use of scarce resources will be conflict-free or not. If there are no property rules then the use of scarce resources is precarious and people will waste time in violent struggle rather than in productive use of resources.

To avoid such conflict and permit peaceful, productive use of scarce resources, property rules can assign ownership to identifiable individuals. As I have explained in What Libertarianism Is, all political and legal systems assign property rights--someone is assigned the legal right to control each particular scarce resource. The libertarian approach is unique in that the assignment is based on a consistent desire to avoid conflict, and so we follow a Lockean type of property assignment rule--the first user of a resource has a better claim, ceteris paribus, than later claimants. Now this is not a complete argument for the libertarian case, and in a libertarian forum where we all agree with this one need not argue for it--but you can see that the very nature and purpose of any property system is to permit the conflict-free use of scarce resources, and that the libertarian approach is the one most consistent with this purpose and nature.

So: it is not a theory of property that restricts how people may act. It is the omnipresent, undeniable fact of scarcity. A theory of property permits peaceful use of resources, by prohibiting violent struggle over them, which is not productive. The only question is whether the property rules are just or not. If they are all assigned to Donald Trump or the State, then this would technically allow conflict to be avoided but at the cost of injustice. The libertarian thus favors a just rule: assigning property rights in a given scarce resource to the first appropriator thereof.

This is not a restriction on action. It permits the resource to be used peacefully, and justly.

Now even the advocates of IP, such as Silas, are too happy to admit that they don't really favor property rights in mere abstract "ideas". No, they readily admit it's only in physical instantiations of the idea. That is, they admit that what they want in their IP theories is to grant to A property rights in all the physical media (say) owned by B1, B2, ... Bn. So the real dispute is always about scarce resources. If B owns a piece of plastic (a blank DVD) then the IP advocate wants A to have some property rights in B's disk. He wants A to have a veto over B's use of B's own disk.

Now, there are many non-libertarian property rights theories--theories that undercut or are contrary to the libertarian-Lockean first-use-first-own rule. This is just one of them. It is not "circular" to point this out. It is not "circular" to be a libertarian, any more than it's "circular" to be a socialist, communist, theocrat, or IP advocate. They all advocate property assignment rules that differ from the libertarian's Lockean homesteading rule.

The attempt to analogize this to the gun shooting or murder prohibition example fails. If A is prohibited from murdering B, this is just a way of restating one application of the libertarian conception of rights: it is saying that B owns his body, and that A's actions of shooting bullets into it violate's B's rights in that scarce resource. To say A is limited in what he may do is to recognize property rights in scarce resources.

In other words, the libertarian idea is that we do not live by permission. We live by right. We may do anything we wish in life, perform any action, unless it is an unconsented-to use of another's property. In other words, unjustified interpersonal violence--conflict--is prohibited for the sake of establishing a regime where peaceful, productive use of scarce resources may occur. I can use my gun for anything one can think of: the possibilities are open ended--anything except narrow cases where it would be an act of aggression against others. But it is not as if there are 1,136 permissible things I can do with the gun, each one a "right," and 17 things I cannot do with the gun. Rather, it's as if there is an ocean of liberty--open-ended, infinite, with small islands of things that I may not do. The IP advocate has to view us as living by permission: you have those 1,136 things you may do with your gun, and only those things. It is a finite list, fixed at some moment in time. If B thinks of way number 1,137 to use a gun, then he owns this way-to-use-guns. That is to say, he owns all guns in the universe, to the extent they are used for method 1,137. And, they say, this does not harm owner A, since he never had that right in the first place. It doesn't take away his right to use his gun for method 1,137; he only had homesteaded the first, known, 1,136 ways to use it. In fact, the IP fascist says, A is now better off, since he can learn from 1,137, and get permission for a small fee from B to use his gun in a new way. Everyone wins!

Except this is the totalitarian way of looking at things. We do not live by permission. Rothbard has explained that there is no right to free speech; it's just one implication of property rights. In my Against Intellectual Property (p. 53), this is precisely why I pointed out that

We do not have to have a "right to copy" as part of a bundle of rights to have a right to impose a known pattern or form on an object we own. Rather, we have a right to do anything at all with and on our own property, provided only that we do not invade others' property borders. We must not lose sight of this crucial libertarian point. If I own a 100-acres of land, I can prance around naked on it, not because the land is imbued with some "right-to-prance-naked," but because I own the land and it does not (necessarily) violate the property rights of others for me to use my property in this fashion.
I am restricted in my use of my gun to murder B only because of property rights in scarce resources. Unless you can point to such an act of aggression (trespass), I can use my gun as a means for any action whatsoever. I don't have to find an enumerated right #1,132 in my bag-of-rights, in my "permissions", to do it. I can do any action, so long as it is not a use of another person's property.

And this is precisely why this is not analogous to the IP case. Pointing out the above as an implication or explication of how libertarian property rights is not circular. It does not assume there are only property rights in scarce resources; rather, it unwinds a theory about allocating property rights in scarce resources. The nature of such a system is what implies that assigning rights in "ideal objects" is really simply a different way of assigning rights in scarce resources--an assignment rule that differs from the libertarian-Lockean one; this is exactly why in my 2000 LRC article on IP explicitly opposed "the Second Homesteading Rule."

The IP advocate's argument is dishonest. He says, well, my IP rule limits your property rights, but so do all property rights. So what's the big deal? The big deal is that the only limits we recognize are that you may not violate others' property rights! Murder or normal theft or trespass is obviously an instance of this. But using my own property peacefully is not! The IP advocate needs to show that my use of my own DVD somehow interferes with his own property in his own scarce resources. Obviously, it cannot. So, it fall back on IP itself: it says, well, it doesn't violate B's physical property, but it does violate his intellectual property. Hellooooo--THIS is the circularity. The circular reasoning is done by the IP advocates, NOT by the libertarian who is simply a consistent opponent of aggression.

Published: January 22, 2010 10:58 AM

[SK]

High School Senior's Questions about IP

[From Mises blog, Dec. 7, 2007]

I received an impressive inquiry from a high school senior: "I am contacting you to ask if I can interview you for my senior project paper, which is a persuasive paper about why copyrights are invalid and impractical. I will have between 5-10 questions regarding intellectual property for you to answer." I said sure; and she sent on her questions, which were:

1. What would you say is the most powerful argument against copyrights and patents? 2. What would you respond with to someone who argues that resources do not have to be finite or scarce in order to be allocated as property? 3. How would you respond to Lysander Spooner's argument that property is wealth that is owned, and wealth includes ideas since they can be manifested into tangible wealth? 4. What about the argument that people own their minds, so they own the mental products? 5. Some anti-IP people believe in a right to first sell. Would you say that the original creators should have a right to sell the creation first? Why or why not? 6. What would you respond to someone who claims that if there were copies all around, the original inventor wouldn't get as much profit as he should have?

My replies are below.

Question 1. What would you say is the most powerful argument against copyrights and patents?

As I elaborate in In Defense of Napster and Against the Second Homesteading Rule and Against Intellectual Property (both available here), humans need to use scarce or "rivalrous" resources -- for example, tangible things like land or food or clothing -- to survive. The nature of these things is that only one person can use or control the resource. Thus, there is a possibility of conflict over the use of these things. For people to live peacefully and productively in the world, we need to be able to find ways to use scarce resources without fighting over them. This means that each scarce good--each thing that might be the subject of conflict--is assigned one unique owner, someone with the exclusive right to control that resource. The rules for determining who is the owner have to be objective, fair, and just, in order to be generally accepted and serve the function of reducing conflict. It is for this reason that ownership is thus assigned to the person with the best claim to the thing in question--the most objective "link" to it. This is the libertarian-Lockean idea of "first use"--whoever first possesses or uses a thing--that is, establishes objective property "borders" with respect to the resource--is the owner. Any other rule is non-objective or arbitrary. For example, if the first user did not have the best claim to the resource, then whatever rule you use to assign property rights, property is not secure because some latecomer could just take it from the current owner. So any property assignment rule at all presupposes the first-user idea--the idea that an earlier user, ceteris paribus, has a better claim than any other user. Which implies the first user -- the homesteader -- has the best claim of all. Any other rule in effect violates the notion that latecomers have an inferior claim to earlier users. For example, a thief who steals property is in effect a latecomer. And mere verbal decree is not sufficient either, for one or two reasons: first, because (with respect to unowned resources), it's not an objective use of the thing; it does not establish any visible link; and any number of people could make such a claim, in contradistinction to first possession, which can only be done by one person, and which is objective and visible; and second, because (with respect to already owned resources) this amounts to theft, or a latecomer ethic.

Now, given this understanding, we can see that any just and peaceful and prosperous society requires the assignment of ownership rights in scarce resources in accordance with the libertarian homesteading or "first use" principle. Now ideas -- creative works protected by copyright or inventive designs or recipes or processes of patent law -- are not scarce resources. Any number of people can have a copy of a song; or can use the same method or design, with their own bodies and property. To assign rights in such things--called "ideal objects"--means setting up enforceable claims in these intangible things--but force is a tangible, real thing that can only be applied to other real (scarce) things. In other words, because ideas are scarce, assigning rights in ideas necessarily is accomplished by assigning ownership rights in scarce resources. So, for example, the holder of a copyright to a novel has a partial ownership right over the bodies and tangible property of everyone else in the jurisdiction, because he can stop them from using their bodies or property in a certain way. The owner of the patent for a mousetrap can stop you from using your own body and wood and metal to make a mousetrap having a similar design to his patented design. But as we have seen above, recognizing such rights contradicts the only just and objective property assignment rule, since it overrides the ownership rights already established in already-owned things. I homestead property, and own it; then someone else acquires some rights to control my property merely by a decree of the state, in effect, merely by their thinking of a way to use their own property, which is not "first use" of the resources they now claim ownership of.

So, in short, the problem with patent and copyright is that it amounts to theft of rights to scarce resources.

Question 2. What would you respond with to someone who argues that resources do not have to be finite or scarce in order to be allocated as property?

Assigning rights to non-scarce things necessarily infringes on rights to scarce things, since IP rights are enforced with force, real force, in the real world, against real things. For example, the copyright holder can force the "infringer" to pay money to him; or can get an injunction forcing him to stop using his body and (scarce) property in a certain way. Assigning rights to non-scarce things acts much like inflation of the money supply does: the more you do it, the more you dilute and reduce the value of real property (money). Question 3. How would you respond to Lysander Spooner's argument that property is wealth that is owned, and wealth includes ideas since they can be manifested into tangible wealth?

Wealth is too nebulous a term to be used here and is unnecessary. It appears to mean value; but as Hoppe and Rothbard show, value is not ownable or owned. The owner of property has no property right in the object's value, since its value lies in how others' appraise it. (Hoppe argues this in his TSC, as I note in my Against IP article, at text at note 79.) See also Rothbard's explanation for why there are no rights to one's reputation--because a reputation is what others believe about you, and you don't own their minds or opinions. (I think this is in Ethics of Liberty.)

Question 4. What about the argument that people own their minds, so they own the mental products?

This line of reasoning is based on the confusing notion that creation is an independent source of property rights. This error is similar to the confused idea that we own things we mix our labor with because we "own" our labor. We own -- have the right to control -- various scarce resources, such as our bodies and other scarce resources we homestead or acquire from previous homesteaders. We do not own "labor"; labor is just an action, an activity of the body. To be sure, when one first uses unowned property, and thereby homesteads it, he is engaging in a type of "labor"; but we do not need to rely on the confusing metaphor that we "own" our labor. By working to emborder or possess an unowned resource, one thereby establishes a visible link with the property, thus establishing a better claim than any latecomer, i.e. ownership. This chain of reasoning does not imply or rest on the idea that we "own" our labor.

As for creation, it is often maintained that one can acquire ownership of things by either finding (homesteading), contract (acquiring it from a previous owner), or by creating the thing. But this is confused: creation is not an independent source of ownership. In fact, a bit of reflection shows that it is neither necessary nor sufficient. If you own a resource and re-shape it into some new, more useful, more valuable configuration (say, you "create" a mousetrap using your wood and metal; or you "create" a statue by carving up your hunk of marble), then you own the resulting "creation" simply because you were already the owner of the material that constitutes it. So it is not necessary to think of creation as a "source" of ownership rights. Likewise, if you carve a statue into someone else's property, then you do not own the resulting statue; rather, the owner of the marble is entitled to have his marble back, and perhaps damages for trespass. So creation is not sufficient for ownership either.

In fact, the only legitimate ways of acquiring title to a given scarce resource is to either homestead it from its unowned state, or to contractually acquire it from someone who already owns it and who can trace his title back to an original act of homesteading. This fully exhausts all ways of coming to own scarce things. This is because matter cannot be created by man, but only rearranged.

Now let me note one other thing. Rothbard explains in Ethics of Liberty why there is not really an independent right to free speech; there are only property rights. There is no "right" to free speech that gives you the right to speak on others' property--you must have the consent of the owner. And if you own property, you can do whatever you want on it, including speak--not because you have a "right to free speech" but because you can do whatever you want with your own property so long as you do not invade others' property rights.

So back to your question: we do not own the mental products of our mind for several reasons. First, owning one's body, just as owning property gives you in effect a (derivative) right to speak on it, allows you to use it to do useful things, such as come up with ideas, or even sell your services, or labor. There is no need to engage in the confusing fiction or metaphor that you "own" your labor, or you "own" the "products" of your mind. Second, "products of the mind" is far too vague of a concept. It is so broad that if property rights were granted in them, they would swamp and override all real rights in real things. And finally, if the products of your mind are scarce, you presumably own them because they result from reworking material you already owned (if not, as in the stolen marble example, you do not own it at all, but someone else does). And if they are not scarce, they are not the subject of property, since granting property in them is impossible, and can only be accomplished by eroding property rights in others' things. Question 5. Some anti-IP people believe in a right to first sell. Would you say that the original creators should have a right to sell the creation first? Why or why not?

I believe you may be referring to the doctrine of common law copyright. As a practical matter, if you have an idea or manuscript, you can use this to leverage payment to reveal it. But if you are foolish enough to let the information become public, it is too late to do this. As Benjamin Tucker noted: "You want your invention to yourself? Then keep it to yourself." (see on this Wendy McElroy, Copyright and Patent in Liberty).

Question 6. What would you respond to someone who claims that if there were copies all around, the original inventor wouldn't get as much profit as he should have?

Austrian economics teaches us that values are subjective, and that the only way to determine an objective price is on the market. See on this Rothbard's Utility and Welfare Economics, e.g. The only way to know how much profit someone "should" make is to see what people are willing to pay them for. Part of the market is the need to incur costs of exclusion. If you don't put a lock on your business, people will steal it. If drive in movie theaters didn't incur the cost of putting little speakers for each car, then people would free ride by watching it from outside. To decide whether a given endeavor is worthwhile, one must take all costs into account, including costs of exclusion. The more creative find ways to exclude that have a low enough cost and that exclude a sufficient number of free riders so that the business can be profitable. For those entrepreneurial plans that have too high a cost, they should not be engaged in. So we see people finding ways to profit from their ideas, given the free rider problem--so rock bands give away their music for free (it plays on the radio, e.g.) so they develop fans who will pay to see them play live in concert (but even here, there are costs of exclusion--the ticket selling and enforcement mechanism, say). Or television shows are broadcast for free and paid for by advertisting. And so on.

[Mises blog post; SK cross-post]

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