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Free to be Commie:
“Freeconomics” as Market Communism

Posted By Joe Carter On February 28, 2008 @ 1:58 am In Economics & Law | 11 Comments

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 [1] observes, is also as the core of Chris Anderson’s latest Wired cover story, Free! Why $0.00 Is the Future of Business [2].
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 [3], 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.'”

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URLs in this post:

[1] Ilya Vedrashko: http://adverlab.blogspot.com/2008/02/communist-manifesto-of-chris-anderson.html

[2] Free! Why $0.00 Is the Future of Business: http://www.wired.com/techbiz/it/magazine/16-03/ff_free?currentPage=3

[3] The Economics of Pure Communism: http://www.scribd.com/doc/2172593/The-Economics-of-Pure-Communism-1969-Howard-J-Sherman

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