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Federal Reserve Board: Market Economies and Rule of Law

Apr 12, 2003, 05:30 (11 Talkback[s])
(Other stories by Alan Greenspan)

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"Market economies require a rule of law. A society without state protection of individual rights, especially the right to own property, would not build private long term assets, a key ingredient of a growing modern economy. Yet an excess of rules--in the extreme case, central planning--has also been shown to stifle initiative and produce economic stagnation...

"But regardless of its causes, conceptualization is irreversibly increasing the emphasis on the protection of intellectual, relative to physical, property rights. Before World War I, markets in this country were essentially uninhibited by government regulations, but they were supported by rights to property, which in those years meant largely physical property. Intellectual property--patents, copyrights, and trademarks--represented a far less important component of the economy, which was mainly agricultural. One of the most significant inventions of the nineteenth century was the cotton gin. Perhaps it was a harbinger of things to come that the intellectual property content of the cotton gin was never effectively protected from copiers.

"Only in recent decades, as the economic product of the United States has become so predominantly conceptual, have issues related to the protection of intellectual property rights come to be seen as significant sources of legal and business uncertainty. Intellectual property is clearly more difficult to define and, hence, to protect. The physical property of one owner cannot occupy the same space as that of another. Ownership of physical property is capable of being defended by police, the militia, or private mercenaries. Ownership of ideas is far less easily protected..."

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