Drugs are almost invariably cheap to manufacture and distribute. It would be rare that a drug would sell for more than $30 per prescription without a patent or some other form of protection from the government, and many would sell for just a few dollars, as is the case with older generic drugs.

Yet, there are many drugs that sell for hundreds or even thousands of dollars per prescription. The reason is the government grants the manufacturer a patent monopoly on the drug. This means that the drug faces no competition. The government will fine or even imprison the executives of a company that sought to produce and distribute a drug on which another company holds a patent.

The reason for the patent monopoly is to give drug companies an incentive to innovate and develop new drugs. By selling drugs for ten or even a hundred times their production cost, they can make large profits for the period the patent is in effect. But there are other ways to provide incentives to innovate, which I’ll get back to below, but first it is important to realize how truly awful patent monopolies for drugs are.

The basic point should be evident. Drugs that are necessary for people’s health or even life can be incredibly expensive because of these monopolies. It is not uncommon to hear of someone paying tens or even hundreds of thousands of dollars a year for a cancer drug. If the person doesn’t have good insurance, it is an enormous struggle for all but the richest families to come up with this sort of money. It’s sad and pathetic that we see many people having to resort to GoFundMe drives to pay for the drugs needed to save their life.

Even where people have insurance, it is often a major struggle to get a company to agree to pay for expensive drugs. While most of us have a healthy dislike of insurance companies, the problem here is actually not the insurance company.

If a drug company wants $200,000 for their latest cancer drug, it is reasonable to ask whether the........

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