Against Intellectual Monopoly
we insist on a share of the social surplus, not the entire surplus. Contrary to what many pundits repeat over and over, there is nothing
terrifying about this: even under intellectual monopoly innovators receive
a less than 100 percent share of the social surplus from innovation, as the
rest goes to consumers. Under competition for those innovations that are
produced, both consumers and imitators receive a portion of the social
surplus an innovation generates, and such portion is strictly larger than
in the previous case. Confused pundits use the jargon "uncompensated
spillovers" to refer to the social surplus accruing to those besides the original innovator. There is nothing wrong with such spillovers, however. That
competitive markets do allow for social surplus to accrue to people other
than producers is, indeed, one of their most valuable features, at least from
a social perspective; it is what makes capitalism a good system also for
the not-so-successful among us. The goal of economic efficiency is not
that of making monopolists as rich as possible; in fact, it is almost the
opposite. The goal of economic efficiency is that of making us all as well off
as possible. To accomplish this, producers must be compensated for their
costs, thereby providing them with the economic incentive of doing what
they are best at doing. But they do not need to be compensated more than
this. If, by selling her original copy of the idea in a competitive market and
thereby establishing the root of the tree from which copies will come, the
innovator earns her opportunity cost - that is, she earns as much or more
than she could have earned while doing the second-best thing she knows
how to do - then efficient innovation is achieved, and we should all be
happy.
The garden of Eden portrayed until now - and through which we stroll
until when, in a couple of sections, we will eat the apple of indivisibility
and be forced out of the garden without even an evil snake to blame -
follows from the fundamental principle that it is copies of ideas that have
economic value, and that there can be many copies of the same abstract
idea: your copy, my copy, my brother Jake's copy, Wilson Pickett's copy,
and so forth. Copies of ideas are always limited, and it is always costly to
replicate them, which is why they are valuable and why they should enjoy the
same protection afforded to all kinds of property. They should not be taken
away without permission, and the owner should have the legal right to sell
them. Copyrights and patents are not needed to afford this ordinary level of
protection. Copyrights and patents are the additional - and unnecessary -
right to tell other people what they cannot do with the copies they have
lawfully purchased. If ideas are afforded the ordinary protection of property,
but not the extraordinary protection of intellectual property, would people
still come up with valuable ideas and make copies of them to sell to other
people? You bet they would! As we have just argued - more important, as the
endless list of examples in Chapters 2 and 3 proves - people can make lots of
money from selling copies of an idea under this competitive property right
regime. In fact, we have already seen that most markets have functioned
and still function this way, and people operating in those markets have
created new ideas at a breakneck pace and have profitably sold them for
centuries.
The image of an idea as the roots of a tree is more than just a metaphor;
we have already seen that markets for plants and animals worked for centuries according to the principles we describe here. Competing breeders
were able to sell the first exemplars of the new species at prices that were
orders of magnitude greater than their cost because those exemplars were in
very limited supply right after their introduction. By so doing, competing
agricultural innovators captured a substantial share of the value of all future
profits accruing to subsequent users of the new plant or animal. Sometimes
the new variety of grain turned out to be particularly prolific; so, the innovator would learn, ex post, that she sold it at a "discount" to the theoretical
price. Some other times the new variety of tomatoes turned out to be not
nearly as resistant to bugs as the breeder and her clients had expected, so
that she sold at a "premium" over its theoretical price. Nevertheless, to the
extent that entrance in the
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