Organizations and Markets

Intellectual Steam

19 May 2010 at 1:38 pm Dick Langlois 4 comments

| Dick Langlois |

There’s nothing like a rousing academic argument, especially when it deals with an intriguing historical case. “The Fable of the Keys” by Liebowitz and Margolis is the paradigm here. I recently stumbled upon another example, the (apparently ongoing) dispute that pits George Selgin and John Turner against Michele Boldrin and David Levine on the question of to what extent James Watt’s steam-engine patents retarded innovation in steam technology and slowed the British industrial revolution.

The Newcomen steam engine was a low-pressure device that, by using steam to create a vacuum, actually used air pressure to drive the engine. Watt invented and patented an improvement to the vacuum engine that involved a separate condenser to cool the steam, thus increasing efficiency. On the strength of his patent, Watt was bankrolled by the industrialist Matthew Boulton, and together they licensed the technology to others and did their best to block competing technology. Boldrin and Levine claim that the Watt patent constituted a wide-scope blocking patent, of the kind described by Merges and Nelson, which slowed development of rival technologies, including the high-pressure steam engine that was to be crucial in textiles and elsewhere. As a result, the Boulton-Watt patents and legal stratagems “delayed the industrial revolution by a couple of decades.” Selgin and Turner take issue with both facts and conclusions, arguing that patent law at the time, which derived from the 1625 Statute of Monopolies, actually forbade the patenting of a general idea and insisted that an innovation be instantiated in specific technology, in this case in the form of the condenser. In other words, they argue that patent scope was kept sensibly low in eighteenth-century Britain, something of which Merges and Nelson would approve. Thus Boulton and Watt could not, and in fact did not, slow the development of high-pressure steam through intellectual property, though they may have had an effect on the culture of contemporary inventors, who doubted the economies and feared the dangers of high-pressure steam at a time when complementary metallurgical technology was not yet up to the task. (Note to Selgin and Turner: here is a better reference on the dangers of high-pressure boilers in American steamboats.)

I found the Selgin and Turner argument about Watt persuasive. They are certainly right to make fun of the idea that the Boulton-Watt patents retarded the industrial revolution by ten years, especially as Nick von Tunzelmann has calculated, in a Fogel-like exercise, that if Watt had not invented the improved steam engine in 1769, British national income in 1800 would have been reduced by only 0.1 percent. Nonetheless, I remain sympathetic to the general thrust of Boldrin and Levine’s skepticism about patents, especially wide-scope patents. In automobiles, the famous Seldon patent protected the very idea of an motor car powered by an internal combustion engine. Although it’s hard to say how much if at all this retarded innovation in automobiles (before Henry Ford rose up to demolish it in court), one would certainly be hard pressed to argue that it helped innovation in any way. I myself have recently written on the case of RCA, which Alfred Chandler always portrayed as a font of innovation because of its centralized R&D laboratories. In fact, RCA was a government-created patent pool that block-licensed most of the key complementary technologies of the radio (including abstract ideas like the heterodyne principle), a practice that demonstrably slowed innovation in radio. In fact, I argue that, because of RCA, the U.S. failed in the case of the radio (and consumer electronics more broadly) to take advantage of what Carliss Baldwin would call the option value of a fairly modular technology.

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Entry filed under: - Langlois -, Business/Economic History, Entrepreneurship, Innovation, Institutions, Law and Economics.