There was only one problem. What was now identified as the most valuable aspect of a commodity was also – technically, at least – capable of infinite replication at near zero cost: ‘once the cost of creating a new set of instructions has been incurred the instructions can be used over and over again at no additional cost. Developing new and better instructions is equivalent to incurring a fixed cost.’ Romer made no mention of the hacker movement, but this was starting to sound remarkably similar to Stewart Brand’s conclusion that ‘information wants to be free ’ some six years earlier.
This contradiction was particularly portentous for market capitalism. As Larry Summers and J. Bradford DeLong would write in August 2001, just a month after the file-sharing service Napster was taken down, ‘the most basic condition for economic eficiency … [is] that price equal marginal cost.’ They went on: ‘with information goods, the social and marginal cost of distribution is close to zero.’ This held true not only for films, music, books and academic papers but also for the design of an industrial robot or pharmaceutical drug. Indeed, as subsequent chapters will make clear, it holds true for ever broader swathes of the economy. Therein lies the paradox for capitalism, a system under which things are produced for exchange and profit.
If information goods are to be distributed at their marginal cost of production – zero – they cannot be created and produced by entrepreneurial firms that use revenues obtained from sales to consumers to cover their costs. If information goods are to be created and produced … (companies) must be able to anticipate selling their products at a profit to someone.
Remarkably, two of the most esteemed economists in the world were conceding a quite remarkable truth: the price mechanism had broken down for what should be the most valuable part of the commodity – its instructions. Economics, for so long obsessed with the issue of dealing with scarcity, began to see glimpses of something beyond it – the only problem being this broke down the system of incentives by which people are meant to create things under capitalism, namely profit.
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chaos under heaven