Fixing Copyright: Is Copyright A Part Of Free Market Capitalism?

by Mike Masnick
Dec. 05, 2012

Continuing our series of posts concerning the Republican Study Committee report on the problems of the copyright system and how to fix them (which it quickly retracted under industry pressure), today we're going to explore the second "myth" that author Derek Khanna helped debunk: that "copyright is free market capitalism at work." We've already covered the first myth, about the purpose of copyright, as well as responded to various responses to the report by copyright maximalists.

That response feeds nicely into this post, because the whole argument that copyright is "free market capitalism" depends almost entirely on the key claim of maximalists: that copyright is property, full stop. However, as we noted in our response, copyright has both property-like attributes and many non-property-like attributes. And it's when you look at the actual market that you have to recognize that those non-property-like attributes start to stand out. The only way you can argue that copyright is free market capitalism at work is to flat out ignore the ways in which copyright is unlike property.

To hopefully demonstrate this clearly, we'll start out with two examples of other "markets" that show that just because you set up a property right and create a market, that doesn't mean it's a free market. First up: air. Yes, that stuff we all breathe. It's clearly a valuable good. Extremely valuable. But... if we're to believe the maximalist view, because we don't directly pay for the air we breathe (even if we pay for it indirectly) it must be "valueless" or "worthless." So, clearly, the best way to deal with this is to set up a monopoly privilege in air -- such that you need to buy a "license" to breathe air that isn't yours.

Think of the massive industry that would be built up around this. It would really be a tremendously large industry, because people would be willing to pay every last penny to make sure that they had air to breathe. Talk about having inelastic demand! But, of course, the "problem" is that we have (mostly) abundant supply. Yet, putting monopoly rights on it would solve that problem right away, restricting supply through artificial monopolies, and allowing owners to charge. Boy, would that create a market! Of course, it would be complex, so perhaps we could "ease" things along by creating an Airrights Royalty Board to set some compulsory rates to make the whole market function "better." Think of how we could juice the economy there! Every single person needs air, so they would pay. Clearly, overnight, it would boost the economy.

Of course, this is silly. Everyone knows that it's silly, but as you listen to the arguments for copyright as being a free market, recognize that it's no different than the scenario above. The problem is basically a restating of Bastiat's broken window parable. The government can introduce artificial inefficiencies into the market, but that doesn't mean that it's part of a free market. A free market is one in which resources are being allocated more efficiently. But a market in which you have entities choosing to introduce inefficiencies on purpose to create new markets isn't a "free market" at all. It just creates an inefficient market that draws money to that market and away from more efficient purposes and allocation. You can, if you want, argue that this government / market interference is good for society or a particular group -- but you cannot argue that it's "free market capitalism" because it's not.

The second example is similar. It's the idea that Ed Felten came up with a few years back, known as the Pizzaright Principle, which stated simply is:
Pizzaright – the exclusive right to sell pizza – is a new kind of intellectual property right. Pizzaright law, if adopted, would make it illegal to make or serve a pizza without a license from the pizzaright owner.

Creating a pizzaright would be terrible policy, of course. We’re much better off letting the market decide who can make and sell pizza.

The Pizzaright Principle says that if you make an argument for expanding copyright or creating new kinds of intellectual property rights, and if your argument serves equally well as an argument for pizzaright, then your argument is defective. It proves too much. Whatever your argument is, it had better rest on some difference between pizzaright and the exclusive right you want to create.
This is the same basic concept again. You can create new artificial markets by inserting property-like rights anywhere you want. But most people in other situations recognize that's not free market capitalism at all, but market distorting interference. So, as you listen to those who argue that copyright is free market capitalism, apply these tests. Does it apply equally to airrights and pizzarights? If so, the argument is defective. To date, I have yet to hear an argument for copyright being free market capitalism that doesn't equally apply to airrights or pizzarights.

Of course, there are other important ways in which copyrights are actually against the free market -- and, again, it's here where recognizing the key differences between copyright and scarce property come into play. As Rick Falkvinge recently reminded us, copyright is something that actually limits property rights rather than creates new ones:
Which brings us to the third notable item: “the exclusive right”. This is what we would refer to colloquially as a “monopoly”. The copyright industry has been tenacious in trying to portray the copyright monopoly as “property”, when in reality, the exclusive rights created are limitations of property rights (it prohibits me from storing the bitpatterns of my choosing on my own hardware).
This is a key point that often gets lost in all of this. The only thing that copyright does is limit others' actual property rights. Now, again, this doesn't mean you can't make an argument that this limitation is valuable and important. But it's a simple fact that all the "exclusive right" copyright provides to someone is a way to try to stop people from actually exercising their own property rights over products they own.

In the end, it's fine to argue that copyright has important benefits and value -- but that's not the same thing as arguing that it's a part of free market capitalism. Because it's not.

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