- All things can be coded as capital with the right legal coding. An asset is any object, a piece of land, a car, a cow, a plow, that I can flip into a capital asset, but it could also be a promise to future payment. I promise you to give you $100 tomorrow, and you might promise to give it back. Ideas, know-how. I know how to develop a machine. I have an idea about how to manipulate a genetic code. I created a wonderful composition of music. The law gives a comparative advantage to the holders of assets relative to others who don't have the same legal coding. It's not just the stuff that we're coding. It's in the code. That's the point. It all started with land. Land has been used for millennia by people to grow their crops, harvest fruit, graze their cattle, they've buried their ancestors. We also use the land to create housing, to build buildings, to build office space, to create roads and railroads. We're using land for recreation purposes. We go into parks and use land as well. So there are many different uses of the land. Not all of them necessarily are meant to create private wealth, but the wealth creation aspect has taken over and that's why we see a particular form of legal coding of land as well. But who decides how we should use the land? It could be me, it could be you, it could be your grandfather, it could be some kind of other authority. Who should decide? That's really the fundamental question that the legal system is trying to answer. How it answers this, who has the better right relative to others, who can go to a court, maybe, and enforce her claim against others who have competing claims, that will ultimately decide who has the better right and maybe who can monetize his or her right to the piece of land. I wanna tell you a story about the Maya of Belize, Indigenous people who have lived on the territory that is now the state of Belize for centuries, and they have practiced for centuries certain collective use rights. They decided together or they still decide together today how to use the land, whether to grow in a given year or maybe whether to lay the land fallow, whether to grow trees or crops, whether to bury the ancestor and where to bury the ancestors. There were no property rights. There's no property register. Now, the government of Belize, which became independent from the United Kingdom in 1981, decided that it would dole out licenses to harvest the natural resources underneath the land where the Maya lived. And it said, "I can do this because it's actually our land. It's the government's land. It's not the Maya's lands." So, who's right? That's the fundamental question. Now, the Maya had been there before the Brits. The Maya had been there before the independent government of Belize, of course. And the Maya said, "Actually, it's our land. We've lived there for centuries. We have collective use practices, and we believe that our use practices shall be recognized by the government and the courts of Belize as a property right under the constitution of Belize." So, can they do that? Well, they tried. They tried very hard. They first went to the courts in the 1990s and no one would give them a hearing. Courts would just ignore their claim. Then they went to the Inter-American Commission on Human Rights, which is a regional tribunal. And there, they won. The Inter-American Commission on Human Rights says, "Actually, you have a right to the land. It is protected as a human right. And the government of Belize shall protect you." The glitch here is that the international human rights law doesn't have a direct bearing on what the domestic law enforcement agencies or even the government of Belize does. So the Maya went back into the local court system, and this time, they got a hearing. So they looked at the evidence. They had anthropologists come in and said, "Yes, they have practiced the same use rights for centuries. Sometimes they were dispossessed by the colonial powers or by the government, but by and large, they have lived here for centuries, done the same thing over and over again." So the court said, "Okay, these are the facts. They've done the same thing, but is this a property right? How do you find out?" The government, of course, repeated its argument, says, "No, they don't have a property right. They're not registered." So the court in the end decided to take a very close look at the Belize constitution, which simply says, "Every person has a right to protection from arbitrary deprivation of property." It also says, "No property of any description shall be compulsorily acquired, except by or under law." It doesn't say what property is. Most constitutions don't say what property is. They assume property. And that's something important to understand. The de facto property rights that came before the constitutions are very often incorporated wholesale in the constitutions that we have today. That's why people always claim, "This is ours. It's almost naturally ours." But there was a decision made to simply recognize what was property as property under a new law. So the court wiggled around this a little bit and said, "How do we define this?" and then said, "Okay, there are also provisions in the constitution that actually protect Indigenous people that say that the identity, dignity, and social, and cultural values of all peoples of Belize shall be protected." And then they also took a look into the property law of Belize, which is underneath the constitution. And it's actually determined by the constitution, but we use it now to interpret the constitution. There it says, "Anything in action and any interest in real and personal property is property." So they gave the Maya the right. They said a collective use right is protected under the property rights protection of the Belize constitution. Now this is a great victory, a great victory in the law for Indigenous people. It wasn't the first. In Australia, Canada, New Zealand, other places where we still have Indigenous people, many court cases have been battled over the last two decades. And finally Indigenous people got their right. They weren't compensated, and in fact, in the case of Belize, the government chose to ignore the court ruling and continue to hand out licenses to investors. So in the end, the law counts only if you can also enforce it. It's always hard to enforce the law against the government because the government controls the coercive powers, and you need to harness the coercive powers to enforce your claims. But it's nonetheless an important lesson that we can define property in many different ways. Let's just take a ride back in time and look into the 16th and 17th century in England and look at the Enclosure Movement there. Because just with the Maya, centuries ago, the commoners in England were dispossessed from their land. So you had a situation where you had landlords and you had many peasants. We called them the commoners because they also used the land, the commonly owned land, according to use practices that they just grew into. There were no titles. All of a sudden, in the beginning of the 16th century, the landlords realized that if they didn't share the land with the commoners as they used to, they might actually make more money. Because they realized if they grew cash crops rather than just used the land to graze cattle, they could sell the cash crops into the cities and make money. Or they could simply use the land to graze sheep, take the wool from the sheep and put them into the textile factories. That's where money could be made. And so they decided to build fences and to grow hedges and not to open the gates anymore when the commoners wanted to come and graze their cattle. What did the commoners do? Well, they broke the fences and they broke the hedges and they went onto the property and plowed over the crops that had been planted. In the end, this physical battle that also, of course, was violent to some extent, the physical battle, however, ended up in the courts. Chancery courts, written procedure. The commoners very often didn't know how to read or write. They needed to have somebody to write this down. That already put them into a disadvantage. Many courts said, "Actually, we don't hear collective rights. You don't have standing," is the technical word for it. "You can't come to court with the collective rights. We hear individual rights." Nonetheless, many courts actually did hear the complaints from the commoners, and for about a century, actually, the battle went back and forth. There was no clear evidence. There was no document that gave the landlords the superior right. It had to be argued in court. Ultimately, the winning argument for the landlords was to say, "Since time immemorial, we had the better right. We just granted the commoners the right to use the land. We have the right to take it back and we're now taking it back." That basically was created a legal precedent. It fundamentally altered property rights to land in England in the 16th century through a gradual process of case law. There was no property right well-defined before. It was defined through these battles. Property rights just don't exist in a certain form. They are being created. They're socially contested. They're economically and politically contested. Another story about the land. We're talking about colonialism. The settlers from England went to North America, to Australia, to New Zealand, and they occupied the land and here, their good old argument, "We were here first and we always had the better right because we were here first," couldn't count, because obviously, the Indigenous people of these new territories had been there first. So what did they say now? Now, they had a new argument, one that John Locke wrote about. And John Locke basically created this labor theory of value. If you put your labor together with some object, a piece of land, if you cultivate the land and improve the land, then the land is yours. And those, so they said, "The Indigenous people don't know what they're doing. They don't have property rights. They might, you know, graze some cattle or their horses or whatever on the land, but they don't really own the land. But we're now settling here and we're cultivating the land. We are improving the land. The land is ours." So a new creation of property right again. So what is property rights? As you can see, you can define it many different ways. Many people say it might be innate, because even a little baby will say, "This is mine." But that's a little bit too simple, because we socialize babies to respect the rights of others. And as you see in the case of the Maya, they had collective use practices and babies would grow into these institutions as well. William Blackstone, the lawyer credited with writing down the laws of England that were then transposed to North America, William Blackstone said, "That property is that sole and despotic dominion. It's an absolute right inherent in every English man." The US Constitution, that came later, of course, has no specific provisions on property rights in general, but the Fifth Amendment and also the Fourteenth Amendment said something about property. "No person shall be deprived of life, liberty, or property without due process of law, nor shall property be taken for public use without just compensation." Again, property is assumed. It's not defined. The German Constitution is an interesting case. I mention this here because it's one of the very few constitutions that actually say something about who has the right to create property. "Property and the right of inheritance shall be guaranteed." But then there's another sentence that says, "Their content and limits shall be defined by the laws." Legislatures tell you what the contents and limits of property is. It's not just a given. It's something that we can create over time. Once you have set the groundwork for property rights in a constitution and property law, property law is still not fixed. It changes over time. It changes because people dispute what it actually means. There's little doubt that once you have developed a property right that tells you as a landlord you really own the land and you can control the land, that you have physical possession of the land. If I own a cow, I have, and can touch it and I can put it in my barn, I have physical control over that cow. That's kind of a right to possession that's very often identified with a property right, even though there's a slight little difference between the two. But over time, the question came up, if I have a business and I can't use my business for awhile, the government doesn't take it away, but it might build a road in front of the business. I can't use the business for three months. I'm losing profits. Can I say that I have a property right to this profit? And lo and behold, courts eventually said yes. So the expected valued of using a business becomes a property right. It's nowhere written in the constitution. People didn't think about this in the 16th century, but they did in the 19th and 20th century and courts recognized this as a property right. Over time, people try to push a particular understanding of property rights, which is the understanding that most people have. Which is a little bit like Blackstone's despotic dominion, what is mine is mine and nobody can take it away from me. It is an individual right. It is a right that gives you the right to exclude others. It's not only tangible use right, but it's all about expected returns, expected value as well. Think about the Maya. The Maya didn't want to sell the land. The didn't want to monetize the land. They just wanted to practice their use practices, their culture, on the land. That basically questioned in the eyes of many whether they should have a property, because property nowadays is understood as an asset that can be alienated. You exclude others and you can extract the value of the asset just for yourself. That's the quintessential definition of property rights in capitalism, but it could also be different. Let me switch from land to something more abstract, ideas, knowledge, or art. The US Constitution, which assumes property in the Fifth Amendment that we read earlier, says explicitly that Congress can actually create property rights to promote the arts and to promote the sciences. It can create intellectual property rights. Recognizing that these rights don't exist outside the law, they have to be created in the law. With land, we assume, actually, that it was already there before the constitution came about, which is not true, but nonetheless, I think the intellectual property rights, the idea of using know-how or ideas or art as examples really brings home the point that property rights have to be created before they can possibly exist. So what's the difference between a piece of land or a cow or a car and an idea? Well, the first is that, you know, you and I, we can share an idea and nobody takes away something from the other. Intellectual property rights, as economists would say, are non-rivalrous. We could share all ideas. Everybody can use them. It's not like I eat your apple pie and you can no longer eat it as well. We can share. You can be the owner of the land. You can still rent it to others. You can have temporary use rights. So we can be more sophisticated than this very primitive idea of this is mine, I exclude everybody else. But with intellectual property rights, with arts and ideas, is I think, even clearer that, you know, we could share all human knowledge that we have accumulated over millennia and perhaps everybody would be better off. The one thing that we could not do if we did this was to monetize the value of these ideas, of the know-how. Because if everybody shares it, nobody will pay for accessing it and using it in one way or another. That's the real problem. If we want to capitalize knowledge, ideas, even art, then we have to enclose it for us, just as we enclosed land with fences and hedges, but ultimately, with legal title. We are enclosing intellectual property rights, patents, copyrights, trademarks, with the help of the law. Once you have registered a patent, you can take this registration, show others you have the exclusive right to use this particular idea, and you can get a lawyer to write cease and desist orders and force others not to use the same idea. But you need the legal system to do so. That raises, of course, the question how far this goes. How much power should a patent holder, a copyright holder, a trademark holder have? What is patentable? What kind of monopolies can we create? About a century ago, Justice Brandeis formulated that, "There's a general rule of law that is that the noblest of human productions, namely knowledge, truths, conceptions and ideas, become, after voluntary communication to others, free as the air to common use." So, he basically said there's certain things that you can't monopolize. You can't appropriate for yourself fundamental truth. You can't appropriate for yourself nature. But what if you manipulate nature a little bit? What about, what if you not only discovered an algorithm but maybe you sort of also write down a completely new formula? How far can we go in saying we want to credit human ingenuity by giving them intellectual property rights, and where do we draw the lines that actually, it's a human resource, it belongs to all of humanity, it doesn't belong to an individual? Let me tell you a story about Angelina Jolie. She wrote an op-ed in 2013 in "The New York Times," in which she revealed that she had just had a double mastectomy and the reason was that she underwent a test to find out whether she had the same genetic defect that would give her a reasonably high probability of getting breast cancer of the very aggressive type. So she decided to have a mastectomy to avoid getting that disease ever. She also alluded to the fact in this op-ed that the test that she had to do to discover whether she was a carrier of this gene cost $3,000. The story behind that is that a consortium of scientists at the National Institutes of Health, at other institutions around the world, funded mostly by government money, had actually discovered the gene that causes this specific form of breast cancer. They published this in a famous scientific journal, so that was now to see for the rest of the world. That's the kind of knowledge that we share with everybody. But also, everybody knew that in order to identify the gene in individual patients and maybe to develop diagnosis in the future, you need the sequence of the genes. And there was a competition. Again, scientists funded by governments went out and tried to identify the sequence. But so did a small little private company, Myriad Genetics in Utah, which got venture capital money and said, "We'll try the same." They were first, and then with their discovery of the sequence, they sent to the U.S. Patent Office and said, "Patent this." Making the case that it was their own ingenuity, the particular methods by which they had discovered this and also a little bit of a manipulation of a certain aspect of the genetic code that they should have a patent. And they were granted the patent in 1994. The result was that the company then wrote letters to doctors and to hospitals, clinics, scientists that they could no longer use whatever kits they might have developed themselves to test for the gene, but they now had to exclusively use the test kit that Myriad Genetics had developed. Because now they had the patent, they had a monopoly right, they could use the monopoly right to say, "You have to use this, and of course, you have to pay our fees." At some point, the doctors and scientists organized themselves and started litigating against and said, "This doesn't make sense. We're talking about the human genetic code. It makes no sense that a private little company can appropriate that knowledge for itself and then force us to use their kit and force these costs on the patients and, of course, the health insurance system as well." So they sued. In the end, in 2013, the U.S. Supreme Court overturned the patent. 2013, they got the patent in 1994. 20 years of making money. Not the entire patent was struck down, but by and large, it was struck down. But the court also made absolutely clear that whenever there was some sort of human intervention, like a synthetic CDNA that was different from what we find in nature, or if humans were to manipulate the genome in the future, that this might still be patentable. They wouldn't speak about this right now. The company did remarkably well, nonetheless. Because they had forced everybody to use their kit, they had the database. You know how important data is today. They created a huge database of women that had been tested for breast cancer. That's the largest database and at some point in the early 2000s, they decided to no longer share that database with others. It was theirs. It was their monopoly. And so, people continued to use the kit, and people continued to send them to that particular company because having a big database makes all the difference in diagnosing genetic defects in your patient. So, some people have called this a data-creating patent or data-generating patent. So use a patent, you get a temporary monopoly. You might even have it shorter than what the law says because it might be struck down by a court, but in the interim, you can use it to create a big database. And now we have the monopoly over the database and that's your new monopoly, and that has no time limit. So here you can see how the law allows Congress to create patent law, how the law is extensively interpreted by the lawyers who want to help a company, a client like Myriad Genetics, to patent a particular invention. When you have a right in private law that has been recognized by the law, it can be challenged, but somebody has to challenge it. It has to be a competitor. And that means that if you are an aggressive coder of capital, you always have a first mover advantage. You can capitalize on your rights, as long as you still have the right, and when struck down, nobody asks you to crawl back and share the money that you've made. You can make a lot of money in the meantime and it's yours forever for the time that you can claim this was a property right that had been recognized in law.