Subject: Re: economic efficiency of free software
From: "Stephen J. Turnbull" <>
Date: Sat, 07 Feb 2004 19:01:06 +0900

>>>>> "Jamie" == Jamie Lokier <> writes:

    Jamie> Stephen J. Turnbull wrote:

    >> What goes wrong _with the economic analysis_ in the open source
    >> model?

    Jamie> Don't make the mistake of assuming proprietary software
    Jamie> development's price model leads to an accurate assessment
    Jamie> of "social value" either.

You completely missed my point.

Of course I made no such assumption.[1]  As is well-known to pretty
much everybody who reads FSB---including me, proprietary software is
based on a monopoly granted by government, and a monopoly not only
transfers value from buyers to the seller, but also dissipates a
certain amount of social value as so-called "excess burden."

However, we can say that the price policy of proprietary software
_distribution_ (not "development") gives us numbers with well-
understood biases, biases that can be estimated---and that gives us a
handle on the value lost to monopoly.  (Try Googling for "Harberger
triangle".)  This is not true for free software AFAICT.  This is a
_big_ problem for policy evaluation of regulatory treatment of OSS
(including copyright and software patent policy).

    Jamie> Also, one of the problems with any proprietary product (not
    Jamie> just software) is that some "demanders" are refused access
    Jamie> to the product simply because the economic process requires
    Jamie> that refusal, not because there is any real cost to the
    Jamie> business in those demanders having the product.

You've apparently missed Thomas Jefferson's point, too.  Refusing
access to those who don't pay is not a _problem_ resulting in
undersupply, it is a _proposed compromise solution_ to undersupply.

It is not a compromise between the interests of authors and the
interests of users, either.  It's a compromise between the interest of
users in having access to _existing_ works and their interest in
having access to works that _don't exist yet_.[2]

Coming up with a solution that doesn't result in undersupply _of
something to somebody_ is an unsolved problem, even in theory.  (rms's
claims notwithstanding---he doesn't understand the technical theory,
and he hasn't had a chance to try it in practice yet.)  Even if you
assume that men are angels, it doesn't get you all the way there---
there are computational issues.  That was the main point of my post.

Another way to grasp the magnitude of the computational issue is to
recall that 50% of the non-material costs in the US economy go to
"knowledge workers" who are not directly related to physical
production of goods or consumer services, but rather to instructing
the rest of the economy about what goods to produce and where to
deliver them.

Ie, the US economy is a distributed computer whose running costs are
about $5 trillion/year.

    Jamie> I think it is a much bigger issue than free software:

Of course it is.

But rejecting _academic_ (neo)classical economic analysis is not going
to make anything work better in the _real world_, any more than
rejecting classical physics is going to allow you to produce a
perpetual motion machine.  I haven't seen any short cuts, and I've
been looking since 1976.

[1]  That kind of assumption is anathema to practicing economic
theorists, as it would result in our immediate and permanent

[2]  See Richard Stallman's essay "Misinterpreting Copyright---A
Series of Errors" in _Free Software, Free Society_.  (I suppose it's
available on the web somewhere, but I prefer to buy the book and pay
royalties to rms. ;-)  I believe rms is wrong when he argues that in
software there are other reasons why "enough" of the "right kinds" of
software will be produced without proprietary modes of distribution,
but his Constitutional scholarship is accurate.

Institute of Policy and Planning Sciences
University of Tsukuba                    Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
               Ask not how you can "do" free software business;
              ask what your business can "do for" free software.