As I have written extensively elsewhere, business and economic thinking is bedeviled by the legacy of the French philosopher Rene Descartes. In his seminal work "Discours de la methode" (1637), Descartes invented the concept of set theory, under which an item either was or was not a member of a set. While his work was later modified by Blaise Pascal and the Rev. Thomas Bayes, who invented the science of probability, the Descartes formulation, as modified by Pascal and Bayes, did not adequately distinguish between the predictably random -- like a coin toss (or at least a Platonically ideal coin toss) -- and the truly unknown -- like next year's gross domestic product.
Thus "Murphy's Law," under which bad things tend to happen in bunches, as we have been seeing economically since early 2000, is inadequately accounted for. A Cartesian world view believes that the stock market is random, so that "bubbles" cannot happen; it also assumes that property rights are absolute -- one either owns something or one does not.
In reality, property rights are a classic example of a "fuzzy" concept, one ruled by fuzzy rather than Cartesian logic. Under fuzzy logic, an object can be a partial member of a set, thus a medium gray object, or a polka dot object, may both be described as say a 52 percent member of the set of black objects. The objects are not randomly members of the black set or the not-black set, they are partial members of both sets. The "belief" that the objects are black is partial, in this case 52 percent. Importantly, the "belief" of the union of two objects is the lesser of the two beliefs rather than, as in probability theory, the product. Thus if four unlikely pieces of bad news each have a "belief" of 10 percent, the "belief" of all four happening is still 10 percent -- not, as in probability theory's Bayes' Theorem, 1 in 10,000. The strength of this concept is evidenced by Murphy's Law -- bad news tends to cluster, in a way entirely unpredicted by Bayesians, by the fact that stock markets are "leptokurtic" -- they follow trends, not a random walk -- and by the high frequency of companies totally missing their next year's profit forecasts, even those prepared honestly.
A Cartesian who believed in property rights would say that Sutherland, as owner of half Scotland, had a perfect right, if he wished, to remove all his tenants and replace them by sheep, however dreadful the human consequences for the tenants. A Cartesian who believed that property rights should be subject to government control would say that Franklin Roosevelt in 1933 had a perfect right to invalidate the gold clauses in previously negotiated bond agreements between private parties, thus expropriating investors and effectively closing the capital markets for a decade. To a fuzzy logician, both assertions of rights are extreme; he or she would have a high "belief" that both are wrong.
To such a fuzzy logician, the inviolability of property rights depends on the possible social and economic consequences of their violation. At one extreme, a middle-class homeowner has an almost wholly inviolable right to his or her home (subject to the mortgage company's interest) because the economic and social consequences of an ability by government or powerful private interests to deprive someone of their home would be social anarchy and economic collapse.
At the other extreme, Sutherland had an equal legal title to his property as an ordinary homeowner, but his extreme pursuit of a moderate economic profit from sheep rearing, at the cost of huge damage to the interests of his tenants, meant that his property right should indeed have been violated, to the minimum extent possible, so that at least he was compelled to provide substantial compensation and an alternative livelihood to the evicted.
Intellectual property is a case where technology has first created and then vastly expanded a property right that does not exist in a state of nature. Before the British Copyright Act of 1709, intellectual property could only be created by private Act of Parliament. This was done, for example, in the case of Edward Earl of Clarendon's "History of the Great Rebellion" published in 1703 under a special copyright. Oxford University, which owned the manuscript under Clarendon's will, rightly believed that their effort in deciphering 2,000 printed pages worth of handwritten manuscript, and fact-checking and indexing the result deserved some reward beyond that of a mere mechanical book printer.
Clarendon's history was a bestseller in its day, but it didn't make anybody rich. Right through the 19th century, the financial positions of the giants of English literature, Charles Dickens, William Thackeray and Anthony Trollope, was surprisingly precarious compared with modern writers of equivalent success.
Technology has changed everything. For an extreme example, consider the Encyclopaedia Britannica. My 1911 edition, in 29 volumes plus an index, weighs a quarter of a ton and retailed when new for 42 golden guineas, about $4,000 in today's money. My 2003 edition, on two CDs but containing an equivalent amount of information, was given away free with this year's edition of TurboTax. Yet the copyright protection of both editions is theoretically the same.
The advance of technology has resulted in a huge democritization of culture, which has greatly increased the returns to those catering to the tastes of the masses.
While the ability of schoolchildren everywhere to access the Encyclopaedia Britannica for their term projects is wholly to be welcomed, the greatest monetary rewards today do not go to the purveyors of Clarendon's "History of the Great Rebellion" nor to the Encyclopaedia Britannica, but to the clever marketers of culture catering to the lowest common denominator. Naturally, this has resulted in a huge increase in the amount of proletarianized culture that is being produced.
If intellectual property rights apply equally to high and low culture, it is only to be expected that low culture will predominate.
The effect on culture of recent developments in the intellectual property area will be discussed in Part 2, to be publishedTuesday.
(The Bear's Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that, in the long '90s boom, the proportion of "sell" recommendations put out by Wall Street houses declined from 9 percent of all research reports to 1 percent and has only modestly rebounded since. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)