Patents and Drug Prices

Dear B:

Thanks for your kind words.

In my response to E (, to which you refer, I offered a large bibliography on this matter. My summary is as follows: yes, in the very short run, a state offer of monopoly patents will probably (it is an empirical, not a praxeological issue) drive prices down below the level that would otherwise obtain. But, in the long run, the opposite will probably (it too is an empirical, not a praxeological issue) occur. Why? Because after the patent system starts to operate, there will be a lot of suing over turf. Instead of inventing new drugs, scientists will spend lots of time in court. People will take out patents for the sole purpose of being able to launch litigation. The bibliography I offered to E makes this case very strongly.

From: B
Sent: Wednesday, February 28, 2018 12:15 PM
Subject: Cart Before the Horse
Good afternoon, Dr. Block. Needless to say I’m a very big fan of yours. I love your articles, speeches and debates! I often wonder if for you and other Austro-libertarian greats it becomes boring to constantly receive “I’m a big fan” intros?
I’m not an economist or even an econ major, though I’m an avid reader and follower of the Austrian school. My substantive question comes to you in response to a correspondence between you and “E” that you recently posted on He had a question for you related to patent law and how to deal with people who argue that without patents drug input costs (particularly R&D) might be too expensive to justify production. Without a legally enforceable monopoly to help ensure profitability, we might never benefit from life-saving drugs. Because I’m against state-sanctioned, legally enforced monopolies and therefore oppose the current patent law regime (incidentally I’m a licensed attorney!), I feel a logically consistent response to this critique of patent law opposition is necessary. Can you tell me if the line of thinking below makes sense, if you agree with it, and/or if you are aware of its previously being made in the literature or otherwise?
First of all, eliminating patent law particularly in drug manufacturing is an approach in line with free and voluntary exchanges and market pricing. If manufacturers are allowed to compete, prices for products will tend to fall, ceteris paribus. This free market solution is putting the cart before the horse. If people are concerned that such a solution would lead to an under-production of drugs, they should examine the capital market/investment input side of the equation as well. Meaning, the solution eliminates the output monopoly without addressing the input oligopoly: FDA, DHS, CDC, NIH and their private sector cronies who all create major distortions in the drug manufacturing capital markets, including in R&D.
These agencies misallocate scarce resources via coercive means like taxes/government subsidies, non-market oriented government contracts, and a vast regulatory regime. The coercion distorts prices by eliminating or greatly reducing voluntary exchanges in the drug capital markets, which would otherwise likely include competitive clinical trial suppliers, privatized quality control analysts, privately operating scientists/researchers, etc. Should the drug capital markets ever be exposed to market competition, entrepreneurial activities and competition could greatly reduce the input costs associated with consumer drugs, ceteris paribus. And if someone responds to this line of thinking: “well, what if the drugs still aren’t profitable?”; then at least we’d have a good proxy for determining the market value of such drugs, which would mean any drug that did make the cut, consumers would more clearly value. And for those that don’t make the cut, resources would be freed up and the market would achieve more rational allocations to health-inducing substitutes like natural supplements, homeopathy solutions, etc.
I’d love to get your take on my argument. Thanks kindly in advance. Regards, B


10:32 pm on March 1, 2018