These enthusiasts are still more bewildered if the government's interference enables submarginal producers to continue producing [p. 660] and to stand the competition of more efficient plants, shops, or farms. Here, they say, it is obvious that total production is increased and something is added to the wealth that would not have been produced without the assistance of the authorities. What happens in fact is just the opposite; the magnitude of total production and of total wealth is curtailed. Outfits producing at higher costs are brought into existence or preserved while other outfits producing at lower costs are forced to curtail or to discontinue their production. The consumers are not getting more, but less.
There is, for instance, the very popular idea that it is a good thing for the government to promote the agricultural development of those parts of the country which nature has poorly endowed. Costs of production are higher in these districts than in other areas; it is precisely this fact that qualifies a large part of their soil as submarginal. When unaided by public funds, the farmers tilling these submarginal lands could not stand the competition of the more fertile farms. Agriculture would shrink or fail to develop and the whole area would become a backward part of the country. In full cognizance of this state of affairs profit-seeking business avoids investing in the construction of railroads connecting such inauspicious areas with the centers of consumption. The plight of the farmers is not caused by the fact that they lack transportation facilities. The causation is the other way round; because business realizes that the prospects for these farmers are not propitious, it abstains from investing in railroads which are likely to become unprofitable for lack of a sufficient amount of goods to be shipped. If the government, yielding to the demands of the interested pressure groups, builds the railroad and runs it at a deficit, it certainly benefits the owners of farm land in those poor districts of the country. As a part of the costs that the shipping of their products requires is borne by the treasury, they find it easier to compete with those tilling more fertile land to whom such aid is denied. But the boon of these privileged farmers is paid for by the taxpayers who must provide the funds required to defray the deficit. It affects neither the market price nor the total available supply of agricultural products. It merely makes profitable the operation of farms which hitherto were submarginal and makes other farms, the operation of which was hitherto profitable, submarginal. It shifts production from land requiring lower costs to land requiring higher costs. It does not increase total supply and wealth, it curtails them, as the additional amounts of capital and labor required for the cultivation of high-cost fields instead of low-cost fields are withheld from employments in which they would have made possible the production of some other consumers' goods. The government attains its [p. 661] end of benefiting some parts of the country with what they would have missed, but it produces somewhere else costs which exceed these gains of a privileged group.
The External Economies of Intellectual Creation
The extreme case of external economies is shown in the "production" of the intellectual groundwork of every kind of processing and constructing. The characteristic mark of formulas, i.e., the mental devices directing the technological procedures, is the inexhaustibility of the services they render. These services are consequently not scarce, and there is no need to economize their employment. Those considerations that resulted in the establishment of the institution of private ownership of economic goods did not refer to them. They remained outside the sphere of private property not because they are immaterial, intangible, and impalpable, but because their serviceableness cannot be exhausted.
People began to realize only later that this state of affairs has its drawbacks too. It places the producers of such formulas--especially the inventors of technological procedures and authors and composers--in a peculiar position. They are burdened with the cost of production, while the services of the product they have created can be gratuitously enjoyed by everybody. What they produce is for them entirely or almost entirely external economies.
If there are neither copyrights nor patents, the inventors and authors are in the position of an entrepreneur. They have a temporary advantage as against other people. As they start sooner in utilizing their invention or their manuscript themselves or in making it available for use to other people (manufacturers or publishers), they have the chance to earn profits in the time interval until everybody can likewise utilize it. As soon as the invention or the content of the book are publicly known, they become "free goods" and the inventor or author has only his glory.
The problem involved has nothing to do with the activities of the creative genius. These pioneers and originators of things unheard of do not produce and work in the sense in which these terms are employed in dealing with the affairs of other people. They do not let themselves be influenced by the response their work meets on the part of their contemporaries. They do not wait for encouragement.
It is different with the broad class of professional intellectuals whose services society cannot do without. We may disregard the problem of second-rate authors of poems, fiction, and plays and second-rate composers and need not inquire whether it would be a serious disadvantage for mankind to lack the products of their efforts. But it is obvious that handing down knowledge to the rising generation and [p. 662] familiarizing the acting individuals with the amount of knowledge they need for the realization of their plans require textbooks, manuals, handbooks, and other nonfiction works. It is unlikely that people would undertake the laborious task of writing such publications if everyone were free to reproduce them. This is still more manifest in the field of technological invention and discovery. The extensive experimentation necessary for such achievements is often very expensive. It is very probable that technological progress would be seriously retarded if, for the inventor and for those who defray the expenses incurred by his experimentation, the results obtained were nothing but external economies.
Patents and copyrights are results of the legal evolution of the last centuries. Their place
in the traditional body of property rights is still controversial. People look askance at them
and deem them irregular. They are considered privileges, a vestige of the rudimentary period of their
evolution when legal protection was accorded to authors and investors only by virtue of an exceptional
privilege granted by the authorities. They are suspect, as they are lucrative only if they make
it possible to sell at monopoly prices. . Moreover, the fairness of
patent laws is contested on the ground that they reward only those who put the finishing touch leading to
practical utilization of achievements of many predecessors. these precursors go empty-handed although
their main contribution to the final result was often much more weighty than that of the patentee.
It is beyond the scope of catallactics to enter into an examination of the arguments brought forward
for and against the institution of copyrights and patents. It has merely to stress the point that this
is a problem of delimitation of property rights and that with the abolition of patents and copyrights authors
and inventors would for the most part be producers of external economies.
Privileges and Quasi-privileges
The restrictions which laws and institutions impose upon the discretion to choose and to act are not always so insurmountable that they could not be overcome under certain conditions. To some favorites exemption from the obligation binding the rest of the people may be granted as an explicit privilege either by the laws themselves or by an administrative act of the authorities entrusted with the law's enforcement. Some may be ruthless enough to defy the laws in spite of the vigilance of the authorities; their daring insolence secures them a quasi-privilege.
A law that nobody observes is ineffectual. A law that is not valid for all or which not all obey, may grant to those who are exempt--whether by virtue of the law itself or by virtue of their own audacity--the opportunity to reap either differential rent or monopoly gains. [p. 663]
With regard to the determination of the market phenomena it does not matter whether the exemption is legally valid as a privilege or illegal as a quasi-privilege. Neither does it matter whether the costs, if any, incurred by the favored individual or firm for the acquisition of the privilege or quasi-privilege are legal (e.g., a tax levied on licensees) or illegal (e.g., bribes paid to corrupt officers). If an importation embargo is mitigated by the importation of a certain quantity, the prices are affected by the quantity imported and the specific costs incurred by the acquisition and the utilization of the privilege or quasi-privilege. But whether the importation was legal (e.g., a license granted under the system of quantitative trade control to some privileged people), or illegal contraband does not affect the price structure. [p. 664]
 See above, p. 639.
 Late in the eighteenth century European goverments began to enact laws
aiming at forest conservation. However, it would be a serious blunder to ascribe to these laws any role in the
conservation of the forests. Before the middle of the nineteenth century there was no administrative
apparatus available for their enforcement. Besides the governments of Austria and Prussia, to say
nothing of those of the smaller German states, virtually lacked the power to enforce to such laws against
the aristocratic lords. No civil servant before 1914 would have been bold enough to rouse the anger of a
Bohemian or Silesian magnate or a German mediatized standesheer. These princes and counts were
spontaneously committed to forest conservation because they felt perfectly safe in the possession of their
property and were eager to preserve unabated the source of their revenues and the market price of
 One could as well say that they considered the advantage to be derived from giving care
to soil and forest conservation external economies.
 Cf. the brilliant analysis of public spending in Henry Hazlitt's book
Economics in One Lesson (new ed. New York, 1962), pp. 21 ff.
 See above, pp. 139-140.
 See above, pp. 364-365.