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I must go down to the seas again, to the lonely sea and the sky,
And all I ask is a tall ship and a star to steer her by,
And the wheel’s kick and the wind’s song and the white sail’s shaking,
And a gray mist on the sea’s face, and a gray dawn breaking.

I must go down to the seas again, for the call of the running tide
Is a wild call and a clear call that may not be denied;
And all I ask is a windy day with the white clouds flying,
And the flung spray and the blown spume, and the sea-gulls crying.

I go must down to the seas again, to the vagrant gypsy life,
To the gull’s way and the whale’s way, where the wind’s like a whetted knife;
And all I ask is a merry yarn from a laughing fellow-rover,
And quiet sleep and a sweet dream when the long trick’s over.

~John Masefield

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Former UF University Economics Society President Vivek Rajasekhar, currently on assignment promoting liberty at the Cato Institute, shared a post with some other UES luminaries recently called “What kind of innovation do patents encourage?” Apparently, people are learning a little bit more about the economics of intellectual property, probably due to several new books being published on the subject, and the promulgation of illuminating blogs.

Many persons are loathe to consider reforming intellectual property, unless it is to strengthen IP rights. Through college, we never really challenge this assumption. But long before Professor Lessig‘s outstanding works on the subject, several notable economists tackled government’s efforts to promote IP. For example, Milton Friedman writes:

…intellectual property is different from physical property: in both cases, you have a monopoly but the monopoly on intellectual property is wholly different because duplicating the property comes generally at a very low or zero marginal cost. You are enforcing a monopoly pricing, as it were, that limits output to lower than the optimum social level.

Friedman is not alone. The most persuasive and eloquent critic of intellectual property rights is the late Sir Arnold Plant. Amongst many other broadsides, he argued “intellectual property protection might result in too much intellectual property being produced rather than too little (or perhaps both, for different types of intellectual property).” This is a fundamental point. Intellectual property protections simultaneously encourage and discourage certain types of IP. Economist and philosopher Murray Rothbard concurred in the case of patents, arguing that whether or not patent rights increase the amount of research expenditures, they certainly distort the type of research expenditures. He argued this on two grounds. First, that expenditures are “overstimulated” in the early stages during patent races until the race is over, after which point they are “unduly restricted” as all competitors may be excluded from benefit. Second, that because only certain types of inventions are patentable, research is overstimulated in those areas and by corollary relatively understimulated in others due to financial incentives being diverted to the overstimulated areas. Rothbard continues from his magnum opus Man, Economy, and State:

The most popular argument for patents among economists is the utilitarian one that a patent for a certain number of years is necessary to encourage a sufficient amount of research expenditure for inventions and innovations in processes and products. This is a curious argument, because the question immediately arises: By what standard do you judge that research expenditures are “too much,” “too little,” or just about enough? This is a problem faced by every governmental intervention in the market’s production. Resources—the better lands, laborers, capital goods, time—in society are limited, and they may be used for countless alternative ends. By what standard does someone assert that certain uses are “excessive,” that certain uses are “insufficient,” etc.? […] The market does have a rational standard: the highest money incomes and highest profits, for these can be achieved only through maximum service of consumer desires. This principle of maximum service to consumers and producers alike—i.e., to everybody—governs the seemingly mysterious market allocation of resources…. But the observer who criticizes this allocation can have no rational standards for decision; he has only his arbitrary whim.

Just where do the distortions and misallocations occur? A very interesting perspective by “Renegade Division” makes use of a distinction apparently created by noted libertarian Stephen Kinsella:

Vertical Innovation is when a new product is innovated based on merely a small amount of added new technology, for example adding the facility of watching videos on an MP3 player, or adding a new metal on an alloy best suited for making railway tracks which now reduces its ability to expand and contract in heat and in cold, or creating an AIDS vaccination by using the results, effects, and formulas of 10 different immunity vaccines.

Horizontal Innovation is when a new product is developed which provides same functionality as a previously existing product but it tries to achieve that in a different manner. For example a new motorcycle is developed which uses fluids load-balancing(just making it up) for more stability because a motorcycle is already developed and it is patented, or a new type of Fan is developed which is embedded in a box because the regular fan is already developed and patented.

We give up vertical innovation in order to foster horizontal innovation. Absent IP, however, the system would reach an equilibrium that fosters more vertical innovation and still gives us some horizontal innovation, but now protected by contract. In the absence of intellectual property rights, that is to say, government-created rights to intangible assets, the free market would allocate intangible assets as prices and consumers deem fit. Suddenly, the value of these assets will be assigned by contracts between persons who can negotiate the price in order to best allocate risk, as opposed to the government-granted right of artificial scarcity that detaches intellectual property transactions from reality. To put this more simply, contracts would take the place of intellectual property and not a whole heck of a lot would change except for more efficient allocation of scarce resources, including time.

As long as people are educated as to what a circle-c symbol means in a book, and they buy it subject to that, we would a seamless transition in copyright. For trademark, we would not need to rely on the strictures of the Lanham Act, which arguably entrench the rich and powerful at the expense of those who would develop similar goods or services and thereby please consumers. Rather, we would expect the common law concept of “fraud” to rule again. It would no longer be enough to be similar, as the small Victor’s Secret store was in Tennessee. It would have to be really attempting to pass itself off as Victoria’s Secret leading to bona fide customer confusion. Patents are a more difficult case and the strongest one could be made for pharmaceuticals. We like their innovations. Speaking as an economist, I don’t think we would necessarily see much less innovation or drug development. I think we would see fewer competitors and a consolidated industry that still seeks to buy the smaller companies with promising drugs.

How am I so confident? Well, the sad truth, long unheralded by an education system stuck in the 1960s preparing people for 1950s jobs, is that contracts can fill the role of IP very well. You can have all manner of contracts: small ones, long ones, ones in shrinkwrap, ones reduced to a symbol, written in Chinese, English, or Binary. At root, contractual agreements represent a meeting of the minds and the consent of the parties. At root, intellectual property creates incentives for certain types of production at the expense of others. It’s an academic point, since it’s so strongly tied to an almost inconceivable counterfactual, but an important one nonetheless.

Don’t believe me? Fashion has worked for a very long time without strong IP. Fashion changes significantly year to year and countless billions in profits are still made. Additionally, the Open Source movement, which is very much based in the power of contract contra the limitations of IP, has eviscerated profits for operating systems, encyclopedias, and many other products. The gains we all receive are significantly greater than the jobs lost and no protection is necessary. In support of this point, Donald Bordeaux, Chairman of the George Mason Economics Department, writes in today’s “Costs are not benefits; Reducing costs is not harmful“:

How can a nation be hurt in this way if it gains greater access to lower-cost inputs? Suppose, for example, that a genius invents a low-cost machine (much like the one in Star Trek) that can safely and comfortably transport human beings from point A to point B — from our home to the local supermarket, or from our home to Tahiti — instantaneously and for only pennies per transport. This machine is soon sold for $1.99 and becomes, say, an app on a cell-phone or is clipped on to one’s belt.

The great majority of Americans who now work in the transportation and travel industries would lose their jobs. The demand for automobiles would plummet, as would the demand for airplanes and for airline services. Even the demand for hotels and motels would fall dramatically, as many business travelers would just beam themselves back home for the night rather than sleep in a far-away, strange bed. But would America be made poorer by this marvelous invention? Of course not. We’d be made materially much richer.

So, folks, let’s reform the system and go with freedom: it has worked before, it can work again. Put IP lawyers out of work and make them transactional attorneys.

UPDATE: After publication of this post, I noticed another blog post alluding to the possible demise of international IP at the hands of ever-growing contractual agreements here. Contracts govern rights between parties and will always be there. They are not mutually exclusive with IP, though they are more flexible and market disciplined.

We often hear pundits, scholars, and friends arguing about the merits of competition in the context of economics. Introducing competition to a moribund industry characterized by monopoly, as occurred when UPS and FedEx were finally able to challenge the US Postal Service (a truly damaging monopoly) for the delivery of packages, induces all competitors to improve their offerings because, in general, they have to battle on quality and price to find patrons. All else equal, this is what we would expect in any activity, leading to more choice, better service, and greater happiness. And this is what we tend to find.

But, arguably, the blessings of competition are even more pronounced in the arts. In 2008, I described the effects of competition on two great bands of the 1960s in “The Fortune of Coldplay“:

The Beatles and Beach Boys engaged in an “arms race” of sorts that propelled both bands to dizzying unforeseen heights of artistic expression. The story is worth recounting, briefly: Paul McCartney and Brian Wilson, two of the virtuosos behind their respective bands, forced each other to get better with each album. They influenced each other, beginning with The Beatles’ Rubber Soul driving the Beach Boys (read: Brian Wilson, the only one of them worth a creative damn) to produce Pet Sounds, which Paul McCartney to this day calls the best album ever and moves him to tears with its melodies. In turn, McCartney went to the drawing board with John Lennon and they came out with Sgt. Pepper’s Lonely Hearts Club Band, which is often called their best album. According to some, this album broke Brian Wilson, whose prodigy was unleashed by the album but also broken by it. Wilson had, like perhaps Fermat grasping his Last Theorem or Nash contemplating Game Theory, become possessed by the art of the possible in his field. [Yet] the fulminations of other Beach Boy members condemned Wilson’s potential magnum opus, SMiLE, to death. When Wilson recovered [from his breakdown], he produced SMiLE as he thought it would have been. The result is unlike anything else that came from the 60s, or perhaps unlike anything that has ever been made.

I had argued in the post that it may not be possible to not have an “arms race” like that again, pitting extraordinary talent against extraordinary talent, producing ever more outstanding works, and satisfying consumers (in this case, of music) better than they could have dreamed. I was strictly mistaken. This could only occur in a market with a set of tastes that are perfectly and permanently satisfied. Rather, the example of The Beatles and the Beach Boys shows the benefits of competition for us. Similarly, in my recent post on Coorte, I showed that he received a fine for selling art work in a market without being a member of the artist guild. Yet consumers all benefited from his doing so, for they received excellent art works. Allowing artists like Coorte into the market without prior approval ensures that other artists must create works that compete with Coorte’s genius. This is why artists (and workers) form guilds (and unions) that insulate themselves from becoming better.

There is no other reason.

But when they become better, and improve themselves through the crucible of competition, we can build on those achievements. There’s another example of this in an “art” of sorts: chess. The 20th century saw many advances in the art of chess, including those made by Tal, Capablanca, Alekhine, Lasker, Botvinnik, Fischer, Karpov, and Kasparov. The 1970s through the 1990s was the era of Fischer, Karpov, and Kasparov. Fischer is best known as the American who broke Soviet dominance of world chess. But in the chess world itself, his nationality isn’t very important. His contributions to opening theory and endgames are. Chess masters continuously study and study and study previous games. It gives them a sense of the probabilities of how games will play out, but it also means they are storehouses of information regarding the games and artists who came before them. According to Fischer’s wikipedia:

Some leading players and some of his biographers rank him as the greatest player who ever lived. Many other writers say that he is arguably the greatest player ever, without reaching a definitive conclusion. Leonard Barden wrote, “Most experts place him the second or third best ever, behind Kasparov but probably ahead of Karpov.” […] According to the Chessmetrics calculation, Fischer’s peak rating was 2895 in October 1971. His one-year peak average was 2881, in 1971, and this is the highest of all time. His three-year peak average was 2867, from January 1971 to December 1973—the second highest ever, just behind Garry Kasparov. […] Fischer’s great rival Mikhail Tal praised him as “the greatest genius to have descended from the chess heavens.” […] Kasparov wrote that Fischer “became the detonator of an avalanche of new chess ideas, a revolutionary whose revolution is still in progress.” In January 2009, reigning world champion Viswanathan Anand described Fischer as “the greatest chess player who ever lived…”

Yes, it is possible that his capabilities have been exaggerated by his iconic status in the media, but when so many legends and peers believe he was the best, one must concede the possibility. The media would be less likely to distort their evaluations. It is now worth considering Anatoly Karpov, still ranked the 98th best player in the world, who was a dominating world champion for many years before the era of Kasparov. Unlike most masters, he did not have just one peak of greatness. He was world champion from 1975-85, when Kasparov began his stifling dominance of chess. Yet, Karpov retained much of his ability for the following decade, despite not surpassing Kasparov or Nigel Short. Still, Karpov’s greatest performance was in a 1994 chess tournament:

The field, in eventual finishing order, was Karpov, Kasparov, Shirov, Bareev, Kramnik, Lautier, Anand, Kamsky, Topalov, Ivanchuk, Gelfand, Illescas, Judit Polgar, and Beliavsky; with an average Elo rating of 2685, the highest ever at that time, making it the first Category XVIII tournament ever held. Impressed by the strength of the tournament, Kasparov had said several days before the tournament that the winner could rightly be called the world champion of tournaments. Perhaps spurred on by this comment, Karpov played the best tournament of his life. He was undefeated and earned 11 points out of 13 possible (the best world-class tournament winning percentage since Alekhine won San Remo in 1930), finishing 2.5 points ahead of second-place Kasparov and Shirov. Many of his wins were spectacular (in particular, his win over Topalov is considered possibly the finest of his career). This performance against the best players in the world put his Elo rating tournament performance at 2985, the highest performance rating of any player in history.

In this era of Fischer, Kasparov, and Karpov, it is worth considering what a tournament between all of them at their peaks might have been like. It is something Karpov has considered, since he would have played Fischer for the World Championship had Fischer not declined to defend his title. And although considered one of the all-time greats with his positional brilliance, always ready to take advantage of the most minor mistakes, he is not considered greater than Kasparov or Fischer. According to Karpov’s wikipedia:

Karpov is on record saying that had he had the opportunity to fight Fischer for the crown in his twenties, he (Karpov) could have been a much better player as a result (in a similar way as Kasparov’s constant rivalry with him helped Kasparov to achieve his full potential).

This is probably true. On the other hand, Karpov’s place in history may be unchanged, for his own improvement may have spurred even greater improvement in Kasparov as well. Whatever the case, it cannot be said that less competition is better for fostering the brilliance of artists anywhere in any situation.

Continuing my mostly despised series on government intervention in the arts, I look at pernicious interior design licensing requirements today. This has been a cause célèbre for many libertarians, including Dr. Mark Perry of Carpe Diem and the Institute for Justice, for some years now. But with good reason: it is a terrific example of big government being run by special interests, and in so doing, working against the public interest. In short, almost half of the states in the US require interior designers to obtain licenses from the state before they can hold themselves out as an “interior designer” or work as one in residential and/or business areas. Reason TV gives us a must-see documentary on the situation, primarily in Florida, but also pointing out that President Obama hired an “unlicensed” interior designer.

The woman in Texas from the video couldn’t point to an example where unlicensed interior designers led to public health disasters. The reason is because they don’t exist, not because they’re unlicensed anyway. Other states don’t seem to be as bad, but even being better, are still awful. New York does not require all persons who work as interior designers to register with the state. However, if they desire calling themselves certified, then they must:

  • be at least 21 years of age
  • meet education and examination requirements
  • meet experience requirements
  • be of good moral character
  • pay $345

Are you kidding me? So in order to receive certification by the state, you have to be of good character? How does the state determine that? Mostly searches of your criminal history, driving record, and so on. In order to do that, the state must hire a bunch of employees. Yes, the ultimate reason you have to do this is likely that the state wants to establish a class of workers dependent on a powerful state. Why do you have to be 21? What if you’re extremely talented at 18? You can go fight a war for America, but there’s no way you can drink beer off your military base ( I guess you’re safer there?! ) or Heaven forbid, be a certified interior designer in New York.

Now, what is this about education requirements? Uh oh. The state regulations of the commissioner, section 52.18 states:

a. To be registered as a program creditable towards the education/experience requirement necessary for certification to use the title certified interior designer, as prescribed in section 79-3.2(b) of this Title, a baccalaureate degree curriculum shall contain at least 48 semester hours of course work in the following content areas:

1. drafting and presentation techniques;
2. fundamentals of space planning and design;
3. materials and methods of construction;
4. furniture, finishes, and equipment;
5. history of architecture and the decorative arts;
6. codes – construction, fire, safety, and accessibility;
7. environmental and building systems;
8. color theory and application;
9. business practices and ethics; and
10. construction documents.

b. To be registered as a program creditable towards the education/experience requirement necessary for certification to use the title certified interior designer, as prescribed in section 79-3.2(b) of this Title, an associate degree curriculum shall contain at least 30 semester hours of course work in the following content areas:
1. drafting and presentation techniques;
2. fundamentals of space planning and design;
3. materials and methods of construction;
4. furniture, finishes, and equipment;
5. history of architecture and the decorative arts; and
6. codes — construction, fire, safety, and accessibility.

Now there’s little doubt as to the value of a formal education in these subjects. Many know little of the profession before they enroll in these subjects. But there are also lots of people who learned from parents, books, television, or internships how to do much of this already. My high school, for example, offers a lot of training in drafting techniques. In any case, why does the state have to force “the history of architecture” on these students? Does the state really have an interest in telling students what kind of architecture they should be like, appreciate, or know about? You can get anything you want to know about “color theory” from COLOURlovers, textbooks, or otherwise. I should know, since I have been doing research on it for my economics project.

Usually, people who advocate licensing requirements do so for professions like law and medicine, where the quality of a practitioner, or lack thereof, may deleteriously affect clients and patients respectively. Sometimes this is true, though no known studies have shown the either the Bar exam or Boards for these professions actually raise the quality of the practice. Even licensing requirements for teachers have come under severe attack by outstanding researchers in the economics profession. Milton Friedman, the revolutionary thinker who through his arguments raised living standards all over the world from Chile to the US to Hong Kong, had this to say:

Friedman wrote in that book, Capitalism and Freedom, excerpted from a post at Carpe Diem lamenting the foolhardy regulation of florists (!!):

Licensure therefore frequently establishes essentially the medieval guild kind of regulation in which the state assigns power to the members of the profession. In practice, the considerations taken into account in determining who shall get a license often involve matters that, so far as a layman can see, have no relation whatsoever to professional competence.

Conclusion? Friends don’t let friends mix government and the arts.

It seems like Adriaen Coorte, a Dutch painter of the late 17th century, is all the rage these days. Featured in today’s Art Market Monitor (AMM), Coorte has two works that have recently been discovered and will be available through Sotheby’s soon. Estimates range from €100,000 to 150,000. His works have sold for considerably more. Called an Old Master, which I suppose is a title given to an artist whose work can fetch a pretty penny at an “Old Master” auction by Sotheby’s or Christie’s, Coorte painted all manner of works in a long, but mostly uncatalogued career. There are some interesting notes to make about the case, however.

First, according to Sotheby’s materials, as relayed on AMM, “Coorte was almost completely disregarded until the 1950s when a series of articles and an exhibition curated by Laurens Bol drew attention to him.” The late Laurens Bol, who passed in 1994, was a crucial source on the subject of Old Masters. His primary writings on Coorte spanned from the early 1950s until the mid-1970s and helped to put Coorte on the map. He also served as a long-time Director of the Dordrechts Museum. It was in this capacity that he organized a Coorte exhibition that is believed to have put Coorte on the map. The significance of this is that even directors of middle tier museums have influence on the wider art world, to place prestige on certain artists, values, and ideas. Though many have difficulty accepting the free market’s role in this, it is hard for me to believe anyone really wants government to use its premiere, coercive role in life to propagate the art of its choice on people.

Unfortunately, this is exactly what has transpired in a burgeoning scandal in the United States, where the strictly non-partisan National Endowment for the Arts recently worked with the White House to engage sympathetic artists to fight for the President’s agenda. Artists are already free to do this. What’s new is that a government agency that by law is non-partisan has been co-opted. As I wrote recently, this sets a terrible precedent for the government. No one wants the arts to be a pawn of whoever happens to be in the White House at the time, especially when it only patently works for one side of the aisle.

The second lesson I take is yet another free market one. Sorry, you knew what you signed up for when you started reading an art blog from me. Apparently, Coorte, who is now considered an Old Master, was once fined for selling art but not being a member of the “guild”!!! According to a 2003 brochure from the, sigh, National Gallery of Art, “Only one contemporaneous document mentioned Coorte, and that concerned a fine levied against him in 1695 because he had sold paintings in the Middelburg market when he was not a master in the local artists’ guild.” That pretty much sums up the utility of any kind of union. The members inside the union benefit, but consumers, that is, everyone else does not because they endure higher prices as a result. In this case, consumers were being deprived of a master’s work because he had not submitted for guild membership, for whatever reason. Guilds, unions, and other petty restrictions should be fought. It reminds me of the unfortunate case of Star Trek: Insurrection, written by Michael Piller, in which a utopian society forces people, if they want to be artists, to train for no less than 60 years. Somehow, this is argued as a good thing in the movie. Those who rebel, I guess insane tea party-loving libertarians, are exiled from society. Again, who is society to judge what “good” art is? This is not what we need more of.

We should be mindful of these lessons, for they remain timely.

The nail in the coffin of scholars attempting to deny the robustness of Berlin and Kay’s theory is contained within “Universal Foci and Varying Boundaries in Linguistic Color Categories” by Terry Regier (UChicago), Paul Kay (Berkeley), and Richard S. Cook (Berkeley). Looking at the World Color Survey of 110 unwritten languages, the authors found that foci (“best examples”) of six colors (white, black, red, green, yellow, blue) are virtually universal, although the borders of the category are somewhat more malleable and given to cross-cultural difference. Much more interesting, the authors attempt to predict these boundaries based on a computational model.

Why are these models important? Certainly, they represent a wide departure from much linguistics and anthropology, though graduate students in these fields do do learn basic, important statistics. Even in economics, there’s a vocal minority of professionals who scorn the utility of mathematics. Though it absolutely kills me to do so, I will (favorably) quote a Nobel Prize winning economist named Paul Krugman:

Math in economics can be extremely useful. I should know! Most of my own work over the years has relied on sometimes finicky math — I spent quite a few years of my life doing tricks with constant-elasticity-of-substitution utility functions. And the mathematical grinding served an essential function — that of clarifying thought. In the economic geography stuff, for example, I started with some vague ideas; it wasn’t until I’d managed to write down full models that the ideas came clear. After the math I was able to express most of those ideas in plain English, but it really took the math to get there, and you still can’t quite get it all without the equations.

What Krugman, who has long since stopped being an economist, is saying is that of course it all starts with ideas. But in order to develop these ideas into something scientific, you need to formalize the idea into equations. Why? Because equations eliminate ambiguity. It might take three pages to say what a solid equation says in a line. For someone trained in the practice, this is especially helpful because you can see which elements have been left out, where certain factors should be added, and it is vastly easier to challenge the assumptions of the equation or tweak them. If you don’t hold scientists to this standard, they can dance out of all kinds of things with ambiguity — indeed, this is just one of the problems with social sciences of the past. It’s what sets Gary Becker, for example, apart as a sociologist.

The idea I have that I would like to somehow formalize is how market demand works with biological properties of our eyes and chromatic qualities to provide a certain set of color words in a language. So step one would be to list out the factors that such a set of color words in a language is a function of. There are many factors that might be considered in trying to formalize an explanation for the consistent order of color words in languages. In one of Harold Conklin’s better known works, referred to me by a PhD student in Anthropology, the author shows that color words may not refer strictly to chromatic properties. Rather, they may be tied to other qualities, such as texture and/or ripeness. This implies that surface texture, in addition to brightness, hue, and focal points. Also tugging at any formalization would be the market demand for visual differentiation and the cost of spreading and maintaining a new word in the language. This latter cost certainly goes down as technology improves that aids in information recording (writing systems through printing presses and computers).

Let us assume that humans gain no utility from distinguishing between different visual frequencies of light (i.e. colors). If this is the case, then humans will use no words (or possible one?) for colors. Since every language has at least two color words, humans do gain utility from distinguishing between colors. Now let n be the number of words for colors that a language possesses. n only exists for languages above 1, because humans always derive enough utility to at least discriminate between lightness and darkness. Importantly, the contrast between these two “colors” is not limited to pure color values as they apply to all colors, suggesting that humans derive the most significant marginal utility from adding these words to a language compared to any other color words.

However, if these words are limited from their quality of brightness and instead are converted into a RGB scale, we might say that black is (0,0,0) while white is (255,255,255). The length of the line connecting these points in the cubic color space, 441.673, is the longest length contained within the space, though it is not unique. Other distances between points of 441.673 exist, as between lavender/purple (255,0,255) and green (0,255,0), red (255,0,0) and light blue (0,255,255), as well as blue (0,0,255) and yellow (255,255,0). These are not the next sets of colors to naturally occur in human languages.

As a universal matter, when n = 3, the third word is red, but when n = 4, the fourth word is not light blue. This means that human demand for a fourth color word is not exclusively a function of contrast in a cubic color space. Additionally, there must be a basis for choosing red as the third word. Why not green or blue? Any hypothesis must therefore take into account several factors for determining the universal order of color words in human languages. Now you’re beginning to see why an equation for the linguistic marketplace that explains how humans, across time and space, create a consistent and universal order for color words from n = 2 to 11 might be helpful. In any case, it could be modified and tweaked in an orderly manner which reduces the cost of discussion, modification, and adaptation to formalization.

Now, let us look at n = 3. What sets red apart from the remaining colors? It could be many things, but we need to establish a hypothesis. Possibilities include: perhaps an orthogonality or angle to the white / black axis in the cubic color space which might mean that, when the third word is added, the plane occupies the largest possible triangle area in the cubic color space given the black / white axis. Let us test this hypothesis. The area created by this triangle is 45,979.31 units squared. It is a simple matter to show that we would obtain the same area with green or blue. However, red does have the lowest frequency / highest wavelength among these candidates and, indeed, among all remaining colors. While we may believe that the latter point is conclusive, we do not yet know whether it is independent of the former method.

Now let us look at n = 4. Either green or yellow will always be in the fourth position, and when n = 5, its complement, that is, whichever was not selected between green or yellow for the fourth word, will be the fifth word. This implies that humans are indifferent between the two as a universal matter, but that culture-specific factors may significantly impact the decision. Additionally, both green and yellow represent vertices on the cubic color space, although they have relatively similar wavelength and frequency.

At this point, let us look at another instructive excerpt from Sampson’s The Language Instinct Debate:

…human perception of color is mediated by [a] sensory apparatus which is not equally sensitive to all areas of the colour space. Our eyes can detect great intensity of colour in the ‘focal red’ region, for instance; conversely, int he pale blue-green region we are much less sensitive, so that the most intense color we can experience in that area is not too different from a pale grey. One would naturally suppose that if a language has few words for colours, the words it does have will refer to the strongest sensations; and a comparison of Berlin and Kay’s focal points with the regions of greatest human colour sensitivity indeed shows a near-perfect match. In this respect, then, it is true that human biology does influence the conceptual structure of human language. (Incidentally, the influence is not totally consistent across the species: one reason why blue occupies a relatively late position on Berlin and Kay’s sequence is that dark-skinned people have pigment in their eyes making them less sensitive than Europeans to blue light, and their languages correspondingly often lack a word for ‘blue’.)

So now we see that there are biological factors that may see us choosing red before green and yellow and green and yellow before others. What happens when a language deviates from this model and puts orange in there? Or pink? Our equation would have variables and coefficients describing the influence of said variables that might help explain this “market demand” factor. Conceivably, we will be running different types of regressions, comparing with different kinds of baselines, to test our predictions.

I intend, in the coming weeks, to develop just such a formalization. There are other potential uses of this approach for linguistic analysis. Languages differ in the number of “number” words such as one, seven, thirteen, and so on. They also differ in the number of family member words that are available. Asking questions about similarly universal relationships in languages could yield answers about the role of language in culture, technological achievement, as well as evolution. Even though I know this is terribly boring. 🙂

In 1969, anthropologists Brent Berlin and Paul Kay published Basic Color Terms: Their Universality and Evolution. In this work, the authors forcefully argued against the sweeping cultural relativism of the day by showing that languages, despite time and distance, almost universally possess certain color words. Contrary to many critics’ assertions, they did understand that they were not dealing in strict universal terms. Nevertheless, they tried to show that all languages had at least two color words, roughly corresponding to lightness and darkness (or white and black). If a language had three color words, the third word would be red. If four, it would green or yellow, and the fifth would be the missing complement. This would go on for “seven stages” and up to 11 basic color words. Over time, Berlin and Kay weakened the strength of the results though the spine remained. An enormous amount of controversy has been generated as a result of this book.

There have been some powerful criticisms of this work. First, as Geoffrey Sampson recounts in The Language Instinct Debate, there are some rather extraordinary methodological faults:

Berlin and Kay list four basic colour terms for Homeric Greek, including the word glaukos. Standard reference works, such as Liddell and Scott’s Greek dictionary, say that glaukos at the Homeric period meant something like ‘gleaming’, with no colour reference, and in later Ancient Greek meant something like what its English derivate ‘glaucous’ means now: roughly bluish-greenish-grey. But Berlin and Kay’s theory requires a term for ‘black’ in a four-term system, so they translate glaukos as ‘black’. Ancient Greek had a standard word for ‘black’: melas, the root of ‘melancholy’ (black bile) and ‘Melanesia’ (black islands) — but melas melas did not appear in Berlin and Kay’s list of four Homeric basic colour terms.

Basically the problem is that Berlin and Kay got their data from students and apparently didn’t check it very well. Another set of dissents can be generalized as follows: Berlin and Kay did not succeed in demonstrating a universal word order for color words and categories because they did not analyze the languages correctly. Either the color terms they thought corresponded to their basic, Western-centric terms did not, or….. etc. etc. In my opinion, it does seem rather clear that this is not, in fact, a universal. Despite the criticisms, other studies have confirmed the general results, and so it seems that Berlin and Kay demonstrated a very powerful tendency. But this is just as interesting as if it were in fact a universal because the reasons underlying this powerful tendency are a matter of objective reason. Therefore, the attack on relativism has held until the modern day. Additionally, if my Google searches are correct, a World Color Survey data set has been produced from which other researchers have replicated substantially Berlin and Kay’s findings.

Although a wealth of publications have discussed this problem, and I have not read all of them, I think that an economics approach may be helpful for explaining this result. ( I did read one publication that suggested a theory similar to what I will suggest. ) And, in any event, what do I mean by an economics approach? I mean that I wish to create an equation or series of equations, with several variables representing factors that influence the human demand for color terms, that explains this pattern and offers suggestions for why deviations may occur. The equations are based less on absolute numerical values and more on logic. One example of how logic has been brought to bear on important problems by economists can be found in Gary S. Becker’s The Economics of Discrimination (a copy of which I have apparently stolen from my friend Bob). To show one simple example:

By using the concept of a discrimination coefficient (DC), it is possible to give a definition of a “taste for discrimination” that is parallel for different factors of production, employers, and consumers. The money costs of a transaction do not always completely measure net costs, and a DC acts as a bridge between money and net costs. Suppose an employer were faced with the money wage rate π of a particular factor; he is assumed to act as if π(1+di) were the net wage rate, with di as his DC against this factor. An employee, offered them oney wage rate πj for working with this factor, acts as if πj(1-dj) were the net wage rate, with dj as his DC against this factor. […]

Suppose there are two groups, designated by W and N, with members of W being perfect substitutes in production for members of N. In the absence of discrimination and nepotism and if the labor market were perfectly competitive, the equilibrium wage rate of W would equal that of N. Discrimination could cause these wage rates to differ; the market discrimination coefficient between W and N (this will be abbreviated to “MDC”) is defined as the proportional difference between these wage rates. If πw and πn represent the equilibrium wage rates of W and N, respectively, then MDC = (πw – πn)/πn.

Amazingly, Becker first published his work in 1957 (hence N standing in for ‘Negro’), but it still represents a profound attempt to modernize sociology, which is largely and almost staggeringly useless today. Just so, using such models that may be tested and for which data may be gathered may be useful for anthropology. For an amateurish approach in the context of color words, stay tuned for Part II.

One of the profound changes in human experience from 1700 until today has been the staggering increase in technology, information, and choice. These go hand in hand. When we are able to build machines, we can print books on a large scale and spread information to the masses. People can choose between the many fictions they experience: one can sail the wild seas with Admiral Horatio Hornblower, journey back to read petitions of Emperor Tiberius, or learn valuable lessons on decision-making from Sun Tzu.

The economics of technological change itself is a complex thing. However, the economics of art investment as a function of this change is not. In response to the recently concluded India Art Summit, iTrust Financial Advisors (based out of India) weighs in on the question: “Is art a good investment?” The answer of course is “it depends.” But it’s a solid article that first lists some of the investment characteristics of art assets:

  • Uncorrelated Returns. The author suggests that the returns from investment in art are not correlated with returns in stocks or bonds. I suspect this is increasingly untrue for reasons I will explain later. Still, it would not really mitigate the author’s point that art assets could be useful diversification tools (ways to not put all of your eggs in one basket).
  • Lack of liquidity. It’s difficult to convert an art asset into more fungible form, such as cash. It takes time, especially to get fair market value.
  • Lack of income. Unlike stock ownership, art ownership does not provide income streams such as dividends.
  • Fakes and regulatory framework. There’s supposedly more risk with art, but I wouldn’t say this is a very strong point. On the other hand, gains from sales in art are subject to a higher tax than stock gains. Although no one knows what this disparity will look like after the Bush tax cuts expire, and sadly, it seems they will have to because of the suicidal spending spree recently embarked on, it is likely art gains will remain taxed at 28% while stock gains will be somewhere around 20% (according to President Obama). The consequence of this is that investment decisions between these asset classes is slightly tilted, all things being equal, in favor of stocks and that the pre-tax return from an art work must be 40% more than the return from an otherwise comparable gain in stock in order for an investor to be neutral between the two. For more, see: Internal Revenue Code s. 1(h)(4) and s. 408(m)(2).
  • Transparency. The author only means here that there seems like relatively low liquidity and therefore price signals are not as robust as in other markets– though they may be just as efficient.
  • Handling costs. Stocks don’t have them. Okay.

The interesting point is the first one. You see, I am dying to get a hold of a book recently recommended to me by a secret agent code-named Hunter called The Patron’s Payoff: Conspicuous Commissions in Renaissance Art. In a review of the book by California Literary Review‘s Judith Harris:

In The Patron’s Payoff, art historian Jonathan K. Nelson and economist Richard J. Zeckhauser have harnessed their separate disciplines into a new analytical key for understanding the linked motivations of patron and artist or architect in conspicuous commissions. . . . No less than the American financier who donates a museum wing on condition it bears his name, or the merchandiser who endows a university institute named for him, the results of Renaissance patronage had to be, first of all, highly visible.

This is an intuitive, but important microeconomic finding because it suggests that in the Renaissance era, these brilliant works of art were not created primarily as an asset class that would yield investment returns directly in currency. Rather, it would yield returns in the form of status, privilege, and indirectly perhaps in currency. This makes it a very different type of asset class than stocks. Or, at least, it did. In The Economics of Art and Culture, James Heilbrun and Charles Gray suggest that the returns on art increase through time:

“The history of art connoisseurship tells us that the main lesson imparted by the test of time is the fickleness of taste whose meanderings defy prediction.” William Baumol’s skepticism is grounded in his study of 640 arts transactions during the period from 1652 to 1961, as listed in Gerald Reitlinger’s The Economics of Taste. Baumol calculated the real rates of return associated with specific works of art and concluded that the average annual compounded rate of return was 0.55% in real terms, about one-third as high as the real return on a government security. Returns varied from a high of 27 percent to a low of -19 percent per year. […] Another study, that by Frey and Pommerehene, extended Reitlinger’s data up to 1987 and included more recent auction data from France, Germany, and The Netherlands. Taking into account inflation, commission fees, and other pertinent factors, they calculated the average rate of return to paintings over the entire period to be 1.5% per year. […] It should not be particularly surprising, then, that studies of different time periods and varying data sources reach conflicting conclusions on the investment value of art.

Actually, that’s not precisely correct. It is true that we should not be surprised studies from different time periods and data will suggest different investment values in art. However, it is not because of taste or methodological issues. The most viable hypothesis to explain these findings is that from the Pharoahs through Louis XIV, very little art was transacted for the purpose of investment returns in currency. That is not to say they didn’t expect returns, as is likely shown in The Patron’s Payoff. And this is why, except for considering artifacts that are only now perhaps categorized as art, it is not difficult to catalog the few noteworthy artists and styles of those ages.

However, when technology improved, living standards improved. Commensurate with the notion that food and shelter cost relatively less in a person’s budget, more money would now be available for those “higher pursuits” such as fine arts. Previously, there would be few buyers for spectacular art works and indeed returns would not be correlated with any market because it depends almost purely on prestige issues. Now, a market develops, and we learn that people care more about getting money — which they can exchange for all kinds of things — than mere prestige, though that is still attached in many cases. The rate of return goes up through the ages, peaking with the bubble of the 1980s but settling in the 1990s, because people are getting richer and demand for art goes up. It is no more complex than that. Ironically, even though investment in art is likely at an all-time global high (certainly still true without the useless NEA), it probably pales in comparison to the amount of art that is “consumed” through television and movie watching, to say nothing of sports.

September 2009 represents the two year anniversary of this blog’s creation. There have been 126 posts. Although the blog initially focused on issues relating to arts law, it quickly moved into the economics of the art world. Nowadays, especially with “book club” series of posts on The Art Instinct, the blog is branching out into language and the arts as well.

Some highlights of the past:

  • “The Death of Angels” and “The Angels Within” discussed the role of fiction in modern times by looking at the literary criticism of Frank Kermode, the insights of Tom Wolfe, and the wit of Czeslaw Milosz.
  • Book Reviews of The Bad Girl by Mario Vargas Llosa and If Not, Winter: Fragments of Sappho by Anne Carson. And of course a gargantuan 10,000 word review of The Art Instinct by Denis Dutton.
  • “Heisenberg Uncertainty Principle in Language” parts I and II looked at the difficulty of translating poetry and sketched the implications for natural language processing.
  • The self-explanatory “Discussion with Arnold Mesches.”
  • In “Copyright Kills Fashion” and “Infringement and Fair Use” I assess a law review article on the economic effects of intellectual property in the arts and my take on how copyright law, in particular the Fair Use statute, should be interpreted. I also summarize a series of controversial and virtually inalienable rights in parts 1 and 2 of “Artist Moral Rights.”
  • “Efficient Markets in Art” parts 1 and 2 are relatively short discussions about the movement of art in wide, open markets, how prices are established, how Sotheby’s works, etc.

Here is what I am planning for the future:

  • Elaboration of the consequences of the Heisenberg Uncertainty Principle which pertain to natural language processing, which include all facets of translation, web search algorithms, voice recognition, etc. It may be somewhat high-level math intensive.
  • Explanation of how economics can help inform the old Sapir thesis behind color words in languages and the anthropological studies that have followed it. This, in turn, may have implications for The Art Instinct.
  • The consequences of language death and the incentives for language creation, such as creoles.
  • Using rudimentary auction theory and comparisons to the wide and varied art auction market in the world, to explain why humanity is always better off with more choices.
  • Theorizing the fundamental importance of paradox and discussing its role in the most powerful works of arts.

I hope you will find a four year anniversary post here two years from now.

Last December, I published a post that seemed somewhat hyperbolic at the time (six down on this list), arguing that Obama’s cultural policy was a hallmark of horrible Socialist experiments like Communism and Fascism (they called it “National Socialism” for a reason, folks). The issue of government involvement with the arts has been a sore spot for me for some time, as shown in my “Unintended Consequences of Regulations in Art” series going back to 2007 on this blog.

Recently, finally, an article by Patrick Courrielche about the National Endowment for the Arts’ (NEA) involvement in supporting President Obama on a very, very partisan basis turned some heads. The NEA, for those who do not know, is a government agency whose mission is to support excellence in the arts, bring art to all Americans, and provide leadership in arts education. They primarily accomplish this by giving grants to artists and launching campaigns for literarcy and art on a budget of over $140m. As a portion of federal spending, this budget is trivial, especially in light of President Obama’s $787b stimulus, which costs more than both the entire wars of Afghanistan and Iraq have (sans assessment of the terrible, unquantifiable infinities lost in human terms), or the proposed healthcare reforms conservatively estimated at costing $1.2t but surely costing much, much more than that. Yet, this $140m+ represents the largest single sum of money spent on directly funding arts creation in the country each year.

I have argued that this is a very bad policy for the United States government for many reasons:

  • It is a transfer of money from tax-payers, usually rich persons, to artists. This creates a constituency amongst artists for politicians who support the NEA. In other words, politicians get to use the NEA to buy votes.
  • The NEA does not promote the general welfare. Although these grants support a few artists, this money would be more efficiently used by citizens with it in their pockets to create and generate sustainable growth in wealth.
  • Most importantly: the government decides what is good art and what is bad art. Although undertaken on a radically larger scale by Nazi Germany and the USSR, it is certainly the hallmark of a government that seeks to impose values that support those governments in citizens. In the US context, it suggests GOP administrators will try to restrain the artist constituency from directly political arts, while Democratic administrators will be more amenable to unleashing it. You may love President Obama and want to support him, but what happens when the corporation with a monopoly on violence (government) starts using the NEA for conservative purposes?

Many conservative commentators join my call to abolish the NEA, and some of them share my reasoning. However, some want it abolished simply because it funds art that is repulsive to them in taste or is “morally degenerate” or just plain disagrees with their political sensibilities. I do not wish to make the case of my allies — only my own. Judging by Courrielche’s article, I’m quickly being vindicated by the anxious, hapless liberal merrymakers of the NEA:

Backed by the full weight of President Barack Obama’s call to service and the institutional weight of the NEA, the conference call was billed as an opportunity for those in the art community to inspire service in four key categories, and at the top of the list were “health care” and “energy and environment.” The service was to be attached to the President’s United We Serve campaign, a nationwide federal initiative to make service a way of life for all Americans. […]

We were encouraged to bring the same sense of enthusiasm to these “focus areas” as we had brought to Obama’s presidential campaign, and we were encouraged to create art and art initiatives that brought awareness to these issues. Throughout the conversation, we were reminded of our ability as artists and art professionals to “shape the lives” of those around us. The now famous Obama “Hope” poster, created by artist Shepard Fairey and promoted by many of those on the phone call, and will.i.am’s “Yes We Can” song and music video were presented as shining examples of our group’s clear role in the election. […]

Throughout the conversation my inner dialogue was firing away questions so fast that the NRA would’ve been envious. Is this truly the role of the NEA? Is building a message distribution network, for matters other than increasing access to the arts and arts education, the role of the National Endowment for the Arts? Is providing the art community issues to address, especially those that are currently being vehemently debated nationally, a legitimate role for the NEA? I found it highly unlikely that this was in their original charter, so I checked.

I’m sure you can guess: this is definitely not in its charter. Nor, of course, is there anything in the Constitution suggesting Congress’ ability to create an NEA. Some people believe this is a pedantic point, that the Constitution merely serves to say whatever we want it to say nowadays. If you submit to this argument, you surrender your one last bulwark against the reality of dictatorial, legislative, and/or judicial fiat. If we surrender everything else, we cannot lose the Constitution, which remains the most brilliant blueprint for a government that harnesses human nature in a way that propels improvements in the general welfare.

Perhaps more to the point, there isn’t a void of art in our lives. Without the government determining high-prestige art, the market (that is, millions of buyers and sellers like you and me) get to decide. Institutions such as the Bank of America and Deutsche Bank have realized there is demand for art they can profit from, creating outstanding shows for middle-ranking museums on moderate budgets that may someday rival the NEA’s.

More realistically, the NEA is here to stay. That is too bad. In a letter to the editor in today’s Wall Street Journal, I noticed this regarding the NEA Courrielche’s revelations:

While this kind of activity really cheapens (or exposes) the NEA, it surely is a deeply cynical exploitation by this administration of citizens’ talents, dreams of success, innate longing to do good, and their egos. Now, where else in history has art been thus co-opted to advance ideology and power?

You already know where. But consider, if you do not believe me, reading Czeslaw Milosz’s The Captive Mind, which chronicles the stunning descent of the intelligentsia into lackeys for violence by the state. The NEA can and will become an organ of such a state in the USA if we ever let it.