Category Archives: economics

A contract

Back in September*, I had linked to this post by S. Oliva at the Mises blog and had said I would write about it “one of these days.” Given that there’s a new “discussion” on the validity of intellectual property going on between the Randians and Rothbardians, this is a good time to do it.

Oliva writes-

[R]and’s defense of intellectual property outshines even the most litigious pharmaceutical company. Consider a core argument of the Randian canon – Howard Roark’s trial defense in The Fountainhead. Roark manages to justify trespassing and physical destruction of another person’s tangible property, all in the name of preserving the sociopathic architect’s “right” to avoid looking at a building that was similar – but not identical – to one he designed.

For those unfamiliar with the novel, Roark is an architect who spends his career in relative obscurity despite his obvious talent. Roark personifies Rand’s concept of pure egoism: He designs and constructs buildings primarily for his own satisfaction. The climax of the novel involves Roark designing a government housing project called Cortlandt. Roark makes a deal with Peter Keating, the architect who actually holds the commission for Cortlandt: Roark will design Cortlandt for Keating anonymously and free of charge provided the complex is constructed to Roark’s exact specifications. Keating cannot change the design. Keating, in turn, secures a similar promise from Cortlandt’s owners, but they ignore this and make changes. When Roark sees the “deformed” Cortlandt, he sneaks onto the property and blows it up with dynamite.

(About the trials, court cases, in The Fountainhead, K.M. linked to this interesting analysis a few months back.)

He’s right for the most part, and has more to say on the subject (I will come to that later), but here’s the situation again. Cortlandt is a government housing project whose units would be let out at a low rent to people whose income is below a particular threshold. Keating gets the commission, but Toohey, the man who has the power to recommend an architect, knows that there’s only one person who can create Cortlandt, Roark. And that if Keating does come up with the plans, the man behind him would have to be Roark. Now what does Roark think about the whole thing?

I hate the whole blasted idea of [housing]. I think it is a worthy undertaking—to provide a decent apartment for a man who earns fifteen dollars a week. But not at the expense of other men. Not if it raises the taxes, raises all the other rents and makes the man who earns forty live in a rat hole. That’s what’s happening in New York. Nobody can afford a modern apartment—except the very rich and the paupers. Have you seen the converted brownstones in which the average self-supporting couple has to live? Have you seen their closet kitchens and their plumbing? They’re forced to live like that—because they’re not incompetent enough. They make forty dollars a week and wouldn’t be allowed into a housing project. But they’re the ones who provide the money for the damn project. They pay the taxes. And the taxes raise their own rent. And they have to move from a converted brownstone to an unconverted one and from that into a railroad flat. I’d have no desire to penalize a man because he’s worth only fifteen dollars a week. But I’ll be damned if I can see why a man worth forty must be penalized—and penalized in favor of the one who’s less competent.

[…]

I don’t believe in government housing. I don’t want to hear anything about its noble purposes. I don’t think they’re noble. But that, too, doesn’t matter. That’s not my first concern. Not who lives in the house nor who orders it built. Only the house itself. If it has to be built, it might as well be built right.

So we know his stand on the morality of government housing, and why he would do it regardless.

Then he lays down the conditions under which he will do the project-

Your government housing, among other things, has made all building so expensive that private owners can’t afford such projects, nor any type of low rent construction. And I will never be given any job by any government.

[…]

Peter, I love this work. I want to see it erected. I want to see it real, living, functioning, built. But every living thing is integrated. Do you know what that means? Whole, pure, complete, unbroken. Do you know what constitutes an integrating principle? A thought. The one thought, the single thought that created the thing and every part of it. The thought which no one can change or touch. I want to design Cortlandt. I want to see it built. I want to see it built exactly as I design it.

[…]

[H]ere’s what I’m offering you: I’ll design Cortlandt. You’ll put your name on it. You’ll keep all the fees. But you’ll guarantee that it will be built exactly as I design it.

[…]

You’ll have to get yourself an ironclad contract with your bosses and then fight every bureaucrat that comes along every five minutes for the next year or more. I will have no guarantee except your word.

[…]

Sign it…. [a] contract between us, stating the terms of our agreement….It would probably have no legal validity whatever. But I can hold it over your head. I couldn’t sue you. But I could make this public.

This…is a contract between Roark and Keating. Keating has a different contract with the government, which then goes on to ignore it. Roark dynamites the monstrosity, and this is what he has to say in his defense-

Now you know why I dynamited Cortlandt.

I designed Cortlandt. I gave it to you. I destroyed it.

I destroyed it because I did not choose to let it exist. It was a double monster. In form and in implication. I had to blast both. The form was mutilated by two second-handers who assumed the right to improve upon that which they had not made and could not equal. They were permitted to do it by the general implication that the altruistic purpose of the building superseded all rights and that I had no claim to stand against it.

I agreed to design Cortlandt for the purpose of seeing it erected as I designed it and for no other reason. That was the price I set for my work. I was not paid.

I do not blame Peter Keating. He was helpless. He had a contract with his employers. It was ignored. He had a promise that the structure he offered would be built as designed. The promise was broken. The love of a man for the integrity of his work and his right to preserve it are now considered a vague intangible and an inessential. You have heard the prosecutor say that. Why was the building disfigured? For no reason. Such acts never have any reason, unless it’s the vanity of some second-handers who feel they have a right to anyone’s property, spiritual or material. Who permitted them to do it? No particular man among the dozens in authority. No one cared to permit it or to stop it. No one was responsible. No one can be held to account. Such is the nature of all collective action.

I did not receive the payment I asked. But the owners of Cortlandt got what they needed from me. They wanted a scheme devised to build a structure as cheaply as possible. They found no one else who could do it to their satisfaction. I could and did. They took the benefit of my work and made me contribute it as a gift. But I am not an altruist. I do not contribute gifts of this nature.

Oliva attacks this sequence of events in various ways. One, Roark has no “intellectual property,” or any kind of property right in the design of the actual Cortlandt Homes. Two, Roark’s contract, “the promise,” with Keating is meaningless because Keating is not the owner of Cortlandt. Three, Roark has no case of “fraud” against the government because he didn’t enter into a contract with the government, but with Keating.

Rand did have very strong views on IPR, and her distinction between first-handers and second-handers in The Fountainhead could, if one wants to, be read as a support for IPR. But I don’t think looking at this from an IPR perspective is going to provide any solutions. A very strong reason: the Stoddard fiasco. Roark built the “temple,” knew later on that he had been baited by Toohey, lost the suit filed against him, quietly paid up the damages sought, and watched his building being desecrated by louts like Prescott, Webb and others. Rand describes what happened to the temple which was converted to “The Hopton Stoddard Home for Subnormal Children”-

The original shape of the building remained discernible. It was not like a corpse whose fragments had been mercifully scattered; it was like a corpse hacked to pieces and reassembled.

Writing about what he calls the “Roark Doctrine,” Oliva says-

But the most offensive part of Roark’s defense is that his intangible “right” to destroy a building with a similar-but-not-identical design to his supersedes the tangible property rights of – wait for it – altruists. Since Cortlandt’s owners had an “altruistic purpose,” this effectively negated any rights they had in their own physical property, including their right to change a building design without the permission of an architect they never actually hired.

If that were the case, one wonders why Roark didn’t demolish the modified “temple.” It wasn’t fear that stopped him. He had been paid for his work. He knew he had been had. It taught him to stop building structures to abstractions that people would struggle to understand.

Which is why the Cortlandt case is not about IPR, but breach of contract. Before I make the case for breach of contract, I would say that whatever one’s opinion about the legalities of IPR, there does exist something called a moral right. One does find declarations in books where authors assert their “moral right” to be recognized as such. Regardless of whether one pays for one’s copy of The Fountainhead, or lifts it from a server and redistributes it for free, it would be disingenuous for him to claim that he wrote the book. Anyone interested in Human Action, author George W. Bush?

Okay, breach of contract. Roark has an agreement with Keating. Keating has one with the government which incorporates his “promise” to Roark. But this is ignored.

When Keating invoked his contract, he was told: “All right, go ahead, try to sue the government. Try it.”

Roark sold his services, the economical design for Cortlandt, to Keating and demanded as payment the construction of the project “exactly as I design[ed] it.” Unless Keating pays him for the same, Keating is not the rightful owner of the design, or any part of it. Keating’s contract with the government is of a similar nature. And thus, if Roark is not paid, the government cannot make use of his design. If anyone argues (rightly) that contracts only bind the contracting parties, like Stephan Kinsella does in his Against Intellectual Monopoly-

Suppose, for example, that A writes a book and sells physical copies of it to numerous purchasers B1, B2 . . . BN, with a contractual condition that each buyer B is obligated not to make or sell a copy of the text. Under all theories of contract, any of the buyers B becomes liable to A, at least for damages, if he violates these provisions.

But the advocates of the contractual approach to IP are mistaken if they believe that private contract can be used to recreate the same type of protection afforded by modern IP rights. Patent and copyright are good against all third parties, regardless of their consent to a contract. They are real rights that bind everyone, in the same way that my title to a parcel of land binds everyone to respect my property—even if they do not have a contract with me. A contract, by contrast, binds only parties to the contract. It is like private law between the parties. It does not bind third parties, i.e., those not in “privity” with the original parties.

I would say: true, but we have two contracts between three parties, and one of them incorporates the conditions specified in the other. If Webb & Co. had broken into Roark’s offices and copied the designs and then sold them to the government, or if they had merely copied the design of one of Roark’s existing buildings, or if Keating had not signed a contract with the government, that would have been a different matter. In such cases, Roark wouldn’t have any case against the owners of Cortlandt, but only against Webb, Keating etc.

But that’s not what has happened here. Even someone who does not believe in IPR has to acknowledge that Roark “worked” on Cortlandt, and was not paid for it. The government broke its agreement with Keating, which automatically resulted in the breach of his contract with Roark. If the case had gone to a proper court, the judge would realize after consulting the books of accounts and the tendering process of the project that it was not the balconies added by Webb, the “alteration,” or the bricks and cement supplied by someone else but Roark’s design that was the mainstay of the project. And he would have assessed damages accordingly, the government being liable to compensate Keating, and Keating, Roark. But where’s the drama in that? Rand’s resolution of the Cortlandt case—Roark dynamiting the project, but being freed by the jury in spite of “confessing” to the “crime”—accomplishes the same result in a far more satisfying manner.

In a civilized, capitalist, society with a proper legal system, there would be no need for a “right” to dynamite something. In a decaying society where rights are not protected and the government simply takes what it wants without paying for the same, there is.

[*Except the last paragraph or so, and minor edits, everything else is as written in December ’09]

The Indian government and its reverse Midas touch

Sauvik thinks Kalmadi has improved India’s image. He’s not being sarcastic-

Suresh Kalmadi, who organized the CONgresswealth Games and has claimed responsibility for the mess, has IMPROVED Indyeah’s image. He has proved to the entire world that what works in Indyeah is The Market – look at the Sensex – and what does NOT work in India is our The State. First class citizens in a third-rate country. The people are the resource; the government is The Problem.

and I agree with the sentiment. As does Salil Tripathi

Once again, India has revealed its remarkable ability to score an own goal. The staging of the Commonwealth Games, due to start in New Delhi on October 3, was supposed to herald India’s emergence on the international stage. Instead, the appalling mess has become a public relations disaster of epic proportions.

[…]

It’s important to blame the right people, however. This is not a failure of the Indian people or Indian culture.* It is the Indian government—politicians and bureaucrats alike—who have failed so badly with the Commonwealth Games.

[…]

The Games episode brings into stark relief the fact that India succeeds—and the economy grows, lifting people out of poverty—when private-sector entrepreneurship flourishes. It descends into chaos whenever the government steps in.

Something I wrote in a comment a few years ago-

Indian governments have the reverse Midas touch. Anything they touch turns to ashes. That is why government should get out of the way. Only then will things improve.

[*Indian culture isn’t completely blameless though, as CP Surendran points out in a post from his series on “The Ugly Indian” with statements like “The Delhi Games is probably one of the most racist ever: it’s two civilizations looking at shit” and “Our idea of the sublime itself is ridiculous.”]

Another IP rant

Found this Stallman short story which occurs in a dystopian future in an Ars comment thread-

For Dan Halbert, the road to Tycho began in college—when Lissa Lenz asked to borrow his computer. Hers had broken down, and unless she could borrow another, she would fail her midterm project. There was no one she dared ask, except Dan.

This put Dan in a dilemma. He had to help her—but if he lent her his computer, she might read his books. Aside from the fact that you could go to prison for many years for letting someone else read your books, the very idea shocked him at first. Like everyone, he had been taught since elementary school that sharing books was nasty and wrong—something that only pirates would do.

And there wasn’t much chance that the SPA—the Software Protection Authority—would fail to catch him. In his software class, Dan had learned that each book had a copyright monitor that reported when and where it was read, and by whom, to Central Licensing. (They used this information to catch reading pirates, but also to sell personal interest profiles to retailers.) The next time his computer was networked, Central Licensing would find out. He, as computer owner, would receive the harshest punishment—for not taking pains to prevent the crime….

Ars reported last month that the RIAA was lobbying for the mandatory inclusion of FM radios in portable electronics. Naturally, the electronics lobby isn’t happy about it-

The Consumer Electronics Association, whose members build the devices that would be affected by such a directive, is incandescent with rage. “The backroom scheme of the [National Association of Broadcasters] and RIAA to have Congress mandate broadcast radios in portable devices, including mobile phones, is the height of absurdity,” thundered CEA president Gary Shapiro. Such a move is “not in our national interest.”

“Rather than adapt to the digital marketplace, NAB and RIAA act like buggy-whip industries that refuse to innovate and seek to impose penalties on those that do.”

But the music and radio industries say it’s a consumer-focused proposition, one that would provide “more music choices.”

It’s very heartening to note that these lobbies “care” about the consumer and the nation so much. De facto perpetual copyrights and submarine patents that allow people to blackmail companies with a successful business model wouldn’t exist without such caring. Of course, one hopes they don’t intend to start suing people listening to their radios, like the British music lobby did a few years ago-

The mechanics working out in the garage have radios playing while they work, and there’s plenty of noise in the garage, so they’re likely to turn those radios up. Customers in the enclosed area next to the garage are certainly likely to hear that music… but is it really a public performance? The Performing Rights Society in the UK certainly thinks so, which is why they’re suing. The repair firm, Kwik-Fit, has a pretty weak response, saying that it’s banned personal radios for ten years. Instead, it should be fighting back on the idea that this is a public performance in any way. Otherwise, you get into all sorts of trouble. If you have the windows open in your home and are listening to your legally owned music (or your TV!) and your neighbor can hear it, is that a public performance?

Is that a public performance? Damn yeah! That’s what former Sony BMG lawyer Pariser might say, given that she said this in court, in ’07-

Pariser has a very broad definition of “stealing.” When questioned by Richard Gabriel, lead counsel for the record labels, Pariser suggested that what millions of music fans do is actually theft. The dirty deed? Ripping your own CDs or downloading songs you already own.

Gabriel asked if it was wrong for consumers to make copies of music which they have purchased, even just one copy. Pariser replied, “When an individual makes a copy of a song for himself, I suppose we can say he stole a song.” Making “a copy” of a purchased song is just “a nice way of saying ‘steals just one copy’,” she said.

In this atmosphere, the world of Stallman’s story seems to be the saner one while ours appears surreal.

Value

Value is not intrinsic. It is not in things and conditions but in the valuing subject.

Ludwig von Mises, Theory and History

Control

A commentator at reddit leaned on my post that carried an excerpt from Rauschning’s book in support of his (I presume) anti-socialism position. The reply he got-

The article you present fails to mention that the book is considered plagiarized and fabricated. According to Wikipedia, “Historians generally regard this book as discredited.” It’s plausible that the author would want to discredit Socialism with his book due to his Conservative views.

But let me humor you for a moment and assume that the book is completely genuine. I fail to see an endorsement of the idea that people ought to democratically operate the means of production, which is what Socialism is. I doubt Adolph Hitler subscribed to that idea…

I have no intention of arguing over trifles. I only wish to say that to maintain that only an economy wherein the state nationalizes the “means of production” can be said to be a socialist one is to intentionally ignore the big picture. In the end, it all boils down to control

If “ownership” means the right to determine the use and disposal of material goods, then Nazism endowed the state with every real prerogative of ownership. What the individual retained was merely a formal deed, a contentless deed, which conferred no rights on its holder. Under communism, there is collective ownership of property de jure. Under Nazism, there is the same collective ownership de facto.

This is what Peikoff writes in his book. And, if one believes Rauschning, Hitler says something very similar-

“Why bother with such half-measures when I have far more important matters in hand, such as the people themselves?” he exclaimed. “The masses always cling to extremes. After all, what is meant by nationalization, by socialization? What has been changed by the fact that a factory is now owned by the State instead of by a Mr. Smith? But once directors and employees alike have been subjected to a universal discipline, there will be a new order for which all expressions used hitherto will be quite inadequate.”

…They themselves are changed. What are ownership and income to that? Why need we trouble to socialize banks and factories? We socialize human beings.”

Even if all this is fabricated, I doubt if anyone would argue that Nazi Germany was a country where businessmen were free to take any business decision they wanted without worrying about what the State would do to them.

Control is key.

To wrap this post up, here’s a Rand quote from the comments to the “control” post-

I have stated repeatedly that the trend in this country is toward a fascist system with communist slogans. But what all of today’s pressure groups are busy evading is the fact that neither business nor labor nor anyone else, except the ruling clique, gains anything under fascism or communism or any form of statism—that all become victims of an impartial, egalitarian destruction.