Walking through the home of a very rich American man from the early 1970s, I was struck by how much the quality of life for average people now exceeds what was available only to wealthy Americans 40 years ago. Let’s compare Elvis’s Graceland with how ordinary Americans live today.

Graceland began life in 1861 as a 500-acre cattle farm on the outskirts of Memphis, originally owned by S. E. Toof, a printer, who named the farm for his daughter Grace. Toof’s niece, Ruth Moore, and her husband eventually acquired the portion of the property where the house now sits, as well as surrounding acreage, completing the mansion in 1939.

It was planned as a showcase for their daughter’s musical talents, so acoustics were as important as aesthetics. (Their daughter went on to play with the Memphis Symphony Orchestra.) A 1940 article in the Memphis Commercial Appeal raved about the house’s “subtle beauty” and the architectural details, including the white marble in the fireplace. Even before Elvis acquired the property, the house had been recognized as being at the upper end of Memphis society homes.

Being a significant home in Memphis meant something beyond Tennessee. Memphis in the mid-twentieth century was no backwater. It was home to important military facilities, including the Memphis Army Depot, the Millington Naval Air Station, and a World War II prisoner of war camp. The first national motel chain, Holiday Inn, was founded there in 1952. The city was a cultural center as well, home to Stax Records, Sam Phillips’s Memphis Recording Service, and the nation’s first African-American-format radio station, WDIA. The city had a serious side too: The Commercial Appeal won a Pulitzer Prize for its 1920s coverage of the Ku Klux Klan.

When the Moores divorced they put the property (now reduced to 13.5 acres) on the market. Memphis realtor Virginia Grant had met Elvis’s mother, Gladys, by simply marching up to her pink Cadillac and rapping on the window when Grant spotted it outside a department store. Elvis’s fame was beginning to cause problems for the neighbors of the Presley house on Audubon Drive. Near-riots at his concerts and other appearances were worrisome. At the famous Gator Bowl “riot” in Jacksonville, Florida, in 1955, hundreds of screaming girls chased Elvis into his dressing room and tore his clothes. They also scratched messages on his car and wrote on it in lipstick. In 1957 the Presleys were looking for a more private and secure location. (Besides the deluge of fan mail to Elvis, his parents were getting over 500 letters a week accusing them of fostering juvenile delinquency.) Although Grant initially thought the Presleys wanted a farm, she recommended Graceland when she learned they just wanted a house on a large lot.

By the end of a day of shopping the Presleys had made an offer on Graceland, closing on the deal for $102,500—about $800,000 in today’s dollars. (Gladys died a year later.) At the time of purchase the house was 10,266 square feet; by Elvis’s death it had expanded to more than 17,000 square feet. Elvis redecorated and remodeled it extensively, adding features for himself (a swimming pool and a custom eight-foot square bed) and his parents (a chicken coop for his mother).

Presley lived at Graceland until his death there in 1977. Until 1981 the family continued to live in the house, although the neighborhood deteriorated as scores of souvenir shops opened to sell memorabilia, including vials allegedly of Elvis’s sweat, to the tourists who came to see the home from the road. In 1981 Elvis’s ex-wife, Priscilla (who became one of the executors of Elvis’s estate after his father, Vernon, passed away in 1979), hired a consultant to explore opening the house to the public as a way of generating the income necessary to maintain it. (Upkeep and taxes cost more than half a million dollars per year in the late 1970s.) After studying other famous houses open to the public, Priscilla and her advisers crafted a business plan that included purchasing the strip mall across the street to control the environment and, like San Simeon in California, from which visitors would be bused to the property. Hundreds of thousands of people now visit annually.

Comparing Our Lives to Elvis’s

In many respects Elvis Presley’s life looks to have been that of a wealthy individual with access to resources most of us lack. His two jets are parked across from Graceland; of course the vast majority of Americans lack any sort of plane. Elvis owned dozens of expensive cars and motorcycles, far more than most Americans are likely to own during their lives. But owning planes and cars is not the only measure of quality of life. If we think about the services Elvis was buying when he purchased his airplanes and cars, many Americans today come closer to living like Elvis than we might think.

Today firms such as NetJets make it possible for many more people to have access to travel by private plane. (NetJets offers shares as small as 1/16th, or about 50 hours of flying, according to the company’s website). For the rest of us air travel has become more convenient and cheaper since airline deregulation in 1978. One study in 1997 found that even after adjusting for changes in amenities, passengers were saving more than $19 billion per year. Average roundtrip fares have fallen by more than a third in real terms.

Of course even flying business class on a major airline is hardly the same thing as flying on Presley’s Lisa Marie, a Convair 880 that Elvis bought for $250,000 and spent $600,000 refurbishing, using the same design team that decorated Air Force One. Elvis’s plane had a bar, conference room, and bed (with seat belts); our commercial airliners do not. And undoubtedly if Elvis were alive today, he would have upgraded his plane to an even more luxurious model. But in terms of the ability to get from one place to another quickly and conveniently, today’s commercial passenger comes closer to Elvis’s lifestyle than most thought possible in 1977. Elvis might still need a private jet today to avoid the fans, but he wouldn’t need it to get where he wanted to go or ship off a new recording master to RCA from Memphis, whose airport is a hub for both Delta Airlines and Federal Express.

Cars

Similarly, Elvis’s many cars continue to set him apart from noncelebrities. But none of Elvis’s cars have a stereo equal to the one in my 2011 Subaru Outback, which synchs automatically with my Bluetooth-enabled iPhone, giving me access to more music in my car than Elvis had even back in the Jungle Room at Graceland. Moreover, my Subaru has tires, an engine, and safety features far better than were available even on Elvis’s 1973 Stutz Blackhawk, 1971 Mercedes, or 1975 Dino Ferrari. And Bluetooth isn’t the only technology Elvis could not have bought in the 1970s for any amount of money. My car has multiple airbags, a continuous variable transmission, and all-wheel drive.

Of course, Elvis wouldn’t likely be driving something as mundane as an Outback (unless his manager, Col. Tom Parker, had negotiated a contract for him to do so at a hefty fee), but even if Elvis were driving a top-of-the-line Mercedes today, the gap between his car and mine would be much smaller than the gap between his Ferrari and my parents’ 1970s Toyota Corolla. In part that is because items like cars have improved in quality, but it is also because improvements in finance have made it possible for ordinary people to have access to them. Elvis would still be able to turn up at a dealer and buy a car without a credit check; the difference is that this past summer I was able to buy my Subaru via the Internet without ever meeting the dealer and without the hours of paperwork and haggling that were a routine part of the car-buying experience as recently as the 1990s.

Everything from the selection of options to the financing was arranged by email, the web, or phone. The dealer had access to financing from investors via asset securitization of its loans; it was able to check my credit in seconds using online services; and I paid the deposit with a credit card over the phone (racking up frequent flier miles since I don’t have my own plane). Aside from a test drive, the only time a member of my family set foot on a dealer’s lot was when my daughter picked up the car.

Elvis could buy a car with a similar lack of personal effort in the 1970s because he had a staff to do things like wait in line at the bank to get a cashier’s check or cash, fill out forms, and negotiate details of the purchase. He was able to get excellent service because he was a celebrity. Today all of us have access to similar levels of service, thanks to entrepreneurs like Sam Walton, whose Sam’s Club brokered my Subaru purchase.

Televisions

One of the best-known features of Graceland is Elvis’s arrangement of three televisions (there were only three networks) in several rooms. Inspired by Lyndon Johnson’s use of three TVs to monitor the three network news broadcasts simultaneously, Elvis had a more sensible reason—so he could watch multiple football games. Here our lives really shine compared to his. In the mid-1960s, console TVs cost over $5,000 in today’s dollars. When Elvis was watching football on his three color TVs, my parents had a single black-and-white television, whose screen could not have been larger than 20 inches. My grandmother, who lived with us, splurged and bought herself a 24-inch-screen console color analog television (with a remote control!), around which we gathered on Sunday evening to watch All in the Family on CBS.

Today my living room has a 60-inch digital flat-screen TV, capable of much higher resolution than anything Elvis (or my grandmother) owned but which cost considerably less than just one of Elvis’s sets. Moreover, it features technology like a “picture in picture” display that makes it unnecessary to have three side-by-side televisions if I want to monitor more than one program. Elvis had to remodel his bedroom to have two TVs positioned so he could see them from his bed. I streamed video to my iPad while lying in bed the first night after I moved into my current home without having to summon a contractor.

Stereos

Another feature of Graceland is the top-of-the-line stereo presented to Elvis by RCA Records in gratitude for the benefits it reaped from his efforts. My music system sounds better than Elvis’s expensive stereo (and can play from the TV as well). Some audiophiles might disagree, since the gold standard for many is still a tube-based amplifier like Elvis had. But not only did I have a choice of sound systems, even an audiophile system would be cheaper, better, and smaller than anything in Graceland. Of course the rich still have better systems, yet the rest of us live better than they did in the 1970s. I tried unsuccessfully to find cost figures for Elvis’s system but I have no doubt that the combination of my iPhone, a networked hard drive, and a wireless music system provides me with many times the quantity of music available to even an avid collector like Elvis—with far greater convenience and at a fraction of the cost.

If we look at the more mundane parts of Graceland, the improvement in our lives is even more striking. Elvis was proud of the chandelier that hung in the foyer; lighting fixtures (aside from government-mandated CFL bulbs) are vastly superior in illumination, efficiency, and variety to what was available to him when he decorated Graceland. In the kitchen sits a massive early microwave oven; these are now compact and virtually disposable. (In 1981 a Sears microwave cost almost $500—over $1,100 in today’s dollars—but today it is just $119.) A feature worthy of comment in the original news accounts of Graceland was its marble fireplace. Granite countertops and similar features are now present even in apartments marketed to college students. If we dig into the support systems, the differences are even more dramatic. Home Depot sells furnaces more efficient and quieter than what Elvis had in the 1970s; windows today are dramatically superior in their construction and energy efficiency; and appliances such as washing machines and dryers have options unimaginable to even the wealthiest in the 1970s.

In his classic 1945 American Economic Review article, “The Use of Knowledge in Society,” F. A. Hayek termed the price system “a marvel” for its ability to improve the quality of life without any central direction. That’s just the right word. My family (along with yours) lives a quality of life most of us could hardly imagine in 1957 or 1977. It is a marvel that we have come so far so fast. Contrary to Harvard professor (and Massachusetts senate candidate) Elizabeth Warren’s recent claim that we owe a good deal of our success to government, the improvements are the results of innovations by engineers, business people, and others striving to create their own success and to find the resources to achieve their own dreams.

Today most Americans live lives that approach and in some cases exceed the material well-being available only to rich celebrities just 40 years ago. Given how much Elvis Presley loved his fans, I think that’s something he would be happy to know.

In his book The Politically Incorrect Guide to Socialism, economics professor and National Review editor Kevin Williamson gives the reader an easily understood yet highly informative disquisition on the nature of socialism, its inherent flaws, and the reasons it continues to spread. In connection with that last point, two of Williamson’s chapters cover the political infatuation with “energy independence,” which he argues is socialist in essence, and the push to saddle Americans with the politicized medical care system known as Obamacare.

Williamson’s arguments are sharp and his examples illuminating. His book is like a wrecking ball going to work on the already feeble edifice of socialism.

“Hold on a minute,” some will say. “You can’t compare the bad things that happen in a totalitarian state like North Korea with our well-intended and generally popular public school system in America.” Williamson shows, however, that the crucial element of socialism is present in both, namely governmental control over the provision of goods and services that would otherwise be done by private enterprise. That invariably leads to waste and inefficiency—or even worse.

Williamson does a first-rate job of explaining why those arrangements stifle productivity, depress quality, and hinder innovation. It is because government officials (and the type of government is immaterial) do not know what consumers want. That information only comes from the market’s price system, which socialism prevents from working. It is also because government officials have no incentive to satisfy consumer wants since their money is not given by buyers but taken from taxpayers. Starving peasants in Korea and illiterate students in the United States—the roots are the same.

The poverty of India has been compared to the remarkable wealth enjoyed by the people of Hong Kong and Singapore before, most famously by Milton Friedman, but that is no reason not to emphasize it again. Following World War II, Williamson observes, India was seemingly poised for great economic expansion, having suffered little from the war and benefiting from infrastructure built by the British. India’s economy, however, remained stagnant due to the naive socialism of Nehru, the first prime minister, who admired Soviet central planning. Grinding poverty gripped most of the country.

Singapore and Hong Kong, in contrast, had suffered considerable war damage. Nevertheless both enjoyed rapidly rising incomes for all income classes. The fact that prosperity was widespread is important in heading off the common objection that capitalism only helps a few. Those two city-states were able to escape from poverty by rejecting socialism and adopting laissez faire: prices were free, investors could seek profitable opportunities without government interference and keep their earnings (or swallow their losses) and taxes and regulations were minimal.

Williamson also points out that in recent years India has begun rapid economic development, but only because new leaders have lightened the heavy yoke of socialism.

Defenders of socialism almost always point to Sweden and say that its experience proves that socialism can work. Williamson’s chapter “Why Sweden Stinks” refutes that notion. Sweden seemed to have the best of all possible worlds—a high standard of living combined with an expansive “safety net” and generous government benefits. The trouble is that socialism is unsustainable because it erodes the human qualities that built up the wealth that the socialist state consumes. Williamson writes that Sweden “is rapidly transforming itself into the sort of society that will not be able to support the relatively successful welfare-state arrangements that characterized it throughout most of the twentieth century.” As Hayek observed, socialism changes the character of the people gradually, undermining habits of work, thrift, and self-reliance. We are seeing that in Sweden.

Speaking of Hayek, another of his famous insights regarding socialism was that under it, the worst people usually rise to the top. I wish that Williamson had included a chapter on that point. We hear so often from socialism’s advocates that their system would work beautifully if it were controlled by good people rather than murderous dictators like Stalin. It would have been worth several pages to attack the idea that there is some magic formula to keep vicious, power-mad people from scheming their way to the top of a system that gives them what they crave.

Finally, although I applaud Williamson’s effort, he has bundled together under the label “socialism” several policies better labeled “corporatist” or “collectivist” since they don’t entail government ownership or abolition of the market economy—only interventions that hamper it. Ethanol subsidies are bad, but we don’t have a federally owned energy sector and “public education” doesn’t prevent (though it surely hampers) home and private schooling. Such distinctions are important.

In my view that sentiment is badly mistaken, and while Appleby recognizes the advantages of capitalism, in sum she is ambivalent: “Worldwide life expectancy went from forty-eight years at mid-twentieth century to sixty-six years in 1999 and it’s still continuing to rise! Still, it would be nice to eat cake while keeping lazy ways too.” Her often engaging and informative book is undermined by sympathy for the precapitalist lifestyle.

Appleby describes the book as being not a general study of capitalism, but instead “a narrative that follows the shaping of the economic system that we live in today.” One of the greatest changes capitalism made possible was to free men and women from the work of producing food. In traditional societies around 80 percent of the people labored just to produce enough food to meagerly feed the population. It had always been that way, and the human outlook was mostly static. Appleby emphasizes that the vast increase in productivity which capitalism made possible brought about a reversal of people’s attitudes toward the future. “At a very personal level,” she writes, “men and women began making plans for themselves that would once have appeared ludicrous in their ambitious reach.”

One of Appleby’s central themes is change and innovation, which had been objects of hostility in earlier societies. She observes that Adam Smith’s Wealth of Nations frequently testifies to the new view that capitalism brought about. “The principle which prompts us to save is the desire of bettering our condition,” she quotes Smith as writing, “a desire which tho generally calm and dispassionate, comes with us from the womb and never leaves us til we go into the grave.” Where, Appleby wonders, had Smith gotten that view of humans as naturally inclined to rational self-improvement?

She explains that to find the answer, she became “a permanent fixture at the British Museum” reading “a new genre, the writings about commerce that began appearing in pamphlets, economic tracts, broadsides, and advice books from the 1620s onwards.” From that research she learned how uncapitalistic life had been for the typical Englishman. She quotes a scholar who wrote that he lived “in a house built with monopoly bricks . . . heated by monopoly coal. His clothes are held up by monopoly belts, monopoly buttons, monopoly pins. . . . He ate monopoly butter, monopoly herrings, monopoly salmon. . . .” Opposition to all those monopolies, granted by kings starting with James I, led to revolution—politically and philosophically. Appleby notes that pamphlet writers like Thomas Mun argued that the economy should not be under the control of the sovereign. “Breaching the wall of paternalism in the 1620s,” she writes, “marked a significant moment in the history of capitalism.”

Meanwhile, the oceanic sailing and trade that began with the Portuguese and Spanish was expanded by the Dutch and English. The availability of goods produced abroad led to great improvements in living standards for common people, underscoring the fact that capitalism made economic progress possible. Similarly, the revolution in agriculture at the same time, especially in England and the Netherlands, was another advance made possible by capitalism. For the first time the prospect of widespread famine ceased to be a worry.

In her treatment of capitalism in the nineteenth and twentieth centuries, Appleby is interested in the processes of innovation and change. She emphasizes the tide of innovations rather than the political reactions to economic development that occurred in those centuries. While she remains positive about capitalism’s impact, Appleby does not take on the ferocious critics of capitalism and their claims that it fosters all manner of social and economic evils. No doubt some readers will be disappointed in the book for that reason. After all, if the author is going to bring up Marxian criticisms of capitalism, why not also bring up the rejoinders that defenders of the free market have made to them?

Appleby’s concluding chapter, “Of Crises and Critics,” deals with our present economic troubles. Again, readers are apt to find her discussion disappointing in its ambivalence.

There is much to recommend in this book, especially the author’s work on changing economic thought in the seventeenth and eighteenth centuries and the consequent emergence of market concepts. When Appleby reaches further afield of her area of specialization, however, the book is weakened by observations that I do not believe are justified.

Leonard Liggio (Leonard.liggio@atlasusa.org) is executive vice president of academics at the Atlas Economic Research Foundation.

But are they? There are good reasons to think that IP is not actually property—that it is actually antithetical to a private-property, free-market order. By intellectual property, I mean primarily patent and copyright.

It’s important to understand the origins of these concepts. As law professor Eric E. Johnson notes, “The monopolies now understood as copyrights and patents were originally created by royal decree, bestowed as a form of favoritism and control. As the power of the monarchy dwindled, these chartered monopolies were reformed, and essentially by default, they wound up in the hands of authors and inventors.”

Patents were exclusive monopolies to sell various goods and services for a limited time. The word patent, historian Patricia Seed explains, comes from the Latin patente, signifying open letters. Patents were “open letters” granted by the monarch authorizing someone to do something—to be, say, the only person to sell a certain good in a certain area, to homestead land in the New World on behalf of the crown, and so on.

It’s interesting that many defenders of IP—such as patent lawyers and even some libertarians—get indignant if you call patents or copyright a monopoly. “It’s not a monopoly; it’s a property right,” they say. “If it’s a monopoly then your use of your car is a monopoly.” But patents are State grants of monopoly privilege. One of the first patent statutes was England’s Statute of Monopolies of 1624, a good example of truth in labeling.

Granting patents was a way for the State to raise money without having to impose a tax. Dispensing them also helped secure the loyalty of favorites. The patentee in return received protection from competition. This was great for the State and the patentee but not for competition or the consumer.

In today’s system we’ve democratized and institutionalized intellectual property. Now anyone can apply. You don’t have to go to the king or be his buddy. You can just go to the patent office. But the same thing happens. Some companies apply for patents just to keep the wolves at bay. After all, if you don’t have patents someone might sue you or reinvent and patent the same ideas you are using. If you have a patent arsenal, others are afraid to sue you. So companies spend millions of dollars to obtain patents for defensive purposes.

Large companies rattle their sabers or sue each other, then make a deal, say, to cross-license their patents to each other. That’s fine for them because they have protection from each other’s competition. But what does it do to smaller companies? They don’t have big patent arsenals or a credible countersuit threat. So patents amount to a barrier to entry, the modern version of mercantilist protectionism.

What about copyright? The roots literally lie in censorship. It was easy for State and church to control thought by controlling the scribes, but then the printing press came along, and the authorities worried that they couldn’t control official thought as easily. So Queen Mary created the Stationer’s Company in 1557, with the exclusive franchise over book publishing, to control the press and what information the people could access. When the charter of the Stationer’s Company expired, the publishers lobbied for an extension, but in the Statute of Anne (1710) Parliament gave copyright to authors instead. Authors liked this because it freed their works from State control. Nowadays they use copyright much as the State originally did: to censor and ban books. (More below.)

IP, American Style

The American system of IP began with the U.S. Constitution. Article 1, Section 8, Clause 8 authorizes (but doesn’t require) 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.”

Despite modern IP proponents’ claims to the contrary, the American founders did not view intellectual property as a natural right but only as a policy tool to encourage innovation. Yet they were nervous about monopoly privilege, which is why patents and copyrights were authorized only for a limited time. Even John Locke, whose thought influenced the Founding Fathers, did not view copyright and patent as natural rights. Nor did he maintain that property homesteading applied to ideas. It applied only to scarce physical resources.

Granted, some state constitutions had little versions of copyright before the American Constitution. (See Tom W. Bell, Intellectual Privilege: Copyright, Common Law, and the Common Good, part 1, chapter 3, section B.1.) On occasion, the language of natural rights was used to defend it, but this was just cover for the monopolies they granted to special interests. Natural rights do not expire after 15 years. Natural rights are not extended to Americans only. Natural rights wouldn’t exclude many types of innovation and intellectual creativity and cover only a few arbitrary types.

And what is the result of this system? In the case of patents we have a modern statute administered by a huge federal bureaucracy that grants monopolies on the production and trade of various things, which means holders may ask the federal courts to order the use of force to stop competitors. But the competitors have not done anything that justifies force. They merely have used information to guide their actions with respect to their own property. Is that compatible with private property and the free market?

Examples of Censorship

In the case of copyright the result has been actual censorship, as recent examples will show. According to Engadget, Russian authorities, with Microsoft’s approval, used IP law as a “pretext for seizing computers and other materials from political opponents of the government and news organizations.” In another case Susan Boyle, the English singer from Britain’s Got Talent, was prevented from singing a Lou Reed song on America’s Got Talent because of copyright. Then there was the case in which a 1922 German silent film, Nosferatu, was deemed a derivative work of Bram Stoker’s Dracula and ordered destroyed.

One of the most outrageous cases concerns the novel Sixty Years Later, Coming Through the Rye, Frederik Colting’s sequel to J. D. Salinger’s The Catcher in the Rye. Salinger got the courts to ban publication of the book on copyright grounds. “I am pretty blown away by the judge’s decision,” Colting said. “Call me an ignorant Swede, but the last thing I thought possible in the U.S. was that you banned books.”

These examples will be dismissed as abuses of an otherwise good law, but it’s the law itself that is the abuse.

Although natural rights are often invoked, the most common argument for IP, even among libertarians, is utilitarian, or “wealth-maximization,” which was the approach of the Founding Fathers: IP monopoly encourages innovation and therefore creates net wealth. In other words, the benefits outweigh the costs.

No doubt the patent system imposes costs on American society. I’ve estimated the net cost at $38–48 billion a year, and this is probably conservative. The costs include patent attorney salaries, fees, litigation, increased insurance premiums, and higher-priced products—plus innovation and research lost when companies concentrate on patentable innovations and allocate fewer resources to more basic scientific research, or when an entire field is avoided for fear of patent-infringement lawsuits.

Anyone who argues that patents yield a net gain is obliged to estimate the total cost (including suppressed innovation) as well as the value of any innovation thereby stimulated. But IP proponents never provide these estimates. I’m no empiricist—my opposition to IP is based on principles of justice and property rights—but IP advocates make the empirical claim that we are richer because of the patent system. They say we have more innovation at a low price. Yet virtually every empirical study I’ve seen on this matter is either inconclusive or finds a net cost and/or a suppression of innovation. (I ignore here the valid Austrian objection that costs and benefits are subjective and not measurable.)

Thus a good utilitarian would have to conclude that patent and copyright laws are harmful.

Creation

Some IP advocates do make a serious natural-rights case on the grounds that the innovator has created some new, valuable thing—a song, a painting, a novel, or an invention. Because he created it, the argument goes, he is its natural owner. But this conflates the source of property rights with the source of wealth. As Ayn Rand—a strong proponent of IP—recognized (in “The Metaphysical Versus the Man-Made,” Philosophy: Who Needs It):

The power to rearrange the combinations of natural elements is the only creative power man possesses. It is an enormous and glorious power—and it is the only meaning of the concept “creative.” “Creation” does not (and metaphysically cannot) mean the power to bring something into existence out of nothing. “Creation” means the power to bring into existence an arrangement (or combination or integration) of natural elements that had not existed before.

In other words, individuals create wealth by using their intellect, creativity, and labor to transform already owned scarce resources into more valuable configurations. In a free society a producer owns the resulting products because he owned the factors transformed in the production process. The idea behind production adds nothing to the ownership claim that wasn’t already present.

Control of Physical Property

In fact, assigning property rights in ideas and other immaterial things, such as patterns or recipes, ends up restricting other people’s rights to control their physical property. Copyright and patent holders thus become, in effect, co-owners of others’ property, courtesy of the State. This is illustrated in the copyright censorship examples provided. And it is seen in cases where a patentee uses the courts to shut down competitors.

Another way to understand the error in treating information, ideas, and patterns as property is to consider IP in the context of human action. Ludwig von Mises explained in The Ultimate Foundation of Economic Science that “[t]o act means: to strive after ends, that is, to choose a goal and to resort to means in order to attain the goal sought.” Knowledge and information of course play key roles in action. As Mises puts it, “Action . . . is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means” (emphasis added).

Moreover, “[m]eans are necessarily always limited, i.e., scarce, with regard to the services for which man wants to use them.” This is why property rights emerged. Use of a resource by one person excludes use by another. In contrast, ownership of the information that guides action is not necessary for performing the action. Two people who each own the ingredients can simultaneously make a cake with the same recipe.

Material progress is made precisely because information is not scarce. It can be infinitely multiplied, learned, taught, and built on. The more patterns, recipes, and causal laws that are known, the greater the wealth multiplier as individuals engage in ever-more efficient and productive actions. It is good that ideas are infinitely reproducible. There is no need to impose artificial scarcity on ideas to make them more like physical resources, which—unfortunately—are scarce. As Frédéric Bastiat observed, “All innovation goes through three stages. One possesses unique knowledge and profits from it. Others imitate and share profits. Finally, the knowledge is widely shared and no longer profitable on its own which thereby inspires new knowledge.”

Patents artificially prolong the first stage at the expense of the others. Thus, IP is inimical to progress, prosperity, and freedom.

Now imagine that some lobbyists have staked out part of Antarctica and brought suit in federal court against tourists who trespassed on “their” land. Fine, you say: After all the lobbyists got there first. Replace “Antarctica” with “ideas” and you have the surreal world of “intellectual property.” Unfortunately, while you and I cannot both mine for gold in the same spot, we can certainly make use of the same idea, and therein lies the heart of this story.

A good spot to start the tale is in 1998, when a panel of judges ruled that software was patentable, thereby starting the intellectual property equivalent of the California gold rush (State Street Bank & Trust v. Signature Financial Group). Every child knows how to answer the door: “Knock knock.” “Who is there?” But what if I taught a computer how to say, “Who is there,” and patented the idea? Absurd, you say. Well, we all understand how to run an auction—but do not try doing it with a computer because the holder of U.S. Patent 7,702,540 (also known as e-Bay) will sue you. And that in a nutshell is what software patents are all about.

The entire concept of being able to patent a commonly used idea because it is implemented on a computer is silly, but this article is too short to review all of the millions of software patents issued since 1998. A famous and not-so-famous example may serve to reinforce the point. Raise your hand if you have not heard about the Amazon “one-click” patent (U.S. Patent 5,960,411). No hands? Okay, if you can patent one click, why not two? Sorry, that you cannot do. Why not? Microsoft beat you to it (U.S. Patent 6,727,830).

Software patents, though, are only a modern incarnation of an ancient evil. How about patenting the peanut butter and jelly sandwich? Too late, already done—in 2005, no less (U.S. Patent 6,874,409). That one did not hold up in court. There are so many silly patents that there are two websites, totallyabsurd.com and patentlysilly.com, to publicize them. Many seem to tell a tale of inventors with little sense—and a government patent office with even less. How about a thong diaper (U.S. Patent D539422)?

Here is one that was approved by the eagle eyes at the U.S. Patent Office (U.S. Patent 6,637,349): “A motorized picnic table having a drive mechanism, wheels connected to and driven by the drive mechanism, a table mounted above the drive mechanism, and at least one seat adjacent the table. In the preferred embodiment, the seats are bench-type seats and flank the drive mechanism.”

That was “invented” by Gregory A. Lafferty, “approved” by patent examiners Robert Olszewski and James S. McClellan, and lawyered by Baker & Daniels.

And what was the patent examiner smoking when he approved this one?

A method of swinging on a swing is disclosed, in which a user positioned on a standard swing suspended by two chains from a substantially horizontal tree branch induces side to side motion by pulling alternately on one chain and then the other (U.S. Patent 6,368,227).

But if you think patenting the obvious is silly, then what about patenting the impossible? Do these inventors sit around and watch Star Trek all day, then rush off to the patent office? U.S. Patent 6,025,810 protects the warp drive: “[This] invention takes a transmission of energy, and instead of sending it through normal time and space, it pokes a small hole into another dimension, thus sending the energy through a place which allows transmission of energy to exceed the speed of light.” It comes complete with elaborate wiring diagrams.

Fun is fun. But there is a serious side to all this nonsense. In The Social Network, Facebook creator Mark Zuckerberg asks, “Why should a guy who makes a really good chair owe money to anyone who ever made a chair?” Yet in practice that is what patents are for. Take the matter of faster-than-light travel. The patent is silly because it is science fiction rather than science. But should a real entrepreneur ever come up with a way of communicating faster than the speed of light, the only thing we can be certain of is that she will then have her pants sued off for patent violation by Mr. David L. Strom—owner of the “idea” of the warp drive.

Does that sound crazy? Consider the true story of Jerome Lemelson, who in 1954 and 1956 filed patents (or so he later claimed) on optical scanning. Optical scanning was no more practical in 1956 than the warp drive is today—and needless to say, Lemelson’s “invention” did not include a working device. Still, when optical scanning became widespread in 1998, Lemelson demanded and received millions of dollars in royalties from the companies that produced optical scanners. It is true in the end the courts invalidated his patents. But he did not give back the money.

The Rest of the Story

Patents are not the end of the story. They seem so serious: They’re essential, it’s said, to innovation, growth, economic welfare. Patents involve weighty and important things. By contrast, trademarks and copyright seem lightweight. What does a song really matter to our economic well-being? The logo of a company? If the International House of Pancakes wants to sue the International House of Prayer for a trademark violation, well it’s silly, but so what? If a woman trademarks her name and threatens to sue anyone who uses it in written communication, well the world is filled with silly people. If one restaurant sues another over grazing goats on the roof, it’s an amusing article in the Wall Street Journal. Or suppose a company calls itself “Rosetta Stone,” trademarks the name, then sues Google for selling it as a keyword for searches. At least a big company like Google can afford the lawyers to defend itself. And if the media industry’s anti-piracy lawyers are suing one another for copying cease-and-desist letters, that’s not only silly but ironic, right? It’s true that these silly lawsuits clog up the courts, but that’s the price we have to pay for . . . well I am not sure why we have to pay it, but you get the point.

Some copyright stuff is sleazy. For example, Stephens Media encourages people to share its news articles with their friends, then sues them for copyright violation when they try to do it. It’s true the company intimidates a lot of people into paying up—but “no harm no foul”: Nobody has actually gone bankrupt on its account yet.

The truth is that trademarks—unlike patents and copyright—have a legitimate purpose. Why should someone be allowed to do business pretending to be me? That’s how trademark law is written. Yet no law has been written that lawyers cannot distort. A company, Peabody Energy, recently tried to take down a website making fun of its clean-energy claims because—you’ve got it—the site used its trademarked name.

The Electronic Frontier Foundation has an entire catalog of these kinds of offenses. Are they just silly? Or are they sinister? Suppressing free discussion of the demerits of a person (who trademarked her name) or a company (that trademarked its name) certainly is not the purpose of trademark law. Or how about this: When the book Alice’s Adventures in Wonderland—a book not under copyright and in the public domain—was reformatted for the Adobe e-book reader, readers were told that any effort to copy, print, lend, or give the book away—or indeed to read the book out loud—would be a violation of international copyright law. Leaving aside that these restrictions are as meaningless as they are legally unenforceable, and that this falls into the silly rather than sinister category, the idea that a copyright holder might want to prevent something from being read aloud should give pause.

After you pause, take a deep breath: There is worse to come. There are copyright holders who want to prevent things from being read at all. The Diebold Corporation sued a group of students. Their offense? They made public internal company emails documenting that Diebold voting machines do not work especially well, and in particular are vulnerable to the casting of fraudulent votes. Pretty serious stuff. Why did Diebold sue these students? It sued them for copyright violation. It claimed the internal emails were copyrighted and that the students had reproduced them without permission. In this instance the courts behaved sanely: Judge Jeremy Fogel wrote in his decision that “no reasonable copyright holder could have believed that portions of the e-mail archive discussing possible technical problems with Diebold’s voting machines were protected by copyright.” But while threatening and carrying out meritless lawsuits is not as bad as winning them, it imposes a real tax on free speech. And more to the point, the history of intellectual property is the history of absurd requests being repeatedly rebuffed by the courts (think “software patents before 1998”) until a panel of judges finally caves in.

Let us be realistic: People sue each other for all sorts of silly reasons having nothing to do with intellectual property—and often win in court. People who spill coffee on their laps sue the maker of the coffee; burglars who fall through the roofs of properties they are robbing sue the owners for unsafe roof conditions, and so forth.

Abusive by Nature

So why condemn intellectual property law over, say, tort law more broadly? Why focus on IP and not on the broader problem of excess litigation? The answer is that intellectual property is abusive by its very nature. Despite what the propagandists say, intellectual property is not about protecting land from trespassers. It is about controlling what belongs to other people. It is about the right of Disney Corporation to tell me what to do with things I have on my computer—even things I have created myself.

Is it a coincidence that the main accomplishment of the patent system is to encourage rent-seeking behavior? Well, consider that originally the only purpose of the patent system was to encourage rent-seeking behavior. There was no fiction that it was a reward for invention: The king simply granted favored rent-seeking courtiers monopolies over the production of salt, the land in Virginia, or whatever the favorite with the largest bribe happened to desire.

Is it a coincidence that the main use of copyright is to suppress free speech? Well consider that originally the entire purpose of copyright was to suppress free speech. When the printing press became widespread, a monarchy deathly afraid of popular dissent granted printing companies “copyright” monopolies over the printing of (government-authorized) books, along with the right (and obligation) to burn any books the monarchy disapproved of.

Where is this all headed? Intellectual property is not merely a threat to freedom of trade and speech. It is also a threat to freedom of thought. Sound far-fetched? A ridiculous straw man? A wild exaggeration?

Is it? How about this famous copyright lawsuit that the plaintiff won? It concerned two songs: One consisted of four repetitions of a short musical phrase A followed by four repetitions of B. The other and subsequent song also consisted of four repetitions of A followed by three repetitions of B. And indeed, the tune was sufficiently “obvious” that the judge concluded that George Harrison did not knowingly copy the song “You’re So Fine” when he wrote “My Sweet Lord.” He nevertheless ruled for the plaintiff: “His subconscious knew it already had worked in a song his conscious did not remember. . . . That is, under the law, infringement of copyright, and is no less so even though subconsciously accomplished.”

Subconscious copyright violation! Just wait until we all have video cameras implanted in our retinas! Then you will have to pay a fee to Walt Disney Corporation or some other big company each time you look down the street. Or perhaps you will have to pay me: I’m thinking of patenting the idea.

In some ways, being thankful for what we have is tougher than usual in 2010.  We remain, judging by the sluggish unemployment rate, mired in perhaps the worst recession since World War II.  We are approaching $14 trillion in government debt without any idea how its growth will be slowed, much less how it might get reduced.  We have an out-of-control Federal Reserve that is so worried about “the deflation” that its leader, the great “Ben Bernank,” thinks we need another $600 billion in new bank reserves on top of the more than $1 trillion he’s already given us.  And we now have a new health care system that looks to be way worse that the horrifically broken previous one.

As though that weren’t enough, if you try to get on a plane to get away from it all, you may first have to survive a TSA “pat down” that would get anyone not wearing a uniform arrested.

So what exactly is there to be thankful for?

Well, despite all of that gloom and doom, there’s still plenty of good news to be found.  Even with government sanctioned gropings, we still live in a society in which government largely obeys the rule of law and in which individuals have a large degree of freedom to read, write, speak, and think what they wish.  To a large extent, our most intimate and meaningful decisions — for example, those involving whom we marry, how many kids we have, what belief systems we hold — are still ours to make, and the Internet has opened people’s eyes around the world to the variety of “experiments in living” that are part of the broad human family.  These are still real and meaningful freedoms.

The market manages to move forward, even as we keep burdening it with heavier and heavier ankle weights of destructive government intervention.  The smart phones that so many of us hold in our hands are little miracles that improve our lives in myriad ways, including bringing us closer to our friends and family.  Medicine continues to advance, with diseases that killed our parents and grandparents being conquered and life expectancies, at least in the relatively free parts of the world, continuing to rise.  We can always do better, but infant and child mortality is increasingly a thing of the past, and a smaller percentage of the world goes to bed hungry every night.

Commonplace Luxuries

The things our grandparents considered luxuries here in the United States are now more commonplace among the poor than they were for the average American a generation ago.  The typical poor American’s house has machines and gadgets that were either available only to the rich or not even in existence a generation or two ago.  And these are not just toys like LCD TVs and iPhones;  they are lifesavers like air-conditioning, medicine, smoke detectors, and burglar alarms.

The bounty that the market has given us can desensitize us to the marvels that are all around us.  I spent several hours earlier this week flying through the sky in a chair in a long silver tube in an environment more comfortable than many homes a few generations ago.  I can talk to my wife at home from the middle of a park in Atlanta or send my daughter a picture of my fried-apple-pie-with-bacon dessert.  I can come home in a car that will last for well over 100,000 miles and settle into bed to watch an endless variety of movies before I go to sleep.  And I can wake up in the morning knowing that my food for the day is safe in my refrigerator/freezer, which uses much less energy than those of my parents or grandparents.

I can also take a moment to realize that for all the marvels that the market has made available that we could not have imagined when we were little, the world that my kids will inhabit in the next generation will be full of even cooler marvels, longer and healthier lives, and improving living standards for all the world.

Even as the overbearing State burdens the market, I still believe that human ingenuity and our desire to progress will win out.  We’re a hardy and resilient bit of fauna, after all.  On Thanksgiving it’s worth taking a few moments to recognize this and to give thanks to both the institutions of the market and the humans whose ingenuity has provided us so much.

The UFC, which hosts mixed martial arts (MMA) events, has grown immensely popular in recent years. In the early years, the mid-1990s, the sport had a limited number of rules of combat, and even today has far fewer than most fighting sports. However, its popularity was constrained because the Nevada Athletic Commission refused to sanction it and many states banned it. Eventually the UFC modified its rules so it could get sanctioned. The government’s intervention in the UFC parallels its intervention in the economy and personal freedom, while the success of the UFC demonstrates the benefits of less regulation.

When the organization started, one of the main attractions was to see which types of fighters would reign supreme in a fight with essentially no rules (with a few exceptions, such as no eye gouging or biting). Fighters with different backgrounds—such as wrestling, Muay Thai, boxing, and Brazilian Jiu Jitsu—competed against each other. Although the participants willingly entered the competition knowing the rules (or lack thereof) and the risks, most state governments were reluctant to allow the fights. Essentially, the government was protecting the fighters from themselves, similar to how the government steps in to prevent people from eating, drinking, or smoking certain substances. Of course, this frustrated some fighters who did not understand what business the government had in interfering with their lives. As former UFC fighter Kevin Randleman said, “If the public wants it, how can the politicians deny it? . . . They can be out the next election cycle. They need to listen to the people.”

UFC copycat organizations were also banned in many places. One of the people who led the crusade against the UFC and MMA events was U.S. Senator John McCain. As Amy Silverman of the Phoenix NewTimes wrote in “John McCain Breaks Up a Fight” (Feb. 12, 1998), a sold-out show was canceled hours before the bell, the owner of the theater explaining, “I’m not going to take on the U.S. Senate.” One of the fighters, Lyman Markunas, explained his frustration: “I am kind of disgusted, because of all the training I do.” The people wanted to see the event, the fighters wanted to participate in the event, but powerful government figures pressured the states to ban the sport.

From the government’s perspective, allowing people to fight with few rules may seem likely to lead to multiple deaths and serious injuries. Even if true, one can argue that the government still has no business telling a fighter that he cannot assume the risk, but the evidence does not support claims that MMA matches lead to serious injury or death. Up to now no deaths in the UFC have occurred. A study published in the Journal of Sports Science and Medicine in 2006 observed that in 171 MMA matches from 2001 to 2004, over 61 percent of the injuries were hand injuries or facial lacerations. There was only one reported neck injury, and there were no reported chest or abdomen injuries.

As time passed the UFC added a few more rules, became sanctioned, and was allowed to put on events in many states and countries and on cable television. Overall the fighters are still fairly free to fight in any style they prefer as long as they don’t participate in activities such as eye gouging, head butting, groin attacks, hair pulling, or fish hooking. The main changes in the UFC seemed to have been for entertainment and television purposes. For instance, fights now consist of three or five rounds of five minutes each; there were no time limits before. Fighters are also repositioned if in a stalemate to prevent a long time of dull inactivity.

With the fighters essentially having the freedom to fight in any way they want, those with the best strategies and most ability will succeed and those with poor strategies and ability will fail, as with entrepreneurs in a competitive market. In the early years of the UFC, fighters usually came into the ring with a particular skill, such as wrestling, karate, or Brazilian Jiu Jitsu. However, those fighters who did not have a balance of skills did not last if they did not adjust. For instance, fighters who were not familiar with Brazilian Jiu Jitsu were quickly forced to submit, so fighters soon learned the basics of that discipline. Those fighters who had no wrestling skills were typically put on the ground and pounded out if the other fighters were skilled at wrestling, so fighters had to learn the basics of that discipline as well. As time passed, fighters still entered the “octagon” with a specialty, but usually also had to be adequately skilled in the other disciplines to hold off generic attacks.

The government can take a lesson from the success of the UFC when it comes to business and personal freedom. Letting businesses choose whom they want to hire, how much they should pay their employees, what prices to set, and how much to produce seems like it would lead to chaos. Similarly, letting people eat and drink whatever they want, and participate in any sporting activity they want, would also seem to invite chaos. However, we have seen from the UFC that when the rules of the traditional disciplines were lifted, fighters innovated and became more skilled. The more regulation intrudes on the UFC, the less potential for innovation and improvement exists. For example, if to protect fighters the rules limited the sport to make it a boxing match, the fighters would not need to improve their submission or kicking skills, and they would not have to worry about defending such attacks.

Similarly, when government protects a domestic industry with a tariff or quota, the firm may not be forced to innovate and improve to compete with foreign competition. Also, when government tries to protect drivers and pedestrians with unnecessary traffic lights and stop signs, it may create a false sense of security, stifle ingenuity, slow traffic, and increase accidents. “We will be creating a bit of indecision in all road users’ minds to create a safe environment,” said Martin Low, Westminster City Council’s head of transportation, who is running an experiment with fewer traffic lights in London. “When lights are out we have noticed that drivers are far more considerate and show more care and attention than they are when they have the reassurance of traffic lights.” (“London Seeks to Reduce Congestion by Eliminating Traffic Lights,” New York Times, Sept. 2, 2009.)

In fact, regulation may create chaos, while lack of regulation may create continuous innovation.

When regulation of the UFC has increased, as when the regulation of business or personal freedom increases, a select group of people has benefited, while others were punished. Sometimes regulation hurts those who need help the most. For instance, when time limits were implemented in the UFC, it benefited those without the stamina for a longer match—typically the large and bulky fighters—while it hurt the more patient fighters who need time to set up a submission. A minimum wage benefits union workers, who don’t have to compete with low-skill/low-wage competitors, while it hurts the young and unskilled workers who would be willing to work for a lower wage but are unable to find employment. The prohibition of certain drugs benefits the drug cartels and large corporations while imposing a large cost on society from the imprisonment of offenders, an insecure environment, and the unavailability of life-saving drugs.

Benefits of Uncertainty

Like the free-market economy and free people generally, the UFC has faced uncertainty. When two fighters enter the ring with limited rules and different styles, it may be difficult to predict the outcome of the match. This uncertainty can make it exciting for the fans, but it can make government and society nervous. As the saying goes, a known devil is better than an unknown angel. The same goes for freedom and the free market, where the unknown outcome may lead people to favor more government intervention.

However, uncertainty can lead to favorable economic outcomes. As economist Armen A. Alchian wrote in “Uncertainty, Evolution, and Economic Theory”:

In general, uncertainty provides an excellent reason for imitation of observed success. Likewise, it accounts for observed uniformity among the survivors, derived from an evolutionary, adopting, competitive system employing a criterion of survival, which can operate independently of individual motivations. Adapting behavior via imitation and venturesome innovation enlarges the model. Imperfect imitators provide opportunity for innovation, and the survival criterion of the economy determines the successful, possibly because imperfect, imitators. Innovation is provided also by conscious willful action, whatever the ultimate motivation may be, since drastic action is motivated by the hope of great success as well as by the desire to avoid impending failure.

As with people in society, fighters in the UFC do not want to fail. Surely each fighter would love to have a safety net that protects him but not the other fighters, just as a firm would love to have a subsidy and a protective tariff imposed, and just as an employee would love to have a secure union contract and unlimited unemployment benefits. A large company would also love to know that it would be bailed out if it failed. A casino gambler would love to know he will receive a refund if he loses everything. However, if the UFC or the government tried to do too much to protect the fighters, firms, or employees, then competition, innovation, and individual responsibility would cease to exist, and everyone would fail.

Fortunately for the UFC, it has been able to make government accept it without too much overbearing regulation. MMA has now become one of the most popular sports in the United States, and it is growing fast across the world. The success of the UFC demonstrates that the freedom to choose leads to favorable outcomes, but it must overcome government, fear, and special interests.

The Industrial Revolutionaries doesn’t answer that fundamental puzzle, but it puts a lot of interesting pieces on the table. It is marvelous reading as well. This is not a dry account of innovation and technological progress, but a living, breathing history of the people who made that progress happen. Some of them (for example, Samuel Morse) you will have heard of before—although perhaps not quite in the light portrayed in this book. Others are scarcely household names.

For me much of the mystery isn’t so much in how innovation takes place, but in how it is adopted, spread, improved, and made to work. That discovery process is the soul of this book.

Many of the protagonists of this story believed that their ideas might be stolen, sometimes taking elaborate measures to preserve their secrets and obtaining patents. It is hard to read this book and conclude that this is anything but a mistake. Technology is difficult to transfer. Those who succeeded the best are those who helped the world learn of their ideas and took advantage of others to improve their ideas and make them practical. Little progress has ever been made by putting ideas under lock and key, whether in the form of patents or trade secrecy.

Let me quote Weightman, discussing the Arkwright water frames. “If you glance at a diagram of the first of Arkwright’s water frames, it is immediately apparent that copying it would be no easy task. . . . [T]here was no substitute for finding someone who had spent time in the Mill.” Hard practical knowledge—that’s what innovation is all about—is not so easily stolen.

Most of the book discusses the less well-known inventions that were every bit as integral a part of the Industrial Revolution as the steam engine. Weightman is careful to explain just how essential these “lesser” (but in fact merely less well-known) inventions were. The entire Industrial Revolution centered not on an idea or invention or two, but on interlocking sets of inventions and ideas. Take the improved iron produced first by Wilkinson. Did you know that railroad tracks in the United States were originally made of wood? You can imagine the success of railroads that ran on rotted and broken wooden tracks. Yet until the demand for transportation increased and the Wilkinson methods were successfully recreated in the United States, we lagged behind England in railroads.

How did England get such an edge on France in the Industrial Revolution? I can’t say that Weightman has entirely solved that puzzle, but he convinces me that the French Revolution played an enormous role. Just as the United States leapfrogged past Germany when Hitler drove out his scientists, so England and the rest of the world advanced past France when France executed or drove into exile its innovators. The tale of French innovators during the revolution is fascinating, and it’s good for the rest of us that many managed to escape.

Speaking of unsung heroes, how about the English “navvies,” the all-around workmen who built everything from railroads to tunnels? You wouldn’t think that “unskilled” labor was so important, but having workmen with basic technical skills and a decent diet made all the difference—so much so that to build railroads in France, the English used their own workmen.

The book is full of speculators, revolutionaries, and heroes. How did Japan catch up to Western Europe, going from medieval technology to the modern era in mere decades? Read the story of the Choshu samurai who remade their country. Or in the other direction, read the pathetic story of Samuel Morse, a man far more interested in taking credit for other people’s work than in advancing the cutting edge of technology. Do you know of Justis Liebig, the pioneer of organic chemistry, and the role organic chemistry played in the late stages of the Industrial Revolution? I did not. The book is full of romance as well. I wouldn’t have imagined that the invention of the torpedo was directly responsible for The Sound of Music. Not the movie—the real life story the movie was based on.

Innovation, for whatever else it may be, is fun. Weightman manages to convey this while laying out a wealth of information about how it really takes place.

This activity has focused on the fact that traditional news-producing businesses aren’t making the money they used to make because of competition from new kinds of outlets.

This, allegedly, is a market failure.

Print journalism lost income to television, then the Internet, and now from the expanding capabilities of mobile handsets. In this new and still rapidly evolving order, print news media are increasingly discovering they are at a comparative disadvantage in attracting advertising dollars. Like dial-up Internet access, the newspaper is getting left behind.

But is this a market failure? The FTC argues that journalism is a public good, that the severe contraction of the industry proves that the market has failed, and thus that even tirelessly experimenting entrepreneurs have been unable to find new and sustainable streams of revenues for news organizations, especially for traditional newspapers and their online extensions. As paragraphs 14 and 15 of the FTC paper argue:

14. There are reasons for concern that experimentation may not produce a robust and sustainable business model for commercial journalism. History in the United States shows that readers of the news have never paid anywhere close to the full cost of providing the news. Rather, journalism always has been subsidized to a large extent by, for example, the federal government, political parties, or advertising.

15. Economics provides insight into why this has been the case. The news is a “public good” in economic terms. That is, it is non-rivalrous (one person’s consumption of the news does not preclude another person’s consumption of the same news) and non-excludable (once the news producer supplies anyone, it cannot exclude anyone). Because free riding is usually easy in these circumstances, it is often difficult to ensure that producers of public goods are appropriately compensated.

The policy recommendations, in turn, are intended to raise revenues and decrease costs to news-producing organizations, while making life more difficult for online news aggregators and other new media “free riders.”

Major New Programs

By my count the FTC report contains 30 potential policy proposals, ranging from major new programs to tweaks of existing interventions. I have categorized most of the proposals into six broad areas:

• Raise revenues to news organizations by: amending the Copyright Act to allow licensing of news content and expand protections of “hot news” while also narrowing the scope of fair use; and exempting news organizations from federal antitrust laws to encourage collusion in charging end users and online news aggregators.
• Reduce costs to news organizations by: granting free access to government computing centers; expanding R&D subsidies to information technologies that journalists use; and standardizing the way governments issue electronic information as fodder for what journalists report.
• Increase current funding of journalism by: increasing subsidies to the Corporation for Public Broadcasting; increasing postal subsidies for mailing of print media; and funding newly created domestic counterparts to international radio broadcasting like Voice of America and Radio Free Europe.
• Create new federally funded programs including: a new journalism division of AmeriCorps; a national fund for local news in “places the market has failed to serve”; and grants to universities for student-produced investigative journalism.
• Offer tax preferences to news organizations including: credits for hiring journalists to “help pay the salary of every journalist”; tax-exempt status for news organizations that convert from commercial to non-profit news organizations; and a newly created IRS status of news organizations as “for benefit” organizations that are tax-exempt.
• Harvest new funding mechanisms for earmarked spending on news organizations, including: a tax return checkbox for up to $200 to distribute to nonprofit news organizations; new Federal Communications Commission surcharges on new-media content; new taxes on spectrum use and spectrum auctions; a new 5 percent tax on consumer electronics; a new 2 percent tax on online advertising; a new 3 percent tax on wireless and Internet phone bills; and more.

This is what the best and the brightest have been up to.

Now just to be clear, the FTC authors are careful to state that these are merely potential proposals that are intended for discussion only. Yet after a year of workshops and dozens of studies, these are the ideas on the table—a thoroughgoing commitment to the coddling of a dying business model coupled with a seemingly wholesale disregard for freedom of speech.

Since there isn’t enough space here to talk about all the implications of the FTC report, I will focus on the economic argument that lies at the core of these proposals.

First, you might wonder what the FTC refers to in saying that journalism has always been subsidized by the federal government. Well, consider postal subsidies for shipping print news, first enacted in 1792. Then there are tax breaks to newspapers for costs incurred to increase circulation. Finally, there is direct funding of public radio and television. In light of these examples, it seems apparent that there is a long history of federal subsidies to print journalism.

But precedent does not a market failure make.

In fact, even if a good does have the properties of being non-exclusive and non-rival, as the FTC characterizes journalism, this still does not make the decline of newspapers a market failure. Voluntary provision of public goods tends to work when the supplier of a good can find indirect ways to charge users of a good, thus converting it from non-exclusive to exclusive.

Voluntary Provision of Public Goods

History shows us repeatedly that public goods are often and perhaps even usually provided voluntarily—without mandate or subsidy from government. Toll charges have been sufficient incentives to build roads and bridges for centuries. Beekeepers and orchard growers have found ways to contract and cooperate with each other to provide more of two goods—honey and flowers—that have classic potential free-rider problems. Casino hotels in Las Vegas provide free self-parking and security. Even law enforcement itself is not a public good. Neighborhood police forces have survived on a fee-for-service basis in San Francisco, of all places, for over 150 years.

The question of whether that classic public good, the lighthouse, was provided privately in England has been a matter of some controversy. But of course, ships don’t rely on lighthouses any longer. When navigation tools enabled precise longitudinal calculations, those tools began displacing lighthouses. More recently, GPS has made lighthouses obsolete. The lighthouse is now a dead business model. That doesn’t make a lighthouse a public good, though. It makes it no longer a good.

The same dynamics are true of journalism. Producers of journalism charge consumers of journalism indirectly through advertising. But the old business model is dying. That doesn’t make journalism a public good. It makes the traditional business model obsolete.

Forgotten Consumer

But what about the losses to news producers? This is not pleasant to see unfold, but it is not a market failure. A policy-relevant market failure is the experience of real net losses in society as a result of purely self-regulated voluntary action. When people stop using lighthouses and newspapers, it’s because they’ve turned to new and better substitutes. The lighthouse’s loss has been society’s gain. Similarly, as news producers’ revenue streams have dried up, this has created more than offsetting opportunities for new-media producers and consumers of information. It has also spurred innovation in new forms of journalism. To its discredit, the FTC report barely mentions news consumers in its litany of industry-enhancing proposals. And it treats new-media competitors as the bad guys. As a society, we wouldn’t want to go back to horse-drawn buggies unless we were fixing our focus entirely on the welfare of buggy-whip makers to the neglect of carmakers, consumers, and the rest of us. The authors of the FTC report do not seem to get this point.

Market-failure theory is of little help in understanding how markets really work and what is happening to journalism. A better framework is creative destruction. Old journalism is failing not because it is a public good that government has not adequately funded. It’s failing because it is being replaced with more innovative alternatives.