Wednesday, 18 April 2012

“Scarcity” – Does it Prove Intellectual Property is Unjustified?

Guest post by Dale Halling from the State of Innovation blog.

Too many people today don’t understand property rights—even those people whom you might think would be most likely to.  Cato, Reason and the Mises Institute are just three out of many whose otherwise good work in many areas is undermined by their complete ignorance on property rights, especially intellectual property rights.

As Dale Halling explains, their error lies in their misunderstanding (or in some cases abject disinterest) in the derivation of property rights. “They have adopted the Utilitarian point of view that property rights are just an efficient way of allocating scarce resources.”  But this is not the justification for property rights, simply a beneficent consequence.  Cato, Reason, the Mises Institute et al confuse consequence for cause, and in so doing obliterate that which they should be defending.

Adam Mossoff explains has talked extensively on this nonsense, explaining that Jeremy Bentham’s ideas are at the root of these “libertarian” attacks on Intellectual Property.  “Bentham’s basic philosophy was Utilitarianism, i.e., the so-called ‘greatest good for the greatest number.’ Bentham argued the justification for property rights was scarcity and conflict resolution, not natural rights… This is the philosophical point of view used by the Cato Institute, the Von Mises Institute et al to attack patents and copyrights.”

The packaging of utilitarianism and property rights is a complete mess. Bentham himself was an opponent of rights altogether, famously calling them “nonsense on stilts,” so it’s no surprise that today’s Benthamites find themselves opposed as well.

The fact is however, as Mossoff explains, Utilitarianism’s ‘greatest good for the greatest number’ never even achieves its purported goal; its end result is always some form of  totalitarianism. “The reason for this [summarises Halling] is that utilitarianism is merely a justification for short term actions. Once something has been produced, it always looks like the greatest good is to redistribute the creation.” That this sounds like the underlying ethic of every socialist “workers paradise” ever invented is no accident; in fact it is the same ethic in theory, and leads to the same result in prcatice: poverty and coercion. Redistribution of already-produced creations might sound good to the unthinking, “however, this is clearly only true in the short term. In the long term it is clear that this always destroys the economy, rights, and rights-holders.  Stealing the product of one’s mind (mental labor is labor) is no different than banning free speech. It stifles the mind, which source of all economic progress (values).”

The confusion over the status of Intellectual Property must be repaired. Which means the package deal of using utilitarianism to ‘justify’ rights must be untangled. Craig Biddle explains very simply the correct derivation of rights here, wiping away several dangerous confusions in the process. And Dale Halling discuss the historical and theoretical fallacies behind the scarcity theory of property right here in this Guest Post. Enjoy!

The confusion over the status of Intellectual Property must be repaired. Which means the package deal of using utilitarianism to ‘justify’ rights must be untangled. Craig Biddle explains very simply the correct derivation of rights here. And Dale Halling discuss the fallacies behind the scarcity theory of property right here:at my post Scarcity: Does it Prove Intellectual Property is Unjustified and Scarcity -2 and Scarcity -3.  Mossoff points out that  (IP).

Scarcity – Does it Prove Intellectual Property is Unjustified?

A NUMBER OF ALLEGED SCHOLARS [1] have recently suggested that the logical basis for tangible property rights is scarcity.  Property rights efficiently allocate these resources and avoid conflicts between competing rights of individuals.  These scholars argue that ideas and invention are not subject to scarcity and therefore intellectual property rights should not exist.  These arguments seem to be particularly prevalent among libertarians, including the Cato Institute the Von Mises Institute and the open-source community.

Tangible property rights include real property rights in land and buildings and personal property rights in things like cars and furniture.  Tangible or physical property is scarce since it can only be owned by one person at a time and it takes resources to create.  According to this theory, intangible or intellectual property such as patents and copyrights, and software in the case of the open source community, is not scarce so can not be accorded property rights status.  Intangible property can be owned by multiple people without excluding others from the same property, which according to them is the defining characteristic of property..  According to Tom G. Palmer for example, a proponent of this “scarcity” theory of property:

          It is this scarcity that gives rise to property rights.  Intellectual property rights, however, do not rest 
         on a natural scarcity of goods, but on an “artificial, self created scarcity.”

Scarcity however is neither the historical nor logical basis of private property rights.  The historical justification of property rights is based on the right that a person owns himself.  If you do not own yourself, you are a slave.  If you own yourself then you own the fruits of your labor, physical and mental.  This is commonly referred to the “natural rights labor theory of property.”

In the pre-capitalist era, private property existed de facto, but not de jure, i.e., by custom and sufferance, rather than by right or by law.  In law and in principle, all property belonged to the head of the tribe, the king, and was held only by his permission, which could and often was revoked at any time, at his pleasure. [3]  [This is the basis of the fee simple title which is still issued these days in NZ, a legal fiction that remains as a vestige of this tradition that is unfortunately these days becoming a reality again all too quickly.]

The labor theory of property provided the first foundation of property rights as opposed to respecting property simply as a custom.  As a result, the scholars who suggest that property rights are based on scarcity are incorrect historically.

DESPITE THIS HISTORICAL INACCURACY, some of these alleged scholars might still argue that “scarcity” is still nonetheless a better theoretical framework for the justification of property rights.  But this is still not true.

The natural rights labor theory of property explains why slavery is immoral.  If you own yourself, then no one else has the right to own you.  It also explains why murder and manslaughter are immoral, why stealing is immoral, why assault and battery are immoral and why we have laws against all these actions.  The natural rights labor theory defines how property should be allocated and how people come into possession of property morally and legally.  The labor theory explains all of our basic criminal law and all of our basic property laws. 

But what does scarcity explain?  It offers no justification for why slavery, murder, manslaughter, assault and and theft are immoral, except that they are “inefficient at allocating resources.”  Thus, all of these crimes would be allowed if they were efficient at allocating resources.  [In effect, as Bob Jones one joked, their only argument against Hitler’s extermination of millions of human beings would be the size of his gas bill.]

The “scarcity” theory does not explain why these wrongs are wrong. But nor yet does it define who has ownership in any particular property, nor why they should have this ownership in property recognised.  It merely explains that private property ownership is an efficient manner in allocating scarce resources, then ignores completely the question of who is entitled to enjoy these rights.

The “scarcity” theory is neither complete nor accurate.

On top of that, it also requires the additional assumption that it is “preferable” [why? because we said so, that’s why] to have efficient allocation of resources. So it is neither complete, nor accurate, and in addition it begins begging other questions it also fails to answer.

IN SCIENCE, THE THEORY that has the greatest ability to explain the widest number of facts is considered to be the correct or better theory.  Here the “scarcity” theory of private property fails to integrate at all the facts it needs to explain while requiring additional assumptions it can’t explain.

It fails to recognise how a resource is created; it has no basis for explaining how a resource should be initially distributed; it does not explain how property law determines ownership; and it has no power at all to explain criminal law.

Trading scarcity for the labor theory of property is like trading the theory that “what goes up must come down” for Newton’s Law of gravity.  The fact of the matter is that the proponents of scarcity have confused cause with effect.  A system of private property results in efficient allocation of resource, but it is not the reason for private property – it is the effect of private property.

Dale Halling is an American patent attorney and entrepreneur, and the author of the book The Decline and Fall of the American Entrepreneur: How Little Known Laws are Killing Innovation.
Read his regular thoughts at his
State of Innovation blog.


  1. How can they say it's unjustified? Things needs to be thoroughly discuss and properly presented to be justified.

  2. The packaging of utilitarianism and property rights is an entire mess. Bentham himself was an opponent of rights altogether, famously calling them “nonsense on stilts,” so it’s no shock that as we speak’s Benthamites discover themselves opposed as well.


1. Commenters are welcome and invited.
2. All comments are moderated. Off-topic grandstanding, spam, and gibberish will be ignored. Tu quoque will be moderated.
3. Read the post before you comment. Challenge facts, but don't simply ignore them.
4. Use a name. If it's important enough to say, it's important enough to put a name to.
5. Above all: Act with honour. Say what you mean, and mean what you say.