Chapter 25. Restructuring Residual-Feudal Exclusive Patent Laws Produces a Modern Technology Commons

For centuries, as modern economies developed, the hidden hands of the alert and powerful were busy structuring laws and property rights to gain, or retain, title to wealth-producing sectors of the economy. Patent laws and stock markets were being subtly structured to monopolize technology.

That stock markets are crucial to raising investment capital in a modern economy is a myth. Most stock traders have no contact with new issues of stock and those who do are primarily taking an already established private company public. Most corporate investment needs are financed from profits, liberal depreciation schedules, and borrowing. As currently structured, investing in stock markets is primarily a bet on which corporation will most successfully expand its share of national and world markets. These are not investments in production per se.

Expanding markets means increased profits capitalized into the value of a company’s stock and those capitalized values are claimed before those profits are banked. “Behind the abstraction known as ‘the markets’ lurks a set of institutions designed to maximize the wealth and power of the most privileged group of people in the world, the creditor-rentier class of the first world and their junior partners in the third.”1 Restructuring residual-feudal exclusive patent laws so that any person may use a patent by simply paying a royalty will erase those centuries of carefully crafted subtle-monopoly laws.

Under that simple legal change to conditional title, the inventors would be well paid for their inventions and the price of consumer products would drop precipitously. Combining those social savings with free trade between equally developed regions and with managed trade between unequally developed regions, and dropping those protections in step with the harmonization of previously unequal economies, would protect both labor and capital worldwide. The masochistic destruction of jobs and capital under the current economic structure would be eliminated.

Labor should employ Capital

That capital is properly owned and employed by labor is recognized by no less an authority than Adam Smith. We again repeat the quote from his bible of capitalism Wealth of Nations, “Produce is the natural wages of labor. Originally the whole belonged to the labourer. If this had continued all things would have become cheaper, though in appearance many things might have become dearer.”2 The “appearance of becoming dearer” is because each worker would have been fully paid. Things would have been cheaper because purchasing power of those fully-paid workers would have advanced in step with productive capacity and those who once made their living through claiming a share of others’ labor would have to turn to productive labor. Those well-paid workers would have purchased more from other fully-paid workers and with that increased buying power others would produce more to take advantage of that market.

In short, purchasing power—which is so hard to generate under current subtle-monopoly rules—would have developed in step with the producing power of easily-built industrial technology. If monopolization could have been avoided, labor would have been fully paid and the world could have developed far more rapidly and without destructive wars.a

Let’s assume that all industry suddenly increased 50% in efficiency. Half of the workforce would be unemployed and the owners of this new technology would rapidly claim all the wealth that previously went to those now unemployed. The wealth of the owners of technology—both actually and as a percentage of the nation’s wealth—would increase dramatically, that of those still employed would remain the same, and those newly unemployed would be on welfare. It is only through steady expansion of distribution by unnecessary labor pulling a share of that siphoned wealth back as people search for a way to survive that society has avoided facing this reality.3 An economy with 5% owners, 45% workers, and 50% welfare recipients is unthinkable in a country that claims equal rights for everybody.

If labor owned the capital it produced, then labor would employ—rather than be employed by—capital. Once subtly monopolized by exclusive title, capital’s use can be denied to labor at any time, and it will be denied if no profit is made. The natural order of labor employing tools (capital) is reversed. If land and capital (both industrial and financial) were not subtly monopolized, land, labor, and capital could freely combine to produce social wealth, workers would receive their full wages from what they produced, and the owners of industry would receive full value for use of their capital. Elimination of the subtle monopolization of technology under current stock market and patent structures would also increase social efficiency equal to the invention of money or writing the French Physiocrats recognized was possible by elimination of land monopolization.

All nations and all people are stakeholders in a nation’s economy and the world economy. No sector of the economy should have excessive rights (monopolization) structured in law. Just as with land, we are accustomed to wealthy people claiming ownership of the nation’s capital. We are taught that this is the proper and most efficient social arrangement. Therefore we do not recognize the obvious: capital is social wealth. It is composed of all tools of production, it was produced by labor (capital is but stored labor), and all should be entitled to the opportunity of employing it, or being employed by it, and receiving a fair share of what is produced.

Capital, however, is often more productive under private ownership and, when this is so, private ownership is justified. In such cases, entrepreneurs, whose special talents lead to increased production, could properly buy this capital from those who produced it. A substantial share of society’s capital has been justly claimed in this manner. Capital that is obtained by means other than trading useful labor (physical, innovative, or special talent) is an unjust interception of the production of others.

That which is more efficient under social ownership belongs to all society, with all citizens receiving the profits. For example, no profits are directly distributed from the increased wealth produced by highways, airports, harbors, or post offices. But the wealth that society is able to produce and distribute through the common use of these natural monopolies is many times more than a normal interest charge on their construction cost. Just as the use-value of land in a modern commons is distributed instantly and without cost, those profits under democratic-cooperative-(superefficient)-capitalism are distributed instantly, silently, and efficiently through cheaper production/distribution costs and no wealth will have been claimed by subtle monopolization.

Social capital,b “real” private capital, and “fictitious” capital are all currently lumped together and collectively treated as private capital. Ownership of capital is considered proof that it was justly earned and that the owner deserves compensation for its use. Below we are distinguishing between social, private, and fictitious capital. Once identified, the proper owners can claim their capital and the profits it produces. Fictitious capital can be eliminated altogether.

Efficient Socially-Owned Capital

The basic difference between what is properly social capital and private capital is that everybody uses social capital. It forms a natural monopoly, while proper private capital is used only to produce products or services for specific needs of specific people. Capital that is required for society’s basic infrastructure (which is by its nature a monopoly and used by all citizens) cannot justly be bought and sold as private property. It is properly part of a modern commons through a modern legal/social structure, democratic-cooperative-(superefficient)-capitalism. This includes not only highways, airports, harbors, and post offices, but also railroads, electric power systems, community water systems, banking and Wi-Fi communications infra-structure (10 times the capacity at 10% the cost). Most will recognize that these natural monopoly infrastructures should belong to all society.

Although such facilities and services are publicly held in most Western nations, U.S. citizens are unaccustomed to railroads, electric power systems, banking, and communications being socially owned. These are nothing less than natural monopolies, and all claims of efficiency under private ownership are a rhetorical cover (a social-control paradigm [a “framework of orientation]) to hide the siphoning of the fruits of others’ labor to those who hold title to those natural monopoly economic crossroads.4

This siphoning of wealth is shown in the privately-owned electric power monopolies. Almost 24% of the America is served by consumer-owned electric utilities (13.4% are publicly owned, 10.2% are rural cooperatives). Privately-owned companies charge 42.5% more for electricity than those that are publicly owned. Yet, since they serve population centers with the highest density of customers per mile, privately-owned electricity costs should be lower. The difference in electricity costs between privately-owned and publicly-owned electric companies is even greater than these statistics show. Not only do they sell cheap electricity to private companies, the publicly-owned utilities provide enough profits for some of those communities to build swimming pools, stadiums, and parks.5

Matthew Josephson’s classic Robber Barons, Peter Lyon’s even more profound To Hell in a Day Coach, and Edward Winslow Martin’s History of the Grange Movement cover how the American railroads were built at public expense. As much as half the funds collected for building them were pocketed and over 9% of the land in the United States was deeded to these railroads. The pocketing of those funds, claiming title to these natural monopolies, and being deeded that land were little more than thefts of public wealth. Martin describes the building of the Union Pacific Railroad as perhaps the most flagrant example but the pattern was typical:

Who then was Crédit Mobilier? It was but another name for the Pacific Railroad ring. The members were in Congress; they were trustees for the bondholders; they were directors, they were stockholders, they were contractors; in Washington they voted subsidies, in New York they received them, upon the plains they expended them, and in the Crédit Mobilier they divided them. Ever-shifting characters, they were ubiquitous—now engineering a bill, and now a bridge—they received money into one hand as a corporation, and paid into the other as a contractor. As stockholders they owned the road, as mortgagees they had a lien upon it, as directors they contracted for its construction, and as members of Crédit Mobilier they built it…. Reduced to plain English, the story of the Crédit Mobilier is simply this: The men entrusted with the management of the Pacific road made a bargain with themselves to build the road for a sum equal to about twice its actual cost, and pocketed the profits, which have been estimated at about thirty millions of dollars—this immense sum coming out of the taxpayers of the United States.6

“By 1870 the states alone had given $228,500,000 in cash, while another $300,000,000 had been paid over by counties and municipalities.” Of course those millions of 19th-Century dollars would be hundreds of billions in inflated 21st-Century dollars. In the process of building those railroads, promoters skimmed off possibly one-half of this public investment and stockholders’ capital, while simultaneously claiming 9.3% of the nation’s land through land grants.7 Josephson’s description of them as robber barons is quite accurate.

With enforced privatizations through imposition of Reaganism/ Thatcherism (the first heavy promoters of this philosophy) on the developing world and the collapsed former Soviet Union, social wealth was being placed under exclusive private ownership in the 1990s at a rate that makes America’s robber barons of the late 19th and early 20th-Century look like country bumpkins. Those defeated nations were paid pennies on the dollar to give up title to their natural wealth, their banks, and their limited industrial capital. The masses, of course, have little to say. In many cases, if not most, one member of these less than honest groups (to put it mildly) would be signing as government agent and another was the buyer.

Obviously there is no savings to society from the private ownership of a natural monopoly such as railroads, electricity, post offices, power systems, sewers, water systems, et al. And, as shown in the following chapters, the true cost of banking and Wi-Fi (wireless fidelity) communications, when properly structured under a public authority and used in common, would be only pennies per dollar of current costs.

Basic infrastructure (roads, water, electricity, et al.) is integral to a nation. Society is a machine; even though these basic facilities do not directly produce anything, an industrial society cannot function without them. They are an integral part of production and are just as important to social efficiency as modern factories.

To demonstrate this, compare the labor costs of a society with an undeveloped infrastructure to those of a society with a developed infrastructure. Vacation to any wilderness park, hike for a day, and calculate how efficient virtually any economic activity, such as sending and receiving mail, would be from that spot. In the 18th-Century, a letter traveling by U.S. mail from New York to Virginia (400 miles) took four to eight weeks and cost 60-cents a page.8 Today it is 37-cents (possibly equal to less then a penny 200 years ago) for several pages anywhere in the nation and that letter normally arrives within 1-to-3 days. When China built a road into the almost inaccessible Tibet, the price of a box of matches dropped from one sheep to two pounds of wool.9

Efficient Privately-Owned Capital

Commercial activities producing for variable individual needs rather than everybody’s needs are properly privately owned. As has been demonstrated in the former Soviet Union, the thousands of personal preferences (homes, clothes, furniture, jewelry, hobbies, recreational activities, et al.) cannot be provided efficiently by a public authority. Such personal needs can only be assessed by perceptive and talented individuals close enough to recognize and fulfill those needs. The capital to provide such services is more productive under private ownership. Unlike claiming the production of labor through subtle monopolization of land, capital, and finance capital, this increased productivity produces the wealth with which entrepreneurs pay the producers of that capital.

Most of the construction and production for basic social infrastructure operated under public authority is quite properly provided by tens of thousands of privately-owned industries. This free-enterprise, privately-owned capital can, under contract, accommodate the needs of public institutions while also making available diverse consumer products and services. We see this every day in contracts to build roads, haul mail, and so forth.

Fictitious Capital

Few economists agree on exactly what constitutes capital. Most include all wealth that produces a profit (titles, stocks, bonds, et al.). But, although the wealth this paper represents has a firm claim on part of society’s income, much of it was banked, skimmed off, and resurfaced in another investment. The skimmed off share of that first certificate of investment is properly defined as fictitious capital. Bonds used to construct harbors, deepen riverbeds, and build railroads represent true capital. That which was pocketed and reinvested elsewhere is, if half the original funds were pocketed with two claims against the same dollar, only 50% productive.

In the previous example of building the Union Pacific Railroad, half the money was used to build; the other half was pocketed and reinvested elsewhere. The share of those certificates that was not productively used, yet had a claim on social production, was fraudulent. This fictitious capital may represent wealth to the owner, but it is not wealth to society. It is a certificate of ownership for capital that was paid for by others and that siphons wealth produced by others to an owner who has produced nothing.

The total capital underlying a debt instrument must pay profits to security holders at face value of those securities even though only a part of it actually built that industry. That share of those debt instruments that did not produce productive capital, social or private, is fictitious capital.

There are three physical foundations to production—land, labor, and capital. Land commands rent, labor is paid wages, and honest interest can only be for the productive use of true capital. Subtle patent monopolies capitalize stock values far above tangible values and those high values demand profits. It is through those excess profits that the production of others’ labor is siphoned from those who produce to those who produced nothing. All capital that demands payment greater than the labor value of services provided society is properly labeled “fictitious capital.”

Invention, a Social Process

There is no isolated, self-sufficing individual. All production is, in fact, a production in and by the help of the community, and all wealth is such only in society. Within the human period of the race development, it is safe to say, no individual has fallen into industrial isolation, so as to produce any one useful article by his own independent effort alone. Even where there is no mechanical co-operation, men are always guided by the experience of others. —Thorstein Veblen

These words from one of America’s eminent philosophers are well spoken. The long march of technology leading up to the present sophisticated level is based upon thousands of earlier discoveries—fire, smelting, the wheel, lathe, and screw—and untold millions of improvements on those basic innovations.10 Many primitive, but revolutionary, technologies were discovered by Asian and Arab societies. Greek, Roman, and other cultures improved upon these methods, which were, in turn, used by later Western cultures. Invention is a social process built upon the insights of others. Stuart Chase’s list of such contributions of 5000 years ago barely touches the subject:

The generic Egyptian of 3,000 B.C., though unacquainted with iron, was an expert metallurgist in the less refractory metals. He could smelt them, draw them into wire, beat them into sheets, cast them into molds, emboss, chase, engrave, inlay, and enamel them. He had invented the lathe and the potter’s wheel and could glaze and enamel earthenware. He was an expert woodworker, joiner and carver. He was an admirable sculptor, draftsman and painter. He was, and is, the world’s mightiest architect in stone. He made sea-going ships. He had devised the loom, and knew how to weave cotton to such a fineness that we can only distinguish it from silk by the microscope. His language was rich, and he engrossed it in the handsomest system of written characters ever produced. He made excellent paper, and upon it beautiful literature was written…. He had invented most of the hand tools now in existence…. He had worked out the rudiments of astronomy and mathematics.11

There were also wedges, drills, wheels, pulleys, and gears—all were necessary before modern machines were possible. There had to be countless earlier inventions, back to the control of fire, before the Egyptians could have reached even that level of technology.

Not only does every modern invention rest on millions of insights going back to antiquity, its development requires thousands of people with special talents. For example, a British scientist’s accidental discovery of penicillin has benefited almost every person in modern civilization. More people worked to develop and produce this antibiotic for the wounded in WWII than worked on the atomic bomb, and they were all funded with public money. Yet the drug was patented by an American who recognized that, if he could obtain that patent, he would have a subtle monopoly with a capitalized value that would siphon vast wealth to himself even though he had neither created nor produced anything.12

Every innovation is a part of nature. Just like land, oil, coal, iron ore, or any of nature’s wealth, if something is to be discovered it had to have been there all the time. As technology is a part of nature, everybody should share its fruits. Inventions not only use the insights of millions of people throughout history and prehistory, they require the support and skills of millions of present workers as well. Stuart Chase estimated that at least 5,000 people were involved in contributing data to the writing of his book and these had millions of others to thank for their knowledge.

These people provided tools, materials, and services: pencils, paper, graphite, rubber, lead, typewriters, telephones, cars, electricity, typing, printing presses, book distribution, banking, and so forth. The people directly involved in Chase’s education required educators, authors of textbooks, and their educators, ad infinitum. Every one of these consumer items required the labor and skills of thousands of people, some in distant parts of the world (such as producers of rubber or tin). Though the labor charge of some of these is infinitesimal, each is real and definite. Collectively they accumulate a substantial, though incalculable, value.13

While the contribution of any one person to the pool of social knowledge is truly small, the wealth diverted to those who own the patents to social knowledge can be substantial. It has been estimated that, if the developing world were capitalized to the level of the developed world, the royalty claims would be $1-trillion a year. These royalties would normally be going to people who “own” these efficient technologies but neither invented anything nor labored productively for this income. They are commercial chokepoints and the subtle monopolization of these tools of production (technology) permits huge overcharges that siphon an excessive share of the world’s wealth to owners of patents. As patent monopoly profits are collected through the stock markets, those huge overcharges create excessive stock market values.

Inventors rarely receive much reward for their discoveries and innovations. The few who are compensated receive but a small share of the tribute charged by those who own this social wealth. That a small number of powerful people subtly monopolize inventions—and ever afterwards siphon to themselves the wealth produced by others—defies both decency and justice. This was well known to prominent inventors and industrialists such as Thomas A. Edison and Henry Ford. Both “agreed that all patent laws should be repealed since they benefit the manufacturer and not the inventor.”14

We disagree with patent laws being repealed. They should be redesigned to be a part of a modern commons within democratic-cooperative–(superefficient)-capitalism in which any person can use that technology by simply paying a royalty or better yet, society pay those inventors and place those patents in the public domain (see below).

Capitalizing Actual and Fictitious Values

Inventions are a “more or less costless store of knowledge [that] is captured by monopoly capital and protected in order to make it secret and a ‘rare and scarce commodity,’ for sale at monopoly price[s]. So far as inventions are concerned a price is put on them not because they are scarce but in order to make them scarce to those who want to use them.”15

The patent structure capitalizes value far above tangible values and, through those excess profits and without expenditure of their labor, intercepts wealth produced by others. Where inventions once went unchanged for decades or even centuries, many, if not most, patents are now obsolete before their 20-year life expires. By the time a key patent has run out, newer patents are able to boost efficiency yet more. As many of the earlier technologies are still essential to production, the owners of the latest patents control both the latest technologies and the support technologies in which the patents have run out. Honda’s exclusive ownership of patents on the stratified charge engine, even though the basic principles for this crucial technology were invented 100 years ago, makes this all quite evident.

Corporations are in such powerful bargaining positions that only occasionally will a new invention pose a threat to them. As corporate control of other critical patents limits the inventor’s options, these patents are bought for a fraction of their true value, or they are patented around and the inventor receives nothing. Controlling markets is integral to controlling patents:

Any move by the neo-colonial state to revoke the patent law as a defensive measure would have very limited results since the market belongs to the monopolies. This becomes quite clear when it is realized that the other markets to which such products would be exported would still have such legislation protecting the same patents, and the transnational corporation would be in a position to require compliance. The mere ownership without the actual know-how which is guarded by the monopoly at headquarters would be useless. This is the whole point about monopoly. The world imperialist monopoly market would not exist if such a system of market control were not in operation.16

We view the inventions of 400 to 1100 years ago as primitive, yet in their time these simple inventions could produce—with less labor—both more and better products. Someone powerful enough to control these new techniques could trade one day’s work for two, three, five, ten or as many days’ production of other people’s labor as the efficiency of his invention and political power allowed.

For example, the invention of the windmill was extremely valuable. If it could be monopolized, its owners could siphon to themselves the production of large amounts of others’ labor. This potential created a dispute between the nobles, priests, and emperor “as to which one the wind belonged.”17A 17th-Century French patent granted such a right to selected owners of windmills.18

However hard they tried, claiming ownership of the wind was quite difficult. But not so with other technology, the water mill, first used in Europe during the 10th-Century, permitted one worker to replace as many as 10 others. A stone planer eliminated seven workers out of eight. One worker with an Owens bottle machine could do the work of 18 hand blowers.19 Modern technology has created even greater efficiency gains. Many credit the steam engine with the greatest single increase in productive efficiency, but Stuart Chase cites a study by C.M. Ripley of work costing $230 done by hand labor that would cost only $5 using electric power.20 Modern electric furnaces and continuous casting have brought the direct labor expended in the steel industry down to only 1.8 hours per ton of steel produced.21 So long as the production of others’ labor could be claimed through a patent on any technology, that income potential is capitalized into the stock value of that industry.

The owner of that first water mill was able to trade his single day’s work, grinding grain, for seven days’ labor of a woodworker or blacksmith. In effect he was paid for seven days while working one. The owner of a patented stone planer would likely gain five days’ value for only one of his own. Any person lucky enough to own a patented Owens bottle machine could probably have claimed 12 days’ pay for each day’s labor. If the manufacturer in Ripley’s study had been able to patent that efficiency, he would have claimed title to the process. He could then have lowered his prices and still charged 20-to-30-times the labor value in his product. However, just like claiming ownership of the wind, it would be difficult to claim exclusive title to electricity, which accounts for the drop in costs in Ripley’s study.

Royalties originated from Royalty conferring Monopoly Trading Rights

That the owners of patents are entitled to royalties exposes the feudal origin of the term. Patent rights to land and inventions were conferred upon favorites by kings and queens, with the understanding that the person so favored would share the earnings—royalties. In short, the origin of patents is indistinguishable from paying bribes for the privilege of doing business. Such bribes were the precursors of today’s patent royalties.22 Exclusive title to patents, as opposed to conditional title (Henry George’s concept though he may not have used that term), are the remnant of feudal patent law that must be eliminated to attain full rights for all to the benefits of ever-more efficient technology.

The Foundation of Law is Military Power

The foundation of most law is power, largely expressed through military strength. Long before governments protected patents, they were protected by violence. “The struggle against rural trading and against rural handicrafts lasted at least seven or eight hundred years…. All through the fourteenth Century regular armed expeditions were sent out against all the villages in the neighborhood and looms or fulling-vats were broken or carried away.”23 Those early claims to technology, enforced by violence, were the forerunners of today’s industrial patents. Those who would control technology have just become more sophisticated. They encode these exclusive rights in legal titles. Today, being accustomed to it and unaware of society’s loss, we accept this as normal.

The growing efficiency of textile machinery started the Industrial Revolution. Primitive looms were improved upon by inventions such as Kay’s flying shuttle, Hargreave’s spinning jenny, Crompton’s “mule,” and the power loom. Between 1773 and 1795, the labor time to process 100 pounds of cotton went from 50,000 hours to 300 hours, an efficiency gain of 16,666%.24 That efficiency gain within a time-span of only 22 years exposes how the owners of these technologies quickly dominated world trade. Quite simply, the technology was not shared. It was subtly monopolized through restricting the rights of production to the owners of patents.

The widespread use of machine weaving came about only because the technology was copied and the patents ignored. That 16,666% gain in 22 years is dwarfed by 150 power looms in Formosa weaving 24 hours a day under the watchful eyes of only one agile female operator on roller skates.25 This is a gain of hundreds of thousands, if not millions, of times in efficiency. The labor component in the price of a yard of cloth produced by modern industry is small. This includes the labor to smelt the ore and fabricate the machines which is stored in that capital.

The economically powerful will say they are not claiming the production of anyone else’s labor, as there is hardly any labor involved. But this is exactly how wealth is siphoned to those who subtly monopolize the tools of production. The price charged for those products is far above the cost of production and others are forced to trade large amounts of their labor for what was produced with a small amount of labor.

All society is denied the full benefit of cheap industrial goods when labor is charged more than they are paid to produce that product. If a product requires one hour’s labor to produce and distribute, and then sells for three hours’ labor value, it effectively siphons away the value produced by two hours of labor. (If that production is traded to a country where equally-productive labor is paid one-third as much it siphons away nine hours of labor. [Chapter 1]) Standard economics and accounting do not measure this overcharge because it shows up in stock prices far beyond intrinsic value and in a market restricted to higher-priced labor. If that cloth were priced relative to the price paid labor to produce it (including fair interest for the stored labor value represented by that machinery) then it would be priced within reach of the world’s low-paid labor.

A bushel of wheat required three hours to produce in 1830 but only 10 minutes in 1900.26 A call to Montana State University in Bozeman revealed that in 1986 it took only 3.2 minutes of labor to produce one bushel of dryland Montana wheat. Other crops have similar efficiency gains.

Railroad labor per ton-mile is roughly only 3% that required only 50 years ago, and that 2,500% efficiency gain is dwarfed by the 4-million percent gain in transportation efficiency over the horse and wagon only 170 years ago.

The public did receive a large share of the labor savings in textiles, agriculture, transportation, and other technologies. With the common people’s newly won rights (the U.S. Constitution and Bill of Rights), and with the enormously wealthy and sparsely inhabited lands of the Americas, the gains were just too great for the powerful to claim them all. However, due to the failure to build the buying power of developing world labor in step with the productivity of capital, there is much more production forgone and wasted than that which society so gratefully receives.

Patent laws evolved specifically to claim title to the gains of technology. With multiple patents—occasionally with only one key patent and control of markets—the owners of technology siphon to themselves large amounts of the production of others’ labor.

Ownership of a key technology, the telephone, was Bell Telephone’s advantage when that subtle monopoly was established. (Inventions not controlled by Bell, such as the dial phone, were suppressed for many years.) The telegraph and telephone reduced communication costs by an amount comparable to the savings created by new technology in textiles and transportation. These efficiency gains of technology, protected by patents, produced the subtle monopoly profits that established Bell Telephone, a corporation larger than any in textiles or transportation.

Henry Ford’s assembly line was a milestone in industrial technology that rapidly picked up the pace of the Industrial Revolution:

The factory is not a new tool but an organization of production that eliminates the periods of idleness in the use of tools, machines, and human beings that are characteristic of agrarian and artisan production. In the artisan’s shop the saw, chisel, file, and so forth are idle while the hammer is being used. In the factory all the tools are simultaneously in use in the hands of specialized workers; production is “in line” rather than “in series.” But production in line requires a large scale of total output before it becomes feasible. The division of labor is limited by the extent of the market, as Adam Smith told us. But transportation, urbanization, and international trade provided a market of sufficient scale.27

During 1913 alone, the time required to assemble an automobile dropped from 728 minutes to 93. Until that year, the wage rate averaged $2.50 for a 10-hour day. Ford doubled the daily wages of his workers and reduced their hours from ten to eight, all while lowering the price of his cars.28 This was unheard of in those times and drew much criticism from business and the press.

What Ford knew, and others did not, was that the profits were so large that with that 800% efficiency gain the wages could have been increased to almost $20 per day. Ford was strongly opposed by his managers and other investors. Had it not been for the influence of Emerson, it appears that the claim on others’ wealth made possible through the innovation of the assembly line might have been much higher and lasted for a much longer time.

Attempts were made to subtly monopolize the emerging auto industry. George Baldwin Seldon, a lawyer specializing in patents, understood that, as the law was structured, patents laid claim to wealth produced by others. In 1899,

he set his mind to working out the precise legal definition and wording of a patent that would give him the sole right to license and charge royalties on future automobile development in America…. Seldon had gone into partnership with a group of Wall Street investors who saw their chance to cut themselves in on the profits of the growing American car industry.29

The near success of Seldon and his partners in patenting the automobile illustrates the basic injustice of the current patent structure. Neither Seldon nor these investors had anything to do with the invention of automobiles. The first ones had been built in Europe 14 years earlier and virtually hundreds of auto companies were already in existence. Yet, if anyone had succeeded in patenting the process of building automobiles, every purchaser of an automobile would have had a part of the production of his or her labor siphoned to the owners of that patent who had invented nothing and had done no work.

Seldon’s attempt at patenting the principle of the automobile is being successfully accomplished today in the patenting of processes. Corporations are being formed to patent embryo transfers, gene splicing, other advanced medical procedures, even title to human genes and genes of plants domesticated by primitive societies thousands of years ago. Any doctor who wishes to use these new procedures and any who grow a patented plant has to obtain a license and pay a royalty.30

The current race to patent human genes clearly outlines the subtle-monopoly cost of patent laws. There are thousands of human genes that directly affect human health. As patent laws now stand, some corporation is going to have a patent on (own) each gene. Let us say that there are 300 genes to be studied in a standard gene test and the royalty to be paid to each patent holder only $1. If a couple wishes to test themselves for defective genes before conception or their unborn child shortly after conception, the cost would be $300 (60 minutes, July 29, 2001, suggested the possibility of $1,000 royalties).

This added tax, though common to medical equipment and drugs, has not previously been added to the cost of an operation or food crops. If ownership of procedures and food plants had been established years ago, every bill for an operation and the cost for every plate of food would have had royalties added. Only those licensed by the patent holder could perform operations or raise crops and the added charges would siphon wealth to whoever owned the patent rights. Every future improvement in patented surgical procedures or improved crop strains would also be patented and, as technological improvement is ongoing, the patent’s subtle monopoly would never run out. Thus Microsoft’s tens of billions of dollars of software overcharges all built from purchasing the DOS computer operating system for $3,000 and patenting it. The cost to society can be imagined if each producer or service provider had to pay a patent holder for the use of fire, wheels, wedges, levers, and gears. Inversely, the savings are evident in their free use because they are not patented (subtly monopolized).

There is one recent and remarkable exception to this rule. In parts of Africa, “as many as sixty percent of the people over age fifty-five were partly or completely blind” from becoming infected with a parasitic worm. Possibly 18-million people were affected. The pharmaceutical corporation Merck and Company owned the patent on a drug (Ivermectin) used to kill worms in animals. In October 1987, Merck announced they would provide this drug free of charge for Africans afflicted with this parasite. The company chairman, Dr. P. Roy Vagelos, noted, “It became apparent that people in need were unable to purchase it.”31 Here the loss to society from exclusive title was so obvious and devastating that these corporate executives made a moral decision to save the sight of millions of people. The cost to them was negligible; the gain to society was beyond measure.

An intense battle was fought over life saving drugs for AIDS victims. These drugs can be produced for a tiny fraction of the monopoly prices currently asked. Even at that fractional price few in the impoverished world can afford those life-saving drugs and at the monopoly price almost no one can afford them. Drug companies have reneged on an agreement to lower prices for Aids victims in Africa and that struggle is still on-going (2005).

There is a loss to society from exclusive control of any technology, but it is usually not as obvious as in these dramatic examples, where the patent rules of exclusive use were abandoned. This example demonstrates the original morality of the medical industry when “to patent an essential medicine was considered morally indefensible.”32 It is also morally indefensible for other inventions crucial to society. The previously mentioned Gaviotas community—which is regenerating the primeval Amazon forest of Colombia’s barren Los Llanos plains while building a model community, using modern production methods to live off the land—does not believe in patenting technology. Its inventions—such as a cheap, 100-pound, windmill-driven water pump and cost-free, maintenance-free air conditioning—are spreading throughout Latin America.33

Innovation and technology thus create large reductions in labor costs in all segments of the economy. Most are more modest than the previous examples, but reductions of 90% are common and “from 1945 to 1970, the average increase in efficiency output per hour was 34-to-40% per decade”34 Such savings do not exert the immediate shock to the economy that these numbers suggest. It takes time to retool industries and these corporations are in no hurry to destroy the value of their old production and distribution complexes.

Such overcharges cannot exist if labor is fully paid for their work. It only appears proper because people are accustomed to a subsistence wage for most labor, equally accustomed to all increased profits going to owners and management, and unaware of how rapidly that technology would spread around the world if capital were accumulated along the guidelines in this treatise (conditional patent titles, and labor fully and equally paid under democratic-cooperative-(superefficient)-capitalism). Under those restructured social rules, workers would have buying power, technology would be regionally available to produce desired products and the capital will have been accumulated to finance it all simply through the creation of money (next chapter), through deposit of a part of all interest going into a socially-owned capital accumulation fund (next chapter), or through the developing world being fully paid for their resources and labor (Chapters 22 and 23).

A Nation’s Wealth is Measured by, and Siphoned to Titleholders through, Capitalized Values

Shares in corporations are sold with the price based on how profitable they are expected to be—their capitalized value. This idea proved to be a real bonanza. Where conservative business people typically estimated the capitalized value of the company at 10-times the yearly profit, the stock markets—anticipating future increases in profits—capitalized these values far higher, frequently 20-to-30-times annual profits and occasionally even more. It is not uncommon for the price of stock going public (called IPOs, initial price offerings) to jump 500% the first week. As these higher values claim a greater share of a nation’s loans (created money), this is a capital accumulation bonanza. But the rapid movement of this accumulated capital from the hands of one speculator to another can do as much, or more, harm than it does good. Witness the 1997 financial collapse of Southeast Asia, The Great Depression of the 1930s, the collapse of the stock market bubble in 2000, and other such collapses throughout history.

All in one stroke, an individual or group could lay claim to the efficiency of a technology through capitalizing its value and selling shares to other investors. This siphoning of the production of others’ labor—through the mechanism of capitalized values—concentrated wealth in the hands of a few, accumulated capital, and gave capitalism its name.

Through carefully structured laws, the hidden hand of the wealthy kept claiming an ever-larger share of this wealth. Labor, just as naturally, tried to retain or reclaim what they produced. The rights gained in the American Revolution and enshrined in its Constitution, and the natural justice of those rights, eventually increased the power and income of labor. This and the expansion of unnecessary labor (see The World’s Wasted Wealth 2 by this author) led to more people retaining a greater share of society’s wealth. With these savings more broadly distributed, there evolved the present diversified markets to sell shares in industry and concentrate money capital.

Most of the wealth measured by capitalized values is claimed by the primary subtle monopolizations of land, patents (technology), and finance capital. If these excessive rights of property were replaced by the rights of society to collect the landrent (a modern land commons), the right for any person to use any technology through paying a reasonable royalty (a modern technology commons) and productive labor were fully paid, all society would be wealthier even though monetized (capitalized) wealth would be far lower. The excessive charges of subtle monopolization create high capitalized values. By removing these subtle monopolizations and paying labor fully for what it produces, measured values would equal the value of the labor and capital (stored labor) that produced that wealth.

The Financial Structure to Harvest the Profits of Subtly-Monopolized Patents

The battle for corporate ownership is centered in the stock market. Millions of hours are spent by speculators (they call themselves investors) trying to figure out which company is going to increase its capitalized value. The game is calculating profits that will translate into capitalized value. It is viewed as a simple method of keeping score. But claiming the production of others’ labor—through profits from shares in the nation’s industry as technology continually replaces labor—is the underlying theme. Values that were once claimed by labor are now claimed by the shareowners of the new industrial technology.

Innovators, investors, and underwriters of hot new companies will print enough stock to absorb any foreseeable fictitious value. (Market psychology and speculation [also laddering, run an Internet search] may inflate these values higher yet, and the lucky or astute small investor may gain wealth.) This process takes place in all companies where the owners become aware of the potential of capitalization to produce instant wealth. The alert tap into this wealth-siphoning process encoded into law by their predecessors.

Securities analyst and investment fund manager George J.W. Goodman, under the pseudonym Adam Smith, outlined the magic of capitalizing this unearned income. He christened this stock, and titled his book, Supermoney. He proves that this stock is in reality a “Supercurrency”:

In 1972 we have a good example of Supercurrency. The Levitz brothers … were furniture retailers whose company netted $60,000 or so a year. Then the company noticed that sales were terrific when they ran the year-end clearance sale from the warehouse: furniture right in the carton, cash on the barrelhead, 20 percent off. The idea was successful, they added more warehouses, and the company went public—in fact, superpublic. At one point, it was selling for seventeen times its book value…. [They] banked $33-million of public money for their stock, and still held $300-million worth…. Now when they want to pay grocery bills [buy a boat, a summer home, travel abroad or whatever], they peel off some of the [$333-million], as much as the market can stand. They have moved into the Supercurrency class.35

Goodman’s example of “Supercurrency” is just another way of describing capitalization of fictitious values. There is the successful company, the underwriters, the innovation of a cheaper production or distribution system, and investors clamoring for shares in this innovative company, and—at 17-times tangible assets—94% of the stock value is a fictitious monopolized value. The stock market abounds in examples of much higher fictitious capitalized values. The 1998-99 Internet stocks which had never turned a profit yet were valued at hundreds of billions of dollars were recent examples as were the disappearance of those values over the next two years. The overcharges to maintain that assumed value is the interception of the production of others’ labor.

If that illusory value cannot be sustained, then the wealth of the purchaser of that stock at that illusory value will disappear. While these fortunes were made through title claims to technology (those values being based on efficiencies of technology), the Federal Reserve calculated that 25% of U.S. citizens in 1974, increasing to 54% in 1988, had no net assets.36 Lester Thurow explains that this impoverishment of many while wealth is accumulated by a lucky few is due to “the process of capitalizing disequilibrium” (distortions of trade—and thus distortions of values—either internal or external) and that “patient savings and reinvestment has little or nothing” to do with generating large fortunes.37 Thurow concludes that

at any moment in time, the highly skewed distribution of wealth is the product of two approximately equal factors—instant fortunes and inherited wealth. Inherited fortunes, however, were themselves created in a process of instant wealth in an earlier generation. These instant fortunes occur because new long-term disequilibriums (sic) in the real capital market are capitalized in the financial markets…. Those who are lucky and end up owning the stocks that are capitalized at high multiples win large fortunes in the random walk. Once fortunes are created, they are husbanded, augmented, and passed on, not because of “homo economicus” [economic man] desires to store up future consumption but because of desires for power within the family, economy, or society.38

Of course, the small fortunes accumulated by the upper middle class are from these same disequilibria in the value of land and capital. Except by violence or trickery, how else can wealth beyond what one produces be accumulated? The income demanded by these fictitious values is a private tax upon the rest of society, and quite accurately labeled air. “By reducing air to vendability, scarcity could be capitalized. Business would be richer—and every man, woman and child in the country would be poorer.”39

A study of the market over a full boom and bust cycle will find these fictitious values developing in most stocks. The reasons given may be many but the underlying cause is clear: the steady rise in the nation’s efficiency is captured by, and mirrored in, stock and land values. Every speculator dreams of becoming wealthy by owning some of these stocks or land. The powerful and cunning, with better than even odds, buy and sell in rhythm with the inflation and deflation of stock and land prices to lay claim to much of this new wealth.

Those who win the gamble on who will own the world’s land and industrial and distributive technology are freed from the necessity of laboring for their living. This is not a contradiction. Their speculative efforts are certainly labor. However, when unnecessary, that labor is fictitious, and such earnings are winnings of bets.

Capitalizing values is necessary to decide the sale price of a business. However, not only should everyone involved receive proper compensation for his or her labor, innovations, and risk; society should receive its share. Society not only provided tens of thousands of necessary preceding innovations; it also provided the schools, skills, tools, labor, markets, and infrastructure. Nature provided the resources, including the inventions that were waiting to be discovered. Thus the conditional title to patents is an extension of Henry George’s concept of conditional title to land.

There is a necessity for a stock market. It has, however, gone far beyond its proper function of providing capital to industries through the sale of stock. That the stock market’s primary purpose today is financing the nation’s business is pure fiction; trades in the stock market have little to do with capital investment:

Buying a stock from a broker does not add one red cent to the corporate treasury and provides no investment capital except if the stock is newly issued. But new issues by major corporations are fairly rare because issuing new stock dilutes equity and depresses stock prices. As a result, the bulk of shares now traded on the stock markets were issued twenty or fifty years ago. Since then the shares have passed through many hands, and their prices have fluctuated over a wide range. Yet all these transactions have been strictly between the buyers and sellers of stocks, aided and abetted by stockbrokers trying to eke out a modest living…. [S]peculators are not really interested in the company whose stock they temporarily own. They want to take their profits and get out. They are not investing in the proper sense of the word; they are simply gambling. Ownership of corporations has become largely a game of chance in which the individual players try to guess what the other players will do.40

Market Bubbles and Crashes

Speculators are unaware that their gains are unearned. If the market wipes them out, they feel they have lost earnings when actually it was just the odds of the gamble and their turn to lose. Like the casinos they are, the stock markets are primarily a mechanism for the redistribution of wealth, not its production. It is a gambling game in which the rest of society’s members are spectators—spectators who continually have their share of the nation’s increased wealth thrown on the table of a game of chance they are not playing.

The danger of gambling with the nation’s wealth was addressed by Business Week’s 1987 cover story, “Playing with Fire”:

By stoking a persuasive desire to beat the game, innovation and deregulation have tilted the axis of the financial system away from investment toward speculation. The U.S. has evolved into what Lord Keynes might have called a “casino society”—a nation obsessively devoted to high-stakes financial maneuvering as a shortcut to wealth…. “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill-done.”41

What is normally spoken of as a market “bubble” is only the claiming of wealth produced by others through rights of ownership that have gotten out of hand. History is replete with examples. Charles Mackay, in Extraordinary Popular Delusions and the Madness of Crowds, describes the tulip craze that broke out in Europe in the 17th-Century. Before that particular insanity dissipated, one particular tulip bulb cost “two lasts of wheat, four lasts of rye, four fat oxen, eight fat swine, twelve fat sheep, two hogsheads of wine, four tuns of butter, one thousand lbs. of cheese, a complete bed, a suit of clothes and a silver drinking cup.”42

One wonders at the variety of commodities traded for that one flower bulb, but their total value of 2,500 florins serves as a guideline to the money value paid for other bulbs. During this period, prices ranged from 2,000 florins for an inferior bulb to 5,500 florins for the choicest varieties. “Many persons were known to invest a fortune of 100,000 florins in the purchase of 40 roots.”43 Although tulips are not stocks, the principle is the same.

At the turn of the 18th-Century, John Law implemented a plan to sell stock in enterprises in the Mississippi wilderness to pay off the huge debt of the French government. Though this scheme was seriously flawed, Law’s banking reforms were quite sound and the French economy prospered. The plan went awry when the money rolled in. Those selling paper were so busy getting rich they neglected to invest in production anywhere; they merely reinvested in more paper. In a speculative frenzy, fortunes changed hands as people sold, and then bought back, nothing but paper.

The stock in this Mississippi scheme had no value because there was no investment and thus no production. Law’s scheme was borrowed from the cunning financiers in England who a few years earlier sold stock in a South Seas venture, known today as the “South Sea Bubble. Although Spain controlled most of South America, and the English had limited trade rights within it, stock companies were set up to trade within this territory. Visions of wealth stirred up a speculative fever, companies were formed for very unlikely endeavors, and the money rolled in as speculators dreamed of getting rich. Soon, so many joined the game that it got out of hand and the government had to call a halt to new issues. The intention of most of these promoters can be summed up by one audacious proposal. This promoter touted “a company for carrying on an undertaking of great advantage, but nobody to know what it is.”44

Since the organizers of these companies had no intention of producing anything, their capital was 100% fictitious. Proof that this capital was not real was given when the speculative bubble collapsed. There were no tangible assets, production, or services to back the value of the stock; there was only the transferring of wealth from the naive to the cunning or lucky.

When wild speculation breaks loose, there is no relationship between value and price. Even when the stock market behaves normally, there are always stocks whose prices defy logic. This activity can only be attributed to crowd psychology, as described by Mackay, although sly promoters pull strings at every opportunity.c

Options, Futures, and other Derivatives are Gambling Chips in a Worldwide Casino

The markets for stocks, bonds, commodities, futures, options, currencies, mortgages, money markets, in fact virtually every exchange market anywhere in the world, are now one huge market. Options or futures are only the buyer betting the stock will go up and the seller that it will go down; neither has a stake in that stock beyond the gamble. Options and futures may appear to have a legitimate purpose in takeover schemes, but when purchased by those attempting the takeover, they are not even gambles. The psychology of the market almost guarantees that the stock price will rise. This increase in valuation provides the money for takeovers.

The historic speculations in options, futures, and other simple bets are dwarfed by the derivative markets of the late 20th-to early 21st-Century, which evolved both to reduce risk and to bypass the market’s margin limitations. Long-Term Capital Management’s bankruptcy crisis in 1998 uncovered the unsettling reality that this small hedge fund with a capital base of only $2-billion had over $1-trillion in bets in the derivatives markets, betting primarily on the Russian Ruble. This was a margin of only 0.02% and many of the estimated 400 other hedge funds would have similar slim margins bet on similarly volatile currencies.45 “Corporations have become chips in a casino game, played for high stakes by people who produce nothing, invent nothing, grow nothing and service nothing. The market is now a game in itself.”46 Capitalized fictitious values are also like chips on a poker table; they finance the game. But, unlike chips, when the game is over these deflated stocks cannot be traded in for full value.

The markets are a high stakes, low risk (except at the peak of a bubble) gambling casino where these overcapitalized values are distributed. Everyone recognizes the high stakes. The unacknowledged low risk is due to the constantly increasing value of the nation’s capital accruing to stockowners. This increase in value is due to the capitalized value of the production of labor claimed by the owners of increasingly efficient technology. Due to exposés of fraud in the commodities and futures markets, farmers became aware of this fact and some have clamored for the closing down of the nonproductive futures markets.47

Just as selling short and other trading practices developed in the early established markets as a form of harvesting profits, sharp traders have leveraged world markets with stock and currency options, futures on options (meaning options on options), futures on interest rates, warrants (a form of option), and thousands of other similar subdivisions of value called “derivatives”:

Futures contracts on interest rates did not exist in 1971…. Today there are outstanding contracts for $3-trillion worth of them, a little more than half of the gross national product of the United States…. The market for tradable options has grown from essentially zero in 1973—the year the Chicago Board Options Exchange opened for the first time—to a market where more than $170-billion changes hands each day. One hundred and seventy billion is enough money to build 1.7-million average homes…. Eight hundred billion dollars … is exchanged each day in the world’s currency markets…. Every three days a sum of money passes through the fiber-optic network under the pitted streets of New York equal to the total output for one year of all of America’s companies and all its workforce. And every two weeks the annual product of the world passes through the network of New York…. Sums of similar magnitude pass through the streets of Tokyo, London, Frankfurt, Chicago, and Hong Kong…. [This] “financial economy” is somewhere between twenty and fifty times larger than the real economy. It is not the economy of trade but of speculation. Its commerce is in financial instruments [paper]48.

Since Joel Kurtzman wrote the above, daily currency exchanges are $1.5-trillion a day ($547-trillion a year) or over 55-times that needed to finance the $10-trillion per year needed for world foreign trade and foreign investment each year. It has been estimated that a healthy economy requires 2-to-$3 speculated for every $1 that runs the real economy.49 Allowing a multiple of the high figure, $3, means $30-trillion per year moving through the money markets will run the world economy and $517-trillion is needless speculation which puts the world at risk even as it transfers massive sums from producers to speculators. (By 2005 those figures may triple.)

Strip away all the hype and derivatives are simply bets on the direction of a particular market. With personal computers able to track stocks, bonds, commodities, futures, options, et al. in virtually any of these markets worldwide, there are massive gyrations of values as speculators buy and sell these packaged paper symbols of wealth.50 Just as the formation of the stock market and the manipulation of stock values became the primary mechanism through which robber barons appropriated the industrial wealth of America and laid the base for America’s financial aristocracy, a new breed of robber barons are harvesting fortunes running the markets of the world up and down. A fresh crop of bright people have placed themselves between the world’s savers and its producers and consumers to intercept the new wealth produced by the increased efficiencies of technology. As these speculators produced nothing and thus had nothing to trade of value, that wealth can only have come from true producers.

While the world economy staggered and labor’s share of wealth declined, the world market in paper symbols of wealth missed a few beats on: the U.S. stock market collapse of October 19, 1987 (from which it recovered), the savings and loan and banking crisis in the United States in 1990 (now recovered),51 the collapse of the Tokyo stock and land markets (not yet recovered), the 1997-2003 financial meltdown of 40% of the world, all on the periphery of imperial-centers-of-capital (the jury is still out on their recovery), and the 2000-2003 40% stock value collapse (now recovering,). Insecurity forced capital to flee back to its imperial centers, forcing those markets to new highs, then new lows, and they continue to rise and fall as speculators jockey for position or flee for safer havens.

We have yet to see if the enormous sums of accumulated capital in the imperial-centers-of-capital will bid the limited available stocks back to atmospheric heights and then crash, whether it will be used to build even more industrial capacity to service a shrunken world consumer market and crash from that excess capacity, whether a fascist financial and military fix will protect the current monopolizers of capital, or whether the tigers on the periphery can be restarted. Though those tigers may rise above their current lows, that they can regain their previous vigor is doubtful. The intense competition of surplus productive capacity that goes with a reduction in world buying power makes capital accumulation very difficult.

Bringing the World’s Markets under Control

Buying and selling investments is the legitimate purpose of stock markets; any activity beyond that is gambling. Eliminating subtle monopolization through slight changes in the law and establishing the modern land, technology, patent, and money commons we are advocating will eliminate those speculations. In “Inflation, Deflation, and Constant Value: Creating Honest Money,” in the next chapter, we demonstrate how easy it would be to stabilize commodity prices by tying currency values to commodity values. Stable prices would eliminate all need for derivatives and all purpose of market speculation. Once the markets were stabilized by tying the world’s money to commodity markets, speculation in commodities and markets would disappear. Those of speculative nature would now invest in the beating heart of capitalism, entrepreneurial speculation.

Restructuring Patent Laws

I know of no original product invention, not even electric shavers or heating pads, made by any of the giant laboratories or corporations, with the possible exception of the household garbage grinder…. The record of the giants is one of moving in, buying out and absorbing the smaller creators. —T. K. Quinn, Giant Business: Threat to Democracy

Quinn was later informed that the garbage disposal was also an appropriated idea.52

The importance of societies retaining and furthering technical knowledge is demonstrated by China having the basic knowledge required for an industrial revolution at least 800 years before Europe invented and used these technologies. A millennium ago the Chinese were producing massive amounts of iron and steel. They had invented the compass and rudders for large ships. They had paper, movable type, and the printing press. They built suspension bridges. They had matches, wheelbarrows, wheeled metal plows, mechanical seeders, horse collars, rotary threshing machines and a drill to tap into natural gas. They knew the decimal system, negative numbers, and the concept of zero. And they once knew how to produce primary tools of world conquest, gunpowder, cannon, and large ships.53 But most of that technological knowledge was forgotten because the Chinese lacked an ideological and legal system of title to, and use of, intellectual property rights.

Inventions and innovations are the cornerstones of prosperity. To establish them in social memory and reward the inventors and innovators, those technologies must be used and those inventors and innovators must be well paid.54 It is necessary to reward both those who had the original innovative ideas and those who put those ideas to work.

The present policy of restricting access to technology should be changed to one of easy access with proper compensation for inventors, developers, and producers while returning the maximum savings to society. Old patents should be left intact. New patents should be available for all to use with but one stipulation: “royalties will be paid to the patent holder.” This does not reduce anyone’s rights. Many holders of older patents will see financial advantages to the new system and will transfer to the new patent structure. After 17 years, the last of the older patents will have expired and the subtle monopolization of technology, and its overcharge to society, will disappear.

All patents should be required to be recorded in simple, easily understood language. People with knowledge of production and distribution needs could then browse through these patents and spot those that might be useful. (Many patents are now filed in deliberately obscure language to delay any possible use by competitors.55) To analyze and catalog these inventions and innovations would require an extensive “national network of regional assistance centers” for the orderly registration of patents.

When the expense and risk involved in product development and market penetration are greater than those associated with invention, these efforts should receive the largest share of the patent royalties. Once a product is brought to market, a development patent would be established by filing with the regional patent office. Patent and development patent holders would be entitled to royalties, but all would be free to use the innovation after filing notice of their use.

Under this mutual support structure, new inventions would be available for all to use. The inventors, developers, and producers would be adequately paid for their ideas, capital, labor, and risk. Society would be paid through low-priced products and services. This is all within the framework of the American and most other Constitutions.

With everybody having the right to use these innovations, the overcharges for fictitious capital and fictitious wages of the present patent system would be eliminated. This would do away with the current policy of industries buying up and shelving patents that threaten to destroy the value of obsolete industrial capital. Every producer would have a right to their use:

There are countless numbers of patents which, if in operation, would much cheapen the articles they could produce, but they are intentionally shelved to prevent competition. Concerns operating under old inventions for which they have expended great sums to erect plants [and] buy up these new and cheaper methods to prevent competitors from getting hold of them. They then tuck them away in their safes never to be used.56

“Technical knowledge in a functional society would be free.” Without it,

new inventions may not only be suppressed, they may be pre-suppressed. A concern may get patents on a whole series of processes in order to tie up the field for the next generation or more…. If scientific advance could be kept free and accessible, with proper reward for the inventor duly secured—a large amount of labor power which now trades on the processes of patenting and mystification—lawyers, “fixers,” patent clerks and the like, would be released to useful service, a large amount of duplicated scientific research would be saved, and above all the way cleared to let society benefit at once and directly in the new discovery.57

Producers would register all patents used in their production process. This registration would include where patented technology is being used and the gross sales of products or services using this technology. Royalties, predetermined by volume on a sliding scale, would then be distributed to the patent holders.

Full Rights to use any Technology is more efficient and Pays Inventors Better

The patent system could be far simpler and administration costs lowered to almost nothing by evaluating the value of a patent, paying inventors and developers its capitalized value, and placing their innovations in the public domain (a modern technology commons as per Henry George’s conditional titles to nature’s wealth). The inventor and/or developer would be well paid, all would be free to use the inventions, and there would be no cost for accounting or for disbursing royalties. The patent’s value will be instantly capitalized with the inventor the gainer, instead of the current complex process of capitalization of monopoly values through the stock market. Most inventors would want their inventions to have maximum use and opt for instant cash and free use by all. Inventions not recognized as valuable, a frequent occurrence, would be proved by developers who would then file development patents and both inventor and developer would be paid.

Because producers can use the most efficient technology to remain competitive, businesses and communities would no longer have to shut down because their market was overwhelmed by a competitor with a patent monopoly (capital destroying capital). With all traces of feudal monopoly rights restructured to democratic-cooperative-(superefficient)-capitalism the world’s communities and businesses would be quite secure even as they gained the maximum benefits from the newest technologies.

Competitive Monopolies, Developmentally Mature Technology, and Standardization

A vast range of intellectual pursuits is required to develop the tens of thousands of inventions involved in the manufacture of most consumer products. The most efficient way to develop new inventions or techniques is through competition. Inventors must be free to invent and develop products as they see fit. There is, however, a time when a technology becomes developmentally mature. At that time, society should consider standardization, a common practice in industry.

Once standardized, development and production costs will drop to a fraction of those for competitive monopolies. Automobiles are a good example. There were at least 502 automobile companies formed in the United States between 1900 and 1908. There has been a great rationalization of this industry and only three U.S. manufacturers are left.

Labor expended in production and distribution of automobiles could be reduced even further through more standardization. In early November 1998, airline companies had concluded they could reduce costs 20% through standardizing passenger jets. Carrying this rationalization of production to its unavoidable conclusion would create a corporate, centrally planned, privately-owned economy.

The cost of research and development for the first color TV was $125-million. The development of high-definition TV will require several billions. A new generation of computers in 1985 required $750-million. The development of these many incompatible computer systems was necessary to sort out which technology would be the most efficient. But there comes a time when society will be served by standardizing consumer technology. The cost of research, development, consumer education, manufacturing, and distribution of several incompatible technologies is roughly the cost of developing one technology multiplied by the number of incompatible technologies.

The moment society decided to develop one primary computer hardware/software technology and language, it would be impossible to bring to market an incompatible computer. All producers would then expend their efforts on developing and producing compatible hardware and software. The cost of computers and communications would drop even more precipitously then their already rapid rate and their uses would expand exponentially. Every major computer user is frustrated by the many incompatible languages and software. If most keystrokes or symbols were standardized to mean the same thing in all software, education time and costs would drop even as proficiency increased. These savings would permit generous compensation to the nation’s creative talent and risk-takers.

The efficiencies of computer/software compatibility will be here shortly and then a further market shakeout will come with a few large producers and distributors remaining. In fact, the monopolizers of computer technology should be looking closely at the Linux operating system available for free on the Internet that is capturing a continually increasing share of the market. Once enough free software has been created to work with it, and that will be soon, the developing world will surely use that operating system. Thus China, South Africa, and a few other nations have decided to use Linux operating systems. It could swiftly take over and wipe out much of the developed-world’s current monopolized market.

Again, the most important aspect of regaining rights to a modern commons is that private ownership is retained, yet subtle monopolists disappear, and the wealth created by nature (not that created by labor and capital [stored labor]) is—while working less for a higher standard of living—instantly distributed to all. Distribution of wealth under democratic-cooperative-(superefficient)-capitalism would be through fully productive labor, fully productive capital, and, utilizing these insights of Henry George (though he may not have used these words), the instant and costless distribution of use-value within a modern commons.

Full and equal rights means none would be in poverty. GNP and the average workweek would fall by half even as average living standards rise. Those reductions in waste and gains in living standards measure the previously wasted labor, wasted capital, and wasted resources within a subtly monopolized economy. Economic efficiency gains from the relatively small change in property rights to establish a modern technology commons (under democratic-cooperative-[superefficient]-capitalism) would, assuming protecting buying power through sharing the remaining productive jobs, equal the invention of electricity. (For another study see Vandana Shiva’s Protect or Plunder: Understanding Intellectual Property Rights)

We next address how to restructure the money system to a modern commons, increase access to finance capital for the talented and motivated, and lower financing costs for all citizens.

Footnotes

1. This cannot happen until democracy is established. Theoretically we have democracy today. But that is only theoretical. We only have partial democracies with the potential of full democracies. Once those subtle monopolies are eliminated, a full democracy will emerge. Likewise if a crisis transposes our society into a full democracy the simple legal changes can be made to eliminate those subtle monopolies and establish efficient democratic-cooperative(supercharged)–capitalism. Back to text
2. “Social capital,” as used here, refers to the physical products of labor that benefits all (roads, schools, airports, harbors, et al). The term is also used by some scholars to refer to the unquantified, but real, value of social interconnections that aid the functioning of society, typically meaning a higher education level. Back to text
3. Before the Great Depression the price earnings ratio reached 19-to-1. The world is watching to see if the price earnings ratio of 30-to-1 in the year 2000 will become the next crash. This time around the market dropped 40% the first three years of the market slide. The first two years of the collapse leading into the Great Depression the market dropped 25%. Back to text

Endnotes

1. Doug Henwood, Wall Street (New York: Verso, 1997), p. 7. Back to text
2. Adam Smith, Wealth of Nations (New York: Random House, 1965), p. 64. Back to text
3. J.W. Smith, The World’s Wasted Wealth 2 (http://www.ied.info: Institute for Economic Democracy, 1994). Back to text
4. John D. Donahue, The Privatization Decision: (New York: Basic Books, 1989). Back to text
5. Public Power Directory and Statistics for 1983 (Washington, DC: American Public Power Association, 1983); Jeanie Kilmer, “Public Power Costs Less.” Public Power Magazine, May/June 1985, pp. 28-31; the late Montana Senator Lee Metcalf and Vic Reinemer, Overcharge (New York: David McKay, 1967). Back to text
6. Edward Winslow Martin, History of the Grange Movement (New York: Burt Franklin, 1967), pp. 62, 70. Back to text
7. Matthew Josephson, Robber Barons (New York: Harcourt Brace Jovanovich, 1962), p. 92; Joe E. Feagin, The Urban RealEstate Game (Englewood Cliffs, NJ: Prentice-Hall, 1983), pp. 57-8; Peter Lyon, To Hell in a Day Coach (New York: J.B. Lippincott, 1968), p. 6; see also Martin, Grange Movement. Back to text
8. Wilfred Owen, Strategy for Mobility (Westport, CT: Greenwood Press, 1978), p. 23. Back to text
9. John Prados, The Presidents’ Secret Wars (New York: William Morrow, 1986), p. 152. Back to text
10. Lewis Mumford, Pentagon of Power (New York: Harcourt Brace Jovanovich, 1964), pp. 134, 139; Stuart Chase, Men and Machines (New York: Macmillan, 1929), Chapters 3-4. Back to text
11. Chase, Men and Machines, pp. 42-43. Back to text
12. PBS, Nova (September 2, 1986). Back to text
13. Stuart Chase, The Economy of Abundance (New York: Macmillan, 1934), Chapter 8. Back to text
14. Phil Grant, The Wonderful Wealth Machine (New York: Devon-Adair Co., 1953), pp. 301-06. Back to text
15. Dan Nadudere, The Political Economy of Imperialism (London: Zed Books, 1977), p. 251, quoting in part from E. Penrose, The International Patent System, 1951, p. 29. Back to text
16. Ibid, pp. 186, 255. Back to text
17. Karl Marx, Capital (New York: International Publishers, 1967), volume 1, p. 375, footnote 2. Back to text
18. Nadudere, Political Economy of Imperialism, p. 38, quoting Leo Huberman, Man’s Worldly Goods, pp. 128-29. Back to text
19. Lewis Mumford, Technics and Civilization (New York: Harcourt Brace Jovanovich, 1963), pp. 227-28, 438. Read also Nadudere, Political Economy of Imperialism, pp. 51-55. Back to text
20. Chase, Economy of Abundance, p. 166. Back to text
21. Lester Thurow, Head to Head: The Coming Economic Battle Among Japan , Europe, and America (New York: William Morrow, 1992), p. 187. Back to text
22. Grant, Wonderful Wealth Machine, pp. 301-306. Back to text
23. Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1957), p. 277, quoting from Pirenne, Medieval Cities, p. 211. Back to text
24. Marx, Capital, volume 1, pp. 372-74, 428, 435, 562; Eric R. Wolf, Europe and the People Without History (Berkeley: University of California Press, 1982), pp. 273-74, 279. Back to text
25. Richard Barnet, The Lean Years (New York: Simon and Schuster, 1980), p. 260. Besides the ownership of patents, Third World development requires the control of resources and markets as outlined in this author’s The World’s Wasted Wealth 2, Part 2. Back to text
26. Howard Zinn, A People’s History of the United States (New York: Harper Colophon Books, 1980), p. 277. Back to text
27. Herman E. Daly and John B. Cobb, Jr., For the Common Good (Boston: Beacon Press, 1989), p. 11. Back to text
28. Robert Lacey, Ford (New York: Ballantine Books, 1986), pp. 118-40; also Juliet Schor, The Overworked American (New York: Basic Books, 1991), p. 61. Back to text
29. Lacey, Ford, pp. 105-06; Brian Tokar, Redesigning Life? The Worldwide Challenge to Genetic Engineering (London: Zed Books, 2001). Back to text
30. Tokar, Redesigning Life?; Stanley Wohl, Medical-Industrial Complex (New York: Harmony Books, 1984), pp. 69-71; Ivan Illich, Medical Nemesis (New York: Bantam Books, 1979), p. 245. Back to text
31. Stephen Budiansky, “An Act of Vision for the Developing World,” U.S.
    News and World Report (November 2, 1987), p. 14. Back to text
32. Jean-Pierre Berlan, “The Commodification of Life,” Monthly Review (December 1989), p. 24. Back to text
33. Alan Weisman, “Columbia’s Modern City,” In Context, No. 42, 1995, pp. 6-8; Los Angeles Times Sunday Magazine, September 25, 1994. Back to text
34. E.K. Hunt, Howard Sherman, Economics (New York: Harper and Row, 1990), p. 166. Back to text
35. “Adam Smith” (George J. W. Goodman), Supermoney (New York: Random House, 1972), pp. 21-22. Back to text
36. Lester C. Thurow, Generating Inequality (New York: Basic Books, 1975), p. 14; “Worker’s State,” The Nation (September 19, 1988), pp. 187-88. Back to text
37. Thurow, Generating Inequality, p. 149. Back to text
38. Ibid, p. 154, (emphasis added). Back to text
39. Chase, Economy of Abundance, p. 165. Back to text
40. Rolf H. Wild, Management by Compulsion (Boston: Houghton Mifflin, 1978), pp. 92, 94-95. Back to text
41. Anthony Banco, “Playing With Fire,” Business Week (September 16, 1987), p. 78, quoting Keynes. Back to text
42. Charles Mackay, Extraordinary Delusions and Madness of Crowds (New York: Farrar, Straus and Giroux, 1932), pp. 90-97. Back to text
43. Ibid, pp. 1-45; Lester Thurow, The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World (England: Penguin Books, 1996), p. 221; John Train, Famous Financial Fiascoes (New York: Clarkson N. Potter, 1985), pp. 33-41, 108-89. Back to text
44. Mackay, Delusions, pp. 46-88; see also Train, Fiascoes, pp. 88-95; Charles P. Kindleberger, Manias, Panics, and Crashes (New York: Basic Books, 1978), pp. 220-21. Back to text
45. Peter Gowan, The Global Gamble: (New York: verso, 1999), pp. 95-98. 118-123. Back to text
46. 1987 presidential hopeful Representative Richard A. Gephardt of Missouri, in a speech to the Securities Industry Institute of the Wharton School of Business; Haynes Johnson, “ ‘Teflon’ 80s Bear Striking Resemblance to ‘Giddy’ 20s,” The Missoulian, March 25, 1987, reprinted from The Washington Post. Back to text
47. Paul Richter, “Commodity Marts Face Fraud Fallout,” Los Angeles
    Times, July 4, 1989, p. A2. Back to text
48. Kurtzman, Death of Money, pp. 12, 17, 77, 128; see also pp. 39, 65, 64-65, 236. Back to text
49. Lester Thurow, Building Wealth: The New Rules for Individuals, Companies and Nations in a knowledge Based Economy (New York: HarperCollins, 2000), p. 67; William Tabb, The Amoral Elephant: Globalization and the Struggle for Global Justice in the Twenty-First Century (New York: Monthly Review Press, 2001), p.83. Richard C. Longworth, Global Squeeze: The Coming Crisis of First-World Nations (Chicago: Contemporary Books, 1999), pp. 7, 256; Gowan, The Global Gamble. Back to text
50. What Joel Kurtzman, economist and business editor for the New York Times, calls “images of labor, wisdom, and wealth” (Kurtzman, Death of Money, p. 161). Back to text
51. Kurtzman, Death of Money, pp. 73, 96, 99, 113, 117, 120-21, 196, 228. Back to text
52. Paul A. Baran, Paul M. Sweezy, Monopoly Capital (New York: Monthly Review Press, 1968), p. 49, quoted from T. K. Quinn, Giant Business: (New York: Exposition Press, 1954), p. 117. Back to text
53. Lester Thurow, The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World (England: Penguin Books, 1996, p. 15; Lester Thurow, Building Wealth: The New Rules for Individuals, Companies, and Nations in a knowledge-Based Economy (New York: HarperCollins, 2000), pp. 85, 102. Back to text
54. Michael Goldhaber, Reinventing Technology (New York: Routledge & Kegan Paul, 1986), p. 185. Back to text
55. Ibid, pp. 185, 197. Back to text
56. Stuart Chase, The Tragedy of Waste (New York: Macmillan, 1925), pp. 204-205. Back to text
57. Ibid, Back to text

This is a chapter from the book, Economic Democracy; The Political Struggle for the 21st Century. Visit that link for more information about the book.