Thursday, July 22, 2010

The Defense of Intangible Property

I recieved this comment from someone named "RSD" on my column at, "Liberty, Justice, and Shopping." The political preconditions and consequences of specifically intangible property is an interesting topic for reflection.

Like you, I’m thankful for Amazon, and join you in viewing it as something of a model for how a market can function effectively. Part of its effectiveness is based on the fact that the traded entity is tangible. Tangibility lends to transparency, as reasonable people can generally assess whether or not a seller’s description is accurate. Further, it is difficult to exercise monopoly power over tangible property because the costs of maintaining the monopoly will eventually outstrip any monopoly-derived profits. (Consider, for example, Judge Hand’s analysis in the Alcoa case.)

Our financial markets, in contrast, revolve around intangible property, i.e., forms of property that have no intrinsic value outside of a legal/institutional framework that vests rights in them. Thus, transparency is not as straightforward. Further, monopoly is more readily achieved, as there is generally no added cost to maintain the monopoly.

It’s worth noting, therefore, that there is no such thing as intangible property, in general, without the willingness of the government to intervene for the benefit of those who possess rights in intangible property under the law. Thus, it’s not unreasonable also to expect government to ask, in exchange for such protections, that submit themselves to regulations that attempt to force intangible-property markets to mimic, as closely as possible, the features of tangible-property markets. ...
RSD goes on to distinguish between "the lazy rich" who reap rewards disproportionate to any "superior skill, foresight, and industry" they once may have exercised, if at all, and those who do exercise these. Laws that favor these "lazy rich" introduce economic injustice and distortions in the economy, and discourage innovation by those with "superior skill, foresight, and industry."

While wealth may be a better indicator of such than poverty, the ideal market, like the one on Amazon, should be no respecter of one’s current economic status. If the market is working effectively, the wealthy should lose much of their wealth as soon as they stop exercising superior skill, foresight, and industry.

The entire comment, #5 on the thread, is worth a read.

I responded, "I like your oft repeated phrase, “skill, foresight, and industry.” Francis Bacon, my chief research interest, exalts people with these qualities, and deprecates “the lazy rich” in the aristocracy. Bacon was one of the great architects of modernity, and prepared significant foundations for modern economic thinking in his Essays."

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