Free to be Commie:
“Freeconomics” as Market Communism

Economics & Law — By on February 28, 2008 at 1:58 am

Has technological innovation ushered in a new era of communism?
Communism is the economic theory that describes production of goods under public ownership, their free exchange, and their free consumption by all members of the society according to their needs. That idea, as Ilya Vedrashko observes, is also as the core of Chris Anderson’s latest Wired cover story, Free! Why $0.00 Is the Future of Business.
Vedrashko notes that there are “at least two answers to the question whether and how communism is compatible with capitalism” and concludes that “Anderson’s are the ideas of Howard Sherman, a radical American economist.” In his 1969 paper The Economics of Pure Communism, Sherman wrote:

Marx divides the post-capitalist era into two stages. The first stage is ‘socialism,’ in which there is public ownership of the means of production and payment of wages according to the amount produced by the worker. The second state is ‘communism,’ in which there is still public ownership, but worker receive goods according to ‘need.’ Now there are as many interpretations of the word ‘need’ as there are of ‘communism.’…
Under pure communism, free goods would be produced under public control and ownership, and consumed by everyone according to his desires.

Compare this to Anderson’s term “freeconomics.”

The rise of “freeconomics” is being driven by the underlying technologies that power the Web. Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.

Historically, we have thought of communism as public ownership of all enterprises by the government or the nation-state. But what if instead, as in Anderson’s article, the goods and services were owned by private enterprises and distributed by a system that nearly eliminates the cost of distribution (i.e., the internet)?
There are indeed significant similarities between “pure communism” and “freeconomics.” Because of this resemblance we can look at Sherman’s three main problems with pure communism and see how they apply to the freeconomic model:


1. At zero price for all goods, demand would be infinite, since man’s desires are infinite. Therefore, no supply could ever be enough to meet the demand.
2. At zero wages and with no penalty for indolence, labour, it is alleged, would lack sufficient incentive to work, since man is by nature lazy.
3. Without rational prices there can be no optimal planning. Hence, communism would be very inefficient.
While seemingly decisive against pure communism, the freeconomic model appears to avoid all these problems.
For instance, the first objection fails to account for human psychology. As Sherman points out in his paper, “After a product is free for some years, it is more likely to be taken for granted.” Today, it doesn’t even take “years” for the effect to occur. By the time most people reach the point where they can “waste” a product or service (i.e., free storage on the web) they have no interest in doing so. Yet even if they do the marginal cost is so low that it doesn’t hurt the provider of the goods.
The second is more forceful objection and I think it ultimately is decisive. But for now let’s assume that the conventional wisdom on the subject is accurate: that people are willing to work solely for non-monetary or intangible benefits. Indeed, it does appear that a large sector of goods and services–particularly the fruits of intellectual or creative labor–seems to be immune from this indolence factor. Very few bloggers, for example, get paid to produce content. Yet millions of people contribute billions of words every single day.
As for the third objection, it becomes moot when the planning is shifted from the state to the market. Inefficiencies still occur, of course, but the market can correct for them quite rapidly.
So is freeconomics a form of pure communism? Not exactly. It more closely resembles what Sherman refers to as a form of “partial communism”, which he defines as an “economic system where 80-90% of all goods are free.” He contends that “this system is workable and that it would achieve all the political and social advantage usually alleged in favor of full communism.”

Is not ‘market communism’ a contradiction in terms? Certainly, full communism implies no wages and no prices, no competitive markets for any type of commodity or for labour. Even 80% communism implies that there is a zero price and no market for 80% of all consumer goods. It must be emphasized, however, that ‘decentralized communism’–with the continued use of a market for luxury goods and producer goods–is not contradiction.

The difference between Sherman’s model and Anderson’s is that the ratios are reversed. Rather than 80% of goods having a zero price and luxury and producer having a non-zero price, freeconomics assumes that 80% of all goods will be priced by the market and that non-essentials will become free.
Are the forces of History and economic determinism marching toward freeconomics? Anderson seems to think so. He concludes his article by saying “[...] a generation raised on the free Web is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want — and free, increasingly, is what you’re going to get.”
To this Vedrashko responds, “A quote from the original Manifesto would not be out of place here: ‘The feudal relations of property became no longer compatible with the already developed productive forces; they became so many fetters. They had to be burst asunder; they were burst asunder.’”



  • http://www.psonnets.org/ Michael

    I can understand the economics of free for certain goods and services, but the prices of what I need to live at a subsistence level – food, housing, and gasoline – continue to go up. This necessitates what Chris Anderson glows about in his new article. Things better become freer, because I cannot afford it otherwise.

  • http://evangelicalperspective.blogspot.com Collin Brendemuehl

    The “open source” movement, certainly a part of Freeconomics (better stated as “Freakonomics”?) is still alive and well in the Linux world and is all about non-ownership and non-profitability. Unless one is as creative as Red Hat, et. al.
    Ironically enough, Marxism would not have been if it were not for Capitalism.
    Collin

  • http://www.evaneco.com Don Bosch (evaneco.com)

    “Just as Moore’s law dictates that a unit of processing power halves in price every 18 months, the price of bandwidth and storage is dropping even faster. Which is to say, the trend lines that determine the cost of doing business online all point the same way: to zero.” Nope. If the trendline is halved it will never get to zero, but will become asymptotic somewhere above that. Cheaper maybe, but never “zero.”
    Further, there is the “next best thing” rule – folks paying a ridiculous premium for things like Escalades or iPhones. This tends to keep the average cost of consumer items in the bell curve between extravagent at one end and free at the other.
    The thousands of products coming and going every day in hundreds of different industries also buffer each other out. That’s the rationale behind winning mutual funds (makes me wonder if Anderson owns stock).
    Finally, the buyers and sellers running rampant on the eMarketplace aren’t Star Trek characters. They suffer from less than philanthropic qualities like greed and envy and a desire for stuff. And there is no such thing as replicators to make products out of thin air.
    Folks that think freeconomics is possible don’t understand either free markets or human nature. Of course, Joe, that’s true of socialists and communists in general…

  • http://www.cabarruscheapseats.com Justin Thibault

    I can understand the economics of free for certain goods and services, but the prices of what I need to live at a subsistence level – food, housing, and gasoline – continue to go up

    Really?
    I’m supporting two children, a stay-at-home wife, we have two paid-for cars, and live in a house greater than 1,500 sq. ft.
    I’m 30. This didn’t happen for my parents until they were in the 40s. Dad and I have similar higher education credentials (and he had specific military experience that I didn’t)
    The only way that I can explain it: I have more economic opportunities than he did 30 years ago.

  • http://TheEverwiseBoonton.blogspot.com Boonton

    1. At zero price for all goods, demand would be infinite, since man’s desires are infinite. Therefore, no supply could ever be enough to meet the demand.
    Probably not. Do you have an infinite number of free email accounts from Yahoo, Hotmail and other providers? No? You can certainly get them for free. Do you keep signing up for newsletters? The Internet has as many mailing lists you can opt in on as you can stand.
    Increasing consumption produces diminishing marginal returns. Eventually they become negative. This is how free bars at wedding receptions and all you can eat buffets stay in business..
    We do, however, probably consume more than we should when there is no cost. If we ever discovered a perpetual ice cream fountain perhaps we should have a tax or ration on it before we lungh into a frenzy that causes damaging brain freeze.
    2. At zero wages and with no penalty for indolence, labour, it is alleged, would lack sufficient incentive to work, since man is by nature lazy.
    But what’s the problem if everything is free? If things require work then things are not really free which means you have to provide an incentive for people to work. Since things aren’t free the incentive is the ability to get things.
    3. Without rational prices there can be no optimal planning. Hence, communism would be very inefficient.
    If things were free it would be rational to consume up to the point you want to consume. What more planning would be required?
    Historically, we have thought of communism as public ownership of all enterprises by the government or the nation-state. But what if instead, as in Anderson’s article, the goods and services were owned by private enterprises and distributed by a system that nearly eliminates the cost of distribution (i.e., the internet)?
    We are confusing capital and the outputs of capital here. Communism, socialism and Marx talked about capital…not goods and services. Capital is, say, a tractor that is used on a field of land to produce food. It is not the food in itself. Or it is the coffee brewing machines at Starbucks. It isn’t the cups of coffee that makes up capital.
    Capital is a good that is used to make other goods or services. In other words it is a means to an end rather than the end in itself. A ‘free internet’ then would be free capital but that doesn’t make the goods or services free.

  • http://www.graceforlife.com Terry Rayburn

    I think the discussion of quasi-communism is missing the point of Anderson’s piece.
    It’s all about marketing. I don’t mean that in a derogatory way, as I am a marketer myself.
    The “free” aspect is an effective way to capture the attention (because everybody loves “free”) and the loyalty (because of the psychological principle of “reciprocity”) of consumers.
    Because people like “free” stuff, and because they have an inherant desire to “bless” those who “bless” them, the savvy marketer is catching on to this reality of how people are.
    For example, if I give you a “free report” (downloadable PDF file) on “How To Improve Your Golf Swing”, in return for your first name and email address, I can give you more “free” golf information each week and develop a relationship with you.
    I can also, without offending you, put a link to a golf DVD which costs you $27, and you can take it or leave it. But someone will take it.
    Everybody wins, and everybody is happy, humanly speaking. If you don’t want the DVD, that’s O.K. Maybe next email.
    No Communism. Bright-lightbulb-over-the-head Capitalism.

  • Loki

    Yeah this just seems to be more efficient capitalism. People are still paying for things, they’re just not paying for everything. It makes sense that as the cost of things (particularly internet things) goes down, marketers would start using more and more free stuff to get people in the door.

  • http://markbyron.typepad.com/main/ Mark Byron

    I think what we’re looking at here is more communal-ism then communism. In communism, the issue was how to divide up profits between capital and labor, with Marx arguing for all going to labor and nationalizing capital.
    In your freeconomics universe, the financial capital needed to move software around is small; people will donate their human capital to the cause. That’s different from the industrial framework that Marxism takes place in.
    There isn’t a tragedy of the e-commons yet, since their isn’t a finite amount of cyberspace.
    This is worth a full post in response later this weekend once I get my day-job of college Finance and Economic professor prep work done.

  • http://alangrey.blogspot.com Alan Grey

    This is fatally flawed due to a different reason. The zero cost thing is a fallacy, as technology is only ever going to be part of the cost and competition will force innovation or extinction (myspace vs facebook as it is happening now).
    The zero price model is not about having no revenue, but getting revenue through other methods (e.g. Red Hat Support or enterprise editions), advertising and information gathering on facebook, google adwords etc. These alternate methods rely on someone somewhere being able to make money off consumers and passing a share of those profits onto the ‘zero price’ provider. Thus the true cost to the consumer of the ‘zero price’ application is hidden from the consumer, but still exists.
    Zero price may seem attractive, but it is more of a sleight of hand, than a revolution.
    Technology reduces costs, that is unarguable, but it cannot reduce many, if not most costs.

  • http://www.evaneco.com Don Bosch (evaneco.com)

    Alan,
    Just curious vis a vis MySpace vs Facebook. Which one is in extinction?

  • BONNIE

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    BONNIE BUCKLAW-ORTIZ
    GOD’S KINGDOM COME. GOD’S WILL BE DONE. ON EARTH,AS IT IS IN
    HEAVEN———————————