In 1971 the yippie radical Abbie Hoffman wrote a book advocating resistance to government, capitalism, and the "Pig Nation." Steal This Book advocated shoplifting, squatting, and other methods of living off other people for free. The title and the contents made the manuscript hard to peddle. But when it finally got a publisher it sold well in bookstores, which was good for Hoffman financially. It turns out that most people want to live off other people not by stealing but by paying a fair price earned by their own labors. Hoffman remarked, "It's embarrassing when you try to overthrow the government"—and capitalism—"and you wind up on the Best Seller's List."
I want you to steal what the lawyers self-interestedly call "intellectual property": Hoffman's book or my books or E=mc2 or the Alzheimer's drug that the Food and Drug Administration is "testing" in its usual bogus and unethical fashion. I want the Chinese to steal "our" intellectual property, so that consumers worldwide get stuff cheaply. I want everybody to steal every idea, book, chemical formula, Stephen Foster lyric—all of it. Steal, steal, steal. You have my official economic permission.
What?! A liberal (in the classical sense) wants people to steal? You bet. Here's why. An idea, after it is produced, has no opportunity cost. If one more person reads Hamlet, there's no less of it available for the next person. That's not true of, say, your house. If the neighbors treat your house as common property, there's less of it for you to use. George is in the bathroom right now. Sorry.
It's true of your labor, which also has an opportunity cost—an alternate use necessarily forgone—to you. If you become a slave, you can't use your own self. The master in Kentucky gets those hours in the field away from the little cabin floor, yet he doesn't pay you for their opportunity cost.
The correct price for such scarce items is their opportunity cost, because then, as Adam Smith said, "As every individual…endeavors as much as he can both to employ his capital [and labor and land and other items with opportunity cost so] that its produce may be of the greatest value, every individual necessarily labors to render the annual revenue of the society as great as he can."
But ideas have no opportunity cost. So the optimal price, socially speaking, is zero. That's the correct application of the invisible hand. It's like the Brooklyn Bridge. On the day it opened on May 24, 1883, the correct price to charge another walker across the bridge was zero. The additional walker causes trivial wear to the bridge, and unless the bridge was congested, she causes no opportunity cost.
"Aha!" you reply. "But what about the cost to make the bridge in the first place, or the cost of supporting Shakespeare while he writes Hamlet, or the cost of research and, umm, marketing costs such as trips for doctors and their families for conferences in Hawaii to get a new drug for Alzheimer's? And you call yourself an economist!"
Yes, all that is true. If people are going to get the bridge or Hamlet or the drug, someone has to pay for it. There's no free lunch. It's the central dilemma in any system of rights for intellectual property, or anything else with costs up front but no opportunity cost in use.
There's no trick solution that works qualitatively, such as "have a patent system." Too bad. Life is hard. But the rules that apply to property with an opportunity cost simply don't apply to ideas.
Mathematically speaking, assuming you want to maximize national income, there's a solution. In principle, for each particular example of a cancer drug or a romance novel or an idea for a printed circuit, there's an optimal price. To get the highest total national income, all you have to do is find out what term of years for a patent or copyright is optimal for that particular example. That "solution" is like the economist's solution for opening the can of beans left to a shipwrecked survivor. (To open it, assume you have a can opener.) It's the same as the "solution" to the numerous market imperfections that, say, the economist Joseph Stiglitz believes he sees all around him. To fix them, says Stiglitz, assume you have a perfect government.
An irritating case of not understanding the dilemma is the practice by the National Bureau of Economic Research (NBER) of erecting a paywall to charge for its papers written in the national interest. The considerable charge earns a trivial portion of the costs of producing the papers. Stiglitz's salary is way larger than what's collected. And once the paper is written, the marginal social cost of releasing it is, of course, zero. So according to the principles of pricing figured out in economics a century ago, which Stiglitz teaches at Princeton, the price should be zero. I tried a couple of times to get my friends on the board of the NBER to relent in their anti-economic practice, but they were beyond embarrassment. Being the NBER means you don't have to take seriously either the national or the economic.
There's a more serious counterpoint, made by the economist Steven Horwitz of Ball State University. Namely, that a pastrami sandwich made just the disgusting way you like it, with ketchup, once produced and about to be handed over to you at the deli, also has no opportunity cost. The reply to Horwitz is to retreat to constitutional principles. Namely, the system that gives the best overall result. We want sandwiches to be produced even in the disgusting way you want them, and in order to get the deli to do so we need to have a rule that you have to pay for it.
Another counterpoint is the trade secret. After you've thought of it, the social cost of giving it up is zero. Are you required to give it up? No, on a still deeper constitutional principle: the right not to be enslaved. No wonder Aristotle got that exact point wrong in a society in which the nonslaves deemed slavery to be just fine.
We liberals since the 18th century have denied slavery. The U.S. copyright of fully 70 years from the death of the creator makes people pointlessly enslaved to the heirs of Walt Disney. In Hoffman's 1987 trial for trespass while protesting the activities of the CIA at the University of Massachusetts, he quoted Tom Paine: "Every age and generation must be as free to act for itself, in all cases, as the ages and generations which preceded it. Man has no property in man, neither has any generation a property in the generations which are to follow."
Right on, brother.