On the Value of Software

At our conference, a disagreement arose about the value of digital commodities. While I argued that the original prototype of a piece of software may have a very high value, because a lot of labor time went into its creation, but that subsequent copies of that software were close to valueless, since their production required very little labor time, other comrades said that not just the prototype, but all the copies that are made of it afterwards, contain part of the value that went into the creation of the prototype.

I want to explain my position and its implications. Let's take a new software that has unique capacities for which there is much demand. It has been created after years of research and thus its individual value is extremely high. Since it's unique, its market-value is identical to its individual value. But its market-price, of course cannot be that high. The owner of that software cannot realize its entire value. The incentive for its creation is not that one sale, but the sale of copies at a price way above the value that goes into their production. But that is only possible if the seller has a monopoly-position on that market. As soon as he loses it, the price of the product falls, not because the social value (the average amount of c+v+s needed to create it) falls, but because the market, the law of value, pulls the price down towards the value. As long as the owner of that software is able to maintain a monopoly, he can make large surplus profits. That doesn't mean he can ask any price, but its price is not compared with commodities of the same kind, only with commodities in general. That comparison determines to what degree the customers are willing and able to pay more than the value of that product. The value that becomes surplus profit originates from the customers, not from the product. The surplus profit he obtains from selling the copies, may be more or less than the c+v he invested in the prototype, but that depends on the demand for the product, not on the amount he invested.

The question is not really different for software or heavy machinery. For the latter too, a lot of research&development may have gone into the creation of the prototype. At first, the capacity to make that machine is posessed by only one capitalist who uses his monopoly to obtain surplus profits. "During this transitional period", Marx writes (Capital volume.1, p.530), "while the use of the machinery remains a sort of monopoly, profits are exceptional (but) as the machinery comes into use in a particular branch of production, the social value of the machine's product sinks down to its individual value." Or otherwise said, when the know-how spreads to his competitors, the price is pulled down to the social (or market) value and the monopolistic surplus profit evaporates. The individual value of any commodity is equal to the social labor time (the c+v+s) that created it, but its market value is equal to the social labor time needed to replace it. During early industrialization, England possessed a huge technological advantage which enabled it to sell its textile at prices way above its value on the European continent and elsewhere. To protect this advantage, the export of machinery was prohibited. A Flemish industrialist (coincidentally an ancestor of mine, or so I was told) went to England, was able to get the "spinning Jenny' and other then modern machines, dismantled them and smuggled the parts out of the country in a coffee cargo (he was sentenced to death in absentia in Manchester and was given a statue in Ghent). Pretty soon, textile prices fell dramatically on the continent, because competition forced prices down to the average social labor needed to produce it .

The faster (and freeer) capital can move, the faster this happens. The history of capitalism is also a tale of the continuous advance of the law of value breaking down all hindrances, destroying natural and artificial monopolies, and, at crucial moments, of capitalism's own resistance to this. This struggle is part of the background of all the great dramas of decadence.

While the tendency of valueless production is inherent to real domination, only now have we arrived at a point on which it is fully realized in some commodities and ironically, often those commodities rank among the most profitable, so that on the surface, it seems like they are the most valuable. It's important to understand the mechanism. The law of value cuts two ways for capitalism. It's its very essence, its modus operandi, its motor, its goal, its soul, yet the law's profit-destroying corse towards valueless production threatens it at its core.

RV is right when he implies that producers and consumers of freeware respond to the inherent tendency of the productive forces towards abundance and valueless production, neither of which capitalism can live with.

As in previous periods in which this tendency became a threat to capital, it counter-attacks by going against the law of value. In the sphere of immediate production:

Yet this very hunt after monopolies, this constant push towards the creation of new commodities, stimulates the information-technology, which, by its nature, pushes capitalism’s tendency to valueless production the most. And so the tension worsens. And there’s an additional problem for capitalism. The faster the pace of technological development, the faster the pace becomes at which monopolies are broken and the more difficult it becomes to realize the value of the prototype through monopolistic control over the sale of the copies. This represents an increasing waste of value, a factor emphasized by Loren Goldner, who sees it as decisive in the crisis of capitalism today. I agree with him that ‘moral devalorization’, or 'technodepreciation' as Loren calls it, weights increasingly heavily on capitalism's rate of profit.

Let us now consider the other hypothesis, according to which the value that went into the creation of the prototype is contained in all the copies that are made of it (which is very clean, all the value is by definition accounted for, nothing is wasted, but unfortunately for capitalism, reality is not so clean). In this hypothesis, value theory is an abstract accounting method, which is realized, not by the market, but by thwarting the market through monopolistic protection from market forces.

To illustrate how the social value falls as a result of the decline of reproduction costs, Marx quotes a contemporary, who writes: "It has been estimated, roughly, that the first individual of a newly invented machine will cost about five times as much as the construction of the second" (op.cit., p.528). But now we talk about commodities for which the reproduction cost is not one fifth of "the first individual" but one zillionth! To the question how much value a copy contains, if there is no limit to the number of copies that can be made at a negligable additional cost, adherents of this hypothesis can answer that there is a limit, imposed by its use value, which runs out when the commodity is made obsolete by newer stuff. If in this limited period, there is a demand for a million copies, then each copy would contain one millionth of the value that created the prototype. For Marx however, the value of a commodity is not determined by the demand, but by the labor actually objectified in it. That determines its individual value but when the commodity becomes obsolete, when a machine is rendered useless because of technological progress, or when its reproduction cost falls, "however young and full of life the machine may be, its (social) value is no longer determined by the necessary labor-time objectified in it, but by the labor-time necessary to reproduce either it or the better machine. It has therefore been devalued, to a greater or lesser extent." (idem). So in Marx's view, the value of the copy is determined by the labor-time necessary to reproduce it, not by the value that went into the creation of 'the first machine.' We're talking here about the social, or market value. It is not established immediately or automatically nor is it ever stable. It is a human construction, the result of countless transactions. The laws it follows result from the fact that underneath all variances of commerce, the market is always comparing how much labor a commodity requires, and always mobilizing labor towards where more can be obtained for less.

It may seem academic to split hairs over whether a commodity becomes valueless because demand for it has run out or because its reproduction costs have fallen to almost zero. But it’s important to understand the process behind capitalism’s current drive for monopolism. In my view, it expresses a conflict between capitalism and the law of value, which the former is doomed to lose, at least in the longer term. In the other hypothesis, the law of value is realized by the use of state power to rein in market forces. Only the strength of the monopolistic position of the seller (backed by the state) determines how much value he gets for his commodity, not how much he has spent on R and D for the prototype. He eventually may recoup less than those costs (moral devalorization) or much more, but that depends not on the value of the commodity but on how long the market can be prevented from pulling price to value, how long the monopoly can be maintained.

That is why the defense of capitalist order enforcing the privatization of knowledge is such an important battlefield for capital. I mean that literally. Contrary to the techno-doomthinkers, I think we must affirm that the tension between abundant, valueless production and private property is within the production forces themselves


November 27, 2005

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