Fritz Machlup and Edith Penrose, The Patent Controversy in the Nineteenth Century (1950)

Machlup and Penrose’s journal article reconstructs the European patent controversy, especially between 1850 and 1875, to challenge the claim that opposition to patents was a recent attack on private property. Its historical correction is also a conceptual one: defending competitive enterprise did not necessarily mean defending exclusive rights in inventions.

In actual fact, the controversy about the patent of invention is very old, and the chief opponents of the system have been among the chief proponents of free enterprise.

Its opening survey places patents within the wider European history of monopoly privileges, qualifying accounts centered exclusively on England’s Statute of Monopolies. By the mid-nineteenth century, proposals to strengthen patent protection had provoked organized abolitionist movements. British parliamentary investigations exposed serious defects; German economists condemned patents as impediments to competition; Switzerland repeatedly rejected patent legislation; and the Netherlands abolished its system in 1869.

Patent advocates mounted an extensive publicity campaign, but Machlup and Penrose locate the strongest explanation for the reversal in the weakening of free trade after the depression beginning in 1873. Protection against domestic imitation gained legitimacy alongside protection against foreign competition. Switzerland’s eventual adoption of patents also reflected external commercial pressure.

The analytical center separates four defenses commonly combined without attention to their different foundations: natural property rights, just reward, incentives to invention and investment, and incentives to disclose secrets.

The four types of argument are independent of one another. Any one of them may be upheld if the other three should be rejected.

The first two rest on ethical claims; the latter two depend on social consequences.

Against natural-property reasoning, critics distinguished possession of a material object from knowledge that many people can use simultaneously. Exclusivity in inventions requires state restraint of others, including independent inventors, rather than restoration of something taken from its owner. The authors also trace the political usefulness of calling patents property instead of privileges: the change of vocabulary made monopoly grants acceptable within a language of liberty and equality. Accounts of invention as a cumulative social process further weakened claims to exclusive individual authorship.

Rejecting natural property did not entail rejecting compensation. Yet a right to reward did not establish patents as the appropriate instrument. Critics proposed head-start profits, public prizes, or collectively financed bonuses; defenders answered that patents avoided administrative discretion and tied remuneration to usefulness. Opponents disputed this supposed proportionality, pointing to rewards captured by financiers and losses borne by inventors and the public.

The incentive argument likewise requires more than evidence that patents stimulate activity.

To say that patents are effective incentives to inventive activity is one thing; it is another to contend that they are necessary for inducing an adequate amount of such activity.

The relevant comparison concerns additional social benefits and costs, including displaced productive activity, administration and litigation, concentrated market power, and blocked improvements. Simultaneous invention makes exclusivity especially consequential: a patent can prohibit others from exploiting discoveries they would independently have made. The authors also distinguish incentives for inventors from incentives for capitalists financing development and commercialization, noting that the latter rationale received less emphasis during the period.

Disclosure supplies a separate defense: temporary protection supposedly purchases knowledge that would otherwise remain secret. Critics questioned whether industrial secrets could last, whether independently rediscovered knowledge needed purchasing, and whether inventors patented only what they could not conceal anyway. Patents might even delay communication until an invention became protectable, whereas recognition and cooperation could encourage earlier publication.

The academic controversy about the patent of invention did not end in any “decision.”

Political victory therefore did not establish economic validity. After the 1870s, economists largely abandoned the subject, inherited Mill’s favorable position, and left legislative expertise to lawyers and engineers. The article’s enduring relevance lies in recovering these unresolved distinctions: neither property language nor successful political mobilization substitutes for demonstrating that exclusive rights advance public welfare.